Top Three Things For Building
Wealth
If
I had to rank in order of importance the top three things that should be an
individual's priority I would list them like this: a realistic written budget and monthly expense
management plan, safeguarding and building your credit rating, and contributing
to a structured savings plan for emergencies and retirement.
HAVING A REALISTIC PLAN
Why do I list the
written budget and expense management plan first? Well like Benjamin Franklin
said "by
failing to prepare, you are preparing to fail."
Let me explain what I mean. A
realistic written budget is just that. It is written. You are going to put the
plan on paper or in a spreadsheet. It's also realistic. "Realistic" doesn't mean
what you think you can live with but rather living within your means. (I will
talk later about how that is not going to permanently mean hardships). While you
go through the process of creating your plan we will be careful to ensure that
it is indeed realistic! These are listed first because this planning is
the foundation on which the rest of your personal financial success will be
built. This is the first step because it will tell you if your income is
matching your expenses. If your income doesn't match the expenses you are going
to either 1) generate more income or
2) start reducing your expenses. Help for
both of those are offered on this site.
Real Life Story:
Many of us may have
known a kid when we were in school that never had to study. He or she always did
well on the tests and received high marks. They had lots of free time to do what
they wanted, did little or no homework, and got lots of "A's" painted on their
test papers. I was like many other kids who thought "hey, if she can do it so
can I!". I skipped the homework. I didn't complete the study exercises listed in
my books. I didn't ask the teacher questions during class. I didn't take notes.
However, you guessed it, when the results of the tests came back it was very
obvious this approach DID NOT work out for me! My lack of planning resulted in
poor marks.
Much more about realistic planning.
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SAFEGUARDING AND BUILDING
YOUR CREDIT
The second most
important thing you can do for your personal financial well being in my opinion
is to safeguard and build your credit rating. A score of 720 should be your
minimum goal. That means you have been demonstrating a history of
paying your bills on time all the time and our
qualifying for better credit deals. For some that may sound like a very
tough goal considering where they currently are. However, most people don’t
realize what this number means to their overall lifestyle. You need to remember
that today your credit score is the way the lending and business world measures
your integrity and character. It means a lot more than someone’s good word.
First understand that
many people are going to look at your credit history. You may have thought that
only those looking to lend you money are reviewing your credit history. Not
true. Your credit history is looked at by landlords, insurance companies, and
even potential employers. They may all be looking for different aspects or for
the same thing. The point is they don’t know you and your history of dealing
financially with other entities gives them an indication of your
creditworthiness and trustworthiness.
I would put a word of
caution out there. Building credit is not an overnight event. Don't let anyone
fool you into believing your can rush through the building / rebuilding process.
The credit reporting bureaus are looking for a history of responsible
behavior.
So how do you build your
credit score? Well, the first thing I would ask you is do you know what your
score is? When was the last time you checked your credit report for accuracy?
The first step is to be aware of where you are right now. Get your report sent
to you and scour it for inaccuracies. Those errors can cost you valuable credit
points. Don’t think errors cant happen to you. I thought the same thing. I was
wrong.
The next thing to do is work
with your personal finance coach to set up a plan to pay off any outstanding,
legitimate debts. Getting those issues cleared up as soon as you can will also
help you gain back precious credit points.
Real
Life Story:
You can arrange your finances so
that every day expenditures turn into credit building exercises. Here is one
thing that worked for me. I had to file for
bankruptcy
due to the poor business
decisions I made and of course my credit was immediately shot. It was a huge
blow to my ego because for the longest time I was treated like retail royalty. I
would walk into the store, accept the offer to open an account, and they would
fall over themselves trying to give me much more credit than I expected. Well
that treatment was gone instantly when the bankruptcy paperwork was finalized. I
didn't let the new form of treatment paralyze me. I got to work on rebuilding my blown credit.
I was fortunate to find
a lender who was willing to give a "bad risk" like me a $500 line of credit. For
a guy who used to have a $50,000 line of business credit available that was
again a blow to my ego. However, I took that $500 line of credit and immediately
spent half of it!
"What?? You started
spending money on credit right away? Now I understand why you were sporting that
new 'bad risk' label on your pocket!" Well, there is so much more to the story.
You see, I didn't go throw a wild party with that credit limit. That month I
bought groceries as well as used it for planned expenditures like tires for my
car. The very day that bill came for the $250.00 I paid it. I had already put
aside, in cash, the amount I was going to spend on groceries and car repairs. So
when the bill came the cash to pay for those expenditures was used to pay off
the credit bill. Since I paid it immediately there was no interest charge and
certainly no fees as I was very careful not spend over half of my $500 limit.
You can learn more about this plan by visiting my
8 Steps to Rebuilding
Credit.
Much more on safeguarding your credit.
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PREPARING FOR YOUR FUTURE
There are two things
you need to think about when considering your retirement from work. The first is
your financial well being. You want to be in a position to at least live your
current lifestyle. Second, work on eliminating potential problems for yourself
now while you are in a better position to do so. Potential problems are larger
house maintenance and repair issues, any
health issues you have, and taking care
of legal arrangements. You don't want to have to deal with problems in your
retirement that could have been prevented during your working years. Ideally,
retirement is the time to relax and enjoy life and the fruits of your years of
work and preparation. It is not the time to worry about the leaking roof, your
will, or your sleep apnea. These stresses only take away from your quality of
retirement life. So here is your goal: on the day you retire you are in great
health, your home is in good shape, your legal and financial affairs are in
order and addressed, and your retirement account is in very safe investments and
providing you with a steady income. You can learn more about retirement planning
ideas at
Bowman’s Money College Retirement Plan.
Remember something - it is YOUR
future. This is a little easier to prepare for than dealing with the present
because you probably have some time to work with.
Preparing for the future is going to be different that dealing with now. Let's
just say that retirement is 10 years away. Ten years is a lot of time to get
ready for something. Let's also not define retirement planning as simply putting
money away. It is eliminating problems for yourself that you know will be that
much harder to deal with when you are elderly. The key to saving for retirement
is consistency. I don't get caught up in investing strategies or hot tips. There
are people that do that for a living and can do much better than I can. Those
people are the ones I go to with my retirement money and let them manage its
growth. Honestly, I believe my best retirement money plan is the 401k plan many
employers offer their employees.
Much more on retirement.