Checklist Financial FreedomBy Miranda Marquit

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Many of us dream of achieving financial security.

However, for most of us, financial security is not

something that just happens. It requires planning, and

effort. It is possible to achieve financial security -- as long

as you are willing to put forth some effort. Here are some

things to consider as you strive for financial security:

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Back to BasicsBefore you can accomplish your goal of financial security,

you need to build a solid financial foundation. This means

going back to the basics. You can’t expect to be financially

free if you don’t follow the principles of Personal Finance 101.

Here is a refresher on the basics of good money practices:

Earn more than you spend: It’s not new. It’s not unique. But it

is essential that you observe the first rule of personal finance if

you expect to eventually be financially secure. You will never

have financial freedom if you can’t adhere to this basic rule.

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Your expenditures should never exceed your income. If you don’t

make enough money to cover your expenses, you have two

options:

1. Cut some of your spending: Prioritize your spending, and

stop paying money for things that aren’t as important to you.

Reduce your expenses, and look for ways to save money.

2. Make more money: There are a number of ways that you

can make more money each month. You can even consider

getting another job.

Combine cutting your spending with earning more money, and

you can almost certainly reach a point where your cash flow is

always positive.

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Borrow as little as possible: Debt is one of the worst things for financial security. When

you have debt obligations hanging over your head, your money isn’t your own. While

borrowing is sometimes unavoidable (especially for large purchases like homes and

a college education), you should borrow only the minimum. Just because someone

will lend you a great deal of money doesn’t mean you should take it. Figure out the

absolute minimum you can borrow -- and then pay it off as soon as you can. The less

debt you have, the more financial security you will enjoy.

Save up for purchases: Don’t spend money you don’t have. Rather than putting that

big screen TV on your credit card, save up for a few months. For most purchases, it is

possible to save up. From vacations to new furniture, it is possible to create a savings

plan for your goals. This requires a certain degree of discipline, but if you can delay your

gratification, you will have more financial security, since you won’t always be in debt for

items of little true value.

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Save for a Rainy Day: You never know when something unexpected will happen,

resulting in an expense you didn’t plan for. Whether it’s a car repair, or a cut in hours at

work, you never know what could happen next. As a result, it’s vital that you set some

money aside for emergencies. Create an emergency fund that can handle most smaller

setbacks. You can build it little by little, but it does need to be built. Your emergency

fund will provide you with a safety net that can help prevent total financial catastrophe.

Purchase adequate insurance: For bigger potential setbacks, adequate insurance is

a necessity. You should have health insurance to cover medical emergencies. Even

the best emergency fund is unlikely to be up to covering a long-term hospital stay.

Health insurance can help take the edge off, and can prevent an emergency from

destroying your finances. Additionally, you should have adequate insurance coverage

for your home and car. Consider your situation, and determine whether or not disability

coverage might be a good idea. Finally, if you are concerned about the financial

security of your family you should also make sure to purchase life insurance.

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Charitable contributions: Part of well-rounded personal finances

is contributing to charity. Many financial experts agree that, as

counter-intuitive as it may sound, giving some of your money away

can actually help you improve your overall financial situation.

Consider the causes that you wish to support, including your

church, local charities and national charities. Remember, too, that

you can contribute goods, as well as your time, to charities.

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Plan for Life EventsOnce you have a solid financial base established, and once you are following

good money practices, you can start planning for life events. Preparing for life’s

milestones is important, since many of them require a substantial amount of

money. Some of the life events that you can plan for include:

Retirement: This is a huge deal. Your entire future depends on your ability to

prepare for retirement. You should start preparing for retirement, and setting

money aside, as soon as you can. Your first, best choice for retirement savings

is through a tax-advantaged retirement account. Most people can contribute

to an employer-sponsored plan through work. Most of the time, these plans

are either 401k plans or 403b plans (similar to 401ks, but meant for non-profit

employees and some government employees).

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If your employer offers a matching contribution, you should take it. That’s

free money on the table. Even if you don’t have access to a retirement

account through your employer, you can still open an account; anyone

can open an IRA. Each of the most common tax-advantage retirement

plans (IRAs, 401ks and 403bs) come in two types:

1. Traditional: These plans offer an immediate tax advantage. The

contributions are tax-deductible, lowering your taxable income and

saving you money. However, when you begin making withdrawals

during retirement, you have to pay income tax on the money you

take out each year.

2. Roth: When you put money into a Roth account, it grows tax-free. You

can’t deduct your contributions to a Roth 403b, Roth 401k or Roth IRA,

though. This means that you have to pay tax on your income before

making your contributions. However, when you go to withdraw the

money later, you won’t have to pay income tax on it.

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Choosing which type of retirement account to open can be a daunting task. In most cases,

you should decide based on what you think your tax situation will be later. If you think you

will be in a higher tax bracket during retirement, or if you think taxes will go up, paying

income tax now, while it’s lower for you, makes more sense. However, if you think that you

won’t owe as much later, taking the deduction now might be the best course of action.

