Know your finances in order to make investing, retirement decisions

There are many ways to describe groups of animals: murder of crows, charm of hummingbirds, school of fish. What would it look like if we took those descriptions and used them for financial planning?

Debt for consumption is never good. I know there are times when it may be unavoidable, such as job loss.

But constantly accessing debt for lifestyle hinders your financial planning. Credit card interest payments are empty financial calories.

Having said that, not all debt is bad. Borrowing for things that have a payback — education and housing, for example — can be constructive. If you are serious about getting out of debt and taking control of your life, Dave Ramsey’s “The Total Money Makeover” is one place to start.

Company retirement plans usually provide two benefits: You can get a tax deduction for the amount you contribute (if not using the Roth option), and the company often matches at least some of your contribution.

Invest in your 401(k) minimally up to the match to get free money. If your company offers a Roth, choose this option if you anticipate your income (and taxes) to go up over time.

Health Savings Accounts are another great alternative for retirement savings if you have enough cash flow to let your HSA grow and pay for uncovered health care costs out of pocket.

HSAs are the only vehicle that are tax deductible going in, grow tax deferred and are tax free coming out if used for qualified medical expenses.

And if you don’t have an individual retirement account (IRA) but still have extra savings capabilities, consider a deductible IRA that you can convert to a Roth or a nondeductible IRA that you immediately move into a Roth.

Remember, Roths grow tax deferred and are withdrawn tax free.

While I am a proponent of using certified financial planners (CFPs), it is still in your best interest to try to obtain some minimal financial knowledge of your own so that you can ask appropriate questions when advice is offered.

There are several paths you can take to be financially secure, but they all start with an understanding of what you own, what you owe, what you earn and what you spend.

Reasonable people may disagree about insurance vehicles, investing and the use of wills and trusts, but basic personal finance will always be a good grounding for you.

Don’t be like bison and follow the herd. Make your financial planning choices your own.

Spend your life wisely.

Ross Levin is the founder of Accredited Investors Wealth Management in Edina. He can be reached at ross@accredited.com.