As we have started into the New Year, I thought it was important to review what I consider foundational planning steps. If you do these things, you’re setting your plan up for success. While there’s always going to be media negativity, market swings that come unexpectedly (looking at you DeepSeek) and just general nonsense, focusing on your personal plan is always the solution. Also, please stop getting news from TikTok. So, here’s 5 ideas that will give your financial plan a tremendous foundation.
Eliminate all high interest debt. In an ideal world, the only debt you’re paying is a mortgage and a car payment (although it’s hard to avoid student loans these days). Your investment account will never outperform a high interest credit card. It’s imperative to stay away from those payments as it puts a significant strain on your ability to fund your plan.
Create a cash savings emergency fund. I typically recommend 3-6 months of expenses. Life happens, so whether it’s a down payment for a new car, the hot water heater needs to be replaced, or you simply spent too much at Christmas on the kids (like yours truly), being able to pay cash in an emergency from your EMERGENCY fund prevents you from taking on high interest debt. Make sure you are taking advantage of interest rates right now. You should be making at least 3.8% on your high yield savings. If not, we have our relationship at KEEP (formerly Stonecastle) bank which is currently paying 4%.
At minimum, invest in your company 401K to ensure you maximize your match. There is nothing better than OPM (Other People’s Money) in helping you create wealth. The earlier you can start and take advantage of that free money, the better. There is no better investment than the simple power of compounding interest.
Aim to invest 15% of your income somewhere. Once you have established your emergency fund, taken advantage of your employer’s matching contributions, the best place to direct new savings is to a brokerage account. This will allow you to achieve market correlated returns, but it also ensures your money isn’t tied up inside of a retirement plan. I have seen a lot of clients with a high net worth, but often times it’s tied up in retirement and the house which can provide challenges in terms of easily accessing the money. And if you can’t save 15%, save what you can. Anything is better than nothing and having that emergency fund should be priority #1.
Make sure your plan is self-completing. If you have a spouse, kids, a house, or anything else that’s important, you always must plan for the unexpected. Your ability to earn income and fund the plan is the name of the game. Discussions about life insurance, disability plans and long-term care plans, while not a fun conversation, are a necessity to ensure the plan comes to fruition.
These are 5 basic principles that I would consider the bare necessities for a solid foundation in your financial plan. As your income and wealth grow, obviously we continue to offer strategies to support that and grow with you. But if you’re addressing these 5 things above then you have all the makings of the right foundation. New Year, New You!
If you feel anyone could benefit from this, please feel free to share. As always, I’m here to answer any questions.