Principles That Guide Planning

Progress: The benchmark for success in personal financial planning is progress, not perfection.  Excellence is more a product of good habits than a revolutionary event.

Discipline: A household must consistently spend less than it earns, regardless of the level of income.  The foundation of financial success is a disciplined cash flow system (such as a budget), which is designed to make household spending decisions purposefully and in advance.

Debt: Debt wisely used can help build wealth, but fueling unsustainable lifestyles with borrowing is the quickest path to financial ruin.  We are well-served to pursue an eventual debt-free path. 

Buffer: Changes, surprises and failures are guaranteed, but their impact can be minimized through the creation of a financial buffer.  This buffer—a cushion of cash savings—will help lessen the burden of emergencies and other unexpected events.

Risk: It is better to make an informed risk management decision than to act on a consequential reaction.  Many risks can be adequately managed through risk avoidance, risk reduction or self-insuring through risk assumption.  However, the potential for catastrophes from which a household could not survive financially should be transferred through insurance.  

 Investing: Investors have succeeded utilizing strategies on a continuum ranging from entirely passive to surprisingly active.  None succeed without following a disciplined strategy.

 Taxes: Taxes are an important element of financial decisions, but rarely the most important.  Tax minimization is wise while tax evasion is illegal.

 Giving: Giving of time and money is good for everyone, donors and recipients alike, and may also result in a reduction in taxes.

 Future: Plan for tomorrow, live for today.  Failure to plan for major expenses, such as education and retirement, is folly; but deferring all gratification for the future strips the joy from life today.  

 Estate: Everyone, with very few exceptions, should have well-conceived and clearly written estate planning documents including, at minimum, a will (with or without a revocable trust), a durable financial power of attorney and advance directives (including a health care power of attorney and living will).

 Legacy: Leaving a legacy—a relational impact on friends, family and community—is as or more important than leaving an estate—the sum of your assets less your liabilities at death.

 Guidance: Whether from a book, blog, article, class, radio program, TV show, advisor or specialist, financial advice is only beneficial to the degree that it is consistent with your values and goals and leads to action.