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Unfortunately, we are not born with the financial skills that are required for a successful life. Schools do not focus on this essential life skill and unfortunately if our parents have not found their way to haphazardly acquire the skills then we are doomed to repeat the same mistakes. So, we have to take it upon ourselves to develop these essential skills. We owe it to ourselves and our families alike. And if we don’t acquire the skills from relatives then we have to develop them ourselves. Lets break the cycle of financial illiteracy together. Right here. Right now.
Since this is a complex subject we have to perform a functional decomposition of this vast topics into smaller pieces so that is a bit easier to digest. So that we can’t eat the elephant one bite at a time.
This site should be used as a reference. Something that you come to when you would like to research a particular subject like how to invest, how to budget, …
Before we begin with the next level, we must come to agreement on some basic concepts. First we need to understand the difference between wants and needs. Needs are must haves like medical insurance, food and utilities. Wants are things like vacation and golf clubs. We should endeavor to find ways to keep costs low on the needs and minimize both the number and size of the wants.
This leads us to the next concept. As we stated earlier, there is no magic to obtaining wealth. We need to make more, spend less and save/invest the difference. We need to live beneath our means. This will help lead us to financial freedom.
Lets discuss how the site will be structured to help us achieve our goals.
The following paragraphs provide an overview of personal finance topics. The blog entries drill down into more detail on each topic.
Some of these topics should be addressed in the order provided below. Mentoring, tracking, budgeting and debt payoff should be done ASAP. The other topics can be addressed as they come up.
A mentor or money coach is someone for you to use as a sounding board. Preferably someone who is well off and has a proven track record and someone who can point you in the right direction. Also, a mentor can help you by keeping you accountable. Another variation on this is to have a friend who is also at your same level but also interested in wealth building. You can work together and encourage each other to build wealth. I have been very fortunate to find others in my life who have fulfilled this role.
As a negative corollary to money coaching is to keep away from the naysayers and folks who do not have the same goals and values as you do. This will only bring your down and have a negative effect on your outcome.
Next set up your tracking mechanisms. There is a saying that if you don’t measure something then you can’t manage it (Peter Drucker). Tracking is the first step to finding out exactly where your money is going. Once you start tracking and budgeting, you will have a better feel as to where you can make improvements.
Budgeting provides you with the opportunity to give each dollar a job. This is you plan and according to Benjamin Franklin, if you fail to plan then you plan to fail. The budget is the backbone of your roadmap to financial success. The largest parts of your budget are Shelter, Transportation, Taxes, Utilities, Food, Debt and Medical.
The next step is the debt restructure and credit paydown. This is a matter of getting your bills organized and getting them paid off. If you are already debt free then you are ahead of the game. As part of this process, the first step should be to set of an emergency fund.
The first hurdle is to get $1000 in your emergency fund and then the next step is to get 6 months of funds in the emergency fund. The way to calculate this is to just eyeball it by providing a ball park figure by taking 70% of your monthly gross and multiplying it by 6 for the 6 months. So $60,000 yearly salary is $5000 per month. Then multiply $5000 times 70% and multiple that result by 6 resulting in $21,000 being the required 6 months for emergencies.
Once you get through the steps above then you can take on Savings and Investing. This is discussed in more detail in the subsequent pages.
You may be thinking of other expenses. They will be covered in some of the other categories. Car repair and gasoline is covered in transportation. Utilities and house maintenance is covered in Shelter. Toiletries under Food.
Taxes can be more involved. In the beginning, it will probably be a simple table look up. Taxes grow in complexity as your investment portfolio grows.
Insurance includes medical, dental, life, long term disability, long term care, and Identity theft.
Medical includes the gym and any other physical activities.
Investments include Real Estate, Stock and alternative investments.
Budgeting tends to focus on things in the near term in the beginning but as debt is paid down the investing becomes more of a focus. This is part of the Retirement and Estate Plan. These are longer term and require more time and planning.
Reducing expenses involves Minimalism which is also called Frugality. This topic often gets confused with being cheap. The real goal here is to make sure that every dollar goes toward what you really intend it to. It is not about being cheap, it is about being intentional with your long term goal of financial freedom.
Education is a key component of your financial well being. It is important that you treat your education just as a CEO would with their business. If you choose a major such as Roman Literature, it may make you a well rounded person who is conversant at dinner parties but it may not help you obtain an occupation that will help you meet financial goals in an efficient manner. Be sure to pick education that can help you pay for both the education and lifestyle.
Occupation can go hand in hand with the education. It is important to pick a role that can help you support you and your family as well as provide a means for investments. One should always have a plan B when it comes to occupation. This is because the workplace is uncertain so you need to be sure of having a back up strategy in case your current position doesn’t work out. This could be due to your personal preferences or the business case for your employer. A side gig should always be considered to supplement your income.
There is also a more of a social and psychological aspect to personal finance as well. It may require you to have a Behavioral change about your relationship with money. If you view money as unobtainable or use it to punish others then you may need to reprogram yourself to be successful. This crosses over into Relationships. Are you and your partner compatible when it comes to desire goals. Money can be a source of frustration and fighting. It is important that you are both on the same page.
While it may sound selfish but taking care of your business first puts you in a better position of helping others. Once you get your own house it order, it puts you into a position where you can be more Philanthropic.
Scams are covered since they can have a negative impact on personal finance. They are pervasive in this day and age so I cover them here in attempt to give you a heads up so that they can be avoided as much as possible. And by the way, you will even get a story where I fell victim to a scam.
Why do all of this? It is all about the freedom that wealth can bring you. Being able to do what you want when you want. Buying back your time. You are no longer in a position where you are selling your time for money.
Reference the Blog page to dig into these topics into more detail.
