Diversify Your Financial Plan

Are you diversified? When investing in the stock market, we’ve all heard it's wise to limit risk by balancing your asset allocation between stocks, bonds, and cash. It’s also wise to balance your investments globally between different industry sectors and company sizes.

But are you diversified beyond your investments? Do you have a diversified financial plan? Or is your net worth comprised of a single asset, like your house?

A diversified financial plan should have a comfortable mix of assets spread among your retirement accounts, real estate investments, your personal business assets, and cash. A diversified financial plan also isn’t complete without sufficient life insurance, disability insurance, health insurance, and a will.

Like a diversified investment portfolio, a diversified financial plan will help you to reduce risk. Remember, “don’t put all your eggs in one basket." Take a hard took at all your assets and start to diversify today.

Write Down Your Financial Goals

Setting goals is the first step to financial success. Writing your goals down will help you focus on your future and gain control of your finances.

Your goals should be specific and measurable. Instead of writing, “build an emergency fund,” you might write, “build an emergency fund worth $30,000.”

Your goals should be realistic and achievable. Don’t make your goals too attainable, however. Meeting your goals should require focus, motivation, commitment, and discipline.

Your goals should focus on the near term (1 year) and the long term (more than 5 years). Monitor your goals on a regular basis and don’t be afraid to adjust your goals based on your ongoing progress.

Write your goals down today and begin to put your financial plan in motion.

Focus on Positive Cash Flow

You need to know your cash flow. Net worth is a great indicator of financial health but another important component is your cash flow. Cash flow is simply your total income minus your total expenses.

I recommend calculating your cash flow on a monthly basis. If you cash flow is positive that is great. However, if you cash flow is consistently negative then you have a problem that needs to be addressed as you are accumulating debt or tapping into your emergency fund. You will either need to grow your income or reduce your expenses. It’s actually quite simple - spend less then you earn.

Start tracking your cash flow and keep your spending in check.

Keep Track of Your Net Worth

Knowing your net worth will tell you where you stand financially and help you to stay on the right path to financial success. Net worth is simply your total assets minus your total liabilities. Assets are things like your home, cash, checking accounts, stocks, retirement accounts, cars, etc. Liabilities include mortgage loans, car loans, credit card debt, etc.

I recommend calculating your net worth monthly and tracking your progress over time. By doing so you will quickly identify areas for financial improvement. You will be able to identify if your assets are balanced or overweight in some areas. You can also use this as a great tool for tracking your cash flow as you monitor your cash and checking balances versus your credit card liabilities on a regular basis.

I like to use an excel spreadsheet to calculate my net worth so I can track and chart trends over time. You can also find net worth calculators online such as Bankrate.com.

Your net worth is the single best metric of financial success that everyone should utilize. Knowing your net worth will help you make sure you are on track to meet your financial goals. Tracking your net worth on a monthly basis can also be a great motivating tool as you watch your net worth grow.