Leading The Way To Financial Success
Getting yourself on sound financial footing is a lot like building a successful business. It can be a decades-long enterprise requiring planning, skill, patience, and a little bit of luck. The proverbial millionaire next door is an overnight success 20 years in the making. Considering the long road ahead, you have every reason to get started today.
KEY TAKEAWAYS
- Financial success requires a long-term strategy with short-term goals; a deliberate plan is essential for security and success.
- Similar to businesses investing in growth, individuals should invest in education and continuous skill development to enhance career prospects.
- Managing debt is crucial for financial success. Avoid consumer debt, pay off education before making large purchases like a home, and recognize the difference between productive and wasteful consumer debt.
- A shared financial outlook and planning in marriage can contribute to financial stability.
- Patience is vital in financial planning. Allow your investment to benefit from the compounding effect to grow over time.
Have a Plan
Financial security won’t happen by accident, and it won’t happen overnight. Just as businesses have quarterly goals, annual revenue targets, and five-year business plans, you need to approach your life with a long-term strategy made up of a series of short-term actions and goals. Success rarely happens at random. You need to have a plan.
Invest in Yourself
When businesses want to grow, they invest in themselves. The same logic applies to individuals. Before you even begin your career, an investment in education can provide an opportunity to increase your potential lifetime earnings. Going to college or a trade school can provide knowledge and credentials that make you a more attractive and higher-paid part of the workforce.
If circumstances or personal interests do make education an attractive option for you, consider starting a business. Entrepreneurs from all walks of life have started successful enterprises. Working for yourself can bring more satisfaction, more money, and greater control over your job stability than working for somebody else.
Keep in mind that investing in yourself is not a one-time effort. Think of it from a business perspective. Investments in research and technology, infrastructure, and physical plants are an ongoing part of the business. Keeping up with the times and the competition is part of the process of maintaining a successful business and a crucial part of building and growing the business to take it to the next level. Looking at the situation from a personal perspective, if you have a bachelor’s degree, going back to school at mid-career can provide a boost to your credentials and help you keep pace with the competition. If you have a trade, continuing your education can open up new opportunities.
Regardless of your profession, adding a new skill or designation can increase your revenue-generating opportunities. If you run a business, opening up a new sideline can increase your opportunities in the marketplace. If you don’t own a business, moonlighting at mid-career can provide a second source of income that serves as a backup to your primary career.
Learning new skills is an investment that should continue over the course of your lifetime. Expand your interests. Keep an eye out for opportunity. You can continue to build your skill set even during retirement. A second career is not only often more fulfilling than the first one, but it can set up a revenue stream that truly makes you successful in life. Even if you’ve been tremendously successful and no longer need to work, you can continue to invest in yourself by building your knowledge base. Learning about your investment portfolio, for example, can be an interesting and lucrative opportunity. In an age marked by scandal, there’s no better motto than “trust but verify.”
Get Out of Debt
Debt management is a critical exercise for every successful business, and there’s a reason for the saying “cash is king.” Be different. Buck the trend. Don’t rack up debt in the typical consumer fashion. The cost of an education and a primary residence are generally beyond most people’s ability to pay for in cash. Beyond that, if you can’t pay cash don’t make the purchase. As far as education and the home, pay off the education before you buy the home.
As for the home, don’t stretch your budget. Buy what you can easily afford and pay it off as quickly as possible. Forget the advice about good debt and bad debt. All debt is bad. There’s a long list of financially strapped investors who had supposedly great and fool-proof ideas about going into debt to put the money to work in investments that would earn a greater rate of return than the cost of the interest rate to service the debt.
If you are an entrepreneur, debt may be a necessary tool. Putting your money into an appreciating asset is different than using debt to fund a new car, vacation, or wardrobe. Paying interest on consumer goods is simply a waste of money and undermines your financial foundation. Investing in your business is a way to increase your potential revenue.
Find a Like-Minded Partner
Getting married can give your life a powerful financial boost. Of course, more than a few marriages have ended in divorce over the topic of money. Shared values are the key to success. While it may not sound romantic, having the same outlook on money will go a long way toward creating both a secure financial future and a happy marriage. There aren’t many couples in divorce court complaining about the fact that they are financially secure, debt-free, and successful.
Approach the financial aspects of marriage as you would a business. Plan together and spend together. The purchase of big-ticket items should not be a surprise to either partner. Make decisions regarding debt and credit as a team. If one member of the team is opening up credit cards and the other member is working two jobs to pay for the debts, the team is headed for trouble. Save together. Set a goal of living on one income while using the other to pay down debts. Once you are debt-free, live on the lower income and invest the rest.
Be Patient
Patience is a virtue that holds particular significance in the realm of finance in several ways. In the financial landscape, the power of compound interest is a prime example of why patience is a valuable asset. By allowing investments to grow over time, the compounding effect can significantly amplify returns.
Patience can also serves as a way to overcome impulsive financial decisions that can lead to unnecessary risks and losses. In a world driven by instant gratification, there’s tremendous benefit to researching something, developing a long-term plan, then following steps to execute the plan.
On a broader scale, patience is so important in achieving financial goals and milestones. Whether it’s saving for a major purchase, funding education, or planning for retirement, the ability to stay patient throughout the journey can’t be overstate. Even if you make just a little bit of progress everyday, those small incremental steps can and will add up over time to a greater benefit you will one day be able to enjoy.
What Role Does an Emergency Fund Play in Financial Planning?
An emergency fund serves as a financial safety net, providing a cushion for unexpected expenses or income disruptions. It prevents the need to tap into long-term savings or accumulate debt during unforeseen circumstances such as medical emergencies, car repairs, or job loss. One of the first things you should consider doing, even before saving for retirement, is making sure you have a large enough emergency fund.
When Should I Start Saving for Retirement?
Starting to save for retirement early is advantageous due to the power of compound interest. Ideally, individuals should begin in their 20s or 30s, allowing their investments more time to grow. As mentioned in the ‘Patience’ section above, your portfolio has a greater chance of accumulation when you start investing earlier.
How Can I Improve My Credit Score?
Improving your credit score requires responsible credit management. Pay bills on time, reduce outstanding debt, and review your credit report regularly for errors. Demonstrating responsible credit behavior over time positively impacts your credit score, meaning you’re more likely to get cheaper debt in the future (which further perpetuates your positive financial health).
What Steps Can I Take to Increase My Income?
Increasing income involves a proactive approach to career development and financial growth. Pursue opportunities for career advancement, acquire new skills, and consider negotiating salary raises. Consider advancement opportunities at other companies if your current company does not have great upward mobility. In addition, don’t just focus on your income – you can also improve the amount of money you end up with each month by keying in on expenses.
The Bottom Line
Adopt the mindset and lifestyle outlined in these five points and you will be well on your way to building a secure financial future. While the journey is long and the road not always easy, be sure to take the time to appreciate what you have. Taking time to savor the small victories will help you stay on your long-term course. Enjoy each success, no matter how small. After all, you earned it.