Very frequently I hear my clients saying to me, "I do not understand how money and financial planning works, what should I do first. Let me give you a key: money is not just money, money works as an estructure. Anything that can be estructured, could be an art form. Let me give you a very simple way to remember the structure of a balanced investment portfolio. Yes, diversification is an art. I think that a solid financial plan has similarities with the Eiffel Tower.
First, you have level one, with four legs: these legs are the foundation of the tower: - Income from business and career (vocation) - Real Estate Assets, gold and silver. - Investments (Paper Assets, like savings accounts, annuities, IRAs, Mutual Funds, 401k, 528 plans, HSA accounts, stocks, bonds, CDs , cash value on IUL, Roth Ira ) etc look, the Eiffel Tower has multiple pieces, not just one single line. This means, you need to have several pieces of investments to balance each other. - Budgeting & Accounting, including building line of credits or a solid FICO and your tax optimization strategies.
Second, you have a second level that continues having four legs but all of them resting over a common base. This common base are your insurance products - Property and Casualty, - Health Insurance, for you, your family and your pets. - Life Insurance, - Living Benefits The reason why they should be in place after you have a first level is because it will protect your assets. Without the insurance peace, when the storm hits you are vulnerable.
Third level is ONE single column that converge all, this is your Trust, it could be a living trust or a land trust. All you own should be hold in a Trust for asset protection and easy transfer after you died. Crucial if you own real estate to own it in a trust to avoid probation in case you died.
Your fourth level is your personal legacy, including funeral arrangements, wills and all Transfer of assets to future generations, Believe it or not, you will not live forever and even if you only own a pencil, this item should be assigned to other person when you are not longer here.
Easy, remember, your financial plan should look like the Eiffel Tower to be a Master art piece. If you only work the plan based on a 401 K, stocks and the home you own, there is more to build... make it an art project and you will be more inspired.