A Disciplined Approach to Financial Success

By Tim Thompson, Financial Planner,
CA license #0752552, The Prudential Insurance Company of America, Newark, NJ. Tim can be reached at 310-792-7470 or tim.thompson@prudential.com

Organization…Discipline…Sense of Purpose. They sound like qualities a football team would stress in preparing for the next weekend's opponent, but they can also be virtues in helping you achieve your financial goals.
Ideally, you should consult with a professional financial planner to map out a comprehensive strategy. But with personal commitment and perhaps some sacrifice, you can take several steps on your own to build a successful financial game plan.
Know Yourself -- Take inventory of your finances. Calculate your assets -- cash, IRAs, mutual funds, real estate, life insurance – and your liabilities, like a mortgage or consumer debt and deferred income taxes on investments. Prioritize your objectives by what’s most important to you: retirement planning, saving for college, increased investment returns, risk management, etc. Determine your current tax bracket and understand its implications for your strategy.
Start Saving Now -- Assuming an average 8% annual return and a retirement age of 65, every dollar saved at age 25 is worth nearly five times as much as a dollar saved at 45. Probably the first thing to do is you take full advantage of any employer match in any qualified savings program offered by your employers. Don’t miss out on the "Triple Treat" of an initial tax deduction, matching employer contributions and tax deferred earnings offered by most 401(k) or 403(b) plans.
Take Stock of the Market – Although past performance is no guarantee of future results, investments in the stock market have historically produced the superior returns over time. Mutual funds are probably the best way to start in the stock market. Find one that's well managed and meets the risk profile you will be comfortable with. If you can, sign up for the built-in discipline of a monthly automatic investment program. This will not only allow you to take advantage of dollar cost averaging, but may help you avoid the investment minimums otherwise required by some mutual fund companies. Also, if you choose a fund, plan to stick with it for a while. Remember even the best financial pros have trouble timing the market. (Of course, a periodic investment plan such as dollar cost averaging does not assure a profit or protect against a loss in declining markets. You should consider your ability to make continued purchases even through periods of low price levels.)
Curb Your Credit Cards -- If your total monthly debt payments (excluding your mortgage payments) are 20% or more of your monthly take-home pay, you’re probably overextended. Analyze your debts and see if any of the interest rates are more than the after-tax return on your invested savings. If they are, it makes sense to pay off these loans out of your savings. If you can't pay off your credit cards in full every month to avoid paying interest, shop around for the card with the lowest available rate.
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Be Wise with Windfalls -- If you come up with a significant lump sum -- a bonus, an inheritance, or maybe even a mid-size lottery win -- try to resist the urge to buy the hot sports car you've always dreamed of. Your long-term financial future will probably be a lot rosier, although not quite so dashing, if you plow at least part of it into a mutual fund or an IRA.
Keep Current -- Financial markets are a dynamic, fluid environment. That, combined with the impact of major life events such as births, deaths, inheritances, or new jobs, make it imperative that you carefully review your strategy every year or so. Naturally, your review should be rigorous and disciplined, just like any successful game plan.
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This material contains references to concepts that have legal, accounting and tax implications. Prudential Financial, its affiliates and representatives do not render tax or legal advice. Consult your own attorney and/or tax advisor for advice regarding your particular situation.

Investment advisory services are offered through Prudential Financial Planning Services, a division of Pruco Securities, LLC. Securities offered through Pruco Securities, LLC (Member SIPC), 751 Broad Street, Newark, NJ 07102-3777, a Prudential Financial company.
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IFS A044947 Ed. 10/2003