CHARTING YOUR FINANCIAL COURSE

Most people would never set out on a journey without first planning where they were going, what route they would be traveling and how long it will take to get there. Yet many of these same people are trying to manage their lives with no financial plan to help them reach their intended destination.

Many subscribe to the myth that financial planning is just for rich people. Wrong! Everyone knows that a financially sound company—regardless of its size—has more opportunities to grow and a better chance of surviving setbacks than one that is constantly worrying about paying its bills. This same logic applies to you.

While a sound financial plan can't increase your paycheck or make your bills go away, it can help you manage your finances and give you a better chance of realizing your long-term financial goals. Here are some general guidelines that can get you started on the right track.

Know Where You Are Going
The only way to know what kinds of financial vehicles are "right" for you is to first have a set of clearly defined goals in mind. ? No matter what your age, there must be at least one financial goal in your future. Are you saving to go back to school? Do you long to change careers or open your own business? Are you going to make a major purchase—say, a home—sometime in the near future? Do you want to finance your child's college education? Are you planning to retire within the next ten years? Once you define what you hope to achieve—and when— prioritizing your goals and setting a timetable for reaching them will become much easier.

Determine How to Get There
The hardest part of any new venture is getting started. In order to fulfill your investment goals, you must start now to invest regularly and faithfully. But, now the question is: what should you invest in?

First, concentrate on building a cash cushion to protect yourself in case of emergencies. By keeping a portion of your savings liquid in a money market fund or other "cash equivalent," you won't have to borrow at high interest rates or liquidate investments at unfavorable prices in the event of an emergency. Then, begin to invest a set amount at regular intervals—e.g., each time you are paid—into a diversified portfolio of investments. Diversification simply means spreading your assets over a variety of different investment types, industries, maturities and issuers. Even if one investment in a well-diversified portfolio is a poor performer, it won't substantially impact the earnings on the whole portfolio.

You should also bear in mind that the degree of risk that is appropriate for your portfolio is a very personal determination. Only you know what you'll comfortable with over the long-term. One way to manage risk and earn a reasonable rate of return is to balance riskier investments, like growth stocks, that offer the potential of higher returns with more conservative investments, like bonds, that offer fixed rates of return but less potential for long term growth.

Keep An Eye On Taxes
Making the most of tax-fee and tax-deferred investments is can also help you to reach your goals more quickly, especially if you are in the higher tax brackets.

Municipal bonds provide investment earnings that are generally not subject to Federal taxes and those issued by your home state can also be exempt from state and local taxes. In addition, the earnings on U.S. Government bond funds and certain other U.S. Treasury issues are often not subject to federal, state or local taxes.

If you invest in a tax-deferred investment vehicle, such as an IRA, an annuity or your company’s 401(k) plan, all of the dividends, interest and capital gains will compound tax-free until you withdraw the money. But be careful: there may be tax penalties if you withdraw any of your money before age 59 1/2.