A financial plan can begin as a simple system to control the income you generate, becoming more sophisticated as your wealth creation vehicle picks up steam.
But no matter how complex your financial situation becomes, the basic principles inherent in the plan featured below will always apply.
If you've ever read George Clason's classic, The Richest Man in Babylon, you'll recognize the origins of this approach to financial planning. The Australian bestseller, The Wealthy Barber by David Chilton, also features a similar approach to building capital.
Here's how to make your money work for you by utilizing a financial plan.
Creating A Financial Plan
Step 1. Pay yourself first.
Open a separate bank account and deposit 10% of everything you earn (i.e., your net pay, commissions, etc.) in it. Think of this as your investment capital, the seed money that will make you wealthy.
If you're working for an employer, arrange to have 10% of your pay debited directly into this bank account. If you get a raise, add the raise to your 10% to speed up the process. Do the same with any windfall money you receive (unless you're in major debt, in which case, use it to pay off your debt first).
If your income derives from other sources, manually transfer 10% of each payment into your investment funds account.
In the short term, pretend this money doesn't exist. This is your investment capital, an important key to your financial independence.
Seed Money Investments
Try to get a higher interest rate on your invesment money; it might as well start working for you while it's accumulating. This process is a small scale version of what you want to eventually achieve with your investment funds - money working for you while you sleep.
Cash Management Trusts usually earn higher interest returns than regular bank accounts. Stockbrokers use these to park funds before investing them, but you can use them like a simple savings account. Shop around to get the best rates.
Step 2: Give away 10%.
This principle is also known as tithing. By giving money away, you are making a statement that you have more than enough. Many wealthy people believe that money given freely comes back to them multiplied. They also believe that it's important to do this before you can afford to, for obvious reasons. It's another example of utilizing the Big Yes principle.
A word of warning: Don't consider a hand-out to your hopeless brother-in-law or other family members as tithing. The money should be given to an organization that uses it for a worthwhile purpose. (Naturally you can give your brother-in-law money if you really want to, but consider it a separate issue from this process.)
If you're not drawn to traditional charities, donate funds to organizations like Greenpeace, the Animal Welfare League, Save the Children, or any other cause that's in keeping with your values. Then pat yourself on the back for helping to make the world work.
[For a list of recommended charitable organizations, click here.]
Step 3: Pay your monthly bills.
You'll always have maintenance bills for housing, utilities, clothing, foodstuffs, vehicles and so forth. It goes without saying that you need to cover these.
Step 4. Pay off your 'bad' debt.
Set aside 10% of your monthly income to eliminate debt. Debt incurred to purchase liabilities (or non-cash-producing items) is labeled 'bad debt'. This usually includes most of the items charged to credit cards and retail store cards. If you have problems managing credit cards, a debit card can be a practical alternative. There are also several effective systems to reduce bad debt quickly.
Once you have enough capital, it's time to take action by
setting up a business structure
acquiring an accountant
setting up your bookkeeping system
starting to build wealth
Your Financial Records
You need to set up an efficient bookkeeping system from the beginning of any financial undertaking. Ask your accountant to recommend a software package. If you purchase the same one the accountant uses, it may cut down on the time he requires to prepare your quarterly figures. Check to see if this is the case before you buy.
In Australia, many accountants use MYOB, Quicken or Quick Books. Accounting software makes it easy to prepare monthly statements, including the profit and loss statements so highly recommended by Robert Kiyosaki.
Profits And Expenses
In the beginning your expenses will outpace your profits, but if you control your spending, the reverse will soon take hold. Initial spending might include your educational expenses (workshops, courses and books) and initial consultations with your professional team, usually an accountant to begin with.
Become a bargain hunter with regard to courses. Seek out early bird specials on workshops, or pay on a monthly plan if available. Buy discounted books and tapes or use your local library. Pool information with members of your support team. While it's important to educate yourself, you can make the best use of your money by finding ways to cut costs.
Once you start making some profit, you can plow it back into the business, use it for your continuing education or treat it as a second stream of seed money. When you're ready, you can invest in a property, index funds, or some other high yield vehicle to build wealth at a faster rate than your savings account will allow.
Avoid investing in anything you don't understand. If your focus is on building a business, don't let yourself be dragged off on a tangent by trying to find the best investment for your profits. Park them in a cash management trust until you have the time to investigate the alternatives thoroughly, taking care to schedule some research time in the not-too-distant future.
Good debt is debt you incur to purchase assets, such as real estate, stocks and businesses. Since assets are defined as items that generate income, the income from the asset can be used to partially or completely pay off the asset itself. And because good debt can be claimed as a tax deduction, there isn't the same urgency to pay off loans quickly. You'll learn more about good debt when you study each of the three money vehicles.
After all this talk about budgets and expenses, your motivation has probably hit rock bottom. Take heart - most financial experts agree that everyone needs some 'play' money. That's why the plan suggests you spend whatever's left after you take 30% off the top and pay your regular bills. Hopefully you will have something left over to play with.
While you can opt to increase your 10% savings figure to a higher percentage, don't be tempted to salt so much away that you have no play money left over. You can get away with this for a short time (say six months) but any longer and you risk that rebellious child inside you goading you into an ill-advised spending spree or at least a lame-brained purchase.
You should always plan a reward for each milestone you reach in your long-term wealth creation plan, as well as give yourself some smaller rewards for spending a productive week in the pursuit of your goals. Your quality of life while you're on the journey is just as important as the one you'll attain when you reach your goal.
Life is lived one moment at a time so it makes sense to enjoy as many of them as you can. Which is why we maintain you should choose a vehicle that excites you. When your work is also fun, your quality of life is enhanced even further. And when you get to the point where you can pay other people to do all the things you dislike, you'll really enjoy a lifestyle very few attain.
Your Next Step:
If you need help setting up a financial plan,you'll find an excellent software program at
When you've set up your financial plan and you're ready to start investing, go to the Business Structures page to explore your options. You'll need accurate information to help protect your current (and future) assets, and to minimize your taxes.
For more information on financial planning, you can browse the Amazon web site:
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Disclaimer: This site is purely educational and we make no claims or guarantees with regard to the information presented. Please consult a certified NLP practitioner for individual coaching in the use of NLP techniques. We strongly advise consulting a financial industry professional before embarking on a wealth creation journey.
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