Set your personal savings and other financial goals – Step 2 of 10 Financial Planning Steps in the Right Direction
CLICK HERE TO READ THE SKILLED INVESTOR’s OTHER ARTICLES ABOUT THESE “10 FINANCIAL PLANNING STEPS IN THE RIGHT DIRECTION.”
The single most significant financial lever that individuals control directly is their management of personal expenditures. The second is their lifetime effort to obtain sufficient income. Most people simply do not save enough of their current income to fund their future needs.
Over their lifecycles, individuals must rely increasingly upon assets to replace earned income. Without the good fortune of receiving substantial inheritance and gifts or winning the lottery, a person can only invest if he or she saves. When saving to fund an investment program, people must live within both their current and future economic means.
A positive difference between current income and expenditures usually represents intentional expenditure control and allows for deferred consumption. Personal savings will tend to increase with conscious planning and better expenditure decision-making. Better expenditure control results from a conscious decision at the point of each purchase about whether it fulfills a true need or affordable desire versus being just a passing fancy.
Economists call the potential of each person to earn money, pay current expenses, and still set aside savings as their “human capital.” For most people, their personal human capital is all they have financially, until they convert some of it into more durable investment assets.
A person’s cumulative lifetime labor earnings or human capital is variable, uncertain, and perishable.
Income volatility has increased significantly at all income levels in recent decades and people must exercise increased discipline to restrain spending in a fluctuating income environment. The passage of time steadily diminishes total personal earning potential and human capital. Furthermore, illness and injury can randomly slash the value of one’s potential human capital, disrupting lives, and permanently altering the best-laid financial plans.
Therefore, the first thing an individual must get right is his financial savings program. To ensure that an individual’s personal savings rate is high enough to build up an adequate asset base, he must understand, track, and project his cash flows. He cannot know the adequacy of his savings and progress toward his investment goals without measuring his current progress and comparing it to projections of his future needs.
Concerning plans, any comprehensive cash flow projection must also include planned future cash requirements for living expenses and special requirements, such as a down payment on a house, college expenses, retirement, charitable giving, and estate bequests. Projected personal financial requirements provide the baseline expenditure plan over which an investor can overlay several likely income and investment return/volatility scenarios to test the adequacy of his current savings and investment plans for his lifetime.
These articles about financial planners and investment advisors may also be useful to you:
Selecting a Financial Advisor:
- Preparing to interview a financial planner or investment advisor
- Questions to ask, when hiring an advisor – Part 1, Background and training
- Questions to ask, when hiring an advisor – Part 2, Fees and contracts
- Questions to ask, when hiring an advisor – Part 3, Services and references
Payment of Financial Advisors:
- Does it matter how financial planners and investment advisors are paid?
- Financial planner and investment advisor compensation paid by third parties
- Financial planner and investment advisor compensation paid by clients
- Fee-only compensation aligns the interests of clients and their financial advisors
- Fee-only financial planner and investment advisory groups
- The securities industry calls marketing and selling “advising”
- Many investors are not fooled by an ethically challenged securities industry
Regulation of Financial Advisors:
- Avoiding financial planning and investment advisor frauds and scams – Overview
- Avoiding advisor frauds and scams – The “Never-do” list, Part 1
- Avoiding advisor frauds and scams – The “Never-do” list, Part 2
- Avoiding advisor frauds and scams – The “Never-do” list, Part 3
Personal Financial Planning
- Tax-Advantaged Retirement Investing Is Good for Most People (Tax-advantaged investing is very good for most people at most times
A previous article, “The Solution - ONLY follow financial strategies that are scientific, passive, diversified, savings focused, risk controlled, low cost, and tax efficient,” suggested that individuals are much better off with a well-considered financial viewpoint. A stable set of financial beliefs can help you [...])
- American Funds – Capital Income Builder Fund – Class A Shares (CAIBX) attain a +4 Fund Authority Score (Fund Authority Scores rate mutual funds and exchange traded funds (ETFs) on the most important economic factors that influence individual investors' net long term diversified investment fund performance. The Skilled Investor developed the Fund Authority Score system to provide individual investors with concise and objective summaries of mutual funds and ETFs for comparisons within investment [...])
- Part 2 of the Biggest Personal Finance Story of the Past 30 Years (< -- Go to Part 1
The Biggest Personal Finance Story of the Past 30 Years - Part 2
To understand what has happened to the market valuation of the financial services sector, particularly over the last 30 years, you should view Figure 4 on page 16 of the financial study by Jeremy Siegel and Jeremy Schwartz [...])
