Re-discovering the Fundamentals of Financial Planning


To lose weight in the 80's, we went on low-calorie diets. In the 90's, we switched to low-fat diets, and now, in the 21st Century, we are completely convinced that it's all about the low-carb diet. What ever happened to just eating healthy?

In a culture where everyone is looking for shortcuts, it's not often that you see something about fundamentals. Well, take note of the following three basics of financial planning, because it may just be what's been missing from your 'plate.'

1) Have a goal in mind! Savings are only as useful as your desire to apply them to a specific purpose. If your goal is a new home, great; if it's to send the kids to Fordham, even better; and if it's retirement, terrific. Once you have the "why," you must determine "how much," and "when." These two variables will determine how aggressive you must be, as well as how much of a present sacrifice you'll need to make in order to reach your goal.

2) Spend less than you earn! If you're a bit late in the game with this one, then the first order of business is to minimize your debt. The common American philosophy is to spend first, and save what's left. Contrast this with the Eastern tendency to invest first, and spend what's left. Can you guess which approach is more likely to lead to wealth? Many people will admit that it is unreasonable to buy a 50" plasma television if the only way to pay for it is with a monthly installment plan. Why then don't we apply the same philosophy to buying a home? When considering rent versus a mortgage, it is generally advantageous to have the mortgage. However, replacing the five-bedroom home with a nine-bedroom home before the five-bedroom has been paid off simply doesn't fit the model.

3) Invest monthly, and start now! $1,000 invested monthly is a heck of a lot easier than $12,000 at year's end. Add to that the concept of dollar-cost averaging and more often than not, you'll also earn more over time. Finally, because of compounding, the sooner you get started, even at a small amount, the less time it will take to get wherever it is you want to go-even if that includes a stop along the way for a low-carb tofurkey salad.

© 2004 Matthew S. Clement, All rights reserved.

Matthew S. Clement is a financial planner and investment advisor representative with Financial Network Investment Corporation, member SIPC. He provides holistic wealth management and retirement planning to individuals and businesses. He can be reached in New York at (845) 942-8578, or by email: [email protected].