You work hard for your money – whether you are an employee or a business owner – you want to make more money. Right?
Well, how about managing your money strategically so that your money works for you and your family?!
That’s what Step 7 is about – BEING STRATEGIC with your money!
Here are some aspects of being strategic:
1. Diversify your investments to maximize your results.
If you want to be a good investor you’ve got to know how to manage risk because ANY investment entails risk.
And diversification is one of the most important risk strategies.
When it comes to managing risk to maximize your return, it pays to diversify.
First, you can diversify among the four major asset classes: cash, stocks, bonds and real estate.
Once you decide on the amounts to allocate to these four main investment classes, it is important to diversify within each asset.
This means buying multiple stocks within a variety of industries, holding bonds of varying maturities, having different real estate properties in different locations.
In other words, don’t put all your golden eggs in one basket.
Also, don’t make the mistake of putting most or all of your money in “safe” investments like savings accounts, CDs and money market funds.
Over the long term, inflation and taxes will “eat up” the purchasing power of your money in these “safe investments”.
All investments involve some trade-off between risk and return.
Diversification reduces unnecessary risk by spreading your money among a variety of investments.
Besides diversification, the single most effective investment strategy is to invest continuously over time, with a long-term perspective.
2. Grow your money by taking advantage Of tax-deferred Investments.
If your employer has a tax-deferred investment plan like a 401(k) or 403(b), use it!
Often, employers will match your investment.
And even if they don’t, no taxes are due on your contributions or earnings until you retire and begin withdrawing the funds.
Tax-deferred savings mean that your investments can grow much faster than they would otherwise.
The same logic applies to IRAs, although the maximum amount you can invest annually in an IRA is substantially less than what you can put in a 401(k) or 403(b).
3. Use the protection provided by insurance
It’s wise to protect yourself, your family and your money by having an adequate insurance coverage.
A major lawsuit, unexpected illness or accident can be financially devastating if you lack proper insurance.
The key to insurance is to cover only financial losses so large that you could not cope with them and remain financially fit.
If someone is dependent on your income, you must have adequate life insurance.
Long-term disability coverage is important as long as you need employment income.
Also, be sure to carry adequate liability coverage on your home and auto policies.
To save on annual premiums, you may choose to raise your insurance deductible.
And whenever you purchase insurance – life, home, disability, or auto – be sure to shop around, and buy only from a reputable firm that has a history of being solvent and paying insurance claims.
4. Plan your financial legacy
You want to have a will to ensure that your funds, property and personal items will be distributed according to your wishes.
A will is a legal document that ensures that your assets will be given to family members or other beneficiaries you choose.
Having a will is especially important if you have young children because it gives you the opportunity to assign a guardian for them in the event of your death.
Although wills are simple to create, about half of all Americans die without a will.
With no will to indicate your wishes, the court steps in and distributes your funds and property according to the laws of your state.
To prepare a will, take an inventory of your assets, outline your objectives and determine to which friends and family you wish to pass your possessions to.
Then, when drafting a will, be sure to include a name of a guardian for your children, name of an executor, and an alternate beneficiary.
Once your will is drafted, you won’t have to think about it again unless your wishes or your financial situation change substantially.
And that’s a wrap for the mini-class series “7 Steps to Regain Control Over Your Money.”
Share your insights and questions in the comments!
To your Health, Wealth and Freedom
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