I have to be honest, not having a financial base when you are in your forties and beyond is scary. When you sit down to think about how or if you will or even can retire it can give you anxiety. You may have never learned about how to save or invest properly. When you look at the younger generations you think I don’t have as much time as them to get things together. You look at older generations or certain cultures and you think how did they get so well prepared.
Guess what?! Your situation is not hopeless. It may take some work but you can turn things around. Today I will give a brief overview of the 6 steps necessary to start your wealth-building journey. And in future posts, we can dive into each one in much more detail. So let’s get started.
Step 1 – Change Your Mindset
To become wealthy, you must first believe that you are capable of becoming wealthy. No one who has money now didn’t believe that they could have money. Even those who are lottery winners believed on some level that they could win or else they would not have purchased a ticket. Your mindset is key. And without feeding your mind the right affirmations and thoughts you will never change your situation.
Step 2 – Create a Financial Base
Lucky for you if you are following this blog, you have already started this journey. Your financial base is understanding your finances so that you can make smart changes for wealth building. We haven’t gotten this far yet, but once you have determined your financial standing it is now time to create your foundation. To do this you will need to create a functional savings account and pay down high-interest debt. Please note your savings will not bring you wealth. And if you read or watch many financial gurus they are not advocating for you to create large savings accounts. They often encourage people to stay away from banks. For your financial foundation, your savings should be an emergency fund. Put away at least 1 year of expenses. Next, pay down debt. There’s no use saving up money that will be eaten away by interest on debt.
Step 3 – Direct Your Dollars
Let’s go back to mindset just for a second. Currently, you probably subscribe to the school of thought that you must wake up every morning and go to work for money. The money that you make then turns around and pays for the lifestyle that you live. I want you to quickly switch that mindset of you working for your dollars to your dollars working for you. Every dollar that you receive must be employed. This means you have to direct where it is going and what it is doing. Your role as a supervisor is to make sure that your dollars are making you profitable and sustaining you. And if they are not then some organizational changes should be made.
Each dollar should have a breakdown of 75/15/10. Seventy-five cents of every dollar can be allocated for spending. Fifteen cents should be invested and ten cents should be headed to savings just to meet whatever savings goals you have set. You can even automate this so that you know it is happening without your constant interference in the process.
Step 4 – Spend Smartly
There is a money management movement called F.I.R.E., which stands for Financial Independence Retire Early. It was something started several years ago by young people with the intention of retiring in their 30s and 40s. They would put as much as 50 percent of their income into investment tools that would afford them the opportunity to enjoy a healthy retirement many years before the rest of us who might choose the 401k or IRA route. Now at our age, we may not have the opportunity to do this. We have kids and obligations that make this not as easy or feasible. (However, it is possible if it is the route you would want to choose). But I am getting off track. The reason I bring it up is that in this philosophy people are very cautious as to where and how their money is spent. The whole idea for people who follow FIRE is to cut back on spending on liabilities and increases spending on assets. When you are starting to reallocate your dollars remember credit should only be used on assets. Things that bring you more money. For liabilities, you should be using cash. And if you don’t have enough cash. You go without until you do.
Step 5-Mo Money, Mo Money, Mo Money
I could spend 100 posts on ways to make money. And I am sure through the course of our journey together I will share many of these ways with you. But the key is you must make more money. I once heard a Pastor in church say, “one income will keep you broke, two incomes will pay your bills, three incomes will make you rich, and four incomes will build you wealth.” Most of us are trying to get to the next stage in life depending on only one income. If we’re married maybe two. The only option many of us might have considered is a second job. But as you get older who really has time for that. The average millionaire has about seven streams of income. Making more money is key to getting to retire and not working the rest of your life. This may mean getting a promotion or higher paying job. But it will also include your adding some income streams to your life. I once heard another entrepreneur say that his bills should only equal one percent of his income. So I bet immediately your mind went to cutting back on spending and trimming the fat. But if you have a growth mindset instead you should be looking at ways to increase your income so much so that the proportion of what you make grows to decrease the impact of your bills.
Step 6 – Plan
There is a famous Benjamin Franklin quote that states, “If you fail to plan, you are planning to fail.” Listen, generational wealth is created not only through education but through thorough planning. Have you ever considered what happens to you or your family if something happens to you? Do you have a will, estate plan, or at the very least life insurance? I remember going to the doctor’s office and they would always hand me the paperwork for a living will which I always left lying around somewhere. I never took the time to complete it. Thank goodness nothing ever happened while I neglected that responsibility. What happens if you are incapacitated for any length of time? These types of plans help others to carry out your will and will not allow decisions to be made on your behalf without your input.
This step is so important especially if you have a family to support. You could allow these things to go unaddressed but that means the lives of those around you who depend on you could be adversely affected by your lack of care in this area.
It’s Worth It
There you have it, six steps to get you on the right path. It is not too late. You can do this. Here’s the thing, it is not going to be easy. It will take some effort and discipline, but anything worthwhile always does. And your financial future is worthwhile.
I hope you learned some new things in this post. We will be diving into each of these topics in the next few weeks. After looking at these steps which one feels the most daunting? Have you already started on any of these? Please leave a comment below. I would love to hear from you.
The Moneyberg 