"Ten Steps to Get You and Your Finances Where You Want to Go"Ten Steps to Get You and Your Finances Where You Want to Go

As a result of the 2008 economic meltdown, it became stunningly obvious that many Americans had not managed their finances well. What we learned as the economy slipped into a Great Recession was that many people lived paycheck to paycheck. Many had mortgages they couldn’t afford. Many took unnecessary investment risks. And far too many weren’t saving a dime let alone putting money away for their kids’ college or their own retirement. Financial advisor John Vento says it’s time for Americans to get their financial houses in order. He says everyone should make reaching financial independence—or their Point X, as he calls it—a top priority.

“Financial independence isn’t something that’s just for wealthy people,” says Vento, president of his New York City-based Certified Public Accounting firm, John J. Vento, CPA, P.C. , and Comprehensive Wealth Management, Ltd., as well as the author of the new book Financial Independence (Getting to Point X): An Advisor’s Guide to Comprehensive Wealth Management .

“And it’s not something that’s guaranteed just because you’re a top earner. Financial independence, or Point X, is literally and fundamentally the point at which we can stop working for our money and our money starts working for us. It is the spot at which our savings and investments alone generate enough income to support our chosen lifestyle, and allow us to continue to live that lifestyle without having to work for a paycheck. It is the place where we have achieved true financial independence.”

A CPA and CFP® with decades of experience, Vento knows exactly what it takes to sustain and build wealth. His new book is a complete resource for anyone concerned with building wealth and financial security in today’s no-guarantee financial environment. Authoritative, comprehensive, and up to the minute, it is an essential financial guide for every individual and every family.

Of course, no one—not even the super wealthy—can just snap their fingers and reach financial independence,” No matter how you define your particular Point X, whether it is an annual income of $25,000 or an estate of $250 million, you need to not only understand but effectively deal with ten fundamental wealth management issues.

Throughout our lives, we will encounter many questions and problems relating to money, but every one of them will fall, in some way, under one or more of these ten key wealth management issues. It is important that you understand them and work within them productively—that you become financially literate.”

To that end, Vento covers each of the ten key wealth management issues in great detail in his new book. Read on for an overview of each one of them:

Live within your means. “Living within your means” is living on less than your take-home salary and any other resources you receive, such as income from an annuity or a trust. Living within your means does not mean existing from paycheck to paycheck. Living within your means does not mean living on credit or on loans. Living within your means does not mean turning to parents or friends to pay the tab when you cannot quite meet the rent or need to buy a new computer. It means not only figuring out how to pay for your needs and wants, but budgeting your income so that you still have a little money left over.

Understand taxes. The average American family pays more than one-third of its income in federal, state, and local income taxes—and even more in property taxes, excise taxes, sales taxes, and other hidden taxes, such taxes on cigarettes, liquor, and certain luxuries. In other words, for just about everyone, taxes are our biggest personal expense, by far.

Determine your financial position. Determining your financial position does not mean simply knowing your annual salary or identifying how much you take home in every paycheck—although that is definitely part of it.

In order to live within your means, you must have a precise understanding of your financial assets, liabilities, and net worth, by preparing a Statement of Financial Position. You also need to know—and to track on a regular basis—where all your personal funds are coming from and going to: This is your Statement of Cash Flow. Finally, after taking a careful look at your current financial position, you must determine your financial goals, whether for five years, ten years, or throughout your retirement years. Only then can you realistically budget for the future—and of course, reach Point X.

Manage debt. For many people, debt is a scary concept, although it need not be. The fact is there is good debt and there is bad debt. Understanding the difference between bad debt and good debt is imperative to becoming financially literate and financially independent. Basically, good debt is money that people borrow for purchases and situations that, in the long term, will help them amass wealth and ultimately reach Point X. Some examples of good debt include student loans, business loans, certain investment asset loans, and some personal-use asset loans (such as an affordable home mortgage). In contrast, bad debt is money that people borrow (usually on a credit card) for the purchase of nonessential expenditures as well as many personal-use assets.

Insure your health and life. Even a sound, carefully planned investment strategy can fall apart if you have not prepared properly for unforeseen problems concerning health and life. If you or a member of your family is hit with a prolonged illness, a severe injury, a disability, or death (especially of the primary wage earner), the planning and investing you have so carefully developed can quickly disintegrate.

Protect your property with insurance. Protecting your property by implementing the proper risk management strategies is critical to achieving and maintaining your financial independence. The type and extent of insurance you need will change throughout your lifetime, as will the types of assets and the extent of wealth you have accumulated. The three major personal property risk management issues include homeowner’s insurance, automobile insurance, and umbrella liability insurance.

Pay for college. If you are like most parents, one of your biggest concerns is, How am I going to pay for my children’s education when the time comes to send them off to college? Some parents hope their child will receive academic or athletic scholarships or grants. But for most parents, the reality is they will have to pay the majority of the cost of college from their savings—or even worse, they may have to go into debt.

Plan for retirement. Everyone should be planning financially for retirement, regardless of how old or young they are. Especially given that people coming into retirement are facing concerns that retirees did not face 20 or 30 years ago, including living longer and supporting themselves throughout turbulent financial times.

Manage your investments. The rewards of proper investing can be very generous when investors adopt an investment discipline that allows them to purchase quality investments and then allows those investments to take their course. This may have been best said by Warren Buffett, the primary shareholder, chairman, and CEO of Berkshire Hathaway who is also considered by many to be the most successful investor of the twentieth century.

“It is critically important that you select an investment model that you are willing to stay with, even in the worst of markets. The appropriate investment plan for you should be the one that provides you with the highest potential rate of return in the long run that is within your risk tolerance.”

Preserve your estate. If you do not take the necessary steps to preserve your estate, unintended beneficiaries may take a significant amount of your estate instead. These unintended beneficiaries include the federal and state governments, the state administrator, attorneys, and perhaps even relatives you have not spoken to in decades. The money you may spend today on a qualified estate attorney may save your estate significant dollars in both estate taxes and administrative costs down the road.

“Financial independence—the point at which we can stop working for our money and our money starts working for us—or Point X, as I call it in my book, is the financial ideal that we all seek,” says Vento. “With the right plan and a commitment to making the necessary life changes, anyone can reach their Point X…but you have to be dedicated to making the lifestyle changes and taking the necessary steps to achieve financial security.”

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John J. Vento is author of Financial Independence (Getting to Point X): An Advisor’s Guide to Comprehensive Wealth Management. He has been the president of the New York City-based Certified Public Accounting firm John J. Vento, CPA, P.C., and Comprehensive Wealth Management since 1987. His organization is focused on professional practices, high net worth individuals, and those committed to becoming financially independent. He has been the keynote speaker at various seminars and conferences throughout the United States that focus on tax and financial strategies that create wealth. John has been ranked among the most successful advisors of a nationwide investment service firm and has held this distinction since 2008.