Talking about money is taboo in many cultures, which is a shame because it's critical to survival in modern society. Besides saying we couldn't afford things, we rarely talked about money growing up, so it shouldn't be surprising that I got myself in trouble financially early on.
By age 19, I was over $30,000 in debt. That was before even thinking about college bills. Luckily, I've come a long way since that rocky start. Following the steps in this article, I've added six figures to my net worth in the last year while raising five kids.
Keep reading to learn the ten steps you need to take to achieve your financial goals.
10 Steps to Achieving Your Financial Goals
1. Believe You Can Do This
The first thing to do is believe that YOU can do this. Approximately 1 in 12 US adults are millionaires, according to a recent study. The average millionaire is 57 years old, so if you haven't achieved millionaire status in your twenties, you're far from alone; I was broke surviving on peanut butter and jelly in my twenties too.
Many wealthy individuals started with loads of debt like I did or went bankrupt at some point in their lives; that's a very common story. Just because you may be in bad financial shape like I once was doesn't mean you have to stay there. Emulate the daily practices of the wealthy, and you can build wealth. Emulate the daily practices of broke people, and you will remain broke.
2. Pay Yourself First
The saying that it takes money to make money is semi-true; the more you can invest in your earning ability, the more you will make. Take at least 10% of every paycheck and stick it in an investment account. This money does not exist as far as your bills go; you MUST pay yourself first to get wealthy. Then invest that money in stuff that makes you more money.
This single habit maintained over a working career can easily make you financially independent.
If 10% seems too much at first, then take 1%, and increase it 1% every few months until you can save at least 10%. You won't notice it after a while, but if you skip this step, you will NEVER be wealthy, and that money will always find a way to get away from you.
3. Give Some Away
Contrary to popular opinion, most wealthy people I know are generous with their money and started doing that before they got rich. Usually, they don't give to individuals because they know that creates other issues, but their gifts are the backbone of most charitable organizations.
There are a lot of thoughts as to why this works since it is counter-intuitive to give money away when you're trying to save it. I believe this works because of what we discussed in step #1 – believing you can do this. Generous people are also often the type of people others want to hire and do business with.
The wealthiest people I know aren't misers; they give generously to causes they deem worthwhile. Don't give all your money away, especially if you have high-interest credit card debt (pay that off first!), but don't be a miser.
4. Create a Plan
Unless you've been living under a rock, you've heard of the dreaded “B” word. That word makes people shudder and think about eating Ramen Noodles and Mac N Cheese for the rest of their lives. The term, of course, is “budget.” I prefer saying I'm creating a spending plan. I plan what I will do with my money before doing it. I do this at the beginning of each month and make adjustments as things come up; there is no such thing as a fixed budget that works every month of the year.
If you skip this step, you will always ask, “Where did my money go?” at the end of the month rather than saying here is where I want my money to go at the beginning of the month. There are many resources for creating a budget, like YNAB, which I use. I won't get into budgeting too much, but it's pretty simple. Write down your income (be very conservative here, don't spend money you aren't sure you will get) and all your expenses.
Do this a month at a time, don't try to look years ahead other than to add in savings for your long-term goals, or you'll get stuck in planning mode forever and skip the next step, executing the plan. If your savings and expenses add up to more than your income, you must decide what you will cut or how to get the additional revenue to offset the costs. The nice thing is you haven't spent anything yet, so you can make those hard decisions before you get to the end of the month and wonder why you dug yourself further into a hole.
Budgeting Tip: Increasing your income is often easier than cutting expenses!
If you need some help creating a plan, YNAB is an excellent tool.
5. Execute the Plan
Executing the plan is where many people mess up. They created a budget and saved it on their computer. Now they come to the end of the month and are broke again! I made a plan, so why did my money disappear again?
You may have created a plan, but did you execute it? Execution means running it by anyone spending your money, getting their buy-in or making adjustments and compromises, and then following the plan.
Initially, you may want to use cash for anything discretionary, as Dave Ramsey suggests. I budgeted for a long time that way. By using cash, you know exactly how much you have to spend by looking in your wallet or envelopes. You can't do that as easily with debit or credit cards. Once you get your spending under control, you can use something like the Chase Sapphire card, which I use to travel hack for free flights and hotels, but I wouldn't recommend it until you can get your budget under control.
