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How to Create a Personal Investment Plan for Financial Independence

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Begin to lay out your plan. The key is to start.

As we begin this journey – and yes, it is a journey – we ask the question: Is it possible to develop an investment plan to achieve financial independence? The immediate answer is yes, it is possible. In this article, we shall explore the necessary steps to make it a reality.

What is Financial Independence?

How do you define financial independence? Is it having all the money you need or want? Or is it something else? Does money have anything to do with it?

How about doing anything you want whenever you want! Not having to do something (e.g. working) because you have to but because you want to. Getting excited about what you do! Doing something for the fun of it.

What would that feel like?

Laying the Groundwork

Before you begin your investment program, one must get their house in order.

  • Create a detailed budget. Know what you can put into an investment program.
  • Eliminate all non-mortgage debt. Yes, get rid of the credit cards, car loans, personal debt, student loans and any other type of debt.
  • Determine your risk tolerance. How much risk will you take? Develop a risk reward model. The higher the risk the higher the potential returns, of course you could lose it all.
  • Make certain you are not investing the rent and food money. If you are, then stop now. You are not ready to develop an investment plan

Develop a Plan Specific to You

This is your plan, not mine. Not someone else’s. Get yourself educated, learn about investing. Do not take investment advice from your neighbor or some other acquaintance.

  • Read investment books.
  • Hire an advisor. Make sure you hire one that will take the time to explain things to you. If you interview one who tells you to do what they say, run! Interview at least three. Make sure you are comfortable and vet them thoroughly.
  • Will you do it yourself? Get educated.
  • How much will you invest on a regular basis? Will it be weekly, monthly or annually?
  • What will be your target returns based upon your risk tolerance?
  • Will you be able to sleep at night or will you worry endlessly?

What Type of Vehicles Will You Use?

How will you accumulate your great wealth? Will you use retirement vehicles such as an IRA, Roth IRA, 401k, Roth 401k or some type of personal taxable investment account?

  • I believe the best investment vehicle is the Roth option. Yes, this is a retirement type vehicle, but it has many advantageous features. Contributions are made after tax dollars and grow tax-free. Who does not like tax-free? Another feature is no required mandatory distributions. And in certain situations, you can take tax-free withdrawals before age 59-and-a-half.
  • Next best is an IRA or other tax deferral vehicles. Contributions are made before tax and grow tax deferred. Taxes are paid when withdrawals are made. There are mandatory required distributions at age 72. Withdrawal before 59-and-a-half has a penalty of 10% plus taxes.
  • Taxable investment account contributions are made with after tax dollars and any earnings either from interest, dividends or capital gains are taxed.

Decisions, decisions. While none are wrong, it depends on your situation and your financial goals. Once again, educate yourself.

Choosing Your Investment Vehicle

The types of investment vehicles will depend on your goals. Are your goals long-term, short-term or somewhere in the middle? When will you need the money you invest? Do you just want to live off of the interest or dividends? Are you seeking long-term appreciation?

  • If you are seeking long-term returns, finding returns for 10% or greater should be your goal.
  • Medium term would be in the 5-7% range.
  • Short term most likely would be below 2%.
  • How will you achieve your financial returns?
  • Mutual funds
  • EFTs
  • Single Stocks
  • Dividend stocks
  • Corporate bonds
  • Government bonds (municipal bonds)
  • Treasury bonds
  • Certificates of Deposits (CDs)
  • Money Market funds or savings accounts
  • There are other choices, such as large cap, mid cap and small cap as possible types of stocks or mutual funds. And I dare say Bitcoin or any other type of crypto-currencies?
  • Real estate is another possibility.

As you can see, more homework will be needed. Educate yourself and pick what you are comfortable investing in.

Getting Started

The best time to start is now. There have been many factors discussed in this article. Take your time and go through them one at a time. Begin to lay out your plan. The key is to start. Begin with educating yourself, decide what consistent program you will follow. Hire a professional to teach you what you do not know.

If you do not start, you will not reach financial independence! QCBN

By Steven Calabrese, CPA

Steven Calabrese, CPA, is the CFO of Polara Health. He also is the owner/operator of a website known as thebiweeklyadvisor.com, where topics such as budgeting, investing, paying off debt and goal setting are discussed.

