I used to say, “If I just made more money, life would be better.” I thought that having more money would give me financial peace of mind. I now know that it wouldn’t have helped me at all. Why? Because the amount of money I made wasn’t the cause of my lack of prosperity. What was the cause? A combination of bad financial habits and the lack of a financial plan. Have you heard the saying, “If you fail to plan, you are planning to fail”? This is especially true of personal finances!
Did you know that you can be broke at any level of income? You can be living paycheck to paycheck if you make $35,000 a year or $350,000 a year. If you spend all you make, run up your credit cards and don’t save anything, you will be broke. If you have a higher income, you may go broke in high style, but the end result is still the same. The flip side of that equation should give all of us hope – you can have financial peace of mind whether you make $35k or $350k. If you have a solid financial plan, prosperity is well within your reach!
Creating a financial plan that works for your family is not difficult. However many financial planners would like you to think that you need a flock of nerds with pocket protectors and a flurry of complicated spread sheets to put together a financial plan. There are three keys to your financial plan – a spending plan, a savings plan, and a debt-reduction plan.
A spending plan is a budget. A budget is essentially a financial road map – a tool to get you from where you are to where you want to be. It’s not a straightjacket with no room for fun. You decide before the month begins how you are going to spend your money. If you’ve never operated your finances with a budget, you will have a learning curve. That’s okay! The first month you do a budget, you will have numerous changes and corrections during the month. Once you’ve lived on a budget for three or four months, you will have the hang of it.
A savings plan is a major key to ensuring your financial peace of mind! There are several things that we want to save for – emergencies, purchases, and investments. Having an emergency fund of three to six months worth of living expenses will put a cushion between you and life. Life happens! Cars break down, illnesses occur, people get laid off from their jobs. The emergency fund allows you to handle the car repairs, the hospital bills, and the job search without panicking about their affect on your finances. We also want to save up for purchases so we’re not becoming enslaved to debt payments.
A debt-reduction plan will free you from the payments that seem to always plague us – the car payment, the boat payment, the visa payment, the furniture payment, the Home Depot card payment… King Solomon, one of the wisest people to ever live, said “The borrower is slave to the lender.” Would you like to be free from debt payments? Just think of all the cool things you could do if you didn’t have any payments! Think of how much you could save, spend and give without them. The most effective way to reduce your debts is by using a tool called the “Debt Snowball”. You list all of your debts smallest to largest, then “attack” the littlest debt with any extra money you have. Once that debt is eliminated, you attack the next smallest one using the money you used to pay on the other one. You continue this process until all debts are paid in full and you are DEBT FREE!
Creating a financial plan that works for your family and give you financial peace of mind is simple, but it’s not easy. That’s because it takes determination and discipline to go against what the majority is doing. I encourage you to be weird! Take a step today to better your financial situation.
Need help? I’m available for in-person financial coaching in the Greater Cincinnati area and for online coaching for those of you outside the area. Email me to schedule an appointment: Christine@ChristineLuken.com