12 Steps to a Comprehensive Financial Strategy

KQWMZQ7W1C (**Disclaimer**: nothing in this post should be construed as financial or legal advice or endorsement of any financial or other product or company. Consult a certified financial adviser or planner for professional advice. Regardless, you should always do your research and avoid biased sources. All opinions herein are solely my own.)

The trouble with financial advice is that it comes from all over the place - your parents, your siblings, your friends, your bank, your landlord, your super, ten different apps, you name it. How do you know whom to trust?

First of all, don't (readily) trust those people who 1) don't know your full financial picture and/or who 2) are motivated by profit from you, not your true financial well-being. That would mean developing skepticism at what's offered by almost every financial institution you deal with, including banks, financial advisers, mutual funds, etc. They all generally profit through fees, regardless of whether your money grows or shrinks while in their hands.

Ok, but who's left to trust, then? Trust those people who have their finances together and have applied the appropriate strategy for them and their family to effectively protect against risk in a world of complex financial instruments, wild market swings, rising expenses and uncertainty.

That would mean educating yourself about what works best for someone in your particular situation, reading the work of people who are not selling you specific products, but a strategy that makes sense for you, given your current financial circumstances.

The key to creating a comprehensive and well-calibrated financial strategy is A) diagnosing the full picture, 2) appropriately gauging the risk of certain events relevant to your age, family situation, standard of living and 3) counteracting that set of risks by covering yourself with the appropriate types of insurance, reserves and creating a plan of action in case of certain emergency scenarios.

Without further ado, here's how it's done:

A) Open your eyes. Get your head out of the sand. Money is a painful and difficult subject for most people. 

BUT, know that worrying about money kills your health and far too many marriages and relationships. Let it sink in that you can't "just get by."

Stop avoiding the subject. Bite the bullet. Start with baby steps.

Go to Mint.com (or another, similar money management tool that you can use easily and often) and set up an account, if you haven't already. Set up all your bank accounts to feed information to Mint. Set up all your student loans, credit cards and other debt to feed information there.

Don't become obsessed with your Net Worth figure. It can be dispiriting or illusionary, depending on whether it looks good or bad to you.

Once you have a clear picture of your assets and your liabilities, you can move on to crafting a strategy that makes sense for you. This includes doing careful research (avoiding biased sources) and asking for advice and help from professionals that have no stake in selling you certain products and just want to help you create a sustainable, well-calibrated plan.

Map out your monthly cash flows (ex: $10K salary in, $3K for rent, utilities and internet, $2K for student loan payments, $1K groceries and restaurants, $500 entertainment, $1000 credit card bill, $2500 to savings, etc.) Now you have what you need to start budgeting in order to reach your goals. Diagram how much exactly you take in, from where and at what time in the month / year, as well as what bills you pay and when and how much money you spend on specific categories. Software like Mint will help you categorize your purchases and other spending more carefully and consistently.

B) Start Saving and Investing ASAP, if you haven't started already. Timing is everything if you want your money to grow and work for you. The earlier you start, the more your money will accrue in a shorter time. 

For example, starting to save and invest at 22 for 10 years will earn you more interest than if you start at 32 and invest for 30 years. Let that sink in. Timing is everything. Start ASAP.

C) Create a list of goals for the next year, 2 years, 3, 5 and 10, as well as 20-30 down the road, for retirement. Do you plan to save for a long-awaited vacation? Are you planning to get married in 2 years? Do you want to buy a house in 5 and need 20% down payment? Do you want to send your kids to college in 15 years? Do you want to retire at 55 and travel around the world?

**Write down your goals** and place them in a visible place (fridge / work desk, etc.) It helps to remind yourself what you're working for on a daily basis.

Be as specific as possible with your goals - as in, here is exactly how much I need to save (ex: for my wedding by March of next year (6 months left)). Only when you set specific amounts and time frames will the goal become concrete and will it be easier to automate saving and put it out of mind (and stop worrying).

D) Create a monthly budget that takes into account all your incoming cash and outgoing bill payments and spending.

Be as specific and accurate as possible with categorizing your spending and amounts. It may take a bit of time to perfect this, but start ASAP.

