Select Page

Those most successful at putting money away—whether through savings, investments, or retirement structures—most likely have at least one thing in common: They give regular attention to the picture of their finances and how they are managing them.  Much like your physical health, your financial health is dependent upon taking a proactive, rather than a reactive, approach to its maintenance. For most investors this makes sense in theory, but when it comes to the actual implementation there is a lot of noise, all of which can be misleading if taken out of context, especially if the advice doesn’t necessarily pertain to your personal financial picture.

As we always remind our own investors, all good financial advisors will make sure to learn about your individual situation before providing any advice, so take this information with care. However, the four things we list below are crucial pieces of the financial puzzle, which apply to nearly anyone trying to grow wealth, in any amount.

Pay attention to your consumer-debt ratio: While pretty much a given, even the New York Times will tell you that you always want to be earning more than you are spending—probably because it bears reminding in this consumer-drive society.  Your consumer debt ratio is determined by dividing your assets by your liabilities. Now, ideally, this number will be positive, indicating that you own more than you owe. More often than you’d think, however, the reverse is true. According to a study by popular Nerd Wallet, the average household is continually growing and currently at about $130,922. With social security disappearing, this is particularly concerning for the younger generations. More on that below.

Create an Emergency Fund: Like a savings account, this money sits aside in the event that you need access to an unusually large amount of liquidity, in a short period of time. The standard emergency fund amount recommended is the equivalent of three months salary, however, if you are a dual income home, make that the equivalent to 6 months of salary. Emergency funds ensure a certain amount of flexibility should something unexpected—a sudden accident or illness, or the need to take time off from work—befall you or your family.

Max out your retirement accounts: This is important at any age, and especially as you get closer to retirement, but its equally if not more important when you are young. In addition to the fact that social security is only guaranteed until 2035, this allows the younger generation to put money away when they don’t need to use it to care for dependents. It also encourages a habit early on, that will ideally compound over a lifetime. It’s also helpful to actively picture what your retirement looks like, so that you have some idea of the type of lifestyle you are saving toward, and what it will cost to support that. For more tips on saving for retirement read “Making the Most of Life After Work.”

Be respectful of inflation: This is true with regard to the national inflation we experience collectively, but should also be taken into account with the natural inflation that occurs in each of our lives as we age. Many people fail to track their earning and spending trajectories based on their future circumstances and situations, which can wreak unexpected havoc when significant shifts in spending are caused due to big life transitions, like moving or having a baby. Planning well in advance of the natural inflation of your life will also be helpful in protecting your financial health.

Credit Score: Of course, we can’t leave out the credit score. While bemoaned for its haunting qualities in many situations, your credit score can very easily be coaxed to work in your favor as long as you treat it right. And these days, it can dip or rise within a matter of days based on your recent financial activity. Some people simply ignore their credit score, allowing it to work entirely to their detriment by not paying attention, but those who are proactive about their rating can do infinitely more good. Just take a look at U.S. News and World Report’s strategies on quickly raising your credit score.

Studies show that those who are cognizant enough of their finances to be able to easily check in on and understand the above are far more likely to experience financial success because they are, in essence, conditioning themselves for it.

Visit Goldstone Financial for more information on how to ensure your financial health.