Three Focus Areas to Meet Your Financial Goals

Managing all aspects of finance can be overwhelming. Should you eat at restaurants less and cook at home more? Should you invest in growth stocks? Is a Roth IRA better than a Traditional IRA?

There are three areas everyone should focus on to maximize your financial well-being. These are:

  • Saving
  • Investing, and
  • Taking Advantage of Special Tools

To meet your financial objectives, you should take steps in each of these areas. Saving gives you the money that can be invested for the future. Investing grows those assets. And, special tools like tax-advantaged accounts and employer matches give an extra boost, which can be quite substantial.

In this post, we briefly discuss these three areas of focus. In a future post, we will discuss financial planning and how that fits with these focus areas.

If you have questions about your situation, call Archer Row Advisory today at (818) 539-8808 or leave us a message here.


The concepts behind saving are straightforward. Savings are the difference between what you earn (after tax) and what you spend. If you aren’t saving money, it is impossible to build wealth for your future. The tricky part is striking the right balance between living your life (which requires spending money, sometimes a lot of it) and finding ways to set aside money each month to build for your future.

Most Americans find saving difficult. A recent study by the Federal Reserve revealed a scary truth: 40% of American adults do not have money to cover a $400 unexpected expense, an amount that is similar to a common auto repair or minor medical bill.

So, how to get started? First, take an inventory of your monthly expenses and compare that to your monthly income (after tax). Make sure to pro-rate those costs that occur intermittently, like insurance and property taxes.

When you compare the two numbers, if your income is higher than your expenses, you are saving. Congratulations!

If your expenses are higher than your income, it is time to look more closely. There may be ways to cut down on your expenses. (Raising income is good, too, but it’s usually harder to do.)

But please do something, and the sooner you start the better because saving a small amount can go a long way. Saving $25/month, invested at an 8% return, over a 45-year career, yields $120,000 at retirement. Yes, cutting out a handful of lattes (and yes, we like lattes, too!) each month can translate into a more comfortable retirement.

Here are some tips:

  • Keep your savings separate. By transferring money to a separate account that is for savings only, and is never to be used for expenses, you can ensure you are saving regularly and avoid the temptation to dip into savings.
  • Set a reasonable target. If you are new to saving, don’t expect to start by saving 30% of your income each month. Start small and stick to it.
  • Save most of any windfalls you receive. Many employees get annual bonuses, holiday gifts, or occasional tips. If you can live off your regular income, take a small share of this “windfall” income and spend it on yourself, but set aside the majority for your future.
  • Track your progress. A financial plan can tell you how much you need to save each month to reach your financial goals. Compare your progress against your plan at least every year to make sure you are on track.


Once you have saved some money, the next step is to put it to work. There many different investment options ranging from bank accounts, CDs, bonds, real estate, stocks, life insurance and annuities. Where to start?

First, don’t settle for your local bank’s savings account. Banks give almost nothing in the way of returns. An average savings account now pays a paltry 0.09%, according to Bankrate.

If you need to keep the money safe and can’t invest it for a long time, you can consider an online savings account, which will yield a lot more and be FDIC-insured. The highest online savings account is now yielding 1.90%, more than 20 times an average savings account rate.

Better yet, if your time horizon and risk tolerance allow, you should be looking at investment options that give you a higher expected return. The general rule is that returns increase as you take on more risk.

The highest possible returns is from stocks. From 1928 through 2017, including reinvested dividends, stocks (measured using the S&P 500), have averaged over 11%.

To put that in perspective, compare three scenarios where you save $25 each month. If you save it all and put it in a savings account yielding 0.09%, a high yield savings account yielding 1.90%, and stocks returning 11%. If you start at age 22 and save until age 67, you would end up with:

Local savings account at 0.09%: $13,776
High yield savings account at 1.90%: $21,223
Stocks at 11%: $310,633

Although those are historical returns and therefore not guaranteed in the future, the potential for a higher return with stocks is tremendous.

You should work with your financial advisor to determine how much risk is appropriate for you to determine how much you can invest in stocks.

Here are some tips:

  • Take more risk if you have a longer time horizon. Since investments can lose money, especially in the short term, investors who start early and have the longest time horizon should take on the most risk.
  • Take less risk when you have a greater need. When you need to use the money (for college education or to buy a house, say), you need to invest more conservatively, even if you have a long time horizon, because investment performance is never guaranteed.
  • Don’t take too much risk. While higher risk can lead to higher returns, it can also lead to disappointment. Although stocks have averaged 11% return (and higher recently), since 1928 the stock market has declined 24 out of the last 90 days. Don’t invest money in stocks if you cannot stomach a decline in their value.

Special Tools

Saving and investing will get you most of the way to where you want to go to meet your financial goals. The last thing to consider is to take advantage of special vehicles or tools available to you.

These special vehicles are split between benefits your employer provides and investment vehicles that the government has established.

Employer benefits include retirement accounts which may have tax advantages (like 401Ks, 403Bs), flex spending / health savings accounts, employer-subsidized health and life insurance, etc.

Government-established investment vehicles include IRAs (Traditional and IRA) and education savings vehicles like the Coverdell ESA and 529 plans. These can be used to save to buy your first home, pay for college education, or to save for retirement.

You should be using all of the special tools available to you. Different tools vary depending on your age, income and family situation, but you should consider them all.

Some tips to consider:

  • Maximize Your Employer 401(k) Match. If you work at a company that has a 401(k) plan with an employer match, maximize that match. When an employer matches the amounts you contribute, that is an immediate 100% return. You will never find a better investment opportunity than that.
  • Open an IRA. If you qualify (there are income thresholds), open a Traditional or Roth IRA. With a Roth IRA, you invest after-tax dollars and they grow tax-free. The money can be used for a qualifying home purchase if you don’t leave it until you retire. With a Traditional IRA, you get a tax deduction today and the investment grows tax-free. The tax advantages add up.
  • For College and Private School Expenses, Consider 529 Plans. 529 plans allow you to save for college, and starting in 2018, private primary and secondary school. The money you invest grows tax-free and the gains are never taxed if the proceeds are used for qualifying educational expenses including tuition fees, room and board. In some states (unfortunately California is not one of them), contributions to a 529 plan are tax-deductible. For investors with significant assets, 529 plans can be very attractive because you can contribute a very large amount of money ($150,000 for a married couple once every five years).

Questions? Call Archer Row Advisory today at (818) 539-8808 or click here to leave us a message

0 replies

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published. Required fields are marked *