Fundamentals First

If you’ve never heard Fundamentals First in the context of financial decision making, don’t be alarmed. We believe that having goals is important; however, knowing where you should be financially at every stage in life is empowering.

The Fundamentals First approach helps people understand exactly what their financial picture should look like if they want to truly be prepared for anything. We’ve noticed that too many times people plan for the best and hope everything works out. If you are Fundamentally sound, you not only plan for the best, but you prepare for anything. The key to the Fundamentals First approach is that you cannot pick and choose which rules you want to follow; it is an all or nothing approach. If done in conjunction with one another, you will find yourself in a position of strength regardless of what life throws your way.

our process

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Imagine for a moment that you are a personal trainer and someone comes in to your gym and states; “I want to lose 30 pounds!” If you were the personal trainer, does their desire to lose 30 pounds really matter? No, what matters are their diet and exercise habits. Losing weight is one of the top new year’s resolutions every year, along with saving more money and eliminating debt and yet as a country we continue to struggle with every one of them.

Fundamentals matter most in the scenario above. The diet industry is a billion dollar industry because they know people want “losing 30 pounds” to sound easy. Take this pill; read this book; follow our diet program; and even buy and eat only our food is what people think matters. The truth of it is that if someone is not willing to permanently change their diet and exercise habits, all results are temporary.

Making financial decision is very much the same as my example above. Far too often, people want to take shortcuts or their attention is focused in the wrong areas. What we do first, is start with where people should be at each phase of their life to make sure they know where the real. In most cases, the goal itself is not the problem; it’s the path to get there that is the problem.

Where should I be financially?

I am in my 20's
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Protection:

  • At this point in your life, your most valuable asset is your ability to earn an income. Most people have some disability insurance provided through work, but have you maxed out what you have available to you both at work and independently? Just over 1 in 4 of today’s 20 year-olds will become disabled before they retire*.
  • Looking at your physical assets (house, car, jewelry, etc.), are they properly protected for what they would cost to replace? In some instances, replacement cost is not necessary on vehicles whose value may be very low; however, reviewing your insurance regularly as you add assets, or as your assets appreciate or depreciate will ensure you not only have the right amounts, you’re over-insuring.
  • Do you have a Will, Health Care Directive, or Power of Attorney? These documents may seem trivial at this point in your life, but if you have assets and you want to control who may inherit them should something happen to you, you will want a will. A Health Care Directive is important as it ensures your final wishes are carried out in the event you are unable to make final medical decisions. Finally, a Power of Attorney can prove to be extremely valuable in your 20’s should you choose to travel for work or pleasure and find yourself unable to tend to important matters back home.
  • How much Life Insurance do you have? In your 20’s, you are generally worth 30x your annual income. This may seem like a lot, but you will notice as you get older, the multiplier comes down. For most people in their 20’s getting the right amount of insurance can have tremendous value as you get older and realize your health may not be what it once was.

Assets:

  • Are you saving 15% of your GROSS Income? Building the right savings habits young will help you as life begins and continues throwing curve balls at you. Being prepared for the ups and downs life has to offer will be key for your long term success and can ensure you don’t find yourself consistently hitting the “reset” button your goals.
  • Do you have 1 years’ worth of your NET Income in a liquid account? Saving a healthy amount of money ensures you don’t overspend; having an appropriate amount of money saved ensures you are prepared for contingencies or opportunities should either one present themselves. The main cause of credit card debt is a lack of liquidity and always having access to 1 years’ worth of your Net Income is crucial to maintain flexibility as you make many important financial decisions.
  • On your 30th birthday, you should have Investable Assets equal to, or greater than 1x your annual GROSS Income.

Liabilities:

  • If you have or will obtain a mortgage, your mortgage payment should be no greater than 15% of your GROSS Income. This is a key point for people of all ages because it ensures you don’t live outside your means. It can be very tempting to afford a higher payment; however, keeping your payments low helps provide you with the flexibility to build the proper cash reserves and pay off other debt that may be weighing you down.
  • Pay off your short term debt. This debt includes high interest credit cards, student loans and other debt that may have been acquired over the course of years to obtain either an education or other assets. This short-term debt can have catastrophic ramifications if not paid off as soon as possible since it generally carries the highest interest.

*http://www.disabilitycanhappen.org/chances_disability/

I am in my 30's
Take Our Survey

Protection:

  • At this point in your life, your most valuable asset is your ability to earn an income. Most people have some disability insurance provided through work, but have you maxed out what you have available to you both at work and independently?

