1. Getting Out of Debt - Debt is a killer. It is a killer of dreams and hopes. It is a killer of businesses. It is a killer of financial futures. And, according to statistics, debt plays a prominent role in many failed marriages. So what should we conclude from this? If we are to be successful, we must have a commitment to stay out of debt!
You can make two million dollars a year but if you spend 2.5 million dollars, it doesn't matter how much money you made, does it? You will be saddled with debt. We addressed this issue last week.
2. Saving - One of the key components to long-term wealth building is the discipline of saving money on a regular basis. Today, we will go through the basics and show how a commitment to saving money can revolutionize your financial life and provide the kind of security you desire. One simple difference between the philosophy of the rich and the poor is: the rich save/invest their money and spend what is left; the poor spend their money and save/invest what is left.
What a simple shift in our thinking for such a revolutionary result. We will talk about saving in today's edition.
3. Investing - Investing is much different than saving.
Investing involves risk - calculated risk - and the possibility for much more reward. Saving and investing are done for different reasons and with different desired goals and outcomes. By taking a portion of our income and turning it into capital to be invested, we will be actively working toward our goal of financial independence. We will cover the importance of investing, along with some basics of investing in next week's edition.
4. Giving - Giving a portion of your resources away is one of the most powerful principles you will ever embrace. It seems counter-intuitive, but the truth is that giving will help you achieve the financial freedom you desire.
Amazingly, giving makes you bigger than you are. The more you pour out, the more life will be able to pour back in. So giving a percentage of your resources away will help you not only have more money but enjoy it more as well, and that is the best benefit. We will cover giving in two weeks.
This week we are covering the topic of saving money.
Statistics consistently show that the vast majority of people live hand-to-mouth or month-to-month, that is with no savings to speak of. The average person would be hard pressed to live for more than just a couple of months if they were unable to draw an income. This means that they are not independent, but dependent upon insurance, government programs, friends, family and the like. The primary goal of savings is to provide a much higher level of personal independence and security.
The discipline of saving directly determines how we will take care of ourselves and plan for not only the future, but also for the unforeseeable events that touch our lives at times. It is an act of self-determination where we decide that we will provide for ourselves and protect ourselves.
Saving is not, as you will see further down, the pursuit of aggressive growth of our resources. Simply put it is our security, our safety net if you will, that remains in place to provide a solid base on which to build the rest of our financial independence.
So, with these things in mind, let's take a deeper look at saving our money.
Saving is an act of discipline. No matter how you slice it, saving money on a regular basis is a discipline. It is not "dependent" on income. If you were to ask five people, all at varying income levels, if it is hard to save, chances are they would all say "yes." This is because the tendency for us is to spend whatever we earn. When we start out and make $25,000 a year, we think it is hard to save. If only we could make $40,000 a year! But when we make $40,000 a year we say the same thing. Our expenses go up, we buy a bigger house, fancier car, etc. Some people who make a million dollars a year save nothing. At the end of the year, they have spent it all and they are no better off than the person who makes $40,000 a year. Professional athletes and entertainers are renowned for this. Pick up any number of magazines and you can read about an athlete who made twenty million dollars over seven years and is now bankrupt. It isn't a matter of money. It is a matter discipline. On a regular basis, put a little away until it builds up. That is the savings game.
Saving is much like the familiar story of the tortoise and the hare. Little by little we put a small amount away and slowly but surely we develop the kind of saving amounts we are looking for. Those who put away a lot and then spend it all on a big screen TV may end up with a TV but that is about it. In the end, the slow and sure saver ends up with real wealth and financial independence.
Saving builds self-reliance. Our ultimate goal financially should be to become independent, without relying on anyone else. We should be able to pay our bills and long-term, live off of the interest of the savings and investments we have.
So through our diligent saving, we rely on what we have accrued. Then we become more able to help those in need. We are now the lender and not the borrower. Saving allows us to rely on what we have stored up for ourselves if bad times come along. A good savings goal is to have at least six months of living expenses set aside. For example, if your expenses are $3,000 a month, then you should set the amount of $18,000 as a savings goal. This gives you the ability to be self-reliant for those times when you may need it, and the peace of mind knowing you would be able to handle challenging circumstances if necessary.
Saving money not only helps bring security and peace of mind, it also begins to harness the power of compound interest. As we will see next week, investing is the maximizing of capital gain and the harnessing of compound interest. Saving money in a standard savings account or money market account will pay a nominal sum, say 2-4 percent, depending upon interest rates. As we will discuss further next week, there is something called the rule of 72, which says that whatever interest rate you average, divided into 72, will determine how many years it takes to double your money. So, even at 3 percent, your money will double in
24 years. That isn't extraordinary by any means, but it does happen. Your money is working for you. You get more money simply by letting it sit there and letting compound interest do its work. With saving, this is a seemingly small beginning, but it is the strong foundation of security that allows you to build the future of your dreams and goals, and provides the anchor to help you weather financial storms that can come your way. But here's what is exciting, the real power comes next week when we talk about investing.
Basically, our understanding of the discipline of saving our money on a regular basis is for the safety and stability it creates. Investing is for advanced compounding of your resources.
So here is what to focus on:
Adopt the regular discipline of saving.
Think like the tortoise and not the hare.
Achieve self-reliance through saving.
Harness the power of compound interest