Paying Yourself First

I’ve always been an advocate for paying yourself first because doing so enables you to have complete control over a portion of your money. Since you work so hard to earn the money that you bring home every month, don’t you deserve to take the first cut? I agree that it is ever so important to make sure that bills are paid in a timely fashion so that your credit isn’t jeopardized, but that is why it’s necessary to make a budget of all of your expenses so that having money for yourself is a possibility. I once heard Jim Rohn say in one of his seminars that a family who brings in $2,000 per month (this was a long time ago) will tell you that it takes $2,000 to keep their heads above water. He went on to say that a family who brings in $2,500 per month will tell you that it takes $2,500 to keep their heads above water. The question that he asks following those two statements is ‘What happened to that $500?’ I believe that an increase in income directly correlates to us expanding our lifestyles. I’m not saying that we shouldn’t enjoy our money, but I think that it’s better to evaluate your situation and decide whether to build capital now for later or indulge in instant gratification.

Perhaps a solution for some people would be to have the amount they want to pay themselves deducted from their paycheck or checking account every month. This would make the process hassle free and automatic so that it gets taken care of without fail. If you find that having money deducted from your pay would put you in the negative with your bills, there are two possible solutions to this. The first thing you could opt to do is still have the deduction take place, but have it for a small amount. Even if $5.00 a month is all you can afford to do, the important thing here is that you get yourself into a habit. Once you see your money start to accumulate after awhile, you will be motivated to set aside more and can start to rearrange your spending so that you are in a position to contribute a greater amount to yourself. The second option is to take care of the rearranging process immediately. Go through your expenses carefully and meticulously and see if there are any unnecessary things that you spend money on that can be nixed. After you’re confident that you’ve nixed yourself to the core, take that money that you will no longer be spending on those miscellaneous items and set it aside for yourself.

I recently went through the nixing process myself a few days ago. I was doing my monthly accounting for the month of July and I found that I was spending far too much money on coffee. Stopping in at Starbucks and Dunkin’ Donuts was becoming a regular thing that was costing me, on average, $1.50 per day. After being fed up with my spending carelessness, I went out and purchased a personal coffee maker from Target that ran me only $15.00 (equivalent to the price of 10 cups of coffee) and then ran over to Dunkin’ Donuts and purchased a bag of Hazelnut coffee grounds which came to $10.00 (equivalent to the price of about 7 cups of coffee). The bag of grounds makes 40 cups of coffee which means that instead of getting 7 cups for $10.00, I’ll be getting an extra 33 cups for the same price just by making it at home. So by making a one time $15.00 investment in a coffee maker (that has a reusable filter) and a $10.00 investment in beans every month, the coffee maker will pay for itself eventually and I figure that I’ll be saving myself $30.00 per month (taking into consideration milk and sugar). The bright side of this situation also includes the fact that I’m not really losing anything by doing this. I still get the same coffee that I love but I save quite a bit of money going about it this way.

The key here is that it’s vital that you cut back but to keep in mind that you’re doing so in order to keep more money in your own pocket – nobody else’s. Try to find other, less expensive alternatives for yourself as well so that you don’t think of cutting back as being a painful experience, because then you will have no incentive to continue doing it. You are the only one who has the power to make the choices that will enhance your financial future, and it’s up to you to make the proper decisions.

Secrets of Self Made Millionaires

I took a four hour bus ride from Maryland to New York City recently and had a chance to listen and take notes on one of the best audio seminars I’ve ever purchased. Secrets of Self Made Millionaires is a seminar/audiobook by Brian Tracy that is sold on iTunes for $3.95. This seminar is well worth the small amount you have to pay because it has a wealth of information that is applicable to everyone out there who strives to attain millionaire status.

Yesterday was the first time that I had a chance to outline all of the secrets he unveiled. I’m confident that writing them down and reading them on a regular basis can make a tremendous positive impact on those who have an interest in his message. If these secrets seem as if they could do you some good, print them out and try reviewing them in the morning before you get started on your day. Here they go:

1) Dream Big Dreams – Practice idealization and imagine your perfect life. What would this life look like?

2) Do What You Love to do – Find a way to make a living doing it.

3) Commit to Excellence – All people who are successful are excellent at what they do. Strive to be in the top 10% of your field; that’s where all of the money is.

4) Develop Your Unique Talents and Abilities – What are you good at? Take note of what has been most responsible for your success in the past.

5) See Yourself as Self Employed – Never think that you work for anyone but yourself.

6) Develop a Clear Sense of Direction – You have to know what it is you want in every aspect of your life. Determine the price you are going to have to pay for these ‘wants’ and resolve to pay that price.

