Clarify Your Financial Vision
What is your vision with regard to money and to your financial future?
Project forward five years, ten years, twenty years into the future. Imagine
that your financial life is perfect in every respect. Create a clear mental
picture of your distant financial future as if your every financial dream had
been realized. What does it look like?
How much would you like to be worth when you retire or stop working? What
kind of lifestyle would you like to have at that time? How much will you have to
save and invest every month, every year, to reach your long-term financial
goals? These are questions most people seldom ask or answer.
Where will you know that you have enough, and what will you do then? Imagine
that you have no limitations on your long-term ability to achieve financial
independence. Imagine that you have all the time and all the resources you need.
Imagine that you have all the knowledge and all the experience you need. Imagine
that you have all the contacts and all the opportunities you could ask for. If
you could design your financial life to be perfect in every way, what would it
look like?
Imagine that you have achieved a net worth of $10 million. What would you do,
how would you change your life if you were completely independent financially?
Make up a dream list of every single thing you would want in your life, tangible
and intangible, if you had all the money you would ever need.
The greater clarity you have regarding your long-term financial future, the
faster you will attract the people and resources to achieve it in your life and
the more rapidly you will realize your vision.
Set Goals for Your Finances
What are your financial goals? Among your financial goals, which of them are
most important? What is your financial focal point? Where do you draw the "X,’
in your financial life?
In general, you should have four financial goals: earn as much as you can,
spend as little as you can, save and invest as much as possible, and protect
yourself against unexpected reversals and lawsuits. Achieving each of these
goals is very much under your control. They are matters of personal decision and
design, not chance.
Questions for Creating Your Financial Future
· How much do you want to earn this year?
· How much do you want to earn next year?
· How much do you want to be earning five years
from today?
· What is your plan to earn these amounts of
money?
· How much do you want to be worth when you
retire?
· How much will you have to save and invest each
year to achieve that financial goal?
· What is your plan to acquire that amount of
money?
· What do you need to do first? What do you need
to do second?
· What do you need to do every day, every week,
every month to achieve your long-term financial goals?
· Where do you draw the "X" in your financial
life? What is your focal point?
There are certain measures you can use to determine how well you are doing.
The greater clarity you have with regard to the measures you use, the more
likely it is that you will achieve your long-term goals on schedule.
To begin, calculate your financial net worth today Add up all your assets at
market value and then subtract all your debts and liabilities. Determine your
dollar value today if you had to sell out everything you own and turn it into
cash. This can be an eye-opening experience.
· What amounts do you currently save and invest
each month?
· What percentage of your income do you put
away?..
· What are your monthly costs of living?
· What are your annual costs of living?
· How many years have you been working, and how
much, on average, have you managed to accumulate each year?
Perhaps the best measure you can use, if financial independence is your goal,
is to determine how much money you will need each month, each year, to live
comfortably and then calculate how long you could sustain your current lifestyle
on your current savings. This is called your run rate, or burn rate. This is a
calculation of how long you can survive with what you have accumulated up to now
This is the best measure of your overall financial health.
Most people have a burn rate of less than a month. Many high-income people
are only two months away from homelessness. They spend everything they make and
a little bit more besides. If their incomes were cut off for any period of time,
they would be in desperate straits.
Set clear financial goals and targets for each part of your financial life,
both for the short term and for the long term. Examine every expenditure in your
life and look for ways to reduce your monthly living costs. Set a goal to cut
your expenses by 10 or 20 percent over the next ninety days. Make cost control
and cost cutting a regular part of your life, no matter how much you earn.
Upgrade Your Financial Knowledge and Skills
What additional knowledge and skills do you need to achieve your financial
goals? What skills and abilities do you need to earn the highest income possible
for you and eventually achieve financial independence? The subject of money is
complex, but you must master it if you are truly serious about getting your
financial life under control.
The average self-made millionaire spends twenty to thirty hours each month
studying the subject of money and carefully managing his or her finances. On the
other hand, the average person spends only about a tenth of that amount of time
per month thinking about his or her financial future, mostly paying bills and
balancing the checkbook. Because you become what you think about most of the
time, the more time you spend thinking about your money the better you will
become at managing it.
The first knowledge you will need to achieve financial independence is the
knowledge of exactly how much you are earning today how much you are spending
each month, and how much you are worth.
To get your financial affairs under control, you must begin by carefully
studying and evaluating each expenditure before you make it. You should keep a
list of every dollar you spend and analyze your list regularly The more
attention you pay to your day-to-day spending, the smarter you will become about
the amount of money flowing through your fingers.
Break the Law
Parkinson’s law says that expenditures invariably rise to meet income. The
more you earn, the more you spend. Even if you double or triple your income, you
will eventually double or triple your expenses and end up no further ahead.
Financial success comes from breaking Parkinson’s law: Financial success is
possible only when you refuse to allow your expenditures to increase at the same
rate that your income increases.
Here is a rule that will almost guarantee that you become wealthy over the
course of your working lifetime: Save and invest 50 percent of any increase you
earn in your salary or compensation for the rest of your career.
You can spend the other 50 percent of the increase on improving your standard
of living. But resolve today to save half of every increase for the rest of your
career. This discipline alone will ensure that you achieve financial
independence, probably several years before you expect.
