Building Your Fiscal House

I’m excited to explore the concept of a “fiscal house”?that I've presented in earlier articles again, but I want to take the level up a notch and consider some additional strategies to build that house further.?

A Strong Foundation

If you were building a home for your family, you would certainly want to start with a strong foundation. I live in the foothills of the Rocky Mountains, and our soil is rocky.? If I wanted to build a garden, I’d need to bring in new soil. For building a house on, this soil is excellent.? It can be challenging for contractors to blast through the boulders, but once they’re through those, there’s some great rock for building a strong foundation. Contrast that with the challenges of building a beach house in Florida.? Imagine the sands shifting as the tides come in and out and the devastation of hurricanes we’ve seen on the news.? That's not what we want for our family home, and it's certainly not what we want for our fiscal house, so make sure you start with a strong foundation.?

Building a Plan

At Lord and Richards, we talk with people every day who are concerned that world events that are out of their control will disrupt their financial future and their retirement. At Lord and Richards, we help you build a comprehensive plan to achieve worry-free financial independence where you do not have to work. The first piece of that plan we want to get in place is the foundation of your fiscal house.?

Cash in Your Foundation

In our Financial Independence Roadmap?, we first want to ensure you have cash in your foundation for emergencies, fun, vacations, or whatever you would love to be doing in retirement. You want to have cash on hand and available. However, not all your money should be in cash, as that presents a real growth problem.?

You do want to be safe and liquid in an emergency fund. Typically, we recommend about three to six months of your ordinary expenses. With that in place, you then need to focus on growth.? We’re seeing some fantastic interest rates on savings accounts right now, but that won’t last forever. We want your reserve and your foundation to grow. Then, we want you to build a piece that is simultaneously protected and growing.

Protection and Growth

The FDIC protects your checking and savings accounts, but you don’t get a lot of growth out of them, especially in the long term. Assets that do offer real growth, such as stocks, bonds, EFT, mutual funds, real estate, and gold commodities, are not totally safe.? Is there an option that's rock solid safe, won’t go down when the market does, and will still grow when you take money out? The answer is absolutely yes.?

Since the 1980s, when Chase Manhattan started experimenting with CDs, we’ve had the ability to protect your principal and grow it at the same time. I’m not referring to having one account protected and another growing, but both?are growing and protected on the same dollar. We can do that by starting with an old-fashioned protected tool. You can do this in several places, but I’ll use the bank as an example.?

You buy a CD, the bank protects it, it's FDIC-insured, and you get a low guaranteed rate. Since 1987, however, it's been possible to turn in your low guaranteed rate and then allow the bank to use it to link you to an external market index of your choice. It might be a familiar one like the S&P 500, the NASDAQ, or the Dow, or one of the hundreds of diversified indices that combine different kinds of investments, emerging markets, real estate, commodities, and foreign and domestic stocks. There are available indices that act like a portfolio. We can link your principal to that index, keeping the principal safe but linking the growth so you get market index returns without worry.

Income Generators

You want tools in your fiscal foundation that keep you safe and protected but growing. In addition, you're going to want some income generators. That could be the same tool. CDs aren't awesome income generators if they're linked to the market because you don't know what the return will be. Instead, you might want to look at fixed annuities, which are great for generating income. There are high-fee annuities that could potentially lose your money or leave it with the insurance company if you die prematurely.? Those are not fixed annuities.?

Fixed Annuities resemble CDs in that they have low or no fees, are principal protected, and you can trade in the low guaranteed growth for the opportunity to link your growth to the market.?The big difference is that fixed annuities are more liquid. You can get money out every single year and use that as income. Many will guarantee that the income will never run out as long as you’re alive.?

Create Your Financial Independence

A solid foundation includes principal protection, market-linked growth, and guaranteed income. With that in place, you can move on to more exciting things. We’ll be delving into some key strategies in future articles. My team and I would love to help you create the financial independence you deserve. Give us a call or visit our website at lordandrichards.com.