7) Refuse to Consider the Possibility of Failure – Your fear of failure functions as an obstacle in the way of your success. Look into every failure for something good and seek the lesson in your failures. Never believe that anything you’ve done is failure, simply treat your failures as feedback.

8)  Dedicate Yourself to Lifelong Learning – Always work to upgrade your knowledge and skills. Three important things you can do to further your learning are: Reading 30-60 minutes in your field everyday, Taking every course you possibly can, and listening to audio programs in your car.

9) Develop a Workaholic Mentality – Start working harder, better, and smarter. Working 40 hours per week yields survival; every hour your work above 40 is an investment in yourself. The average top executive and self made millionaire works 59 hours per week.

10) Get Around the Right People – We often unknowingly mimic the attitudes and tendencies of those with whom we habitually associate, so make sure you are surrounding yourself with the right people.

11) Be Prepared to Climb from Peak to Peak – Life is two steps forward and one step back, so be sure to prepare and protect yourself for that step back. You’re going to be knocked down over and over again but you have to make it a point to bounce, not break.

12) Become an Unshakable Optimist – Seek the valuable lesson in everything.

13) Develop Qualities of Courage and Persistence – Focus on developing two types of courage: the courage to begin/launch, and the courage to endure/persist.

14) Develop the Quality of Self Discipline – Persistence is self-discipline. Work on making yourself do what you should do when you should do it, whether you feel like it or not.

So go out into the world and mold yourself into the millionaire that you deserve to be. You don’t deserve any less.

The Importance of Having a Ledger

The one thing that has been largely responsible for keeping me financially accountable is my personal finance ledger. For those of you who are not familiar with ledgers, they essential serve an accounting book for finances. Most ledgers you can buy that are used for personal finance are set up like an Excel spreadsheet, where the columns are the days of the month and the rows are different categories of things that a typical person spends money on (mortgage, phone, groceries, etc). The average ledger booklet has enough pages in it to cover a whole years of expenditures, making it easy to stay consistent because you only need to purchase one every year.

Success with any endeavor you take on requires a certain amount of consistency, so the same goes with staying on top of recording your daily expenses in your ledger. When you’re first starting out, it helps to collect all of your receipts for the day in your purse or wallet so that come night time, it’s a lot easier to recall where your money was spent. Also, for those purchases that don’t always have a receipt attached to them, you could carry around a little pad and pen with you to record your expenses. Writing down what you spend immediately after each time you make a purchase can get a bit annoying at first, but it’s important that you do this before trusting your mind to remember the dollar amount of all of your expenditures for the day.

Having a ledger that you consistently use and maintaining a sound budget go hand in hand. Writing out what you spend each and every day gives you some perspective of how much you’re shelling out compared to how much you’ve budgeted to spend that month. To check up on myself, I calculate that amount that I’ve spent at the end of every week. If at the end of the second week, for example, I find that I’ve spent 50% of the amount of money I had budgeted for groceries, then I know I’m in a good place. Conversely, if at the end of the second week I’ve spent 75% of the money I had allotted for lunch expenses, I keep in mind that I have some cutting beck to do for the remainder of the month.

I have tried my hand at computerized programs such as Quicken (which is great, by the way) but even if you do use programs such as this, I still believe that it’s important to have a ledger booklet handy. It’s always easier to open up a booklet at the end of the day and jot down a few numbers before you go to bed than it is to start up the computer and enter data.

What I like to do at the end of the month on a weekend (when I can set aside an hour or so) is tally up all of my expenses. The way that I go about doing this is to first add up the amounts for each category, then compare that number to the amount I had budgeted for that category (ex. I may have spent a total of $60 on transportation when I only had $50 budgeted, meaning I was $10 over budget). After comparing those two figures, I decide what spending adjustments I need to make going in to the next month. Following the calculation of how much was spent in each category, I add up all of the categories together to see how much was spent in total during the month. What I then do is compare this figure to the income that I brought in for that month. In the beginning, I was surprised to find that I often spent MORE money than I was bringing in. As time passed, I got smarter about my spending and got real about how much I was making each month and am now in a place where I most often have a surplus at the month’s end. Taking responsibility for how much I spent made all of the difference.

When you’re done with all of your monthly calculations, organize the information you’ve compiled in some type of document on the computer (preferably Microsoft Word or Excel) in a way that makes most sense to you. Try to fit everything onto one printed page, if possible, and print in out for your records. If you’d like to put together file folders for your personal finance accounting, that works well, but you can also take much simpler routes such as filing your records away in 1/2″ binders. Whichever method you choose to use, be sure to organize everything by year (January through December). So, for example, if you decide to use the binders, purchase a new one for every year and label the front by year. In five to ten years from now when you look back at your old accounting records, you will be pleasantly surprised by how far you’ve come.

