These are the first steps that I consider essential to start taking control of your finances, and then build your financial plan.
Step 1: Basic Concepts
One of the main goals sought by human beings is financial freedom. And what we call “financial freedom” exactly? Can be defined as:
“The timing of Passive Income generated by a person, covers the cost of your current lifestyle”
In my 18 years, when I started to generate income through employment, this concept completely unknown, but what is worse, my beliefs that originated in the bosom of my family, I was told that this was the only way to make money (the employment).
My first task, after some years of not getting results that will improve my financial situation, quite the contrary, it was reset my belief system to be open to the possibility of obtaining income differently, and believe that these revenues could go on growing increase. To make this possible, could not depend on my work hours, as there is a limited amount of time one can work a day. Here comes the concept of passive income, which does not depend on the hours you work, but the repeated times that he be paid that hour of work. It is also passive income, the income you receive on borrowed capital or put to work (for example, interest on borrowed money). The initial capital was the result of hours of work, rather than spent on the purchase of a good or service was used to generate passive income to be paid again and again.
So far we have made clear that financial freedom is obtained with passive income.
Initially, a proportion of income assets (work hours) provide resources to devote to acquire capital assets (stocks, bonds, own businesses, real estate, money lending), which then generate income pasivos.Asà simple. It’s easy to understand. Not so easy to implement …
The next question is … How do I start?
Step 2: What is my current financial situation?
The best way to start is taking a snapshot of my current financial situation. Here it is important to be honest, even “hard” which is the reality. This “picture” is called Balance, and consists of two columns: Assets and Liabilities. In the Assets are all assets that you own (all one has), and on all debt liabilities that you have acquired (everything you owe).
The other important document that forms a basic financial statement is the statement of income and expenses, which are dumped all income you have, which is subtracted all the costs in a given period.
It is important to clarify that the state’s Comprehensive Review of Assets and Liabilities in an instant in time, while the State Revenues and Expenditures, it takes a period of time (month, year).
So our first task is to complete these two documents. The balance will show our real assets (assets – liabilities). The statement of income and expenditure, how much money we have or we need (income – expenses). The first thing we find is that the latter result is positive. As we left without spending money, so we dump into the column of assets in the balance, and begin to build our capital to generate passive income.
This is not easy to achieve, and may take some time, especially if in your case you have a family, and you may change habits and lifestyle. It is important to remain patient and persevere. It is important to strike a balance so as not to adversely affect the lives of all members.
I want to emphasize the latter, it was one of the things that cost me. I always wanted to maintain harmony, and lifestyle, but move forward in changing money management habits.
Whatever our income, we can always take control and spend less than we earn, giving a portion to BUILD OUR FINANCIAL FREEDOM.
Step 3: Debt: taking control
After having the column of liabilities in the balance, we identified all the debts. We put together a payment plan, and what matters is not creating new debt. For the latter, it is essential to keep one credit card, which will pay the total bill each month. If we have more than one, the remaining balances of the plan will pay off debts.
What I did was refinance the terms of payment of my debit balances, the maximum time possible, so that the amount of contributions allowed me also to pay them, to survive without creating new debt. This is more important than you think, because it helps you create a habit of spending less than you earn.
If you can, in addition to paying debts and living, would be important to allocate even 1% of your income initially, to save and create another habit. At this time, but the amounts are significant actions taken, and maintained over time.
You can choose to first pay the debts with higher interest, but more important is that new generations.
Step 4: Increasing revenues and controlling expenses
There are two concepts that define the source of your income:
Your ability to generate money is directly proportional to the value you offer, according to market perception.
You’re on earth for a specific purpose and have a combination of talent, knowledge and experience that nobody else has. There is also a group of people who need the value you can offer.
Quickly mention the Cash Flow Quadrant, by Kiyosaki, as shown, to define how to generate income.
In the left half, revenues are assets, as both the employee and the self-employed derive their income per hour worked. In the right half, revenues are liabilities because the business owner, charges for the work of their employees and investors to make their money work. Therefore, to increase our revenues, we must begin thinking of the right side of the quadrant. At first, allocating resources generated from the left side.
To control costs, and aim to reduce, the method is to start keeping track of them, in as much detail as we believe that we are spending too much. No need to focus on small details, we all prefer to focus on increasing revenues.
We can prepare a budget to reallocate expenditure items that most interest us. In my case, that it was very difficult to implement, so I’m looking to keep them bounded in a maximum total value.
Step 5: Save: pay me to myself
The last of the first steps: paid to self: SAVE.
Saving is what makes the difference, enabling us to build our asset column, which will give us so precious Financial Freedom. We must get to save at least 10% of our income.
But most important, and I think failure is where most of the people is what to do with the savings …
Here is a word so dreaded, and yet so attractive: INVESTMENT. It is essential that our savings are invested, not only to preserve capital, but increase it and protected.
We must investigate before investing.
By investing your money carefully, and allow it to grow with compound interest, eventually you get rich.
Purchase any number of shares of any company means owning a share of the company.
The value of real property is its ability to generate future income.
Once we accumulate three to six salary saved for emergencies, we must begin to invest our savings. What we do based on a personal financial plan that covers all aspects covered to achieve your life goals. It is important to do so with professional advice, and is what we discussed in my blog. This plan will be your guide to make the best decisions.