- Never Invest Solely Because of Superior Past Investment Fund Performance (
Never invest solely because of superior past mutual fund or ETF performance
Superior past fund performance does NOT predict superior future performance.
Summary: A previous article, “The Solution - ONLY follow financial strategies that are scientific, passive, diversified, savings focused, risk controlled, low cost, and tax efficient,” suggested that individuals are much better off with a [...])
- I Write to the President of CitiBank Customer Service (PIRATES OF THE CREDIT SEA -- Part 5: I write to the President of CitiBank Customer Service
My saga to recover my credit card treasure continues. Previous articles have covered the particulars of my situation, and I will not repeat them.
In summary, for fifteen years I have always done my best to conform to my AT&T [...])
- 10 Lower Cost S and P 500 Index Mutual Funds (10 Lower Cost S&P 500 Index Mutual Funds
Regular readers know that The Skilled Investor advocates a very boring, low cost, broad market, passive index investment strategy. Costs less. Gets the broad market return -- whatever that will be. Narrows the range of outcomes and therefore the risk to your long-term personal financial plan. Takes far [...])
- Searching for Superior Investment Fund Managers is a Waste of Your Time (
Searching for superior investment fund managers is a waste of your money and time
A previous article, “The Solution - ONLY follow financial strategies that are scientific, passive, diversified, savings focused, risk controlled, low cost, and tax efficient,” suggested that individuals are much better off with a well-considered financial viewpoint. A stable set of financial beliefs [...])
- Using Google Scholar to Find Financial Articles (
Using Google Scholar to Find Finance Articles
If you want to do some research about financial planning and investing by yourself, try using Google Scholar.
Be prepared for a lot of the material you find to be esoteric. Nevertheless, Google Scholar is littered with diamonds that can improve your understanding of personal finance and save you money.
- Fidelity Contrafund (FCNTX) gains a +5 Fund Authority Score (
The diversified investment fund strategy of the Fidelity Contrafund (FCNTX)
According to its prospectus filing on the U.S. Securities and Exchange Commission EDGAR system, the investment strategy of the Fidelity Contrafund is to invest primarily in common stocks and particularly in the "securities of companies whose value Fidelity Management & Research Company believes is not fully [...])
- Risk-Free Investment Money Is Fantasy Money (
For Individual Investors Risk-Free Investment Money Is Fantasy Money
Securities with low investment risk and high investment returns are just fantasies.
No "risk-free" investment money is consistently and reliably available to individuals. Luck dominates skill in the securities markets. Clever investment selection is vastly over-hyped, and only the promoters tend to benefit. On average over long periods, [...])
- Comparing the Quicken and VeriPlan Lifetime Financial Planners (Comparing the Quicken and VeriPlan Lifetime Financial Planners
The Quicken personal finances organizer application includes the Quicken Retirement Planner, which projects the personal finances of a person or family across a lifetime. VeriPlan is a comprehensive and fully automated personal financial lifecycle planner for individuals and their families.
In this series of short articles, The Skilled Investor [...])
- Efficient Market Pricing in the Investment Securities Markets (
Efficient market pricing is the theory that all known information is already reflected in current securities prices.
Efficient securities market pricing has become very widely accepted within the investment community. The preponderance of evidence is that securities markets are efficient and tend to reflect available information. Whether you believe markets are efficient is very important to [...])
- Vanguard 500 Index mutual Fund Admiral Shares (VFIAX) win the Best +10 Fund Authority Score (Here is some really good news for you. The Skilled Investor has published an article about lower cost S&P 500 index mutual funds that you can read, entitled: Low Cost S&P 500 Index Mutual Funds. The Standard & Poors 500 stock index is the most common equity index fund benchmark in the U.S. The S [...])
- The Quality and Cost of Advice Paid by Investment Sales Loads (Can you really get free and objective investment advice, when you pay investment sales loads?
Excessive investment expenses are one of the most significant barriers to your family's lifelong financial security.
Excessive investment costs are a plague on your personal financial planning. While financial services industry sales people tell you that you need to pay more to [...])
- Reduce investment expenses and control taxation – Step 7 of 10 Financial Planning Steps in the Right Direction (CLICK HERE TO READ THE SKILLED INVESTOR's OTHER ARTICLES ABOUT THESE "10 FINANCIAL PLANNING STEPS IN THE RIGHT DIRECTION
Even with optimal investment strategies, there is still substantial room to improve upon net investment performance through continued and vigilant focus on controlling investment costs and tax realization.
The fees extracted by the financial securities industry increased substantially [...])
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