Putting a Plan in Place

When striving to mobilize on your financial goals, it is imperative that one has a proper plan in place in order to stay on track. Without a plan, you are inevitably more prone to slip ups and less likely to realize your financial goals. This planning that I am going to outline may take days, even weeks, to organize but being prepared before taking action always prevails in the end.

My planning method involves four different fundamental areas: Budgeting, The 70-10-10-10 Rule, Emergency Funds, and Savings Goals. The reason why I have chosen these four as being the most important factors is because they cover all the necessary bases for sound personal finances. Take a look at them and see how they can be applicable to your life.

Step 1: Make a Budget, and Commit to Sticking to it

Budgeting your money is the single most important factor in your immediate financial success. I know some of you out there may think that you generally do not spend that much money but you still want to give yourself parameters for your monthly expenses. Budgeting doesn’t always have to be a painful process either, as I have found that I sometimes have an extra $50 left over for Dining Out and am able to take a friend out to dinner.

The best way to put your budget together is to track your spending, penny by penny, for a week. I would suggest that you go out and buy yourself a ledger where you can document your daily expenditures.  Following that week, take a close look at how much money you dedicate to each spending category and at that point you’re going to decide whether you’re spending to much, have room to spend more, or you’re just fine. After coming up with budget figures for a week, multiply everything by four so that your budget is suitable for a month. Type up this budget and tack it to something that you look at every morning, like your mirror. Another good idea is to carry around a laminated card that has your monthly budget on it so that you are constantly able to keep yourself accountable.

One more important thing to remember when creating your budget is to KEEP YOUR BUDGET WITHIN YOUR INCOME!! You’d be shocked by how many people put together budgets for themselves that are outside of their means; don’t make the same mistake.

Step 2: Follow the 70-10-10-10 Rule

The 70-10-10-10 Rule is so very crucial to your asset allocation. The idea is essentially that you’re going to live on 70% of your income, actively invest 10%, passively invest 10%, and tithe the last 10%.

So often, people skimp on tithing but I personally believe that you have to give in order to receive. The more your give, the more your mind is thinking ‘I make enough money that I can donate to others,’ thus giving yourself the illusion that you have MORE than enough.

What I mean by actively investing 10% of your money is the idea of Buy and Sell. With this 10%, you are trying to make the profit. For instance, you can set aside this 10% for a long while until you have enough for a down payment on an investment property, or a property that you’d like to fix up and sell.

The passively invested 10% is money that you’re allowing someone else to manage; leaving you as the passive partner in the transaction. A perfect example of this would be opening an investment account that enables you to invest using the dollar cost averaging method. You can have 10% of your income deducted from your checking account every month to go towards this investment fund and it costs you no energy to do so.

The planning process for 70-10-10-10 would include your decisions as to where you want your investing money and tithing money directed. You’re going to have to do a bit of research before you get started but it will make this process much smoother once you’re ready to get started.

Step 3: Allocate Funds to Serve as Liquid Cash Reserves

It’s important that you have at least three months of living expenses set aside in a savings account. You should immediately start putting some numbers together to see how much money you require for a month’s worth of living and multiply it by three once you have that figure. You can slowly allocate funds for your emergency reserves by having a certain amount deducted from your checking account each month and transferred into savings. This should be built in to your monthly budget (the 70% of your income you are allowed to spend). When you reach your goal for your emergency cash fund, you can decide whether to continue contributing to it (which is a good idea) or you can direct that money towards another savings goal that you have.

The planning for your emergency fund would include scoping out a savings account where you can set your money aside. You want to look for an account that has a competitive interest rate and allows you to access your money easily (because you never know when emergencies will occur). You will also need to decide how much you want deducted each month for emergencies and build that in to your budget.

Step 4: Create Some Savings Goals for Yourself

If you make saving and investing a painful process that does not allow you to reap any short or mid-term rewards, what incentive do you have to continue? Take time to really think about something you want and create a savings plan to get it. Once again, you can set up a savings account just for this purpose and direct a certain amount of money each month to be deposited (many banks allow you to set up multiple savings accounts for your various savings needs – and using the online service, you can even label the savings accounts yourself. For example, if you’re saving up for a laptop, you can label the account ‘John Smith’s Laptop Fund’). Build this expense in to your budget.

These are just a few basic steps that can be taken in order to put together a plan for sound personal finances. They can be bent and molded to fit your personal situation or you can simply add them to the financial plan that you are currently following. Also, feel free to expand them as you see fit. Whatever you decide to do, make sure that your plan is as structured as possible before taking any actions.