The idea here is NOT to automatically cut down on everything you spend, but at least to see where you can save real money (ex: by buying in bulk, taking your own lunch to work, shifting how much you spend on going out to saving for your dream vacation, etc.)

Optimize your purchases by always 1) price comparing online and 2) finding ways to get what you need for free or less on Craigslist or otherwise on forums, Moms' groups, Facebook groups, church groups, among your friends, etc. There is always a ton of stuff that people want to get rid of because they've grown out of it, it doesn't fit their interior design criteria, they're moving or just getting rid of stuff. Oh yeah, and ALWAYS NEGOTIATE (see item G below).

E) Reduce the number of decisions about money you have to take each month - AUTOMATE! 

For example, set your salary to put the minimum amount into your company's 401(k) plan each month to get the maximum matching amount (FREE MONEY!). Set your checking account to transfer 5% of each paycheck to savings. Open a Roth IRA and automate your contribution from checking each month. If you have kids, open a 529 plan for them and contribute each month.

F) Hedge against the risks most relevant to you.

For example, if you have a family and/or kids, buy life insurance. Consider Identity Theft Protection (a common affliction these days). If you have a medical history of cancer, consider cancer insurance. Look into Short-Term and Long-Term Disability (many employers pay for or subsidize this). If you have a pet, look into pet insurance (yet, that exists).

Look into putting some money into an FSA (flexible spending account) or HSA (health savings account) if you know you'll need the money (tax-free) to pay for things like day care, your commute or expected health expenses throughout the year.

G) Always Negotiate (because everything is always negotiable)! Negotiate on major and minor purchases. Know the best times to make major purchases throughout the year. Negotiate on monthly expenses like car insurance, credit card rates, cell phones and other things by presenting competitor pricing and your leverage as a long-time customer (here's a great run-down of techniques that work for this). Always negotiate to have fees taken off your bill.

H) Monitor Your Credit Regularly to Check for Mistakes and Fraud. My recommendation for a free (yet robust) credit monitoring app is CreditKarma.com. Use it!

I) Pay off your Highest-Interest Debt First, before investing a lot of money (other than 401(k) free money, that is). 

For example, if you have student debt at 8.5% (or credit card debt at 29%), it would take a rather phenomenal (a.k.a. impossible) return on investment before you would be able to beat the interest collecting on your student loans. Use either the Snowball Method or Avalanche Method (here's a good primer on both). Either way, find a way to pay as much as possible per month to eliminate the debt ASAP and to save on interest payments.

Negotiate with your credit card provider to lower your rate or to pay off a lower balance up front. They can be quite flexible sometimes.

Look into refinancing your student debt, but beware losing any deferment/forbearance benefits you may have accrued.

J) Create at least a 6-12 month cushion in savings to maintain your lifestyle at a similar level in case of job loss or major financial loss elsewhere.

K) Once you have your credit card and student (and/or personal) debt on a plan to be repaid ASAP, then consider investing your money in low-fee financial instruments, such as ETFs and index funds. Reduce (or eliminate) the fees you pay a financial adviser by considering using a robo-adviser like Hedgeable, Wealthfront or Betterment. Your involvement should depend on what you can reasonable. Your level of risk should depend on both your financial goals, age and risk appetite, as well as how easily you are willing to part with the money, given your overall financial picture.

L) EARN MORE MONEY! 

Negotiate a raise, bonus or other extra perks / compensation using these excellent techniques from Ramit Sethi (trust me, they work).

Do you know a foreign language or two? Translate.

Do you write well? Do copywriting.

Do you freelance as a house painter, baby or dog sitter, consult startups on product strategy, love making jewelry or have another awesome hobby? Offer your services to people you know and online to companies and people willing to pay you for your talents. Then raise your rates.

Perhaps you should even start a business, if you're meeting demand that you know exists for your product and/or knowledge.

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Are there other important strategies you’ve used to get your finances in order and thriving? Please share them with the Community in Comments below. We’d love to hear from you!

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Yuri Kruman is a Healthcare Product Manager, published author, blogger at BlueprintToThrive.com and health tech entrepreneur based in New York.

*The views expressed herein are his own*