Keys to Financial Success

Jared Troutman |

Keys to Financial Success

Written by Jim Childress of Old Dominion Capital Management, Inc.

February 20, 2018

Recently we have been thinking about the most important elements of a plan for achieving financial independence, and we are offering a short but powerful list.  These are steps that can have a large impact, and they are things that are within your control.  With this simple list you can truly make a difference in your financial life.

  1. Live within your means.  Sounds simple, doesn’t it?  For someone who is retired, this requires calculating a sustainable spending rate and, on average, not spending more.  If you take this calculated rate, divide it by 12 and spend that amount of money each month, you will fail each time you buy a car, replace your roof, take a big trip, or do any of the things that people tell us are “one-time” expenses.  Everyone’s life includes a parade of “one-time” expenses, and you have to leave room in the budget to account for them.  For someone in the accumulation phase of life (pre-retirement) this means that you start with your earnings, subtract the taxes you owe and the money you need to save, and the rest is available for spending.
  2. Save enough money to meet your goals.  Most Americans are failing miserably at this. A general rule of thumb is that throughout a person’s working life they should save somewhere between 10% and 20% of earnings.  Better than using a rule of thumb is actually incorporating all of the elements of your financial life into a comprehensive plan and calculating what you need to save to meet your specific goals.
  3. Have an investment strategy that puts the odds on your side.  Be diversified, be consistent, and strike an appropriate balance between risk and return.
  4. Take responsibility for your financial affairs.  Keep your will, power of attorney and advanced medical directive up to date.  Use insurance where necessary to protect yourself from catastrophic outcomes.  Keep your credit rating high.  Avoid excessive borrowing.

Some people may have special circumstances that require additional consideration, but adherence to this basic list would be an excellent beginning to controlling your financial destiny.