Seven Steps To "Get Your Money Right" In 2016

Did you know that 76% of Americans are living from paycheck to paycheck according to 2013 research done by Bankrate.com? Here are seven steps to break that cycle in your household:

 

1.      Establish and follow a budget.

Your budget is your spending plan for your money.  Without a plan you are bound to work outside of the boundaries of your income.  It is important to establish and then follow a budget on a monthly basis.

 

2.      Educate yourself financially.

An educated choice is always the best choice to make.  Educating yourself financially means to begin reading books, articles and blogs that are related to finance, especially personal finance.  It also a good idea to listen to some podcasts and television shows that relate to the subject area.

 

3.      Clean up your credit.

There may be some things on your credit report that is causing your score to be lower than it should.  These are the items that need to be straightened out.  Your credit report should also be checked for accuracy – late payments, credit balances, etc.  Have your report review and make it a priority for the first quarter of 2016 to “fix” your reports and scores.

 

4.      Establish and Continuously Fund Five Funds.

There are at least five funds that everyone should establish:

Ø  G.O.O.D. (Get Out Of Debt) Fund

Ø  Vacation Fund

Ø  Retirement Fund (outside of your employer sponsored fund)

Ø  Investment Fund

Ø  Replacement Savings Fund

 

5.      Investment Plan.

Create an investment plan.  Simply saving money is outdated and no longer works effectively in this economy.  Therefore your ability save money has to be mixed with a good investment plan in order to generate wealth. Be sure to read my free e-book entitled, Income Producing Assets, which can be found at www.fredericktowles.com.   

 

6.      Put your blindfold on.

Forget about the Jones’ unless they are related to you!  Don’t look at what anyone else acquires.  This is the largest cause for debt – living like the Jones’.  Therefore set your plan, stick to your plan and put your blind fold on, enjoy the ride.

 

7.      Get a professional finance coach.

There are several benefits of working with a professional finance coach: your coach offers a fresh perspective on your financial challenges, enhanced decision-making skills, increased confidence and a depth of financial expertise.  For more information on working with a finance coach please visit: http://unlimitedexp.com/services/. 



Grow Your Money Tree

It is a fact that most of us will have several hundred thousand dollars pass through our hands in our life time.  You don't believe me do you?  Well lets say you work for the minimum wage ($7.25 per hour), full time (40 hours per week) for the next fifteen years.  If you did that you would have earned $226,200.00.

With that knowledge you and I both most figure out a way to grow our money tree. There are several obstacles that are trying to kill the growth of our tree: bad money choices caused by hereditary and environment, debt, clear understanding, etc.


We can clear up bad money choices with continued exposure to information that will increase your financial literacy. In this post I want to challenge your understanding and debt.

Some people, professional and otherwise, will tell you that you should pay off all of your debt first before you can grow your money.  I believe that this is poor advice for most people.  You should develop a strategy where you are reducing debt, saving and investing for growth simultaneously. Work with someone who can help you develop this strategy

This way your money tree has the best chance of growth.

Also please keep in mind these three principles:

1. The fastest way to increase wealth is to invest.

2. There is a significance in making more money and increasing wealth.

3. When you start to invest don't get discouraged if you are not able to be a part of the "big deal".  A few "small deals" can put you in a position to be part of the "big deals".








Image courtesy of ddpavumba at FreeDigitalPhotos.net

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Tightening The Belt

With America's credit rating being downgraded it should be a clear clue to each of us that we have to make some changes.

What types of changes are necessary? There are three changes that I believe we should make immediately.

Change the way we view credit.

With the average American household being in more than $16k in credit card debt we need to see change. Many view credit as a means to access more cash when they don't actually have the cash. This is the wrong mentality to have.

Credit is designed to assist a responsible person or business to use the bank's money while theirs is being invested. The idea here is that you and I should only use credit cards if there is an extreme emergency and we don't have the cash or if our money is being invested in something that is earning more of interest than we are paying the bank. If neither of these are the case, then we should keep the plastic in our pockets.

Change our posture on needs and wants.

There has to be a clear definition for each of us as to what a “need” is and what a “want” is. Here is the way I view the two. A “need” is something that is essential to survival (i.e. shelter, clothing, food). A “want” is anything outside of a need. For instance, I need shelter but I may want to live in one of the most exclusive zip codes in my city. This is where many people get it wrong. It is human, especially in America, to confuse a need with a want.

