There are eight stations on the way to having your personal finances on track. Money is a means to an end, and the ultimate goal is to eliminate worry about money so that you can focus on other, more meaningful areas of your life. When these eight stations are completed, you will feel confident that your chances for success are maximized. You will then feel more comfortable spending your time in other areas that move you toward having a great life.
1. Cash Flow
Managing cash flow is about knowing how much is coming in and how much is going out. Many people have only a vague idea of how much money passes through their hands each month. If you are spending more than you save, you move further from your goals. In the same way, the amount that you save helps you move toward your goals. You will take account of exactly how much comes into your account and how much you generally spend on a monthly basis. This allows you to take stock of your financial situation, be realistic about your resources and your ability to reach your goals.
Life is full of surprises. Safety means being prepared, no matter what comes your way. You will consider some of the events that could jeopardise your plans and derail you from moving toward your goals. Planning ahead and addressing potential problems will improve your chances of success and increase your confidence. You will be able to face most challenges without putting your goals at risk.
3. Debt and Credit
Debt and credit can be used to fund large expenses before your have accumulated enough funds. For example, a young family may want to buy a house to live in, but not yet have hundreds of thousands of dollars to buy it. Debt is a useful tool, if handled with care. But it can also cause problems, since it increases your monthly cash outflow. If debt payments become overwhelming, a person could be unable to maintain their current lifestyle, much less progress toward goals. You will gain control of your debt and have a plan to eliminate it entirely.
Life presents us with many choices and virtually unlimited possibilities. Given our use of money, most choices have a financial aspect. When you are clear about the kind of life you want to have, it makes your decisions clearer. Your goals will become the reason and motivation for all of your decisions, including the financial ones.
5. Saving and Investing
One of the biggest choices you will make is: now or later? Consuming less now allows you to save money and, later, spend more. As you accumulate savings, you will be faced with the decision of how to deploy your savings until you are ready to use them. You will assess what approach best suits you and you will open and begin funding your accounts.
6. Taxation and Charity
Taxes can rarely be avoided. The purpose of taxes is to help others who have less. Charitable giving is also a way to help others. When you realise how fortunate you are and remember that we are all in this together, you may have a desire to help others. Spending on taxes affects your current cash flow. Charitable giving may affect current spending or goals for your future or both. You will ensure that you correctly pay your taxes and you will decide in what other ways, if any, you want to help others.
7. Estate Planning
I have often heard, about money, that “You can’t take it with you.” Let’s suppose you accumulate a large amount of wealth during the course of your life. Who do you want to benefit from your wealth? In what way? Estate planning means being clear about what you want to have happen at the end of your life. You will make your desires clear and feel confident that they will be respected.
Speculation probably gets the greatest amount of attention from books, articles, newspapers and conversation. It is fast-paced and exciting, but its place comes after everything else has been addressed. Speculation for fun and for profit, after you are already on track to your goals. When speculation works out, you can move even more quickly toward your goals. But sometimes it will go wrong and you don’t want it to derail you. You will decide when it is appropriate to speculate, confident that everything else is in place to keep you on track.