Remember that you and your partner each has an account. So, while there are limits to

how much you can contribute to each type of tax-advantaged account each year, that

limit applies to accounts in your name. If your spouse can contribute to his or her own

account, it’s possible to increase your total contributions. The more you can contribute now,

the better off you’ll be during retirement.

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Saving for college: You should not put your retirement at risk for your children’s college

education. As selfish as it sounds, you do need to make sure that your finances are in a good

place before you pay for things your children are capable of funding on their own. Your

financial security will be ruined if you spend everything, and mortgage your future, so your kids

can go to college. It’s been famously pointed out that there are loans for college, and there

aren’t any for retirement.

However, that doesn’t mean you can’t plan to help out. You can encourage your children to

work hard for scholarships, and to save up what they can. And, you can also help them by

opening, and contributing to, special college savings accounts. These accounts invest your

money, helping it grow at a faster rate than it would just sitting in a savings account or money

market account. There are two main savings accounts that can be used for college:

1. Coverdell Educational Savings Account

2. 529 Plan

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While you do need to make contributions with after-tax dollars, the money grows

tax-free as long as it is used for qualified education expenses when it is withdrawn.

Additionally, there are some states that offer a deduction for state tax purposes when

you make contributions to these plans.

It is also worth noting that you can open a IRA for your child, as long as he or she has

earned income. The money comes with a tax advantage, and one of the reasons

money can be withdrawn from an IRA before age 59 1/2 without incurring an extra

penalty is for educational expenses (although some of the withdrawal might be

subject to income tax).

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And, of course, you can also have your child take out

student loans. However, the amount borrowed can be

significantly reduced if you start early in your child’s life to

save for college costs. You might surprised at how much

can accumulate if you are consistent in your contributions.

Other life milestones: Just as you can save up for

purchases, like computers and a weekend getaway, you

can also plan for other life milestones. Chances are that

you will need to help your children pay for weddings, save

up for a down payment on your first house, or prepare for

some other life event. Realize that these are events that

will happen, and start now to prepare for them. Create a

fund meant to help you reach certain goals. You can even

use an investing plan to grow your money to meet your

life milestones.

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Take it to the Next LevelPlanning and preparing can go a long way toward helping you achieve financial security.

Indeed, if you prepare with the help of the steps above, you will probably be fairly secure

financially. However, it is possible to take your efforts to the next level, and find increased

financial security with the following principles:

Income diversity: Most people go through their lives with only one source of income:

A day job. However, this might not be the best way to achieve optimal financial security.

Instead, you can look for ways to diversify your income streams. That way, if you lose your

job, or your hours are cut, you have at least one other revenue stream. Income diversity

will help reduce the strain on your emergency fund, and help you stretch your dollars

while starting a new venture, or looking for a new job. Here are some ways that you can

diversify your income:

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• Start a business: Thanks to the Internet, there are plenty of opportunities to work from

home. You could start a side business and develop an income stream. From dog-walking

to freelancing to selling hand-made crafts, there are plenty of ideas for side businesses

that you can start in your spare time.

• Build an income portfolio: It is also possible to create an income portfolio that can provide

you with regular revenue. It can take some time to build up your income through this

method, but once you have a good portfolio, the regular income can be used to provide

you with greater security.

• Royalties: If you are creative, you can write a book (sell it yourself as an ebook), take

pictures that can be used on stock image sites, or even sell music you have written.

The royalties you earn can be a great source of income.

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• Start a web site: You can also start a web site or a blog.

As with most revenue streams, it can take some time

to build it up so that you receive a significant monthly

addition to your income. However, it is possible to earn

money through ad revenue and affiliate programs once

you have attracted more traffic to your site.

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• Rental: If you are in a position to buy a rental, you could actually do so.

Then, you would receive monthly income in the form of rental payments

from tenants. As long as you can deal with the issues that come with being

a landlord, this can be a way to cultivate additional income.

Consider, too, that you could get a second job, or, if your partner currently

stays home, he or she could work part-time, or be the one to work from home

to earn income. If you can get two or three other sources of income going --

especially if that income is mostly passive -- you will have a much better safety

net. In the better times, you can use the money to boost your emergency fund,

or reinvest it. During tough times, you will at least have other sources of income

to help you through.

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Estate planning: If you want to make sure that your assets are protected, and your wishes are

carried out, some estate planning is in order. A good estate plan isn’t just about what happens after

you die. It can also encompass the things you do to make sure that you are taken care of later in

life. What if you become incapacitated? You want to make sure that your interests are properly

protected. The right documents can ensure that you have long-term care, and that decisions with

your money are for your own good. From trusts, to wills, to other financial tools, you can make sure

your desires are upheld, and your legacy remains intact.

A good estate plan, including trustees, power of attorney, and a health care proxy, can be part

of your overall financial security, since your wishes will be consulted if you can no longer make

decisions, and you will be protected from those who would take advantage of your situation. Plus,

a good estate plan will also protect your assets when you pass, reducing the tax liability of your heirs.

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Final WordFinancial security isn’t something that just

happens to you one day. Rather, it is a

process. If you want to be financially free,

you need to get back to basics, and plan

for the future. Start small, and build.

PlantingMoneySeeds.com

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