The second part of the definition is that once the “need” has been meet and there is the financially wherewithal to afford anything else, we can then and only then, explore the acquisition of any “wants.”

Do you have a clear definition of the two? If not, you have to develop one and prioritize your needs over your wants.

Change the manner in which we spend.

This bleeds from the second point. We have to learn to live beneath our means. Typically the first step in doing this is to learn to live on eighty percent of our net income. After mastering that, the next step is to live on fifty percent of our net income. How do you do that you may ask?

This can be accomplished by following the items in this blog, creating a budget and sticking to them both.

You can do it!
Go get 'em!

Decisions

Life is full of opportunities to make decisions.  Should I go right or left, forward or back, take this job or that job?  Each decision we make shapes our experiences and path of life. Therefore it is important to make the correct decisions.

One of the decisions some must make is whether to pay down or invest their money, especially with tax refund time upon us. Which one should you choose? I would say, do both.  There is a win-win situation if you have the ability to do both. Let’s take a look at a scenario for a moment.

Aaron has $400.00 left over each month after all of his monthly obligations have been met.  He has an outstanding credit card balance of $5,000.00, which is also part of his monthly obligations.  If Aaron uses the $400 each month to pay down his debt, he would retire his debt faster but two things work against him: (1) while paying down the debt there is no money to invest and (2) he might be missing a golden opportunity to take advantage of investments as they materialize. 

But if Aaron were to split the $400.00 reserve evenly between investment and paying down his debt he would enjoy the benefit of retiring the debt a little faster and investing.  Suppose his $200.00 monthly investment generated $500.00 per month, what type of position would Aaron find himself in? Aaron could use the profits from the investment to retire the debt even faster. 

So think about the dual benefit in your next financial decision!

Get Out of Debt Card

Growing up in the Monopoly playing generation I, along with many others were conditioned to believe there was a “Get Out Of Jail Free Card.” That type of conditioning has transferred to the next generation in terms of debt. Many commercials, Internet posts and talk from industry professionals portray that the process of getting out of debt can occur without making any major adjustments. Please don’t be fooled, as this is not true.

There are three adjustments that must transpire if you intend to get out of debt:

Reduce spending – You might have heard this one before from me or someone else: Take a serious assessment of your weekly and monthly expenses and decide what expenses are in the “Need” category and which are “Wants”. Eliminate all the “Wants”, at least for now. Also, I would research alternatives to the items on your “Need” list. For instance a telephone might be on your “Need” list. However, you might want to consider VOIP (voice over IP) as an alternative.

Create revenue – In addition to reducing your spending, it is important to seek ways to create revenue. List the things that you like to do or that you do naturally. Seek a coach that will review the list with you and determine ways of producing income from a given area.

Change perspectives – This might be the most difficult of the three adjustments to accomplish. Getting out of debt causes a change of lifestyle as we will have to adjust some things. This new perspective on spending and money will be invaluable to you over a period of time. You might also need to speak with a coach here as well.

Getting out of debt will come with a short term cost but long term it will be more than worth it.

Can You Swim?

When I was a teenager I nearly drowned in a pool. I knew I couldn’t swim very well, to be honest, I couldn’t swim at all.

The pole had a rope that separated the deep end from the shallow end so that summer I always stayed on the shallow end of the pool. The shallow end went from three feet to five feet. On the deep side of the pool the notation were six feet, eight feet and then 12 feet.

One day while playing a game in the pool, I ventured out from the three foot marker just beyond the five foot marker. Because the game so was exciting and my head was still above water; I continued to venture further onto the deep side of the pool. Now remember I can’t swim!

All of a sudden I began to drown. On my very next step past the five foot marker I no longer felt the pool base under my feet. Instead I began to plunge to the bottom, as if I stepped off a cliff. It was very scary because I was just above water and in an instant drowning. Thankfully someone came to assist me.

This is what I believe has happened to many with their debt. When they initially purchased the home, the car or obtained the credit card everything was fine, the debt was able to be maintained. Then some ventured out a little more and added another supposed asset without adding any more income and the next thing you know, you are in over your head. Do not allow your emotion to overshadow wise decisions.

The next time you are in a position to obtain anymore debt, ask yourself can you swim?