FRIDAY, OCT. 12: Getting ahead financially involves sitting down and being honest about your finances and tackling some issues that perhaps you have avoided. 

When you think about getting ahead financially, managing cash flow and building your wealth are two components that you should address.

Managing your cash flow means knowing your position — having a realistic and achievable spending plan is a major step in taking control of your money. To put that plan in place, you first need to assess your current habits. Many of us create budgets which just don’t work, mainly because we are optimists and our homemade budget plan is more wishful thinking than reality.

There are great budgeting tools online which are designed to help you accurately identify your current money position and set a liveable budget based on your real situation.

Once you have completed your budget, sit down with your financial planner to review your income, outgoings and spending habits and identify where you can increase efficiency and minimize wastage.

Once you get all your regular expenses recorded, you might receive a few surprises about your spending habits.

Monthly savings

For most of us, our mortgage payment is our biggest monthly expense. Your home will, however, turn out to be the biggest asset you own, which will increase in value over time. When it comes to managing your cash flow and building your wealth, your long-term focus should be on matching your monthly mortgage payment to your monthly savings. This might be a little tough in this market but it is something you should be working towards.

What will happen when you focus on your cash flow?

1. You will change your spending habits and direct your surplus money towards investments.

2. You will realize your goals sooner as you have created a plan to get there.

So once you have managed your cash flow and you have a monthly surplus for investments, you will need to decide the best method of building your wealth.

There are so many options and information on how to build wealth that most of us are uncertain or confused as to the best way to go about it. A lot of people usually just want to make the most of what they have, avoid any risk, take advantage of any opportunities and make money so they can create the life they want. Most, however, don’t know how to plan for it.

Deciding on the right financial path and determining the right balance of investments can be overwhelming. Working with a financial planner who is going to look at the big picture is very important.

They will discuss your goals, time horizons, inflation concerns, liquidity needs, investment returns needed to meet the goals, as well as risk management, in order to receive the desired investment return.

Building wealth means being diversified. Being house rich is not enough; you should be investment rich also.

A diversified approach to creating wealth ensures  your risk is spread across different investment vehicles. This means if one area of your investment portfolio softens and you have already placed yourself in a position of being well-diversified, then your other investments, which represent different investment sectors, should continue to hold their value. If you have all your “eggs” in one basket, and the performance of that “basket” is poor, it could cause you financial ruin or significant hardship.

Sitting down and facing your finances, whether it is good or bad, is something that needs to be done. You work hard for the money you make, but you should work even harder to make that money work for you.

• Carla Seely is a Senior Wealth Manager at AFL Investments. She may be reached at 294-5712 or cseely@aflinvestments.bm