There's nothing quite like serving up a homemade, fresh-out-of-the-oven apple pie. But as much as I enjoy baking and eating this all-American favorite, I never had a go-to recipe that would have folks begging for seconds -- at least not until last fall. That's when I found the perfect recipe. It was just different enough to make an apple pie lover's dream come true.
So what's all that have to do with personal finances? Believe it or not, a lot! At about the same time I discovered my world-class apple pie recipe, a working group at USAA was putting the finishing touches on some potentially life-changing personal finance behaviors.
We think this short list gets right to the heart of what it takes to become financially secure: A simple recipe that holds the same potential for your finances that my (yes, I took ownership) apple pie recipe does for your stomach.
The following recipe and ingredients can help you take charge of your personal finances:
Protect your life, loved ones and possessions. Making sure your insurance protection package keeps pace with your life is a smart way to help keep your finances on track. This is the equivalent of the pie pan that protects your precious ingredients on their journey to the dessert plate.
Life is always changing, and insurance is by no means a fire-and-forget proposition. Yes, that new house means you need to exchange your renters policy for homeowners insurance, but it also may come with a mortgage that needs to be accounted for in your life insurance plan. As your life changes, so will your insurance needs.
Spend less than you earn. Live within your means. This is the equivalent of apples in your apple pie. My recipe calls for the Granny Smith variety, but no matter the type, you can't make apple pie without apples. Likewise, you can't create financial success without money. Build and live within a budget that allows room for saving, while also ensuring less cash leaves your pocket than enters it. Do that and you'll be well on your way to turning your finances into something mouthwatering and not nausea-inducing. Sounds pretty simple, but obstacles are everywhere. Just watch an hour of TV, and you'll see what I mean. Our society constantly encourages, even bullies you, to kick this critical ingredient to the curb. Ignore that message and prosper.
Save for emergencies. Yes, you do need an emergency fund -- sooner rather than later. Making a commitment to controlling debt and living within your means is at the heart of this recipe. But having at least a small emergency fund in place will allow you to keep that commitment when things go awry. For me, this is the equivalent of that second set of apples and pie crust makings I buy ... just in case. Set up a savings account and start working on building a cash cushion today.
Save now for retirement. Imagine the disappointment you'd experience if you walked in your house in anticipation of devouring some warm apple pie, caught the faint scent of your favorite dessert and then discovered nothing but crumbs were left. That's the type of scenario many Americans face when it comes to retirement. Stop putting it off. Start or increase what you're saving for retirement. The TSP, 401(k) and IRA (each come in Traditional and Roth versions) are but a handful of the ways you can enlist Uncle Sam's help through tax advantages to ensure you've got some pie waiting when you're finished working.
Prepare your legal documents. At our house, when dessert is complete and there's still some pie left over, we make sure everyone knows who's going to get what (can you say, "Dad"?). In our financial recipe, this translates to having up-to-date plans regarding what should happen if you pass away or are incapacitated. Wills, powers of attorney, letters of instruction and beneficiary designations are all part of ensuring you've clearly defined your wishes as to what will go to whom, who will make decisions if you can't and who will take care of your kids if you're not alive to do so. This is important stuff, whether you're 23 or 83, wealthy or not. So, get it done!
Have a financial plan and keep it up to date. This is truly the equivalent of a recipe card. It's a list of items that get you to your ultimate goal -- whether that's a delectable apple pie or a host of financial goals. Online tools and calculators are available and useful. However, you will have to take the time to sit down with your significant other and discuss goals, resources and priorities, and create an action plan you both agree on.
So, now you've got a go-to recipe as well. All that's left to do is start following it and begin tasting the results of your good decisions.