Financial success is a result of consistent disciplined habits. We as individuals and as a society must eliminate from our minds the mentality and excuse that government programs, company pension plans, financial institutions, or any other person or entity is in control of our financial destiny. We determine our own potential, we create our own destiny, and we solely are responsible for our financial situation.
Let’s not be ignorant to the fact that getting out of debt, building a savings account, and achieving financial independence takes time, sacrifice, effort, and habitual consistency. But let’s also recognize that by implementing very simple practices, we literally can get out of debt, build a savings account, afford things we desire, and prepare well for retirement … and it does not take as much time or ‘cutting back’ as most people wrongfully assume.
Below are listed 8 simple practices that if implemented, will in time result in the elimination of debt, the accumulation of savings, and the achievement of financial independence.
1. You Need a Budget
Actually, you need to learn how to live within your means. The simple fact of having a budget is unnecessary unless it is adhered to, month over month. At the beginning of the month, sit down and create a plan. Record how much money you will earn and properly budget where that money will be spent. Record every expenditure throughout the month. At the end of the month, review where your money went, if you stayed within your budget, and where you need to improve. Remember that establishing a budget is a start, but living by it is difficult. Do it – and do it consistently!
2. Save Now
Get into the habit now to ensure that you budget 10% of all your earnings to go into a savings account. This is difficult, but it is a necessary habit you must establish. Speak with your bank about automatically transferring money from your account, on pay day, so you never even see or miss that money. Be disciplined enough to not tap into your savings account unless there is an emergency. Save for a rainy day, for retirement, for kid’s college funds, vacations, investments, etc. Avoid consumer debt (but if you still urgently need money, then choose only reliable lenders. For example, if you live in Fullerton California, then find a loan with a low interest rate and more favorable conditions in the city. Call several stores near you (in Fullerton) or apply for a payday loan online), prepare for disasters or unemployment, pay for everything in cash, and ensure that you ALWAYS save 10% of all earnings.
3. Self-Discipline and Self-Restraint are Essential
Financial experts consistently fail to discuss the most important aspect of Finance 101 – Self-discipline & Self-Restraint. Self discipline in regards to money is far more important than any advanced course in accounting, investments, or financial management. Self-discipline entails both the ability to save and put money aside (as difficult as it may be), but it also entails the ability to restrain yourself from buying something that is not needed. Now, don’t mis-understand me … self-discipline does not equate to self-denial or impoverishment. There is absolutely nothing wrong with buying ‘things’ that are fun, entertaining, or even unnecessary. Going back to point one, you would be wise to ‘budget’ in those types of fun and unnecessary expenses. However, if there is not money in the budget for such expenses, or you have already spent the money budgeted for those items, exercise self-restraint. And, not coincidentally, practicing self-discipline in financial matters will resultantly translate into self-discipline in all other areas and aspects of life.
4. Good Debt vs. Bad Debt
Never accumulate consumer debt. Understand that there is a difference between ‘good’ debt and consumer debt? Good debt is when you borrow money for something that eventually will make you money (an investment): a house, your education, or to start a business, etc. Consumer debt, comparatively, is simply purchasing anything on credit or borrowed money outside of these three areas. Simply put, if you don’t have the money to buy it – do NOT buy it!
5. Build Credit
Are credits cards actually bad, or are they a necessary evil? In our day and age, it is imperative to have a solid credit history and a high credit score. The reality is that having a credit card(s) … or more properly phrased – learning how to use them properly … is absolutely essential to building credit. Often the problem is not with the plastic, it is with the owner of the plastic! Simply put, the key to success with credit cards is:
- Never buy anything on credit unless you have money to pay the balance off in full at the end of the month;
- Never use more than 25% of your available credit;
- Increase your credit limits often to decrease your debt-to income ratio;
- Make all your payments, and make them on time;
- Pay off the entire balance at the end of the month;
- Keep credit accounts open;
- Limit new credit inquiries; and
- Do everything you can to reduce the interest rate on your cards and loans. Perhaps the 9th point should be to eliminate from your minds that credit cards are bad!
6. Protect Your Credit
However, building credit is half the battle – protecting it is just as important. A large part of your financial success is contingent upon 3 digits called your credit score. If you want better jobs, lower interest rates, more funds lent to you, etc. – then protect your credit. Protect your social security number and your personal and financial information. Invest in a shredder. Don’t have financial items sent in the mail. Get software to protect your computer. And an absolute must – get identity theft protection (for you and your children).
7. Do You Have Adequate Insurance
Home insurance, renter’s insurance, life insurance, health insurance, disability insurance, and auto insurance … do you have it? Also, do you have the modern day insurance, called Identity Theft Protection? If you don’t have insurance – get it!
8. Give and You Shall Receive
I would dare say that the vast majority of people who have ever achieved ‘wealth’ have done so because they understand the age- old truth the he who gives will receive. How, where, when, and why one gives will be different for everyone, but one should give with no expectation of reward, and ironically – as always – you will in turn receive far more.
Financial success is dependent upon your ability to implement the principles discussed above. However, never forget to also enjoy life as well. Be balanced! Budget money for entertainment, ‘wants,’ vacations, etc. But never forget that wealth is achieved not from the accumulation of money, but from the proper management of it.