    Looking at your physical assets (house, car, jewelry, etc.), are they properly protected for what they would cost to replace? In some instances, replacement cost is not necessary on vehicles whose value may be very low; however, reviewing your insurance regularly as you add assets, or as your assets appreciate or depreciate will ensure you not only have the right amounts, you’re over-insuring.

  • Do you have a Will, Health Care Directive, or Power of Attorney? These documents may seem trivial at this point in your life if you haven’t started a family, but if you have assets and you want to control who may inherit them should something happen to you, you will want a Will. A Health Care Directive is important as it ensures your final wishes are carried out in the event you are unable to make final medical decisions and it’s very important that you don’t put the burden on your family to make end of life decisions. Finally, a Power of Attorney can prove to be extremely valuable in your 30’s should you choose to travel for work or pleasure and find yourself unable to tend to important matters back home. If something more drastic happens and you are unable to make financial decisions, the POA can again be critical to have in place.
  • How much Life Insurance do you have? In your 30’s, you are generally worth 20x your annual income. This may seem like a lot, but you will notice as you get older, the multiplier comes down. For most people in their 30’s getting the right amount of insurance can have tremendous value as you get older and realize your health may not be what it once was.

Assets:

  • Are you saving 15% of your GROSS Income? Building the right savings habits at this point will help you as life begins and continues throwing curve balls at you. Saving at least 15% of your gross income is critical as your debt increases due to possible purchase of a home, having children, or other obligations that require you to redirect some assets. As you budget your income, make sure you place this savings at the top of list in terms of “expenses”. If not, you will find yourself like most people trying to save what scraps might be left at the end of every month.
  • Do you have 1 years’ worth of your NET Income in a liquid or penalty free account? Saving a healthy amount of money ensures you don’t overspend; having an appropriate amount of money saved ensures you are prepared for contingencies or opportunities should either one present themselves. The main cause of credit card debt is a lack of liquidity and always having access to 1 years’ worth of your Net Income is crucial to maintain flexibility as you make many important financial decisions. If you find yourself with an expanded family and a mortgage, having a healthy reserve is critical to keeping yourself out of the debt trap.
  • On your 40th birthday, you should have Investable Assets equal to, or greater than 3x your annual GROSS Income. This alone is not enough to ensure success, but if accomplished in conjunction with the other items on the list, can enable you to feel more confident you can maintain your lifestyle as you near retirement. As your income goes up, the amount you should have saved goes up.

Liabilities:

  • If you have or will obtain a mortgage, your mortgage payment should be no greater than 15% of your GROSS Income. This is a key point for people of all ages because it ensures you don’t live outside your means. It can be very tempting to afford a higher payment; however, keeping your payments low helps provide you with the flexibility to build the proper cash reserves and pay of other debt that may be weighing you down. Some banks will approve people for loans that consume almost half of their income; however, that uses unrealistic expectations about how most people will use debt to increase their standard of living. Keep your mortgage payment in check and make sure everything else is in order before increasing your payment to eliminate your mortgage.
  • Pay off your short term debt. This debt includes high interest credit cards, student loans and other debt that may have been acquired over the course of years to obtain either an education or other assets. This short term debt can have catastrophic ramifications if not paid off as soon as possible since it generally carries the highest interest.
I am in my 40's
Take Our Survey

Protection:

  • At this point in your life, your most valuable asset is still your ability to earn an income. Most people have some disability insurance provided through work, but have you maxed out what you have available to you both at work and independently? Now is great time to also be thinking ahead to how you might want to address a Long Term Care scenario. According to www.Longtermcare.gov almost 70% of people over 65 will need some form of Long Term Care. It may seem like a long way off for you at this point in your life, but the longer you wait to have a conversation and to discuss your options about covering possible LTC expenses, the more costly it may become.

    Looking at your physical assets (house, car, jewelry, etc.), are they properly protected for what they would cost to replace? In some instances, replacement cost is not necessary on vehicles whose value may be very low; however, reviewing your insurance regularly as you add assets, or as your assets appreciate or depreciate will ensure you not only have the right amounts, you’re over-insuring.

