Everyone should have a well-planned out financial portfolio. A financial portfolio is a collection of various investments for an individual or a group of individuals (such as a family or business). Building a financial portfolio is important to establish your assets and can help you get loans from financial institutions, increase your credit score etc.

10 Steps to Building a Financial Portfolio

Step #1 – Get in the Future Mindset

Many people don’t have a financial portfolio built up because they have a very “present” mindset. They are only concerned with how they can get through until their next pay check and don’t give much thought to their financial future. If you don’t plan to protect your future financially, you’ll always be stuck in the present, just trying to make ends meet. So the first thing you need to do is try to incorporate your financial portfolio in your day-to-day life. An easy way to do this is to start doing your own research early on, putting some money aside every time you get paid and eventually you will end up reaping the rewards that follow. Don’t put it off because you’ll “get to it tomorrow,” instead get started today. Start thinking about your financial portfolio in terms of a step-by-step process and take it one step at a time. Eventually, you will have your bases covered and your financial future protected with a fully diversified financial portfolio which includes fully funded retirement accounts, a 6 month emergency fund, debt free, and multiple other investments across various asset classes.

Step #2 – Retirement Accounts

In order to have a powerful portfolio, you must have some form of retirement plan in place. This can range from having an RRSP (for more information, see What is an RRSP?), to a regular high interest savings account to stocks and bonds and even more. The most important thing you need to remember when it comes to saving for your retirement is that you have to keep doing it on a consistent basis in order to see it all add up at the end. This is why many people start saving for retirement very early on; the more time you have to save, the less you’ll have to put away each time in order to reach your goal. Regardless of how you end up saving for retirement, having a retirement savings plan is a crucial addition to your financial portfolio.

Step #3 – Paying Down Your Debt

Even if you have many assets in place in your financial portfolio, if you have a ton of debt, it can greatly offset your financial successes. It is very important to pay down as much debt as you can so your portfolio is in the positives and isn’t weighed down by what you owe. Paying down debt can be rather difficult at times, but just try to put a little bit extra into your debt each month and you’ll eventually get ahead. It’s also important not to continue using your credit cards or loans etc, after you’ve made payments on them in order to see results. Pay off your highest interest credit cards debts off first, then you can work on paying down any other loans and debts until the assets in your financial portfolio far exceed any debts you might have. For more information on this, check out 10 Steps to Paying off Credit Card Debt and The Easiest Way to Get Out of Debt Fast).

Step #4 – Having a 6 Month Emergency Fund

It is very important to have an emergency fund in place, just in case anything should happen to your main source of income. This way, you’ll still be able to pay your bills and survive for half a year. In that time, you should be able to find a new source of income or get your previous source back. It’s always good to have a little bit of extra money in the bank for emergencies so this is a must for your financial portfolio. For more information, please see 6 Month Emergency Fund.

Step #5 – Buying a Home

Real estate is a powerful addition to any financial portfolio and is highly recommended. It may be difficult to purchase your first home because of all the new and unfamiliar processes, but it gets easier and easier as you become more familiar with it. Many people have more than one home in their financial portfolio so you should strive to buy at least one. After you buy your first home, try to expand the other parts of your portfolio before you purchase another one. For more information, check out Real Estate – Should You Rent or Buy?

Steps #6 – Invest in Yourself

A financial portfolio is filled with investments, but how can you know which investments you should invest in, without prior knowledge? It is so important to expand your financial know-how if you want to succeed and profit. Don’t be afraid to invest money in your education as this is more valuable than anything you could own. Take a course or even a seminar on how to invest your money properly, read a few books on the matter and decide which investments would be best for you. Although the cost may be several thousand dollars, the knowledge you gain can make a significant difference in your income as well your assets if applied wisely’ paying for itself many time over.

Step #7 – Start Investing

After you learn which investments you would be most comfortable with and you could profit with, it’s time to start investing. You don’t want to simply read about investing; it is imperative to take those first steps and just do it. Whether you’ve decided on stocks, bonds, mutual funds, commodities, further real estate or something else entirely, it’s important to take that initiative and begin. It’s easy to say you will start investing because you have the knowledge to do so, but very few actually end up following through, and this is where they reap the rewards.

Step #8 – Open a Business

This may not be an appropriate step for everyone, but many investors do end up starting their own business, even if only to keep their assets better protected. A business can be a great addition to any financial portfolio, especially since it has the potential to increase your income and even create passive income, however, I can’t stress the importance of educating yourself before you just jump into it. Keep in mind that 90% of new businesses fail in their first year alone and 80% of the ones that survive the first year end up failing in the next 5 years. Starting your own business is a serious event and should be treated as such; this is not something to be taken lightly if you are serious about succeeding in the long run.

Step #9 – Saving for Your Child’s Education

Again, this step is optional since many parents nowadays are more inclined to let their own children pay for their own education in order to teach them responsibility as well as the fact that they will be much more inclined to work at their studies if they have to fund it themselves. However, for those who have the means, saving for your child’s education may be an excellent idea and a great addition to your financial portfolio. Another option is waiting to see how your child does in school and offer to pay for a portion of their education if they get good grades or if they get accepted into the university of their choice. This can be an incentive for your children to do well and can be treated as a reward for working so hard. Especially if your child is going into a rather expensive program such as a high end medical school or law, you don’t want their education to be limited because of a lack of funds. Therefore it may be a good idea to save for your child’s education ahead of time and if you change your mind down the road or they decide to go for a less expensive program, you can always transfer these funds into other investments to further diversify your portfolio. For more financial advice for youth, please see 8 Financial Tips for Young Adults and How to Teach Your Kids About Money.

Step #10 – Be Consistent

Building up a proper financial portfolio will not happen overnight; in fact it takes many years to be fully set up. Don’t get discouraged if it feels like things are moving too slowly; just remember to put away a little bit each and every time you get paid and you’ll start to see improvements in your financial portfolio after a year or two and you should be well on your way after five years. It is also important to take note of whether you are building a financial portfolio just for you or for you and your spouse or perhaps for your entire family; this way you can know how much of the household income should be allocated to your finances on a regular basis

The image used in this post is taken from Image: Michal Marcol / FreeDigitalPhotos.net