Financial Considerations in Divorce

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So, you’ve just been served with divorce papers. What now? Following the initial shock of being served, panic and a feeling of being overwhelmed often seems to hit next. If minor children are involved, the biggest fear often revolves around custody and parenting plans. At the same time, financial concerns such as who is going to live in the house and pay the bills become a reality, because in most cases, one party to the divorce moves out and the other stays, at least temporarily.

If both parties to the divorce are employed and drawing equal incomes or there are substantial liquid assets, the stress of covering the monthly bills may be less of an immediate worry. In many cases, though, one party to the divorce is earning much less (sometimes nothing if they are staying home raising the kids) and all of a sudden, they are left in the very vulnerable position of relying on the other spouse to support them.

If the parties are amicable (believe it or not, this does happen), the party that is earning the majority of the income is often willing to support the other one for a period of time by agreeing to spousal maintenance. If the parties agree on the amount and duration of spousal maintenance, as well as the division of assets and debts, then the financial stresses that often go with divorce are reduced to the logistics of how to actually divide assets and debts. If the parties do not agree, then mediation is a good next step, along with the assistance of a family law attorney. Either way, it is always a good idea to review the resources available online at the Coconino County Law Library (coconino.az.gov/870/Family-Law).

If child support and/or spousal maintenance (alimony) are going to be an issue, then additional information will be needed other than assets and debts. This includes monthly income (from employment, a business, a rental property, investments, retirement, etc.) and household expenses. Often, gathering this information can be stressful, especially if one of the parties to the divorce did not handle the finances.

Child support is governed by the State of Arizona and accurate monthly income is very important to the calculation, as are certain expenses that pertain to the children. Spousal maintenance, on the other hand, is more complicated. A note of caution with respect to business income is in order. Usually, the parties report net business income from their tax return (or a K-1) for the “income” number without factoring in expenses that may be of personal benefit (auto expenses, health insurance, meals, home office, etc.). If those expenses are reported as household expenses as well on the Affidavit of Financial Information to the court, then they are either overstating their expenses or understating their income. With regards to reporting monthly household expenses, bank statements, credit card statements and source documents such as receipts can be used to analyze monthly expenses if this is a big unknown.

Prior to dividing assets and debts, the first step includes gathering statements for all bank accounts, non-retirement and retirement accounts, values for real estate and other property (autos, boats, etc.), values for any life insurance policies that have a cash value, mortgages, car or other loans and credit card statements. If possible, try to use the same statement date for the assets and debts, at least initially. If there is a closely held business, a business valuation may be needed. Also, defined benefit pension plans (such as ASRS) are valued differently than a 401(k) or IRA, so it is important to gather any information you can on estimated benefits upon retirement that you can.

If there are concerns about the misuse of family money, it is a good idea to gather both asset and debt statements for several months or perhaps years. While the data gathering may seem overwhelming, it is also an important part of educating and empowering the spouse that hasn’t been part of the finances. Finally, realize that there are professionals who can assist with the daunting process of determining income and household expenses, as well as preparing various property division scenarios. QCBN

By Jenny Staskey

Jenny Staskey, CPA, CFE, CDFA is a Certified Fraud Examiner and Certified Divorce Financial Analyst. She routinely provides forensic accounting and litigation support services in civil, criminal and family law matters in Northern Arizona. She can be reached at 928-814-8569 or via email: Jastaskey@gmail.com.

Creating a Balanced Portfolio: Are Your Assets Properly Allocated?  

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In today’s uncertain financial landscape, we believe it is more important than ever to establish a well-maintained portfolio that can help you reach your financial goals. Your portfolio needs to not only meet your need for capital, but also provide you with financial peace of mind.

While there’s no simple formula to help you figure out how your portfolio should be constructed, determining the right asset allocation should be the first step in the process. In order to properly ascertain your financial situation, there are a few important things to consider: age, time horizon, amount of capital to invest and future capital needs.

Another important thing to be aware of is your risk tolerance. Would you be willing to risk funds for the possibility of greater gains? While everyone wants to reap the rewards of high returns, not everyone can handle the high stress levels they can cause.

On the other side, avoiding investment risk isn’t always a wise decision. It is possible for portfolios to be too conservatively constructed, which makes them unable to provide the necessary long-term growth that is needed to outpace inflation and build wealth. Many investors seek absolute safety and keep their money in bank accounts, Certificates of Deposit (CDs) and other financial products without realizing that these “safe” choices may incur their own set of risks.

