Building a Blueprint for Wealth
Successful corporations wouldn’t dream of operating without a financial budget. For a business, however, a budget is much more than a way to control spending. Chief Financial Officers (CFOs) use them as a financial tool for building, growing and maintaining profits.
You are your family’s CFO, in charge of maximizing cash flow and creating a substantial nest egg. As such, you should realize that your family budget is more than a cost-cutting measure to implement when money is tight. Instead, think of it is a blueprint for wealth.
In fact, establishing a budget to structure your financial plans is your first step toward meeting, or even exceeding, your goals. These three simple action steps will help you put your blueprint in place.
Step 1: Set Financial Priorities and Goals
Before you can make a plan, you need to know what you’re planning for, and how important each goal is to you. Some common financial goals include having enough money to …
- Buy a house
- Send your kids to college without student loans
- Enjoy a comfortable retirement
- Cover emergencies as they happen
- Maintain a savings cushion
- Pay off debt
- Splurge on luxuries when you want them
- Invest without risking all of your money
Once you’ve figured out your financial goals, rank them in order of importance. In some cases, time will be a factor. For example, your kids may go to college before you’re ready to retire. Others follow a more natural order: For example, pay off debt, and then put enough money into savings to cover emergencies before risking some money in the stock market.
Attach a dollar amount for goals such as retirement, emergency and splurge savings. When your objectives are measurable, you’ll be able to tell when you’ve met them, so you can move on to the next item on your priority list.
Now that you’ve set and prioritized your goals, it’s time to create your budget blueprint.
Step 2: Build and Follow a Basic Budget
Creating your plan from a place of financial strength, before money problems crop up, helps you avoid costly budget emergencies, and focus more on achieving financial goals. Rather than meticulously tracking every expense, you’ll want to develop a big picture budget.
All budgets start in the same place, with income. That’s how much money you actually have coming in every month, from all sources.
Next comes the money that has to flow out, your expenses. Make sure to include all of your fixed, variable and periodic expenses – even if you don’t itemize them.
Remember: Fixed expenses are the same every month, and include things like rent or mortgage payments, life insurance, and student loan payments. Variable expenses change from month to month, usually based on consumption: how much electricity you use or how many groceries you buy, for example. Periodic expenses only crop up occasionally, and include things such as gifts, doctor visits and charitable donations.
Here’s how the blueprint can help you build wealth: In this type of money plan, you’ll want to include your savings goals along with your other expenses. By tagging these goals as must-pay expenses, you’ll make sure that they’re fully funded every month.
In the “if there’s money left” category, include secondary priorities such as luxuries and investing. It’s human nature to want to splurge sometimes, so don’t ignore that urge, plan for it. As for investing, consider that it’s not the same thing as saving (though it might seem like it is).
When you invest, there’s a risk that at least a portion of your money could be lost. When you save, you’re socking money away without any risk. Thus, if there is money left after you’ve covered all of your other expenses – including your savings goals – that’s money available for you to invest.
Step 3: Ramp Up Your Savings
Not meeting your goals fast enough? Take advantage of these blueprint boosters to build your savings more quickly.
- Match your investment strategies to your financial goals. For example, if your goals require access to cash within a year or two, investing in real estate might not be the best fit. Just remember: While informed investing strategies can help you meet your goals faster, a chance always exists that they won’t pan out, and you’ll suffer losses.
- Buy life insurance sooner rather than later. You’ll never be younger than you are today, and life insurance premiums increase as you age. What’s more, permanent life insurance – also known as cash-value life insurance – combines a savings component with the standard death benefits. (Term life insurance, usually less expensive, offers only temporary death benefits.) There are also special types of policies such as Indexed Universal Life Insurance that offer the opportunity to participate in the stock market without the risk of principal losses, even during market downturns. These types of policies can have limits on how much can be gained. The point is that you can access available cash value (through prudent policy loans and withdrawals) to supplement your financial goals if events take an unexpected turn. And the sooner you buy a permanent policy, the more time that cash value has to build.
- Automate as much as possible. Use direct deposit to fund your checking and savings accounts; that’s a surefire way to never skip your savings goals. You can also automate payments for fixed expenses. That way you’re never late with a payment, and you never incur late fees or interest charges.
With this foolproof three-step plan, you’ll be able to manage your monthly finances with ease, and potentially amass plentiful savings to meet all your goals. That’s a reliable foundation of wealth for your family to enjoy.
Policy loans and withdrawals can reduce the cash value and death benefit. Policy loans are subject to interest charges.
Registered Representatives offer securities through Mutual of Omaha Investor Services, Inc., Member FINRA/SIPC. Investment Advisor Representatives offer advisory services through Mutual of Omaha Investor Services, Inc.