ARE YOU BUILDING A SUSTAINABLE FINANCIAL FUTURE?

Building a Green Building and building a Sustainable Financial Future are similar processes.   

A few of the steps a Green Building requires are

• A vision by the developer

• An architect’s plan

• A firm foundation

• Smart choices of contractors and building materials

• Working within the government’s permitting and zoning codes

• Consideration of how all the parts of a building interact with each other

• Considering deconstruction opportunities

• Ongoing inputs of energy, water and money

• Plus ongoing monitoring of whether the building is continuing to perform

• And making any adjustments needed along the way.     

 A Sustainable Financial Future requires

• Financial goals from you and your family
• A comprehensive financial plan
• A firm foundation of an emergency fund plus adequate insurance
• Smart choices of financial advisors and investments
• Working within the government’s tax and legal rules
• Consideration of how your financial decisions effect each other
• Having an estate plan (wills & trusts)
• Ongoing inputs of investing, saving and premium payment
• Regular monitoring to make sure the financial plan is “on track”
• Adjusting the plan as your life adjusts

Just as not everyone can or does build a green building, not everyone is building a sustainable financial future. Sustainable Development and Green Building practices are fundamentally about taking certain steps today so the buildings we are occupying now and in the future will allow us to have certain things we would like – clean water, clean air, healthy and efficient work/live/play environments, efficient use of resources, energy efficiency, and all the other reasons you already know.   People, Planet, Profit…. Using all the resources you need now without compromising the ability of future generations to have the resources they will need then.

A very similar definition could be created for Sustainable Personal Finances…  Working now and spending the money you need now to live a comfortable lifestyle without compromising your ability to continue to live a comfortable lifestyle when you are no longer working…   Some people call it being Financially Independent – where you have enough money working for you so you can work because you want to, not because you have to!

My favorite definition of a Sustainable Financial Future -- “Using the financial resources you need to live your lifestyle now while allocating some financial resources toward accomplishing your future financial goals.”

The reasons you work in this industry are as different as the people in this industry.  Whether you are working for the challenge of creating “better living spaces” or to “save the environment” or for your family or any other reason – remember you are also working for yourself. 

How do you build a Sustainable Financial Future? There are many different strategies that can be used and each individual is different, but there are some basic steps that have to be taken in order to build a sustainable financial future.

Step 1. Before you build = Have an income.  Ok, that one is pretty self explanatory.

Step 2. Debt Management = also known as “If you find yourself in a hole, stop digging!” There is good debt (mortgage on a house, loan for a profitable business, education) and bad debt (credit cards, gambling debts, high interest debts).  The bad debt needs to be worked down long before you can have a sustainable financial future.  This boils down to spending less than you make on a consistent basis…and finding ways to make more income than you spend.

Step 3. The Foundation.  There are many things in life that can financially knock you “off course” so these are the areas that need to be taken care of early.

A.  Emergency Fund.  You need 3-6 months of living expenses in a safe, liquid investment like a money market fund so you can take care of life’s surprises (car repair, unexpected unemployment,  one time bill, unusual medical bill, etc)

B.  Disability Insurance.  You are building a sustainable financial future based on having an income.  32% of people will be sick or injured for longer than 90 days at least once before they reach age 65.  If you lose your income for a period of time, you need a way to replace it.

C.  Life Insurance.  This one is for your family.  If you are building a sustainable financial future for your family and you leave the journey early, most people will want their family to not be destitute.  You do not want to overbuy here, but you want an appropriate amount of coverage from a solid company.

D.  Insurance in general – the purpose of insurance is to transfer a risk to another for a price.  It makes good financial sense to have insurance to cover catastrophic risks (Life, Disability, Health, Long Term Care, Auto, Home, Umbrella) but not minor risks (a warranty on a toaster).  

Step 4 The Building Structure = Savings and Investments. The goal is to have enough money working for you that it covers your living expenses so it does not matter whether you work or not.  How do you do this?  Whether you make $30,000 or $300,000 the answer is the same…put some money aside and invest it using a sound asset allocation.   Keep invested for the long haul.

Which investment vehicle to use – 401(k), IRA, Roth IRA, Nonqualified Brokerage Account, Annuity – all depends on your particular financial plan; however, the answer is often use all of them because they each have different pros and cons and each provides different options at different stages of your life.

How much to save or invest also depends on your particular financial plan.  However, saving and investing something is better than nothing.  Also most people start at a doable number this year and then adjust the amount year by year. 

Step 5. Deconstruction – Legal Documents and Taxes Most people (grudgingly) pay all the taxes that they are legally required to do.  You will want to factor into your financial plan all the legal and tax consequences of your actions along the way.  Tax laws change often so this will be an ongoing area to keep an eye on.

Just as in Green building you consider repair and de-construction of a building, all individuals will want a written plan of their wishes when they are not able to make decisions for themselves.  This is called an Estate plan and parts are covered when you are alive or dead.  For most people this includes Wills, Trusts, General Power of Attorney, Healthcare Power of Attorney, Living Wills, and Guardianship in the Event of Later Need.

Step 6. Monitoring  -- Are you still on track? All aspects of your financial life need to be reviewed periodically.  Your investments need to be reviewed at least annually to make sure you are still on track to accomplish your financial goals. 

Your insurance needs to be reviewed at least every three years to make sure you continue to own the right type of coverage and that you are not over-insured or under-insured.

Your estate plan needs to be reviewed at least every three to five years to make sure your documents still match your wishes and that the legislature has not changed the statutes.  Many people adjust who they want as beneficiaries or guardians from time to time. 

In summary, as you are working to build better buildings…and better communities…and frankly to enjoy living today…put a little thought into building yourself a sustainable financial future!

Jackson Murphy is a Board member and Treasurer of the USGBC North Texas Chapter. Jackson is the Director of Investment Operations with the indepedent firm TEMAA Financial in Dallas, TX. Jackson has an MBA in Real Estate and Finance, plus a Masters Certificate in Environmental Policy as well as being Certified in Long Term Care. Jackson can be contacted to schedule a free financial consultation at 9720383-8361 or jkmurphy@finsvcs.com All comments are the sole responsibility of the author. 

This article was originally posted 11/28/06.