If you want to be financially independent, you must understand the universal financial success principles!
In the previous e-zine, we talked about your mindset (willingness) about wealth. This issue will talk about some of the principles required for financial independence. In Part Three, we will discuss financial literacy and specific wealth-building strategies.
Most of us grew up in an educational system that did not teach us financial literacy. Even today most of the children and youth attending school receive very little, if any, instructions or understanding about financial literacy.
This is nothing short of a crime. Is it any wonder that hundreds of thousands of people struggle every day with this issue but do very little about it? Why? They donít even know where to start or they are simply disinterested. But the fact is, you cannot avoid or ignore financial matters in your life.
Did you know that the majority of individuals are just three months away from bankruptcy? Take away their source of income for three months and they would be ruined. This is simply not acceptable.
So where do we start?
Many of you reading this e-zine will be at different levels of knowledge and at different stages in your life -- so specifics will vary, but letís establish some of the fundamentals. Learning about financial matters is like anything else in life -- from riding a bike or reading or driving a vehicle: you begin by being incompetent and you become competent over time.
Financial success is about knowledge, discipline, and implementation -- not about luck or by being a person of privilege. I admit I still have much to learn about this topic. Financial experts have already written hundreds of books on the subject; everything we need to learn is already out there.
Four Principles of Financial Success
The principles are universal and they apply to everyone. Even though these simple principles are basically just common sense, they are not being practiced by the majority.
It is estimated that:
ē less than 10% will retire with a lifestyle equivalent to the one they had before they retired; and
ē over 60% will be reliant on handouts or the government to even survive after retirement.
In which category will you be?
Here are the principles.
1. Live Within Your Means
Individuals in North America now have the highest personal debit-to-equity ratio in history. Our society of "buy now and pay later" is destroying any possibility of financial independence. When you spend more than you make, the math simply does not work. This principle does not discriminate; it applies equally to the high-income earners as it does to those with limited resources. Research conducted by Dr. Stanley in The Millionaire Next Door proved that professionals who earn six-figures plus break this rule as much as those with low or middle income.
Before any permanent financial independence can be achieved, our addiction to consumerism must be broken. I admit this is a discipline on which I continually need to work. I refer to the temptation of that new plasma TV screen, the faster computer, or the new digital camera -- and on it goes.
Let me be clear. I am not telling you what and when to buy. Just make sure you are not spending more than you are making.
2. Pay Yourself First
First, put at least 10% of your gross income into a savings account or investments (Iíll mention investment strategies in Part Three) -- never access these funds to pay expenses. Just about everyone has heard about this principle but, amazingly, most donít do it. There seem to be many reasons -- excuses, really -- why individuals donít follow this principle, such as "there is not enough money to put some away."
Okay, when will there be enough? The research is clear: the majority of individuals consume everything they make plus more -- no matter what their income level. It is the financially independent who have disciplined themselves in this principle.
3. Give Back
After you have paid yourself, give 10% away. If you are a person of faith, you would tithe that commitment. If you are not, select a group or cause about which you are passionate. Over the centuries, this principle of giving has become universal, regardless of a personís background or convictions. Tithing knows no boundaries or currency; it simply responds to those who fulfill it.
4. Treat Yourself
Set aside 5% - 10% of your monthly income for play. This is where you can go out and enjoy the fruits of your labor.
Remember you are still abiding by the first three principles. Hereís why I recommend principle #4: if we are always saving everything and never enjoying anything, the journey will become too difficult to stay the course. This "play" money also gives you a set budget you can use for those impulsive moments, desires, or wants, without guilt or burden.
Letís take a look at what is really being suggested here. Is it that individuals who canít live off 100% income suddenly shift their lifestyle to live on 70% of their income?
If you are already doing this, great. If not, start where you can -- even if it is just a few dollars a week. You must start somewhere.
The focus here is on the principles, not the amount of money. Letís take the example of most lottery winners. After a few years, not only are they back to where they started but, in many cases, they are worse off. How is that possible? They did not develop discipline or live by the above principles.
In Part Three, we will discuss the myths of job security, traditional investments, and the four sources of income on which you can build your financial independence.
This Weekís Action Steps
The Principles of Financial Success
This statement best describes my beliefs. On a scale of 1 to 10 (1 = not at all; 10 = completely), please respond to these statements.
____ 1. I pay myself first and save 10% of my gross income monthly.
____ 2. I give away 10% of my gross income to others in need.
____ 3. I live within my means and spend less than I make.
____ 4. If my primary source of income were interrupted for 6 months, I would be okay.
____ 5. I know exactly what my income and expenses are on a monthly and yearly basis. I can create a budget from that information.
____ 6. I know what I need and want in terms of resources to retire comfortably.
____ 7. I can structure my expenses and lifestyle so I can live off 70% of my income.
____ 8. I never worry about money or the lack of it.
____ 9. I take responsibility for my financial condition and success.
____ 10. I am prepared to change whatever is necessary to achieve my financial goals.
The higher your total score, the better. If you score below 7 on any question, conduct an investigation to determine how you might improve your response to that question.
Please take some time in the next two weeks to complete the above assessment and think about your answers to the statements. In the next issue, when we talk about financial strategies and methods, you will be clearer about what you need to do to achieve your financial independence.
Until next time keep "Living on Purpose,"
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Ken Keis is an internationally known author, speaker, consultant, & President of CRG. Many professionals herald CRG as the # 1 global resource center for Personal/Professional Development.
For information on CRG Resources, please visit crgleader.com
For information on Kenís Training and Speaking Programs, please visit kenkeis.com
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