  • Do you have a Will, Health Care Directive, or Power of Attorney? These documents can be extremely important in your 40’s, especially as you gather more assets and your children get older. At every point in your life, if you have assets and you want to control who may inherit them should something happen to you, you will want the appropriate legal documents in place. A Health Care Directive is important as it ensures your final wishes are carried out in the event you are unable to make final medical decisions and it’s very important that you don’t put the burden on your family to make end of life decisions. Finally, based on the things you want to make sure happen and don’t happen, a Power of Attorney can be a very useful tool to have as part of your overall estate plan. If you haven’t done so yet, consult an attorney and share your wishes so they can better assist with what you might need. Also, don’t forget to review your estate planning documents regularly.
  • How much Life Insurance do you have? In your 40’s, you are generally worth 15x your annual income. At this point, life insurance generally starts to take on different meanings for a lot of people. Depending on the age of your family, you may begin to see life insurance as a useful tool in your estate planning and legacy strategies. At this point in your life, reviewing your life insurance can be a valuable exercise so you can have the right conversations about what amount you should have, and what type of insurance you should have. To many, life insurance is a necessary evil, but if used properly, you can find it to be a unique asset.

Assets:

  • Are you saving 15% of your GROSS Income? As in previous years, having strong savings habits are key. If you have found a way to save 15% of your gross income on a regular basis, the conversation you should be having now is whether you’re saving in the right places. Conflicting priorities become a reality now as you face the reality of trying to pay off debt, save for retirement, and possibly help fund a college education. Where you put those dollars is very much a balancing act between your finances and emotions.
  • Do you have 1 years’ worth of your NET Income in a liquid account? Saving a healthy amount of money ensures you don’t overspend; having an appropriate amount of money saved ensures you are prepared for contingencies or opportunities should either one present themselves. As you manage through the many things you are trying to accomplish in life, this liquidity will help make some decisions easier. Far too often, people have not saved enough, or have saved in the wrong places and the answer to many financial obstacles is increasing debt.
  • On your 50th birthday, you should have Investable Assets equal to, or greater than 5x your annual GROSS Income. This alone is not enough to ensure success, but if accomplished in conjunction with the other items on the list, can enable you to feel more confident you can maintain your lifestyle as you near retirement. As your income goes up, the amount you should have saved goes up.

Liabilities:

  • If you have or will obtain a mortgage, your mortgage payment should be no greater than 15% of your GROSS Income. This is a key point for people of all ages because it ensures you don’t live outside your means. It can be very tempting to afford a higher payment; however, keeping your payments low helps provide you with the flexibility to build the proper cash reserves and pay off other debt that may be weighing you down. Some banks will approve people for loans that consume almost half of their income; however, that uses unrealistic expectations about how most people will use debt to increase their standard of living. Keep your mortgage payment in check and make sure everything else is in order before increasing your payment to eliminate your mortgage.
  • This is often a point in life where many people purchase a new home or refinance their current home. Keep in mind that a 15 year mortgage is great since it will allow you to pay off your mortgage sooner and with less interest than a fully amortized 30 year loan; however, if you do not have the right cash reserves and savings habits, you may find yourself is a sticky situation should your financial situation change.
  • Pay off your short term debt. Credit card debt continues to be a major issue for people in their 40’s and can often times be the difference maker when it comes to savings. Put a plan in place to pay off any debt that may be looming out there and focus on building your cash reserves again. The lack of cash reserves is typically what causes this debt and once it is acquired, it is a vicious cycle to break.
  • Plan for your retirement liabilities. Pay special attention to the debt you have that might carry over in to retirement and make sure you are planning for this. Also, understanding the difference of pre tax and post tax retirement savings is crucial at this point in your life since you have an appropriate amount of time to make any adjustments necessary. Healthcare and Taxes are two of the biggest expenses to retirees and too many people completely forget to address taxes.
  • I am in my 50's
    Take Our Survey

    Protection:

