How would you define financial success? I think everyone can come up with their own definition. Some would consider a collection of sports cars as successful. Others may believe that simply having food on the table is enough.
However you personally define financial success, here are 5 keys to achieving it.
1. Have a Written Budget
Why: Do you find it hard to sit on the couch and relax when your house is a mess? Knowing that the house is out of order can destroy any chance of peace and quiet. The same is true for our finances. When we don't get our money in order, it can cause anxiety and tension in our lives. Not only that, but money has a way of slipping through our fingers if we're not careful.
How: Creating a budget is something that should be done before the first of the month, every month. This gives your income an assignment before you even have it in your bank account. When you give your money a task, it is less likely to be spent on something frivolous.
If you're married, a budget meeting should involve both spouses. You each need to have a say in how the money is allocated and agree to stick to it. Think about it; a major company wouldn't run efficiently if they didn't have regular budget meetings. The same is true for personal finances. I have a full blog post dedicated to the benefits of a budget.
2. Get Out of Debt
Why: Debt is the silent killer. It slowly chips away at your income and prevents you from having full control of your finances. Imagine how much money you could bring home every month if you didn't have credit card bills, student loans, or a car note. Our income is our greatest financial asset. We work too hard to give a portion of it to the bank.
How: Take your debts and list them from smallest balance to largest balance, regardless of interest rate. Pay minimum payments on all debts except for the one with the smallest balance. Find every extra penny you have in your budget, aim your sights on the smallest debt, and attack! Throw as much money at it as possible, and as fast as you can.
Once your smallest debt is knocked out, move to the next one on the list. You’ll be able to combine that debt’s minimum payment with the money you have been pouring on the first debt. Each time you pay off a balance, you’ll have more money to dump on the next debt. The feeling of achievement you get from paying off even the smallest of debt is irreplaceable!
3. Cash Flow
Why: It’s time to stop thinking of purchases in terms of monthly payments. This was a very foreign concept to me when we started our debt-free journey. I was so used to asking “How much per month?” instead of “How much?” This frame of mind will keep you stuck in debt forever. If you can’t pay cash for something, then save up the money until you can.
How: You should start cash flowing immediately, even if you’re still in debt. The last thing you want while attacking debt is to take on more debt. Once you’re debt-free it’s important to maintain cash flow. Plan ahead and save for things you’ll need. You know that you’re going to need to replace your car one day, so start saving now so that you aren’t stuck borrowing the money later. Pay yourself a car payment and put it into the bank. This method can be used for any purchases you plan on making. Look toward the future and set money aside so that you’re prepared when the time comes.
4. Have a Rainy Day Fund
Why: Don’t you hate it when you pull up somewhere in your car, it’s pouring down rain, and you don’t have an umbrella? This happens to me all the time. When it’s sunny, I don’t think about putting an umbrella in my car. However, as soon as it starts raining, I curse myself for not putting one in there. The same is true with our money. We need to start saving money before an emergency arrives. Growing up, my dad would tell us how important a rainy day fund was. A financial storm is always on the horizon. Do you have your umbrella?
How: Once you have paid off all of your debts, it’s time to start setting some money aside for a “rainy day". When an emergency arrives, you need to have a good chunk of money somewhe
rent, so it’s important that you seek the guidance of a professional to help you with your specific situation. Find a coach or advisor in your area that can teach you about your options.
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