1Q2019  |  Ages 50 – 65

The Path to Successful Investing

As an advisor, many times I’m asked what the most important component of financial planning is. It seems that so often financial planning meetings and questions revolve round rate of return, the market, economy, etc. While these topics are important, I’m not sure I’d even rank it in my Top 5 of most important concepts. In my clients’ financial lives, there are other areas which offer far more return on investment (ROI) assuming your portfolio is prepared correctly.

So let’s talk about those Top 5 concepts: I think knowing where your money goes and living within your means is #1. It’s king to success, and the basis for preparing for a comfortable retirement. Let me explain.

It’s rare that I meet someone for the first time with anything but a basic, very general understanding of where their money goes. But it’s fairly common that upon inspecting where the money is going, we can find anywhere from a 3-10% waste! When I say waste, I’m referring to a couple types… one in which they did not know of the expense, and the other, upon further reflection, that is not generating more value in life than the extra dollars in a savings or retirement account would. Sometimes, however, the problem is far bigger and the lifestyle is simply too expensive for the income brought in.

For many, that 3-10% is the difference needed for a great retirement! The other benefit of knowing where the money is going is that during long-term planning, it helps us to hone in fairly precisely on “your number” well in advance from retirement. This allows you to structure your long-term funding plan with potential tax implications in mind.

So how do you figure out where your money is going?

1. Minimize the amount of accounts your household moves money through. One checking account, one credit card, etc. The more accounts, the more cumbersome. Capture the data daily either through software or a spreadsheet, or even just on a note pad.

2. Revisit all expenses. Go back into your expenses and force them into categories… Take automobile expense as an example: I’d have categories like loans, service, gas, insurance, etc. The more granular you get, the better.

3. Now, catch your breath as you arrive at the inevitable. “I had no idea we were spending that much on that!” Focus in on your biggest costs. You’re bound to find a few costs you’re able to reduce.

4. Once you know where the money is going, this becomes the basis for the budget. Budget off of the data and categories. Pay yourself first in the form of saving (10-15% of income). Then mission critical things come second (mortgage, utilities, etc.). You can then budget for the things that are luxury (restaurants, vacation, etc.)

Now with all of this in mind, I don’t mean that you should not enjoy your life and the fruits of your hard work along the way. In fact, quite the opposite. By removing waste, knowing where your money goes and living within your means, you become financially efficient. The vast majority of the time, your overall satisfaction and happiness will actually increase!

Jeff Lahr, AIF®
Financial Advisor
[email protected]

This commentary is for informational purposes only and does not constitute investment advice nor reference the appropriateness of any individual investment alternative.

Advisory services offered through Prime Capital Investment Advisors, LLC. (PCIA) a Registered Investment Advisor. Prime Capital Investment Advisors doing business as Qualified Plan Advisors, “QPA.” 6201 College Blvd., 7th Floor, Overland Park, KS 66211.

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