Financial Fitness: Six Tips from the SEC

Financial fitness is like physical fitness. There's no shortage of tips and techniques from a wide variety of sources. Not all of these tips and techniques are meant to apply to every individual. And even though you can't incorporate every suggestion, it never hurts to try new things to freshen up your routine.

Working Toward a Healthy Savings Account

MoneyRates.com can't help you with your physical conditioning, but it does provide resources to help you improve your financial condition. In this spirit, here is a summary of advice the US Securities and Exchange Commission (SEC) has compiled into what it calls the Roadmap to Saving and Investing:

1. Define your goals. One reason savings rates are so low in this country is that people fail to account thoroughly for their future needs. Just telling yourself you'll "save more" won't help much. Setting out your goals in detail--really spelling out how much you need, and when--will help you quantify your savings needs and provide positive motivation.
2. Make a financial plan. This starts with assessing your current situation--assets, debts, and income. Then you need to figure out what changes must be made to that situation to get on track toward your goals.
3. Determine your risk tolerance. As you start to accumulate savings, you need to figure out what to do with your money. This starts with assessing your risk tolerance. For example, savings accounts and money market accounts offer security and stability, but as the past year has proven, returns can be very low. Investments such as stocks offer the potential for higher returns, but no guarantees against loss of principal. How far from absolute safety you are willing to venture to seek higher returns should be partly a function of your needs and circumstances, and partly a function of your own comfort level with risk. Are you close to retirement, or do you have some decades to catch up if your investments tank? How large of an investment loss would keep you up at night?
4. Assess your choices of investment products. Once you have determined your risk tolerance, you need to structure your savings and investment vehicles around that risk tolerance. For instance, if you want safety above all, even at the expense of low interest rates, you'd naturally gravitate toward FDIC-insured accounts (savings accounts, money market accounts, CDs) or US government-backed Treasuries. As you get into investments like stocks and bonds--which vary greatly in their riskiness--the important thing is to get educated and stay informed. Never invest in anything you don't understand.
5. Pick a financial professional. It isn't always possible to fully understand every investment opportunity, so you may need the advice of a financial professional. If you decide to get professional advice, do some research on the backgrounds of different financial advisors and their firms. Learn how they are compensated and how they are regulated before you choose one. Even while hoping for the best, you should prepare for the worst in dealing with financial professionals. The SEC has resources to help you check out the background of financial advisors and their firms.
6. Keep records to help you stay on track. Take notes of your discussions with financial professionals, and get any representations, promises, or agreements in writing. Monitor each statement carefully, and never be afraid to ask questions. Refer back to your original goals when checking the progress of your financial plan.

The most useful thing about the SEC's advice is that it asks you to envision your eventual destination. Your financial goals are the reason for getting saving and investing advice. In fitness terms, you can think of this as those "before and after" pictures. Seeing where the program can lead is often important motivation to get started.

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