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A Five-Step Guide to Creating a Financial Management Plan

It’s common in our society to gauge financial success by how much money people make, or their income. The assumption is that if someone reaches a certain income level — whether it’s half-a-million dollars or multi-millions of dollars — this person or family must be financially successful.

But this isn’t necessarily true. Financial success usually isn’t measured by income — it’s measured by how income and other financial resources are managed. This is why some people who earn millions of dollars a year always seem to be struggling financially.

For most people, the biggest key to financial success isn’t increasing their income. It’s creating a plan for managing their income and other aspects of their financial lives. Here are five key components of a solid financial management plan.

1. Spend less money than you make. This is the simplest but often most difficult step to financial success — and it applies to everyone, regardless of income. If you earn $10 million a year and spend $11 million a year, then you probably will not be financially successful.

The best way to spend less than you make is to create and live on a budget. High earners sometimes think they don’t need to budget because, well, they’re high earners! But no one has unlimited financial resources, so everyone needs to take steps to ensure they’re not spending more than they earn.

2. Invest efficiently. Taxes and fees can eat into investment returns so it’s smart to take advantage of every opportunity you can to invest in tax-favored and low-cost investing vehicles. Retirement savings plans like IRAs and 401(k)s allow tax-deferred or tax-free (with Roth accounts) investing for retirement, while 529 plans allow tax-deferred saving for college expenses. Municipal bonds also offer key tax advantages outside of retirement accounts

Also, watch out for excessive fees and expenses charged by investments you hold — these can have a significant effect on a portfolio over time. Investing in index funds that track the performance of a stock or bond index is one way to minimize investment expenses.

3. Manage consumer debt. This goes back to the first component: spending less than you make. The main way many people end up spending more than they make is by taking on consumer debt, especially credit cards.

Credit cards in and of themselves aren’t bad, but irresponsible use of credit cards is one of the biggest detriments to financial success. If you use credit cards — and these days practically everyone does — pay the balance in full every month. Not only will you avoid paying interest charges, but you may also escape the debt trap that ensnares so many people of all income levels.

4. Maintain a strong credit rating. Your credit rating impacts many areas of your financial life, including loan applications, the interest rate you pay on loans and the insurance premiums you’re charged. So it’s critical to build and maintain strong personal credit and a high credit score by paying all your bills on time and keeping your credit utilization rate low.

Keep a close eye on your credit by ordering a free copy of your credit report each year at You can get a free copy of your credit report annually from each of the three major credit reporting bureaus (Equifax, Experian and TransUnion) so order a free report once every four months to monitor your credit most closely.

5. Insure against risk. Every individual and family must decide what types and amounts of insurance are right for them. These usually include property and casualty insurance (mainly auto, homeowners and liability) and life insurance. These needs often change over time as people move through various life stages, so you should re-examine your insurance coverages and amounts periodically.

For example, if your children are grown and have moved out of your house, you may not need as much life insurance coverage as you did when they were little. Affluent individuals and households should strongly consider purchasing an umbrella insurance policy to provide additional liability coverage above and beyond what’s offered with standard auto and homeowner’s policies. An umbrella policy will help guard against financial ruin due to a multi-million-dollar judgment in a so-called “slip and fall” lawsuit.

The commentary is limited to the dissemination of general information pertaining to Frontier Wealth Management, LLC’s (“Frontier”) investment advisory services. This information should not be used or construed as an offer to sell, a solicitation of an offer to buy or a recommendation for any security, market sector or investment strategy. There is no guarantee that the information supplied is accurate or complete. Frontier is not responsible for any errors or omissions, and provides no warranties with regards to the results obtained from the use of the information. Nothing in this document is intended to provide any legal, accounting or tax advice and Frontier does not provide such advice. This information is subject to change without notice and should not be construed as a recommendation or investment advice. You should consult an attorney, accountant or tax professional regarding your specific legal or tax situation.