The Formula for Financial Success

bioreactor by kaibara87Financial professionals sometimes get wrapped up in the overly-complex – retirement projections, Monte Carlo analysis, trust and estate planning, and complicated portfolio design.  It often comes to mind that we need to stop and remember what the most important concepts are in successful financial planning, and that can be boiled down to a very simple formula for success. The reason this is important is because, as individuals, we are doing a poor job of creating success for ourselves.  Recent reports have shown that our overall savings rate (for Americans, anyhow) is essentially nil.  That is to say, we’re mortgaging our futures at a regular rate, month over month, with nothing being put back for the aggregate rainy days that are coming.

The Formula for Success

The basic, stripped down Formula for success is as follows (and don’t be surprised if this is boringly familiar):
Save 10% to 20% of everything that you earn, live debt-free, and invest your money in sensibly managed investments for the long term.
Following this simple Formula has provided many folks from all walks of life with a comfortable retirement, pretty much without regard to the ups and downs of the markets.  The Formula can work for anyone of any means – without the need for complicated projections, analyses, or any of the other fancy services that financial professionals provide. That’s not to say that there is no value in those additional services – tax savings, estate protection, and portfolio optimization do provide powerful benefits, but not as much until your net worth has increased to a substantial size.  Following The Formula is the first step, the foundation of financial success.

What This Means

For the person just starting to put a real plan in motion, it really isn’t hard to get The Formula to work for you – the biggest roadblock is instilling the discipline into yourself to follow it.  It could be as simple as working together with your spouse, each of you holding the other accountable for maintaining the plan; in fact it’s essential that both of you are on the same page.  But often it is necessary to get some help. Even though this process seems simple, it is at the earliest stages that guidance is essential to keep you on track.  It requires you to analyze your monthly expenses and income, consider your debt situation and any savings plans already in place, and then develop and work your plan to apply The Formula to your situation.  Guidance can be vital as you work through the process and can be critical to keeping you focused and on track. If you don’t already have an advisor to help you to develop and work your plan, you should strongly consider getting one.  Many fee-only financial planners (but not all) can provide hourly service to help with just such a plan – you can search for this sort of advisor on the internet: and are the best places to start.  You could also go to my “How To Get Started” page to initiate a conversation your own situation.

The Point

So, the point of all this is – as Americans we have done a terrible job of preparing for our futures, but it’s never too late to start.  No matter where you are in the spectrum of potential financial success, putting The Formula into place (if you haven’t already) will improve your situation.  If enough of us do these simple things and stick to the plan, a brighter future will be in store for all of us.
Photo by kaibara87

About the author

Jim Blankenship, CFP®, EA

Jim Blankenship is the founder and principal of Blankenship Financial Planning, Ltd., a financial planning firm providing hourly, as-needed financial planning and advice. A financial services professional for over 25 years, Jim is a CFP professional and has earned the Enrolled Agent designation, a designation that qualifies him as enrolled to practice before the IRS. Jim is also a NAPFA-registered financial advisor, which designates him as a Fee-Only Financial Advisor.

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