So you want to be rich, wealthy, or financially independent. Seems impossible, right? It's not as hard as you'd think. Let's start with some questions. How many times have you questioned how someone you personally know seems to spend money like it's free? Have you wondered where they are getting their extra money from especially if they make a similar amount of income as you? Have you tried to figure out how they can afford "this" while they are purchasing "that"? We all have, and from my experience, there can be one of two major things happening:
- They are living beyond their means, overspending daily, and will eventually get into trouble.
- They have created a sound financial plan, save daily, and can spend their money knowing they are OK to do so.
Both of the above examples will allow an individual to purchase things they want and need but the person who creates a sound financial plan and sacrifices a little "now" will be able to keep much more of their very hard-earned money. A little bit of sacrifice really does go a long way.
Living Beyond Your Means
Most of us at some point in our lives will "live beyond our means" whether by choice or necessity, but when this idea, along with overspending, becomes regular practice it's only a matter of time before something happens that could create very real and big financial problem. Living beyond your means keeps you on the edge of paycheck survival and beyond. Below are some behaviors of living beyond your means:
- Using a credit card to pay for everything
- Using a credit card to pay for emergencies (no need for this - save an emergency fund instead)
- Spending more when paying by credit card vs. paying with cash
- Living paycheck to paycheck without having any extra money or savings
- Using savings, retirement money, or other investments to pay for regular bills and goods
- Having a spenders mentality - "I earn my money to be able to spend it"
- Not tracking what you earn and spend (living on a budget)
- Making purchases based on the thinking "I can afford the payments"
- Playing the game "keeping up with the Joneses"
A Sound Financial Plan
A strong financial plan starts with your desire to get your finances in order and then your ability to put your plan into action. Once you begin your plan and stay with it you will begin to experience many great benefits such as:
- Never paying credit card interest rates and bills again
- Never having to scramble for money when there is an emergency
- Not having to live pay check to pay check for the rest of your life
- Knowing how to control your money
- Knowing where your money is going
- Making your money work for you
- Being able to purchase more expensive items with cash
- Being able to treat yourself without it creating a debt burden
That's just the tip of the iceberg and every individual will have different benefits. Having a positive surprise from hard work on your finances is one of the best feelings of accomplishment and pride. It's also addictive! Below is a small list of steps you can take to begin creating your own financial plan.
Set Goals - Create some realistic and reasonable goals for your plan. Take it slow at first and once you have reached a goal, review it, revise it, or change it as needed.
Track Your Money and Create a Budget - I am a big money tracking and budget nerd because they work so well. If you know where your money is going you can then make educated decisions about how to handle your money.
Save an Emergency Fund - Saving 3-6 months of your expenses is a great way to have a decent sized stash of cash to pay for those unexpected, but all to regular, emergencies we all have.
Pay Off High Interest Debts - High interest credit cards, auto loans, or any other loan that isn't directly related to improving your finances (example: a business loan) that is at a very high rate must be paid off and destroyed.
Save, Invest, and Build Wealth - Choose a savings or investment method that you are comfortable with and can understand. Savings accounts and some investments are pretty simple. Other investments may be very complicated. If you can't understand it don't invest in it.
Have Fun and Enjoy - The whole reason for creating this plan is give you more enjoyment out of life. Once your plan is set and working, you will see that it is well worth the time, and you will wonder how you ever got along without it.
Hopefully you can see that it's not too difficult to create a very reasonable and sound financial plan to fit your needs. The hardest part now is to stop reading and thinking about it and begin to take action. So, close down your web browser and get to work!