Five steps toward financial security
By Maj. Derren Burrell, 31st Comptroller Squadron commander
/ Published July 01, 2009
AVIANO AIR BASE, Italy -- As the 31st Comptroller Squadron commander, I thought it only fitting to use this opportunity to discuss how Aviano Airman can become financially ready.
So much in the headlines today speaks of finances. Think of the economic situation in the U.S., the roller coaster ride of the stock market, the immense amount of identity theft, how can you ignore the financial side of your life? The short answer is you cannot, at least not without severe consequences to the other aspects of your lifestyle.
We have the physical training program to keep us fit to fight. We have ancillary training to ensure that we're ready to deploy on a moment's notice. I believe it is incumbent on every Airman to be financially fit, to seek out financial training and education so that this important area of our lives receives the level of attention that it deserves. Here are a few steps slightly modified from SaveAndInvest.org to help you become more responsible in managing your finances.
Define Your Goals
Pretty simple step here, if you don't have direction, you'll never reach a destination. We all have goals (own a home, pay for our kid's college, buy that boat, etc.). When you map out your destination (in prioritized order), then you can effectively determine how to save in order to reach that goal.
Make a Financial Plan
Just like a business, you'll want to list everything you own (assets, cash, etc.), along with everything you owe (liabilities). The idea is to have more assets than liabilities, thus allowing you to save the "positive" amount for the goals outlined in the first step. This could mean in getting out of some debt, whether that be credit cards, student loans, etc. Some detailed action plans to help you in this step can be found at the above link, be sure to check them out as well.
Determine Your Risk Tolerance
Here's where we get into the "nitty gritty." If you're debt-free or close to it, then now you embark on saving and investing to meet those goals you've outlined for yourself. Saving refers to low-risk, low return on some parts of your money (i.e. a savings account). This is the bedrock of your plan, as these dollars could serve as an "emergency fund" so you don't get back into bad debts (most financial professionals recommend having an emergency fund equal to 3-6 months of your base pay). Investing implies that you'd like a slightly higher return for your money, which involves greater risk than savings. Depending on how much risk you can swallow will depend on which investment vehicle is right for you. Don't blow over this step. Most professionals will tell you managing your risk tolerance is key in maintaining a balanced perspective when it comes to investing.
Investment Products: Your Choices
For just getting started, you're best in learning about stocks, bonds and exchange traded funds. (SaveAndInvest.org recommends mutual funds, but exchange traded funds, or ETFs, offer many advantages over traditional mutual funds, which are beyond the scope of this article).
"Pick" a Financial Professional
In the world of online banking, discount brokers, and tons of free investment information, I disagree with SaveAndInvest.org that you should actually "hire" a financial professional. Unless you have absolutely no interest in managing your own money, I find investing a worthwhile endeavor that can pay you back over time. While it will take some learning upfront, you'll gain a sense of confidence and understanding while at the same time (hopefully) edging ever closer to your financial goals.
A few books that may assist you in understanding how to invest include:
· "The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition)" by Benjamin Graham
· "How to Make Money in Stocks: A Winning System in Good Times and Bad, Fourth Edition" by William O'Neil
· "The Disciplined Investor: Essential Strategies for Success" by Andrew Horowitz
In closing, I'd like to offer some simple words of caution, don't try to rush to the last step (investing), without going through all the steps in prioritized order. You need to walk before you can run, and taking the additional time to understand your entire financial picture and educate yourself will translate to fewer frustrations down the road. While this article won't guarantee you a $1 million, I do believe if you follow these steps you will certainly find yourself much more financially prepared than you ever thought possible, so start your financial journey today!