Financial Security

Most people don't worry much about money when they're young. Retirement feels distant. But as you get older, financial security becomes harder to ignore—and more urgent to plan for.

This article walks through five basic principles that can help you build a financial plan. They're not complicated, but they do require discipline and a willingness to think ahead about what you actually want your life to look like.

Five principles for financial security

by Dr. Tom Olson

A financial services ad used to say: "You can be poor when you're young, but you can't be poor when you're old." It stuck with me because it's true.

I was broke when I was young, and so was everyone I knew. We shared apartments, split groceries, borrowed money casually. It worked because we didn't have much to lose and time to recover. You can't do that at seventy.

I'm not a financial expert, but I've used five basic principles to build security for my family. We're not wealthy, but I'm confident we won't end up destitute, and my wife will be okay if I die. That's the floor I wanted to reach.

Building financial security isn't complicated. You need to do five things.

1. Know what you actually want. Start by listing what you have: assets, income, debts, monthly expenses. Then decide what you're trying to achieve—both before retirement and after. Think about what you want to leave for your kids, if education matters to you. Get specific.

2. Protect what you have. Serious illness, accidents, and death happen. You need life insurance to cover lost income, disability insurance for accidents, and homeowners or renters insurance for your possessions. Don't skimp on this. One major crisis can wipe out years of saving.

3. Save before you spend. Try to save at least 10% of your pre-tax income, more if you can. Pay down your mortgage faster when rates are high—a 6% mortgage hurts more than a savings account earning 1.5% helps. Max out your retirement account (401k or equivalent) every year, and contribute at the start of the year, not the end. Compounding matters more than you think.

4. Stay out of credit card debt. Pay off your balance every month. If you're carrying savings at low interest while paying credit card interest, use the savings to pay off the card. The math is brutal otherwise. If you need a loan, negotiate a personal loan through your bank—the rates are usually better than credit card cash advances.

5. Write a will. If you die without one, the courts decide how your money and possessions are divided. Odds are good they'll make choices you wouldn't have made. A will takes a few hours and costs less than a week's groceries. It's the difference between your family getting what you wanted and them spending years and thousands of dollars fighting probate.

These five principles are a starting point. Any financial advisor can help you refine them. My one regret is not getting professional help earlier. I handled a lot of this alone when I could have been smarter about it. Don't make that mistake. Get advice from someone who knows the details of your situation.

About the author
Dr. Tom Olson is the author of Don't Die With Your Helmet On. Visit www.Dontdiewithyourhelmeton.com for more information.

Without a Will, the court or government will decide how your property and possessions are divided. It is highly unlikely that their decisions will reflect your personal wishes.

Making a Will doesn’t mean the Grim Reaper is about to pay you a visit. It simply ensures your affairs are handled as you wish, allowing you to live with peace of mind knowing your loved ones are protected.

These five principles are a starting point, suggestions that any financial management professional can build upon. If I have one regret about how I’ve handled my financial affairs over time, it is not enlisting enough professional help. When we started, the financial management business was smaller and less sophisticated than it is today. Who knows, with better help, I might be writing this from some warm Caribbean tax haven rather than a cold Calgary office!

My best advice is: "Don't try this alone—use a trained professional."

About The Author
Dr. Tom Olson is the author of Don’t Die With Your helmet On. Visit www.Dontdiewithyourhelmeton.com for more information about Dr. Tom, the book and his work.