Here is a simple five-word formula for financial success: Spend less than you
earn. Spend less than you earn and then save or invest the balance. This formula
can make you rich.
Money Skills Are Learnable
Identify the specific skills you will need to develop to achieve financial
independence. One skill you need is a solid knowledge of money and finances. You
should read the best books and magazines on the subject. Attend good seminars on
financial planning. Seek advice from others who are financially successful.
Learn everything you can about how money is acquired, accumulated, and
protected. Leave nothing to chance.
Above all, examine your work activities carefully and determine exactly what
you do that pays you the most money Apply the 80/20 Rule to your job every day
Identify the 20 percent of your tasks that account for 80 percent of the value
of everything you do. Resolve to focus more and more of your attention on
becoming better and better at the few activities that are worth more than all
the rest.
Financial success comes from value creation. You create value in the work you
do. You create value in the products and services you produce and sell in
conjunction with others. The more value you add, the greater will be your own
personal value and the higher will be the rewards you receive.
Every day, you must look for ways to add even more value than before. You
must always seek ways to serve your company and your customers better, faster,
cheaper, and more conveniently
Develop Winning Financial Habits
There are certain habits and behaviors that lead inevitably to financial
success. The first and most important habit is for you to pay yourself first.
Pay yourself first, off the top. Your goal is to eventually save 10 to 20
percent of your income throughout your life. Your aim should be to put this
amount away regularly to invest it with experts and to let it grow over time.
If you cannot afford to save 10 percent of your income, begin by saving i
percent of your income. Begin saving and investing, even before you pay off your
debts. Begin putting money away before you pay down the amounts you owe. This is
very important.
By developing the habit of saving a certain percentage of what you earn off
the top of every single paycheck, you will eventually change your entire
attitude toward yourself and money In a very short time, you will become
comfortable living on the percentage you still have to spend. Meanwhile, you
will find yourself paying off your debts, one after another. In a year or two,
you will be out of debt and you will have rapidly growing bank account and
investment portfolio.
The key to long-term financial success in the stock market has always been
based on the twin miracles of compound interest and dollar cost averaging.
Albert Einstein called compound interest the eighth wonder of the world. If you
put a little money away and let it grow month after month and year after year,
it eventually grows into an enormous amount.
Dollar cost averaging in the stock market means that you invest a specific
amount every month, year in and year out. Sometimes you invest at the top of the
market, and sometimes you invest at the bottom. But your average cost of stocks
ends up being lower and your growth rate is higher and more predictable than if
you always tried to buy at the right moment.
Peter Lynch, successful manager of the Fidelity Magellan Mutual Fund, wrote,
"It is not timing the market, but time in the market that determines long term
success.
The most important habit you can develop to achieve financial independence is
the habit of frugality. Carefully consider every expense before you make it. If
possible, delay a large purchase for a day a week, a month, or even longer. Take
that time to think about it before you commit. When you put off a major purchase
decision for any period of time, you often end up not making it at all.
Perhaps the most helpful habit of all is to learn to enjoy the act of saving
and investing. Most people associate saving with sacrifice, pain, restriction,
and deprivation. This is why most people do not save. They have the wrong
mindset.
Financially successful people enjoy the act of saving and investing. It makes
them happy to refrain from spending and instead put their money away for the
long term. They enjoy the growing sense of financial freedom that regular saving
gives them.
When you begin to look forward to every opportunity to put money away you
change your entire attitude toward money and investments. You begin to get
tremendous pleasure and satisfaction from seeing your savings and investments
grow over time.
Create Your Daily Financial Activity Schedule
There are four activities you should engage in every single day to achieve
financial independence.
1. Carefully evaluate every expenditure before you make it. Delay every
expenditure that you possibly can. Put it off until later, if you make it at
all.
2. Set clear goals and targets for the amounts you intend to earn and keep.
Measure your results against these targets every week and every month. What gets
measured gets done.
3. Look for ways to reduce your monthly expenditures and instead save the
money. Cut out all nonessential expenses. Keep asking yourself, "Do I really
need this?" Resolve to reduce your monthly costs of living by as much as you can
as quickly as possible. Every dollar you can save from your monthly expenses is
an additional dollar that you can put into your financial freedom account.
4. Take every possible opportunity to increase your value or earning ability.
Look for ways to upgrade your knowledge and skills. Concentrate on getting
better at the activities that contribute the greatest value to you.
Make Your Financial Action Commitment
Select at least one action that you can take immediately that will begin
moving you toward financial independence.
This activity can be as simple as opening up a separate bank account into
which you deposit a specific percentage of every single paycheck from now on. It
can be as complex as sitting down and drawing up a complete financial plan for
your life.
Financial success is predictable. It has never been more possible for you to
earn and keep more money than it is today There are hundreds of thousands of
self-made millionaires, all of whom started with nothing and who began using the
practices and processes described in this chapter. If your goal is to become one
of them, begin today.
For the Top 10 Ways to Identify Your
Passion in Life, send
an email to
bs@futurevisions.org
with "MWS
Passion Top Ten" in
the subject and nothing in the body
For support in your transition,
work with Dianna!
