By Jake A. Castillo CFP®, AIF®, Associate Wealth Advisor

5 Key Steps to Help Set Yourself Up for Financial Success

Working to setting up yourself for financial success starts with one thing, and that’s you. Taking control of your financial choices and decisions is a critical component in helping set yourself up for financial success. Taking the time to audit and reflect on your current finances – understanding where you are today – is the first step in working to achieve your financial goals.

In today’s world there are so many headlines, information, and “hacks” that tell you what “should be” doing to create financial security. Instead of focusing on what’s trending, we’re going to focus on prudent practices.

Here are some simple personal financial tips that you can implement at your own pace.

1. Take Inventory of Your Current Finances

To work toward your financial goals, you must take account of where you stand today. Taking inventory typically dives into understanding your income sources and liabilities (including debt), and determining your free cash flow.

• List your income: Start by listing your reliable income sources, such as your primary job, reliable side hustles, and miscellaneous income that you may receive during the year. A good practice includes building a spreadsheet, reviewing bank statements, and even reviewing your pay stubs. It may also be helpful to understand your gross income (before tax) and your net income (after tax). You can track these income sources for a time period that’s appropriate for you, say 3-6 months. Then you can take an average and use that as a baseline of your incoming cash flow.
• Document your debt: Understanding your liabilities is another critical component. Liabilities include credit card debt, student loans, auto loans, mortgages, and other lines of credit. These are obligations that you must pay back, which in turn affect your cash flow. You can track these debt obligations by using a simple spreadsheet; online tools can help with this as well. Understanding your liabilities will help you determine your free cash flow.
• Tally your free cash flow: What’s your free cash flow? This is essentially the money you have left over after your debt obligations and basic living expenses have been fulfilled. This money can be used to fund whatever goals you want to achieve. Your goals could be saving for a down payment on a home, vacations, buying gifts, or saving more per month. Although these tips are simple in practice, it takes time to sit down and figure out how to direct your money.

The hardest thing to do is just getting started – so start by focusing on one item at a time.

2. Start Saving

Taking initiative on how you direct your free cash flow will enable your money to have more impact. This means taking active steps. For example, let’s say you have an extra $500 a month as your free cash flow – why not utilize this extra cash for a specific purpose? Let’s say one of your goals is to save for an upcoming vacation. If you direct a portion of the $500 to a specific savings account, this can enable you to separate that goal and commit to something meaningful.

Ultimately, what you’re accomplishing is making deliberate decisions and directing your money where you want it to go. If you don’t direct the money it will likely just end up sitting in your checking account and getting spent.

3. Invest in Your Long-Term Financial Goals

When saving for the future, investing is a critical component that can help with long-term financial security. You direct a portion of your free cash flow to specific financial securities such as stocks, bonds, Exchange Traded Funds (ETFs), or mutual funds. There are many free resources that dive into the basics of investing. The whole premise is to invest your cash flow today and earn a return on your investments over time. This can allow your initial investment to appreciate over time.

There are many different types of investment accounts; the most common is a brokerage account. You can establish one at any of the major financial institutions like Fidelity, Charles Schwab and Vanguard – there are many others. A brokerage account allows you to buy and sell financial securities. You can link your bank account to your brokerage account and deposit money to buy investments.

4. Invest in Your Retirement

Retirement accounts are crucial to saving and investing for your future, and include 401ks and IRAs (Individual Retirement Accounts). 401ks are offered by employers to their employees. Once enrolled in a 401k plan through your employer, you can contribute a portion of your paycheck each pay period on either a pre-tax basis or after-tax basis. The money typically grows tax deferred, meaning you won’t pay any tax on earnings (interest, dividends, capital appreciation) inside the account, but once it’s time to take money out in retirement, you will then be taxed at ordinary income rates. Investopedia offers greater detail into the nuances of 401k plans and how they work.

IRAs are retirement accounts that you can set up on your own with a brokerage firm. You can deposit money into the account on a pre-tax basis (Traditional IRA) or after tax (Roth IRA). The amount of the contributions into these accounts is limited to certain annual contribution limits and restrictions based on your taxable income. To contribute to these accounts, you must have earned income, which can be wages, tips, salaries, etc. Once money is deposited in the account you then can use the cash to buy financial securities. Your investments in an IRA also grow tax deferred.

5. Sign up for HH’s Webinar on Fundamental Financial Lessons

Setting yourself up to work toward achieving your financial goals may sound like a daunting task; often, the hardest thing is to get started. But by taking small actionable steps you can help get yourself on the right path.

Working to achieve your financial goals starts with you, but we’d love to help you further your financial education. HH is offering a webinar on February 27 specifically targeted to individuals who are starting out with saving and investing – or seeking to increase their financial knowledge. We’ll cover financial tools and strategies that can help you make more informed decisions. To learn more and to register, please visit [this link] or contact us directly at HHTeam@hhga.com.

Disclosure:

Halbert Hargrove Global Advisors, LLC (“HH”) is an SEC registered investment adviser located in Long Beach, California. Registration does not imply a certain level of skill or training. Additional information about HH, including our registration status, fees, and services can be found at www.halberthargrove.com. This blog is provided for informational purposes only and should not be construed as personalized investment advice. It should not be construed as a solicitation to offer personal securities transactions or provide personalized investment advice. The information provided does not constitute any legal, tax or accounting advice. We recommend that you seek the advice of a qualified attorney and accountant.

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