Ted's Tips for Financial Success

From time to time I am asked what the most important component is to achieving financial success. I have given it much thought, and to be honest, there is no one-thing you can do that will lead you to financial success. The road to financial freedom requires a commitment and a well-laid plan. That said, there are some things that I think everyone should know, or at least keep in mind. I call them Ted’s Tips for Financial Success. They are as follows:

Establish Goals, Both Long Term and Short Term and Develop a Plan to Achieve them: It has been said that if you don’t know where you are going you are never lost. The same is true on the path to financial freedom. It is important to take some time to examine what you truly want to accomplish financially, and develop a plan to get you there. Remember, thinking long-term is key in this process.

Establish and Maintain an Emergency Fund: Every now and then something unexpected happens that either causes an added expense in our lives, or a diminished income. It is for that reason that it is imperative that you maintain an emergency fund equal to 3-6 months worth of living expenses in cash should an emergency arise. The purpose of building this fund is to satisfy living needs until your income increases to normal levels. Take for example a disability situation. If your disability income policy has a 60 day elimination period, you will need to use some of the emergency fund to pay your living expenses until you disability policy begins paying out.

Remember the True Measure of Wealth: The truest measure of wealth isn’t measured in your earnings; it’s measured in net worth. Net Worth = Assets – Liabilities. Simply stated, Net Worth = What You Own – What You Owe. It is a measure of financial solvency and the best measure of true wealth. In order to truly build wealth, you need to build your net worth. To do this, it is important to keep you assets high and your debts low. To increase your net worth, keep in mind that it isn’t the amount of money you make that is important, it’s the amount of money you are able to keep that will help. If, for example, you make $300,000 a year, and spend $300,000 a year, you won’t be able to build wealth the same way someone that makes $300,000 a year and spends $250,000 per year and saves/invests the remaining $50,000 will.

Invest According to Your Risk Tolerance: It bears mentioning, especially in these volatile times, that when you invest money for the long term you must it is extremely important to make sure you invest in what is appropriate for you. We are all familiar with the Risk/Reward relationship. It is natural to be a little nervous in down times. However, if you find yourself getting more nervous or upset during periods of poor market performance than normal it may make sense to re-visit your strategy and make sure it is still appropriate. Your plan is flawed if you are losing sleep over investment performance.


Make Sure you Have an Estate Plan: Having an estate plan put together will not only provide for the distribution of your property in the event of your death. It will also define who should make medical decisions for you in the event of your incapacity, when extreme measures should be taken to save your life, and, if applicable, who would be guardian of your children in the event of your death. In addition to executing the necessary documents to accomplish the above, you should also communicate with those people that might be involved in your estate plan. Let them know what their role is and share any information they might need such as account and insurance information. Having an estate plan put together allows you to make decisions as opposed to depending on family or court system to decide what is best.

The 5 above suggestions are not the only things that are important to keep in mind on the path to financial freedom. However they are some of the basic fundamentals that are important to keep in mind as you continue the pursuit of your goals and financial freedom.