Personal Financial Assessment

• 1). Describe your goals for retirement. Retirement goals should include a time frame and projected costs. Perhaps you may need $2 million in savings to finance a Southern California retirement in 25 years.
  
  
• 2). List out other financial goals, which are complimentary to your retirement plan. Important financial goals may include education funding or a first-time home purchase. You should save into different vehicles for each goal. Prioritize retirement savings, because you cannot borrow money to finance retirement.
  
  
• 3). Take inventory of your current finances. List out assets, liabilities, insurance policies, income and expenses. From here, you may decide to sell off losing investments for cash. You should also calculate your amount of monthly free cash flow by subtracting monthly expenses away from monthly income. This cash can be put toward your financial goals on a regular basis.
  
  
• 4). Toggle through financial calculators online to determine whether your financial goals are realistic. A financial calculator will help you determine the amount of money that must be invested at a particular return each month to arrive at a lump sum of cash. If your retirement goals are not realistic, you will need to work for more years or scale down your living standards.
  
  

Build Financial Portfolio

• 1). Classify investment accounts according to purpose. Retirement accounts, such as 401k and IRA plans offer tax breaks for long-term savings, but are not flexible vehicles. Be advised that retirement plan withdrawals made before age 59 1/2 are subject to a 10 percent tax penalty. Regular taxable accounts are ideal for flexibility, but you will be responsible for taxes on capital gains and investment income as they occur.
  
  
• 2). Categorize asset classes according to risks versus rewards. In exchange for higher potential returns, you must be willing to take on more risks. Bank deposits, money market securities and bonds are relatively safe investments that can generate income for your portfolio in most economic conditions. Stock prices, however, can range between zero and infinity over time. Stocks are especially volatile amid recession, but are best for long-term growth. Your portfolio mix of investments should become more conservative as you near retirement.
  
  
• 3). Fund retirement accounts and invest the money into mutual funds for diversification. Be certain to take advantage of the 401k match, where your employer puts money into your account on a dollar-for-dollar basis until a certain point. You may also supplement the 401k with an IRA plan, which allows for tax-deductible contributions. As of 2010, you are limited to $5,000 worth of annual IRA contributions.
  
  
• 4). Put money into taxable brokerage accounts to buy investments. These funds can help you to provide for secondary financial goals, such as tuition costs and home improvement projects.