Keys to Financial Security

The national trauma of recent weeks has caused many of us to reexamine what really matters in our lives. Things that seemed so important a month ago now pale in comparison to concerns about our nation's safety and the tragic loss of fellow citizens. Of all the kinds of security you need - national defense, protection from crime, good health, the love and support of family and friends - financial security may not seem a high priority right now. But it is the cornerstone of a well-led life that makes so many other good things possible for you and your family. So in that spirit, here are my ideas of eight ways you can ensure your financial security for years to come:

1. Invest in yourself. Your own earning power - rooted in your education and job skills - is the most valuable asset you'll ever own. It won't be wiped out in a market crash. Keep your earning power growing through continuous education, training and personal development. If you work in a field prone to periodic layoffs or falling earnings, think about a career change, especially if there's something else you've always dreamed of doing.
   
   Consider this: A $30,000 pay hike can be viewed as an annual return on a capital investment, like earning a continuous yield of 6% on $500,000 of savings. You know how hard it is to save $500,000. Maybe that $30,000 boost in salary is easier to achieve.


2. Protect yourself and your loved ones. Before you acquire any financial assets, make sure you have enough insurance against life's big risks: serious illness, disability and early death. Many people - young families in particular - are woefully underinsured, especially for disability. If an emergency arises, you and your family will never regret having "wasted" all those annual premiums on insurance you "don't need."


3. Borrow sparingly. Use credit only to purchase things of lasting value: a home, education, maybe a car. Pay cash for everything else. Even better, take advantage of the credit card company's free 30-day loan by charging responsibly and paying off the bill in full every month. Know anyone who got into big financial trouble because they didn't borrow enough money? I don't.


4. Pay yourself first. Never have any money left for investing after you pay all your bills? Reverse the bill-paying process. Make the first check you write each month a deposit to your mutual fund, money-market or brokerage account. Then pay your regular monthly bills, finishing up with the credit card bill. If you're having trouble paying that last bill, trim your discretionary spending - but pay yourself first.


5. Don't swing for home runs. In investing, as in baseball, those who swing for the fences do hit the occasional home run. But they strike out a lot, too, and their lifetime batting average - average annual total return - suffers accordingly. So shy away from highly volatile stocks, initial public offerings (IPOs), margin buying and commodity trading. Don't try to time the market, because no one does it consistently well. Use dollar-cost averaging to invest regularly in markets good, bad and lackluster. Have the patience to wait out the occasional (and inevitable) bear markets, such as the present one.


6. Diversify, then again. Just two years ago, when tech stocks were flying high, safer investments such as bonds, CDs and less-volatile blue-chip stocks were derided as sissy stuff. Diversification was considered boring. But successful investors have always known that any one class of assets - stocks, real estate, bonds, cash - will have its day in the doghouse and its day in the sun. That's why you've got to own all of them, in a mix that's right for your age, income, family responsibilities and tolerance for risk.


7. Live simply today, prosper tomorrow. Deferred gratification is no fun, but it's the only way I know to fund your long-term goals - college for your kids or grandkids, that vacation home you've always wanted, early retirement, a bequest to your alma mater. Look at your lifestyle, and if you see a lot of spending that you could dispense with, consider it found money for the bigger dreams in your life.


8. Create a better world. Your own financial security depends far more than you may think on the financial, physical and spiritual health of others in your community and our world. When you share your good fortune by donating your money or time to others, you help create a stronger economy and a healthier, safer world. So give generously to education, your church, social service agencies, the arts, medical research - whatever you value most. It's the right thing to do, it feels wonderful, and it's the ultimate in enlightened self- interest.