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# Creating Your Financial Plan

Achieving financial security requires a disciplined, systematic approach to investing. Yes, investing. Unless you already have extremely deep pockets, the chances of you ever reaching your financial goals rest on one of two things: 1) Winning the lottery, or 2) Putting your money to work for you and making it grow (in other words, investing it). And since hitting the Pick 6 is not really a truly dependable way of planning your financial future, if you re serious about retiring comfortably you re going to need some way of growing your nest egg.

If you participate in a 401(k) plan at work, or even if you own a Certificate of Deposit at your local bank, you ve already entered the realm of investing. Now all that you have to do is form your financial objectives, obtain the knowledge you need to sort through the various investment vehicles that are available, and develop a well-designed investment plan that will meet your goals. Sounds simple, doesn t it? Once you do a little homework, it really isn t very difficult at all.

Saving, where safety of your money and conservatism are important, differs from investing, which involves taking a certain amount of risk with your money in pursuit of higher returns. Investment programs involving stocks, bonds, and mutual funds have delivered higher returns over time than FDIC-insured savings accounts, but they also will decline in value periodically, and are not FDIC-insured. Saving generally is designed for short-term needs. The long-term focus of your financial plan should consider commitments made for five years or more. For example, many investors set retirement and the funding of their children s college education as their highest-priority objectives.

Your long-term investment program should be constructed on a savings foundation that holds sufficient funds for short-term needs. Short-term monies are those which you may need within five years. Goals may include an emergency cash reserve fund, savings for a car or home, or a vacation fund. Financial planners typically recommend an emergency fund of at least six months worth of living expenses. If you re self-employed or already retired a year s worth might be even more appropriate. The amounts of other short-term goals that you may have can then be added to that.

Your short-term savings should be accessible and safe. Many investors choose money-market funds, CDs, Treasury bills, and short-term bond funds as their short-term vehicles. Bank CDs pay a fixed rate of interest and the principal is guaranteed by the FDIC, but if you were to take the money out due to an unexpected need you could incur a penalty for early withdrawal. Money-market fund yields tend to fluctuate and are not government-backed, but they are quickly available if the need arises and they offer competitive market returns. T-Bills pay a fixed rate of interest and are guaranteed by the U.S. government. Short-term bond funds typically pay a slightly higher return and are an option for investors who are willing to take a small amount of risk.

In Part 2 of this series, Asset Allocation, we ll look at the classes of assets that you can acquire and how you might allocate those assets in your financial plan.

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