Wes Moss: Your financial planning checklist

Wes_Moss-for-Web-smaller-fiCertified financial planner Wes Moss provides personal finance advice and accessible investment strategies. His guest post appears here weekly.

I spend several hours each week speaking to people who want to get their financial house in order. They come from every walk of life and income level, but my starting-point advice is always the same…

Plan to Fill The Gap – If you aren’t saving for retirement, start today. First, determine how much income you will need to fund your vision of life after the daily grind. Then, calculate how much of that need will be met by Social Security and pensions. The difference between that number and your monthly income needs is “the gap,” which will be filled by your investment income. As a rule of thumb, expect about $1,000 in monthly income for every $240,000 you have invested.

Insurance – This must be a priority, especially if you are a young parent. You can’t have too much. Buy as much term-life insurance as you can afford. Avoid universal life and other policies that claim to double as investments. They are a poor value. Protect your income with Long Term Disability insurance and get Long Term Care coverage as soon as you turn 55.

Write The Book of Answers – If you were incapacitated (or worse) would your family know where to find the information they need to carry on? Guarantee it by compiling it all in a notebook. Include information about bank accounts, investment funds and insurance policies. Be sure to include all necessary Websites, usernames and passwords. This is a good place to keep copies of your Advance Directive for Health Care and your will.

Get Out of Debt ASAP – Nothing limits your financial options and future prospects like debt. Did you know that having excess debt might even cost you a job opportunity? Employers are increasingly checking credit reports to avoid hiring someone who has money trouble.

Line up your debts from smallest to largest. Focus every available dollar on paying off the smallest then move on to the next biggest debt. Keep at this process until you are debt-free. And stay that way!

Pay off your mortgage by the time you retire. Eliminate it now if you can do so using one-third or less of your non-retirement savings.

Follow the Savings Hierarchy – It’s not enough to just save money, you need to make sure you are putting those savings to maximum use. First, establish an emergency cash fund equal to six to 12 months of basic living expenses. Next, fund your 401k up to the maximum amount that your employer will match – that’s free money! Then, make the maximum $5,000 annual contribution to a Roth IRA (review IRA contribution limits). If you still have money available, max out your 401K. And anything beyond that should go in a low-cost mutual fund or ETF through a low-cost provider such as Vanguard or Charles Schwab.

Use the Bucket System – As you build an investment plan, consider using what I call The Bucket System. This system takes the very complex world of investing and simplifies it tremendously by helping you visualize your investments as money dropped into one of three easy-to-understand “buckets.”

1. Cash bucket – Savings accounts and other FDIC-insured vehicles. You will have zero principal risk and get paid prevailing interest rates (today around 1.0%).

2. Income bucket – This consists primarily of government and corporate bonds. They will provide you with income and, assuming a properly structured portfolio, should provide principal stability.

3. Growth bucket – Stocks. The S&P 500, the Dow 30, The International Index. Or you can focus on specific sectors of the market to better fit your needs. Younger “accumulators” may look to growth stocks, companies like Apple or Google that have tremendous growth rates but pay no dividends. If you are in the “distribution” phase you may want to focus on income stocks. This can be accomplished via a utility stock index or an ETF that focuses on dividend paying companies.

Buy and Hold High Quality Investments – This is a difficult but crucial part of investing. Despite irrefutable evidence that holding onto good investments is the key to building a nest egg, Americans have become terribly impatient, holding stocks on average just eight months – at a terrible cost to our portfolios. In 2010, for example, stocks had growth of 15.1%, but if an investor was out of the market on just three specific days, they saw growth of just 3.4%.

Fight the human instinct to get in on the “next big thing.” Choose your investments wisely and stay the course.

—By Wes Moss, for the Atlanta Bargain Hunter

6 comments Add your comment


February 14th, 2011
11:07 am

I have heard that as long as I have enough insurance to pay off my debts if something happens to me(mortgage, car, student loans), my wife would be OK…..although the other day a friend of mine told me that I need to replace my income for life for my wife. Seems like if she doesn’t have a mortgage payment she would be OK. What do you think?

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Golf Nut

February 14th, 2011
2:04 pm

Not trading your account is one of the tougher things to do… it is a constant psychological battle to not continually trade the account every few months with a new strategy. What I tend to do is, following the advice, invest in quality when I have the funds and then shredding the statements as they come in order to keep myself from looking at them and trying to come up with another masterful stratgey… It has ended up saving me in the long run…

Vick Micheals

February 14th, 2011
4:08 pm

I picked a number of high quality stocks a few years ago and I just keep buying more shares whenever I have some excess cash. This has worked surprisingly well.


February 15th, 2011
12:39 pm

Getting out of debt is definetly the priority in my view. Peace of mind and a guaranteed return on investment.