The Road To Wealth: Mastering Personal Finance

 

Not all bumps are this clearly marked.

Have you hit a bump on the road to wealth?

How can you turn your dreams for a better life into reality? Whether you are in debt up to your neck, scrapping by, or starting to get ahead, it won’t hurt to check and see if you are doing everything in your power to improve the odds. Here are 10 steps we believe can make a real difference:

 

I sure hope one of these lotto tickets is a winner.

Are you relying on magical thinking?

#1: Reprioritize. You may be waiting for a miracle. You may be waiting for your rich aunt to die. You may be convinced you are set to become the next mega lotto winner. You may be counting on the higher income from a new job to make your problems go away. Stop, get real, and reprioritize! Hoping to get rich won’t make it happen. Your financial situation will take a turn for the better when, and only when, you decide to control spending and make saving a priority. That means giving up on miracles and embracing all the steps we outline below.

 

#2: Spend Less Than You Earn. This step ought to be a no-brainer, but we all get tempted from time to time. Whether it’s a new car, brand name clothes, or the failure to look for true savings in the form of coupons or otherwise, it’s easy to overspend. In fact, spending is way too easy! There’s just so much to buy, and businesses are geared toward enabling it, either by offering credit we really can’t afford, or by luring us into an automatic purchase plan to make life easier. Spending less than you earn is about developing a discipline of self-restraint. That doesn’t mean you can’t treat yourself from time to time, but it does imply making better, more conscious choices. That can feel hard, but it’s critical if you want to get ahead.

 

 

#3: Build A Cushion Against The Inevitable Blow. Everyone needs an emergency fund, because everyone will eventually run into some kind of unexpected spending. If your car or your house doesn’t need a sudden repair you’re bound to end up with some kind of dental or medical emergency. Don’t just let life happen to you. Prepare for the worst and cushion the blow. And yes, while experts suggest setting aside an amount equal to six months of your income, any amount you can put aside is a better emergency fund to start with than no fund at all.

 

These dishes are as worn out as I feel.

If your life and the things in it look worn out, it’s well past time for a change.

#4: Make A Plan. Where do you hope to be financially in six months, five years, or as you are getting ready to retire? Think that will happen without a plan? Most successful people have a plan to get ahead and they learn to stick to it like glue. Some aren’t great planners themselves, but they are smart enough to get the help and advice they need from others. Your real chance of winning the lotto is zero, so why not play the odds like a sure winner and start working on your financial plan instead?

 

A huge house on the beach.

Owning a house on the beach is one thing. Paying for it is another. You need a workable plan you can stick to.

#5: Commit To Your Plan. No plan to get ahead is going to work if you quit it at the first sign of trouble. For that reason it has to be both realistic and doable. It’s also worthwhile to remember commitment isn’t a static process it’s a dynamic one. That means sticking with your plan will look different on different days. Some days it may look like putting a few extra dollars aside. On others it might look like passing up an opportunity to spend, or clawing your way out of debt. No matter how it looks on a particular day the key is to find a way to make the right choice, or find a way to forgive yourself if you make the wrong one so you can do better next time around. If you have trouble staying committed on your own, find a friend or partner you can turn to when the going gets tough.

 

#6: Start Now. Some consider procrastination an art form. However, when it comes to finances it’s a sure-fire formula for disaster. Thus, you may be terrific at putting things off, but this is your life we are talking about so what are you waiting for? Plans don’t happen by themselves. Savings don’t accumulate magically. Emergency funds don’t grow on trees. If you don’t start today and keep at it there’s a good to excellent chance you’ll be worse off this same time next year. Is that really what you want?

 

Don't just rely on a piggy bank.

Piggy wants to be fed automatically.

#7: Automate Your Savings. There are two ways to save: The hard way and the easy way. The hard way is to see what’s leftover at the end of the month and put that in a savings account (likely zero). The easy way is to automatically pull money into savings on the day your wages or earnings go into the bank. Most any bank now allows you to set up an automatic draft from your checking account into your savings account online. However, if you need help just visit your local bank branch and talk to the people there. It’s so much easier not to spend money if it isn’t included with your regular funds (i.e. if it isn’t in your checking account in the first place). This is the power and beauty of automatic savings. And it doesn’t stop there if you’re one of those lucky enough to have a 401K at work. Set up your 401K to set aside at least as much as your employer will match. That’s free money for retirement! Are you taking advantage? If you don’t know how to start, talk to the people in your human resources department, or check your company’s internal website for more information.

 

I wonder if I should own a boat?

If all your friends own boats, you may feel a lot of pressure to get one yourself.

#8: Don’t Let Others Tell You What To Do. If you let the world control you don’t expect things to improve. The truth is everyone is subject to intense pressure to live a particular way or buy certain things. Ads tell us to consume. Those that create them could care less whether or not we can afford their products or services so long as we buy. Our low self-esteem is another beast that gets in the way. It tells us to “keep up with friends or neighbors” in order to be liked or feel important. Petty jealously and greed are other emotions that play into the mix. When these feelings take control we end up spending far more than we mean to or can afford. It can take practice, but it’s worth developing a strong sense of personal boundaries so you can resist the constant pressure to buy.

 

I wish flying were as easy as spreading my wings.

You can’t fly without wings or an engine. Make sure your plan has all the pieces in place.

#9: Embrace The Long View. Chances are you’re in debt or just scrapping by so thinking about being better off or even rich down the road may feel irrelevant. However, without the hope for something better and a goal to work towards there’s virtually no chance things will improve. It’s important to visualize a better life if you plan to have one. For that reason, take the time to imagine yourself five, ten, or twenty years down the road living the way you want to. not the way you do. When you can see yourself in a better place, finding the strength to make incremental changes gets easier in the face of day-to-day challenges.

 

A gorgeous sunset.

The road to wealth has a lot of pitfalls, but it’s all worth it in the end.

#10: Diversify. No one way to invest will insure your money’s safety over the long run. Every type of investment carries risk. If you hold onto cash, you rely on the good faith of those politicians in Washington not to make your dollar worthless. If you stick your money in a bank you have to earn enough interest to beat the rate of inflation. If you buy a bond, you rely on the ability of a company or your government to pay it back. If you buy a stock, you rely not just on the managers of a company to excel, but on the market to be unaffected by seemingly unrelated events such as war in foreign lands, the whims of day traders, spot shortages in resources, the motives of profit seekers, and so on. Short of owning a crystal ball that can tell the future, the best long term strategy for investing is one in which you are properly diversified among a variety of assets. If you don’t know how to do this, then seek the help and advice of a financially savvy friend, or find a financial adviser with a great track record.

 

Are you on the road to wealth? While we can’t promise it’s a short journey, it’s well worth the effort.

 

For more information on savings, spending, and improving lifestyle visit our Great Savings Tips page.

 

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