These risks include investment opportunity loss and the destruction of purchasing power resulting from inflation. When investors fail to take advantage of returns that a portfolio of growth investments can produce over time, this is called investment opportunity loss. Inflation can also hurt your investments as it is often regarded as the silent destroyer of low-risk portfolios as purchasing power declines over time.

You need to find the right balance for you, one that satisfies your risk tolerance while also achieving an appropriate amount of growth and income.

At American Financial Investments LLC, we can help you create a financial strategy that fits your individualized investment objectives and goals. Allow our team to utilize our knowledge and experience to help manage your portfolio during various economic conditions and investment market cycles. Allow us to help you determine your risk tolerance by using proprietary surveys, analyzing your finances and discussing your retirement and financial goals in depth.

We believe that your best bet for steady, long-term growth of your investments is having a well-diversified portfolio. This can help protect your assets from the risks of large drops and structural changes in the economy over time. When you work with the right financial professional, he or she can help you diversify, make adjustments when necessary and help increase your odds for long-term financial success. QCBN

 

By Ronald Stevenson and Barbara Clark Stevenson

 

Retirement Planning: The Big Picture

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StevensonAs a future retiree or retiree, it is important for you to take into consideration the big picture of your retirement planning. Once you have the full picture, it helps you make more detailed and necessary decisions to achieve the retirement for which you have worked your whole life.

One of the first steps to take when planning your retirement is to find a financial professional who puts your needs and interests first. At American Financial Security, we take your whole financial and tax position into consideration and actively help you meet your retirement goals and objectives.

The next step we encourage is to collect and organize all your important documents. Making sure your documents are accounted for and managed is a great step on the path to a comfortable and well planned retirement. Unfortunately, this step is overlooked far too often.

Often, it’s only when tax season rolls around, or when a move happens, or a death in the family occurs, when people start really paying attention to the essential documents they may have. Having all your resources and documentation organized will allow your financial professional to provide you with the tools you need to make the decisions to help guide and prepare you for retirement.

Another essential step to take is to figure out how much money you will need in retirement and where it will come from. Many of our clients are confused about not only how much they have in terms of financial assets, but also how much they will need when they retire. Every client is different. By assessing each client on an individual basis, it allows us to properly evaluate each person’s situation to make a proper financial recommendation that will best prepare them for or assist them in retirement.

Most of our clients have some assets on which they can rely, maybe in their savings, a retirement account, or in other financial investments, but this often isn’t enough to provide them with a lifetime’s worth of retirement income. In other words, a shortfall often exists between the amount of money you have and the amount of money you will need during retirement. This shortfall is known as the income gap, and we work with our clients to help them develop strategies to fill it.

An important strategy to plan for is knowing what your Social Security benefit is and how to maximize it. This is important because Social Security can play a large role in helping bridge the income gap in retirement. Making the wrong Social Security decisions, like triggering your benefit at the inopportune time, may impact whether you are able to collect your maximum benefit.

Social Security has a significant impact on retirement planning. It is difficult to talk about retirement planning without also talking about Social Security and vice versa. The most common and challenging decision regarding Social Security is knowing when to apply for benefits. Knowing when to apply for your Social Security benefits can make a financial difference in your retirement. You can begin to receive early benefits from Social Security at age 62. However, depending on your life span, if you choose to take your benefit right at 62, it could drastically reduce the amount of Social Security you receive over your lifetime. Also taking Social Security and working prior to full retirement age may have an impact on your benefits.

At American Financial Security, we take a holistic approach to retirement planning. A major part of that is trying to plan for the future. We like to plan for what inflation will look like, what health care costs may look like in retirement, and, if debt is acquired in retirement, how will it be paid off. Nobody can predict the future, but by preparing for the future financially you may be saving yourself from future financial hardship.

 

By Ronald Stevenson and Barbara Clark Stevenson

Ronald F. Stevenson & Barbara Clark Stevenson own American Financial Security, LLC. They specialize in Retirement Income Planning, Social Security Maximization, Tax Free Income Design, Personal & Corporate Tax Preparation and Planning. For more information, call 928-771-8368 or visit www.AmericanFinancialSecurity.net, 3112 Clearwater Dr., Suite B, Prescott, Arizona 86305.

 

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