For 2013, prioritize your decision making to hone in on what's most important.

Many people worry about their financial decisions. As advisors we hear many of the same things, “Which Mutual Fund should I pick? How much insurance should I have? What should I be investing in right now? Do I need Disability Insurance?”

Many of the questions that we get are well intended, but one question that we lead our clients to ask is, “Am I doing everything in the correct order?”

When we meet with people for the first time, most of them have adopted a “junk drawer” full of various financial products. They have collected these things over time and have thrown them into their hopper in the hopes that everything will work out. Here is the part that gets skipped….it’s not that what they have is bad stuff, it’s just that there is no coordination of their decisions, and there is no process. Following these simple steps helps individuals focus on the process that is true financial planning, and helps to remove many of the unknowns that exist:

1) Protection First – The Protection Components of your financial plan are crucial to ensuring that your plan will be able to withstand many of the things that are trying to eat away at our money. Key Protection Components include: Life Insurance, Disability Insurance, Long Term Care Insurance, Health Insurance, Property & Casualty Insurance, Wills and Trusts.

2) Savings – There needs to be a steady flow of money into savings that is consistent and intentional. The emergency / opportunity fund should be readily filled up before diving into “rules based plans” (401ks, IRAs, etc.). People without a proper emergency fund do not need to be funding retirement accounts that are not liquid. Again, it is the order here that is important. There are good things about those rules based plans, but only when used appropriately. They are not the end-all-be-all to saving money. Having enough liquidity to keep from diving into bad debt is definitely a must for people wanting to achieve financial success.

3) Growth – Growth should be the last step in the planning process but in many situations this is the part that everyone wants to talk about first because it is more fun than the steps above. As advisors, we too enjoy discussing the more growth oriented components (Managed Money, Brokerage Accounts, Mutual Funds, etc.), but realize that they should not be discussed until the protection and savings components have been addressed responsibly. The main reason for this is that in the event that something negative happens (disability, death, etc.) without proper protection and savings to fall back on, the growth pieces can ultimately be taken away.

Remembering these three simple steps has helped many of our clients grow closer to achieving financial success. Protection, Savings, and then Growth….in that order.

Have you ever felt like your financial world was a “junk drawer” full of well-intentioned decisions? Do you know if everything is coordinated and working together?