The Five Financial Foundations concept was developed over the last 30-plus years as a result of my life as a stockbroker, financial planner, and teacher. By observing real people who intuitively applied these basic principles, I was able to learn the simple secrets critical to building a secure financial life.
In my book by the same name, I describe the places that you or any accumulator can put money you’ve saved to work.
Once you have taken the first step and started saving, you need to decide where you will direct your money. (Getting started is where many Americans immediately run into trouble.)
If you do not have cash reserve, a savings or money market account should be the first place you consider funding.
After building some emergency monies, you can begin investing for the long term by starting or increasing your payroll deductions at work to fund the retirement savings plan offered by your employer. Frequently, the plan available at work offers matching contributions that could be “free money” you don’t want to miss out on. IRAs and Roth IRAs also provide long-term, tax-advantaged accumulation opportunities.
If you are working to reduce some lingering debts, you might want to consider saving a smaller amount for the present time while committing a larger chunk to pay off your credit card or other high-interest debts.
Many serious-for-the-first-time wealth builders have no cash reserve, no retirement savings, and debts that need to be paid off. It’s been my experience that many “FFF first-timers” can benefit from addressing all three at once, in smaller, reasonable amounts.
For example, the first-time saver might be best off by sending 3–4 percent of their earnings to pay down the principal on credit card debt (in addition to a minimum payment), 3 percent to a cash reserve savings account until it reaches a target balance, and 3 percent to the company retirement plan, perhaps capturing an additional 3 percent from an employer match.
My book, The Five Financial Foundations, available on this website for $11.95, was written for Americans everywhere who want a bigger and better future, both in their financial and nonfinancial lives.