Your Freedom Financial Plan

rate to suggest that the lack of knowledge about money is the cause of most people?s financial problems. So many of us have so much false information regarding money, finance, budgets, debt, and income that it is no wonder that most people never accumulate much wealth. If you misunderstand money, how effective can you possibly be at acquiring or keeping it? Foreclosures, bankruptcies, out-of-control debt, failing businesses, and a government unable to even balance its books all point toward a culture that is either lacking or has incorrect information on the topic of money. I would honestly expect that it is a great deal of both.

I obtained an accounting degree in college because I thought I would be better served in the business world if I understood money, finances, and accounting. But after five years in college, degree in hand, I couldn?t get a job, didn?t know how to produce income or balance a check- book, lacked any practical understanding about money or finances?and owed the government $70,000. I think this is the case with most people?whether they have a degree or not. People tend to think that attending college will provide them with this information, but in truth, it often does not.

Most of this country?s failing banks are run by indi- viduals who went to some of the highest-ranked, best- known business schools on this planet. Yet they still seem to lack knowledge about how to keep their own businesses viable and solvent. Even people who think they know about money seem a bit confused?and you don?t have to look far to see this. People wonder, where do I invest? Do I want debt? Is a home an asset or a liability? What is the difference between a budget and a financial plan? Is all credit bad? Should I invest in stocks, bonds, or mutual funds? Is my money safe in the banks? What is an IRA, Keogh, or 401(k)?

I know people who won?t buy anything if it isn?t on sale yet who are still broke because they don?t understand how to produce income. They spend their entire life think- ing money is scarce, when in reality, it?s merely a currency printed by man. I also know people who know how to produce income but never learn how to manage it and end up with none of it. While most of us believe that money isn?t the only element of happiness, we know that it?s nec- essary to maintain a comfortable life. People who go to work every day and earn just enough to pay their bills need not wonder why they aren?t motivated. You cannot possibly be driven to succeed if you have no clue what to do with the rewards of your efforts. In order to survive and prosper during a recession, it is vitally important to at least under- stand the basics about money?including terminology? in order to eliminate confusion. For instance, what is the difference between income and cash flow, ?good? and bad

debt, or assets and liabilities? The degree to which you understand words is the limit to which you can understand subject matter. (That?s why I designed a glossary for the back of this book?so that you can look up new words and increase your understanding of business and financial terminology.)

I know some of the most intelligent people on this planet who ended up dead broke because they were masters at their trade but didn?t know how to manage, invest, and make money grow. They were missing an understanding of the very wealth that they worked so hard to amass.

Get a few straightforward books on money, and learn everything you can about the topic. People who have money in the bank and growing investments make better salespeople and businesspeople. They have more confidence and appear more professional because they have their money working for them instead of the other way around. Understanding all the terminology that?s used in regard to financial planning, money, finance, savings, and debt won?t just make you feel financially secure. It is also the first step to increasing your motivation to reach your goals.

A financial plan differs from a budget and is the basic entry point to creating wealth. It serves as a road map for creating finances and correctly managing your income. It?s the financial motivation that takes you to work each day. The first step to take here is to determine your bud- get, or how much money you currently spend. If you don?t already have this in place, then do it now by making a list of everything on which you spent money over the past three

months. It will probably help to use your checkbook or credit card statement. Next, figure out how much money you actually need to bring in monthly in order to create solvency and get all that you want accomplished. Solvency is defined as the ability of an entity to pay its debts with available cash or the ability of a corporation or individual to meet its long-term fixed expenses and accomplish long- term expansion and growth. In other words, the better a company or individual?s solvency, the better off it is finan- cially. An insolvent company or individual can no longer operate.

Solvency is a different concept from profitability, which refers to the ability to earn a profit. Businesses can be profitable without being solvent (e.g., when they are expanding rapidly); they can even be solvent while losing money (e.g., when they cannibalize future cash flows, like selling accounts receivable). A business is bankrupt when it is unprofitable and insolvent.

This is where most people fail with financial planning: They never create a plan that makes them solvent. They spend the lion?s share of their time on the budget portion: car payments, mortgage, credit cards, gas/electric bills, other utilities, insurance, food, restaurants, entertainment, dental and medical bills, etc. They completely disregard the more important issues, like future needs, savings, self- improvement, children?s educational accounts, vacation funds, home improvement funds, and retirement savings. They?re left with only a budget; they never create a financial

plan; they spend their lives paying others; and they never get around to funding themselves.

A true financial plan should clearly state your mon- etary goals. It should outline exactly how you?re going to create surpluses of money, what to do with the surpluses, and how to manage and invest that money. A plan suggests that you?re doing something to make tftings ftappen; it?s not a historic evaluation of what has been done already (a bud- get). Plan means a method of achieving an end, a strategy of how one is going to stay viable and solvent as a household or a business. A budget is a list of all those things on which you?re spending money. Clipping coupons, saving money, cutting back, and anything to do with controlling expenses is all about a budget whereas a financial plan focuses on wealth creation.

One of the reasons why people never seem to have enough money is that they focus their attention on a bud- get instead of a plan. You need to ask yourself the following questions: How much money do we really need in order to live? How much do we need in order to fund future retirement plans, vacations, education for children, savings, investments, etc.? Who has the money to fund those activi- ties? How much activity will be needed to create that kind of money? A financial plan is the expansion consideration, not the contraction (budget) consideration. It lays out how you are going to reach your goals, make your dreams come true, and have the future you desire; it?s the motivation for going to work in the first place.

During tough times, your customers will have their attention pinned down in the same area as everyone else and will of course be more reluctant to make purchases. Since they?re also focusing on their budget, you have to do a better job at ?unpinning? them by showing how your products and services can help them expand. The degree to which you have a complete understanding of how much money you actually need in order to create the future you want will determine how successful you are in selling over these objections. The more dedicated you are to design- ing a financial plan, the more clearly you can focus on how much money you must create in order to pay yourself (not just the creditors)?something that will inevitably lead to your success in the marketplace.

So take some time to determine how much money you actually need and all the potential sources available to you: your power base, past clients, people to whom you have been unsuccessful in selling?basically anyone who can con- tribute to your financial plan. Don?t forget that even during periods of economic contraction, there are still people who have money and will spend it. After all, there is no short- age of money on Earth; there is a shortage of planning, motivation, courage, action, and follow-through. Your own personal lack of wealth merely means that you don?t under- stand something or don?t have the correct motivation. Once you put a financial plan in place, you will spend the rest of your energy finding those people who need your products and services?people who will fund your financial plan and help you advance and conquer.

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Date: 2016-06-12; view: 106