If you are really serious about getting rich your own way, the time to start doing something about it is now. Financial planning is the tool that you use to get from where you are to the financial independence that you desire.

The Financial Planning Stool: Invest, Insure, and Save Money

The three legs of the financial planning stool are savings, insurance and investment. Let us begin with savings and insurance. How much do you need? The basic rule with regard to how to save your money is that you should put aside 10%-20% of your income until you have enough to cover 3-6 months of your expenses stored away in some form of liquid investment. A liquid investment is one that you can turn your money into cash quickly, such as savings accounts, certificates of deposit or even some mutual funds.

Insure Properly

You need sufficient life insurance to protect your loved ones should something happen to you. You should calculate how much your family would require to maintain their standard of living if you died unexpectedly. You then purchase enough life insurance so that the interest from the life insurance proceeds would be sufficient for your family to live on.

For example, if your family requires $50,000 per year, and you can earn a return of 10% per annum on the invested proceeds, then you would purchase a $500,000 life insurance policy payable, owned by an irrevocable trust, with your spouse and families as your beneficiaries.

In your 20s and 30s, the best value in life insurance is term insurance. Term insurance is issued on an annual basis, and because it has no cash-build up value, it is relatively inexpensive if you are in good health.

As you move into your 40s and 50s, you need permanent insurance. Permanent insurance is more expensive, but it has a cash value that builds up, and the policy can never be canceled once issued, as long as you keep up with the payments. With permanent insurance, your estate will receive the face value of the policy in full if ever something were to happen to you. You should speak to an insurance agent to become fully aware of what you need and the various options that are available to you. But you must be fully insured as a basic part of your financial life.

The Importance of Investing: Achieve Financial Independence

The third leg of the financial planning stool is investments. The three variable factors in any investments are safety, liquidity and growth. There is always a trade off among these three factors.

If the investment has a high degree of safety, it usually has a low potential for growth. If the investment is highly liquid, such as a savings account, it usually pays low rates of interest.

If the investment has a high possibility of growth, it is usually considerably less safe than a savings account or money market fund, and it is almost invariably not as liquid. You cannot sell out of it into cash very fast.

The investments with the greatest potential for safe, long-term, upside increase in value are usually highly non-liquid investments, such as income producing real estate. This type of investment usually takes a longer time to buy and often a long time to sell.

Each person must choose a combination of investments that he feels comfortable with, considering the amount of risk involved. This is something you have to decide for yourself. Financial experts often call this your risk-quotient, and it changes as you get older and as your financial situation changes over time.

Guard Your Money Carefully

Your primary rule for investments of all kinds must be, dont lose your money. It is better to keep your money in an interest-bearing account then it is to lose it on foolish investments.

Study after study shows that, if you simply leave your money growing in a well chosen mutual fund, and let it compound over the course of your working lifetime, you will be further ahead than with almost any other investment except your own business.

The rich in America are almost always conservative. They maintain low levels of debt. They save money . and they continue to look for ways to increase it while minimizing risk.

Learn from the wealthy and do what they do. Follow the leaders, not the followers; remember that the first step to becoming wealthy is to earn your money. The second step is to save money. It is not how much you earn, but how much you keep that counts. Be determined and be careful.

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