7
Simple Yet Powerful Steps to Financial Success and Peace of
Mind
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In these tumultuous times, it is easy to fall into a financial
tailspin. However, with a little thought and perseverance, we
can avoid the devastating mistakes that can result in years
of financial misery. Here are 7 suggestions that almost anyone
can achieve. Following these 7 simple financial laws will allow
you sleep at night and avoid financial calamity.
1. Spend Less Than You Make. This is the most fundamental
and important of all of the seven laws. If you can not or
will not abide by this law then please read no further. It
doesn't matter if you earn $1,000 per month or $20,000 per
month. You can always live beyond your means. Conversely,
you can almost always live within your means, no matter how
modest. If you can't live on $3,000 per month without overspending
your budget every month then you won't be able to do it at
higher levels of income either. This is a fact. Because the
true measure of financial success begins and ends with the
ability to generate a surplus each and every month. End of
story. For more help on making this happen read on.
2. Know Where Your Money is Going. To achieve true financial
success you need to know where virtually every penny is going
each month. This may seem like a tedious and stingy mentality.
The reality is that if you are like most households, you fritter
away hundreds of dollars each month that you are completely
unaware of. At the end of the month you scratch your head
and wonder where it all went. After all, it was just a few
dollars here and a few dollars there. Guess what? By the end
of the month it adds up to real money. By knowing exactly
where each dollar is going, you are in a position to take
control of your day to day financial decisions. Cut back on
those discretionary expenditures that suck up large amounts
of money without your realizing it. They are sabotaging your
ability to comply with Rule #1 above. You must get to the
point where you bring your spending in line with your income
and generate a surplus for investment. This is the ultimate
financial magic bullet.
3. Pay Yourself First. Taking some money off the top of your
paycheck and squirreling it away into a safe investment each
pay period is the surest way to get ahead. When the money
comes out before you see it (and more importantly before you
get the chance to spend it), you are forced to live on a modestly
lower income. One of my favorite tricks is to put a larger
portion of each raise I receive into this automatic savings
plan because again, it is new money - money you will not miss
if you (and your spouse) never see it. Automatic 401K deductions
work nicely for this. It helps if there is a matching feature
attached to your employers plan. You should always get in
the habit of maxing out the matching options offered by your
employers. This is free money and a quick way to increase
your nest egg.
4. Limit Yourself to One Credit Card and Pay off the Entire
Balance Each Month. This is absolutely critical to your financial
solvency. Maintaining a hoard of credit cards increases the
likelihood that you will begin to max out all of the balances
and find yourself in a highly leveraged financial situation.
A credit card should ONLY be used as a convenience - not as
a loan vehicle. Consumer debt is the enemy of financial freedom.
5. Pay Cash for Everything Except Your Home. Even Cars? Yes!
Especially cars! This may sound like a heresy, but if you
begin by purchasing a modest used car for $3,000-$4,000 and
then sock away the money you would have put into a car payment
into a special account just for auto expense, you will be
surprised at how quickly you will be able to save enough to
buy a nicer car. Oh and don't trade in your used one. Either
keep it or sell it yourself, you will get a lot more for it
than a dealer will ever give you.
6. DO NOT TAKE OUT A SECOND MORTGAGE ON YOUR HOME! This practice
has been the kiss of death for millions of Americans. This
is a great time to buy a cheap home. There are abundant foreclosures
and short sales for record low prices. In many cases these
homes are selling for far less than it would cost to replace
it. You can do the math but it won't be long before the prices
will go back up to at least replacement value. It is a no
brainer to buy now if you DON'T OVERDO IT. Like our car example
above, buy something you can afford NOW. Don't take on a burdensome
debt (if you are wondering if you can afford a particular
home, refer back to Law #1!!). With interest rates at historic
lows, you should be able to get into a home purchase for about
what you would pay for rent. You get instant equity, a tax
deduction, and a home of your own. Over time you will pay
down your loan and end up with a free and clear home!! Now
that is the ultimate Freedom and still a big part of the American
dream. And it is totally within your reach. Just resist the
temptation to EVER add a second mortgage to your home. This
will cripple you for life!
7. Establish an Emergency Fund. This is one of the things
that will bring you the most peace of mind as you navigate
through an uncertain economic environment. Having three to
six months worth of income set aside in a safe interest bearing
account will do wonders for your stress levels, peace of mind
and overall financial and emotional well being. This will
obviously not come overnight, but it can be done if you set
an aggressive goal to add to an account a little each paycheck.
There you have it. This is not rocket science. Most people
who get into financial distress (which includes almost everyone
at one time or another) do not realize that these very simple
financial laws are so easy to follow. It just takes a little
resolve to set yourself apart from the crowd. Good luck!
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