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Posted: January 24, 2012

The 6.5 steps of financial self-defense: Part 2

No. 4: The 401K rollover

John Kyle

(Editor's note: This is the second of two parts. Read Part 1.)

I've met people who have had three IRA's doing nothing -- for years! I have friends who would receive a statement every three months, open it, look at how much was in it, and then throw the statement away! They never looked to see what they actually had their money invested in: was it equities? Bonds? Money Market? How much? What was the diversification? They simply didn't know.

What you'll want to do is rollover those assorted accounts into one IRA. By consolidating your 401ks or IRAs you can monitor your account activities easier and also cut down on fees from three different companies. Rolling over a 401k or IRA is as simple as signing a piece of paper.

5. Become Financially Literate

One thing I stress to my clients who do not have experience with investing, but still seem to have a lot of money, is to become financially literate. So I'll do things such as guide them to certain books that are easy to read and a good basic start for them. For instance, The Millionaire Next Door is perfect. The reason I like this book so much is that it deals with simple practical steps people can take each day to make a huge difference in their wallet.

Those steps would include preparing your lunch for work each day instead of eating out, renting a movie on PPV rather than going to the movies and buying popcorn and soda, (I just went last week and spent over $40!) and putting off buying a new car for a few years and putting that payment in a retirement account. Most importantly, the book stressed the mindset and approach that one needs to possess in order to achieve the level of wealth they're aiming for. Now, it doesn't have to be that book of course, but becoming financially literate should be a high priority.

6. Hire a Professional

There are a ton of benefits to working with a financial advisor, but I think that the two most important ones are that they free up your time and help you to define the big picture. As an advisor, it's my job to oversee my clients portfolios and make adjustments where and when necessary should there be big changes in the market. Because I oversee the account, it allows my clients to go live their lives and spend more time with their family rather than worrying what's happening in the stock market.

An advisor can help you see the big picture. By having a Financial Plan done, you'll get an honest idea of where you are, where you need to be (not just want to be) and what it's going to take to get there. It can also outline for you what action steps you need to take next to insure a good financial future: do you have a will? Do you need one? What are you invested in? How diversified is your portfolio? Do you have Muni Bonds? Do you even need them? Are you prepared or preparing for your child's college education? Having a good solid financial plan done for you can save you thousands of dollars in the long run if done properly.

6.5. Get and stay in shape

I know what you're thinking: what does staying in shape have to with Financial Self Defense? And the answer is "everything."

Along with being a life-long martial artist, I am also personal trainer, sports nutritionist and Crossfit instructor. Getting and staying fit is not rocket science, but it does take sustained effort, just like investing for retirement. You'll need to eat correctly most of the time and hit the gym several times a week. In regards to working out, I would suggest that you find something that peaks your interest; you're more likely to stick to it.

So, why should you get in shape? Because it does you no good to amass a certain amount of wealth only to be unable to enjoy it because your body doesn't allow you to. So be as disciplined about your exercise as you are with your finances, and you'll appreciate the end results.

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Since 1994, John Kyle has been a successful small business owner, an account executive with a national insurance company, and a sought-after business consultant for other small business owners. John is also a financial advisor with Morgan Stanley Smith Barney in Denver and specializes in creating safety nets for his client’s investment portfolios. Contact John at john.j.kyle@mssb.com or 303-595-2021.
 

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