The Fundamentals of Sound Financial Management

1. Systematically save until you are financial independent.

For most of us, financial independence and retirement are synonymous. Not so for others. Regardless, unless you already financially independent, you should understand how much you must save and have a written plan to measure your progress.

2. Track your earnings, savings, and spending.

This does not mean tracking every penny, but at the end of every year, you or your advisor should know roughly how much you earned, spent (including taxes), and saved in that year. This information will help you better define your goals and objectives, identify your challenges, and track your financial progress. Remember, you cannot manage what you do not track.

3. Track your net worth.

Maintain a balance sheet to track your assets and liabilities and compute your net worth at least once a year, and track this number over time.

4. Save for college.

Determine your philosophy about saving for your children’s education and then implement a plan that is consistent with that philosophy. Should you decide to save for your children’s education, please do so, but not at the expense of your retirement. While students can borrow money for their education, you cannot borrow for your retirement.

5. Eliminate debt.

If possible, plan to eliminate your debts and payoff your mortgage as you approach financial independence or retirement.

6. Have an investment philosophy and a plan.

The most important thing about an investment philosophy is to have one. Create an investment plan that is consistent with your philosophy and supports your financial goals. Follow your plan. Use an asset allocation and rebalance it regularly. Invest your savings regularly. Take advantage of dollar cost averaging. Understand your investments. Diversify.

7. Have an estate plan.

Have an up-to-date estate plan prepared by a good trusts and estate attorney. Be sure to implement the plan and review it regularly with an advisor. Be sure to consider the impact of estate taxes.

8. Insure the right risks.

Be properly insured until you are financially independent and can self-insure. Health, disability, life, long-term care are some of the risks that should be insured.


A good financial plan is a living document.

As time goes by your goals and aspirations may change and your plan should adjust and adapt accordingly.

A good financial plan will also dovetail into the structure of your investment portfolio. Your plan and portfolio should complement one another. All too often the investment portfolio is developed in isolation, without any regard to your plan. Avoid this mistake.