The Seven Steps I used to Build My Simple Financial Plan

1. Complete the Personal Financial Statement and keep it in an investment binder. ( PFS template)

2. Cash: Keep 3-4 month’s household income in your checking account.

3. Stocks & Bonds: Invest no more than 30-35% of net worth (for diversification use the Asset Allocation Model posted below on June 2nd), only when the indexes are above the 200 Day Moving Average.

4. Life Insurance*: 20-year, $300,000 term policy. No whole life insurance or variable annuity products without a guaranteed principal, accumulation or income benefit.

5. Real Estate: Invest no more than 60-65% of net-worth in 1-4 unit properties.

6. 401k/Retirement Accounts - Avoid them if possible. But, if you must, use Trend Following (see link in #3) to decide when to be fully, partially or not invested in stock funds. Use funds that track the various stock indexes or sectors and styles according to the Asset Allocation Model.

7. Liabilities - Use debt only for real estate acquisition, no other purpose.

*The basic difference between term and whole life insurance is this: A term policy is life coverage only. On the death of the insured it pays the face amount of the policy to the named beneficiary. You can buy term for periods of one year to 30 years. Whole life insurance, on the other hand, combines a term policy with an investment component. The investment could be in bonds and money-market instruments or stocks. The policy builds cash value that you can borrow against. The three most common types of whole life insurance are traditional whole life policies, universal and variable. With both whole life and term, you can lock in the same monthly payment over the life of the policy.