    • At this point in your life, retirement is not that far off. Regardless of what retirement may look like to you, one thing is clear; you cannot afford to have an unexpected event derail your plans. Disability insurance is something that can be critical at this point in your life. If you have not yet maxed out your available coverage, you owe it to yourself to explore your options. Keep in mind that the main causes of disability claims are not due to injury, rather illness.
    • If you have not yet addressed the topic of Long Term Care, now is a great time to do so. You may have noticed either your parents or grandparents experience limitations in retirement and often times this is what causes people in their 50’s to explore the topic. According to www.Longtermcare.gov almost 70% of people over 65 will need some form of Long Term Care. Not all people should buy insurance to cover Long Term Care; however, everyone should know how their possible expenses might be paid for.
    • Looking at your physical assets (house, car, jewelry, etc.), are they properly protected for what they would cost to replace? In some instances, replacement cost is not necessary on vehicles whose value may be very low; however, reviewing your insurance regularly as you add assets, or as your assets appreciate or depreciate will ensure you not only have the right amounts, you’re over-insuring.
    • Do you have a Will, Health Care Directive, Power of Attorney, or Trust? If you do not have these, you owe it to yourself and the estate you’ve accumulated to document your wishes. You may have children, grandchildren, church or charities you want to dedicate resources too and if you do not get those wishes documented clearly, that may never happen. If you have some documents in place, now is a great time to have those reviewed for accuracy.
    • How much Life Insurance do you have? In your 50’s, you are generally worth 10x your annual income. At this point, life insurance generally starts to take on different meanings for a lot of people. Depending on the age of your family, you may begin to see life insurance as a useful tool in your estate planning and legacy strategies. Reviewing your life insurance can be a valuable exercise so you can have the right conversations about what amount you should have, and what type of insurance you should have. To many, life insurance is a necessary evil, but if used properly, you can find it to be a unique asset.

    Assets:

    • Are you saving 15% of your GROSS Income? As in previous years, having strong savings habits are key. If you have found a way to save 15% of your gross income on a regular basis, the conversation you should be having now is whether your saving in the right places. Conflicting priorities become a reality now as you face the reality of trying to pay off debt, saving for retirement, and possibly help fund a college education. Where you put those dollars is very much a balancing act between your finances and emotions.
    • Do you have 1 years’ worth of your NET Income in a liquid account? Saving a healthy amount of money ensures you don’t overspend; having an appropriate amount of money saved ensures you are prepared for contingencies or opportunities should either one present themselves. As you manage through the many things you are trying to accomplish in life, this liquidity will help make some decisions easier. Far too often, people have not saved enough, or have saved in the wrong places and the answer to many financial obstacles is increasing debt.
    • On your 60th birthday, you should have Investable Assets equal to, or greater than 7x your annual GROSS Income. This alone is not enough to ensure success, but if accomplished in conjunction with the other items on the list, can enable you to feel more confident you can maintain your lifestyle as you near retirement. As your income goes up, the amount you should have saved goes up.

    Liabilities:

    • If you still have a mortgage, it should consume no more than 15% of your GROSS Income. This is a key point for people of all ages because it ensures you don’t live outside your means. It can be very tempting to afford a higher payment; however, keeping your payments low helps provide you with the flexibility to build the proper cash reserves and pay of other debt that may be weighing you down. This is also important at your age so you can dedicate the appropriate resources to your upcoming retirement. Keep your mortgage payment in check and make sure everything else is in order before increasing your payment to eliminate your mortgage.

      If you are considering refinancing your mortgage, keep in mind that a 15 year mortgage is great since it will allow you to pay off your mortgage sooner and with less interest than a fully amortized 30 year loan; however, if you do not have the right cash reserves and savings habits, you may find yourself is a sticky situation should your financial situation change.

    • Pay off your short term debt. Credit card debt continues to be a major issue for people in their 50’s and can often times be the difference maker when it comes to savings. Put a plan in place to pay off any debt that may be looming out there and focus on building your cash reserves again. The lack of cash reserves is typically what causes this debt and once it is acquired, it is a vicious cycle to break.
    • Plan for your retirement liabilities. Pay special attention to the debt you have that might carry over in to retirement and make sure you are planning for this. Also, understanding the difference of pre tax and post tax retirement savings is crucial at this point in your life since you have an appropriate amount of time to make any adjustments necessary. Healthcare and Taxes are two of the biggest expenses to retirees and too many people completely forget to address taxes.
    I am in my 60's
    Take Our Survey

    Protection:

    • At this point in your life, retirement is hopefully in site. Regardless of what retirement may look like to you, one thing is clear; you cannot afford to have an unexpected event derail your plans. Ensuring a disability doesn’t delay or make impossible your retirement dreams is important; however, at this stage of your life there are more options in case something does happen. I am not saying you don’t need coverage, so if you have it, keep it. If you don’t have adequate disability insurance coverage then you might be ok depending on the state of your other financial affairs, which will be discussed below.
    • If you have not yet addressed the topic of Long Term Care, now is a great time to do so. According to www.Longtermcare.gov almost 70% of people over 65 will need some form of Long Term Care. Not all people should buy insurance to cover Long Term Care; however, everyone should know how their possible expenses might be paid for. According to the CDC, the percent of adults aged 65 and older with at least one basic actions difficulty or complex activity limitation is 60.5%*. You owe it to yourself and your loved ones to have a conversation about your future wellbeing.
    • Looking at your physical assets (house, car, jewelry, etc.), are they properly protected for what they would cost to replace? In some instances, replacement cost is not necessary on vehicles whose value may be very low; however, reviewing your insurance regularly as you add assets, or as your assets appreciate or depreciate will ensure you not only have the right amounts, you’re over-insuring.
    • Do you have a Will, Health Care Directive, Power of Attorney, or Trust? If you do not have these, you owe it to yourself and the estate you’ve accumulated to document your wishes. You may have children, grandchildren, church or charities you want to dedicate resources too and if you do not get those wishes documented clearly, that may never happen. If you have some documents in place, now is a great time to have those reviewed for accuracy.
    • How much Life Insurance do you have? In your 60’s, you are generally worth 5x your annual income. At this point, life insurance generally starts to take on different meanings for a lot of people. Depending on the age of your family, you may begin to see life insurance as a useful tool in your estate planning and legacy strategies. Reviewing your life insurance can be a valuable exercise so you can have the right conversations about what amount you should have, and what type of insurance you should have. To many, life insurance is a necessary evil, but if used properly, you can find it to be a unique asset.

    Assets:

    • Are you saving 15% of your GROSS Income? As in previous years, having strong savings habits are key. If you have found a way to save 15% of your gross income on a regular basis, the conversation you should be having now is whether your saving in the right places. For most in this age range, there aren’t too many conflicting priorities that may grab your attention, unless you find yourself in a spot where you have accumulated some debt you want to relieve yourself of for retirement. It is important to note that retiring with debt is ok, but you must be sure you can account for its expense in your retirement plans.
    • Do you have 1 years’ worth of your NET Income in a liquid account? This is a very important point for people in their 60’s. As you begin to discuss distributions strategies in retirement, having a strong liquid account can really help you when it comes to minimizing your effective tax rate and more importantly, the way and the amount of income you may need to take from retirement accounts.
    • On your retirement date, you should have Investable Assets equal to, or greater than 10x your annual GROSS Income. This alone is not enough to ensure success, but if accomplished in conjunction with the other items on the list, can enable you to feel more confident you can maintain your lifestyle as you near retirement. What is important to note here is that the multiplier used above does not take in to account a substantial increase in your lifestyle during retirement. Each of the points made throughout this summary are made with the idea of maintaining your current lifestyle in retirement and must be accomplish in conjunction with one another. If you have different plans for your income in retirement, you may want to increase your multiplier.

    Liabilities:

    • If you still have a mortgage, it should consume no more than 15% of your GROSS Income. This is a key point for people of all ages because it ensures you don’t live outside your means. It can be very tempting to afford a higher payment; however, keeping your payments low helps provide you with the flexibility to help build the proper cash reserves and pay of other debt that may be weighing you down. This is also important at your age so you can dedicate the appropriate resources to your upcoming retirement. Keep your mortgage payment in check and make sure everything else is in order before increasing your payment to eliminate your mortgage.

      If you are considering refinancing your mortgage, keep in mind that a 15 year mortgage is great since it will allow you to pay off your mortgage sooner and with less interest than a fully amortized 30 year loan; however, if you do not have the right cash reserves and savings habits, you may find yourself is a sticky situation should your financial situation change.

    • Pay off your short term debt. Credit card debt continues to be a major issue for people in their 60’s and can often times be the difference maker when it comes to savings and your retirement date. Put a plan in place to pay off any debt that may be looming out there and focus on building your cash reserves again. The lack of cash reserves is typically what causes this debt and once it is acquired, it is a vicious cycle to break.
    • Plan for your retirement liabilities. Pay special attention to the debt you have that might carry over in to retirement and make sure you are planning for this. Also, understanding the difference of pretax and post-tax retirement savings is crucial. Many retirees find themselves in a position where most if not all their retirement income dollars are taxable and this is an expense they failed to account for in their planning. Healthcare and Taxes are two of the biggest expenses to retirees and these too must be taken in to account when determining your retirement income strategy.

    * http://www.cdc.gov/nchs/fastats/disability.htm

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