If the plan is going to work, you have to be able to visualize how much you have left in real-time, or you will overspend every single time. Realize that no plan survives contact with the enemy, so go back to creating and adjusting your budget as soon as it starts to get off track! I use YNAB to keep my finances organized and QuickBooks to keep things in order on the business side.
6. Prepare for Emergencies
Preparing for emergencies means first creating an emergency fund and then protecting yourself from major financial issues. Dave Ramsey says to put $1,000 away for a rainy day, pay off debt, then save up enough to keep you going for six months if you lose your job. That is an excellent plan, although I tend to keep most of my emergency funds in liquid investments rather than cash, as cash loses value over time due to inflation.
Insurance is the other thing you need to get in order. First off, medical insurance is required. Medical issues are one reason many people end up homeless (what, you thought they were all just bums?).
Medical expenses can be humbling, and you should insure against them. I've experienced major medical issues in my family, many years averaging more than $1,000 a month in medical expenses, even with insurance. A large part of that $30,000 debt I started with was medical debt because we didn't have insurance. Don't make the same mistake I did.
Look at anything that would destroy your finances if things went wrong, and purchase insurance for it – house, vehicle, health, life. If you don't have insurance, these things will destroy any wealth you might have created. Don't purchase too much insurance; you probably don't need ten million dollars to rebuild your house.
7. Work Hard
I'm sure you've heard the mantra about working smart, not hard, or doing something you love, and you'll never have to work.
I'm going to call bullshit on this
Well, let's back up a bit; it's partially true.
People like Jeff Bezos, the founder of Amazon, worked hard. But he probably didn't work 183 Billion times as hard as you.
The key is to identify the things you need to do, do those, and stop doing unproductive things. The key is NOT to stop working and hope the money will somehow end up in your account.
Most highly successful business owners worked 70-90 hours a week when building their businesses; they knew the value of working hard! What we tend to see and want for ourselves is the result. Eventually, they find enough good people and automate enough processes that they can afford to relax a little.
That's what people miss. Every self-made wealthy person I've ever talked to can tell stories about how hard they worked to get where they are now. As Dave Ramsey would say, be willing to live right now like no one else, and later you'll be able to LIVE like no one else.
When you have enough assets built up that they pay your monthly expenses, you can sit back and relax, even retire if you want. But you'll need to work hard to buy those assets.
8. Find Mentors
You will have difficulty becoming wealthy on your own. Find mentors in your life, people you respect who are where you want to be. Take classes from our partner Udemy or your local college to build your marketable skills, find someone doing what you want to do and help them, or find a coach, teacher, or relative you trust.
Steer clear of asking people who haven't achieved what you want to accomplish for advice. At best, if you do, you may get the advice they were given but didn't follow. At worst, you'll waste a lot of time heading down the wrong road.
I believe that, more than anything else, my reading habit and relationship with my mentors have been instrumental in my success. Click here for some excellent books to start with.
9. Buy Things That Make You More Money
Rich people buy appreciating assets that make them richer.
Poor people buy depreciating assets that make them poorer.
Get your budget right so you can buy assets that produce more money than they cost.
That means investing in things like rental property, businesses, products you can sell, high-quality stocks and bonds, index, and mutual funds in your 401k, Roth IRA, or other investment accounts. An excellent passive option is a target-date fund from a reputable company like Vanguard, an S&P 500 index fund like FXIAX, or a simple index fund like VTSAX, as JL Collins mentioned in the book The Simple Path to Wealth.
A lot of my increase in net worth this year didn't come from anything crazy, just some mutual funds I purchased over the years that are compounding rapidly. You can set up a Roth IRA or other investment account through E*Trade, which I use, or use a similar company or your employer's plan to start investing.
My most rapid increase in net worth came from buying an existing private business. If you're starting with investments, it'll be tough, if not impossible, to come up with the funds to buy an entire company, but you can still buy stuff that gives you a solid return on your investment.
Key Point: Buy stuff that makes you money rather than spending all your hard-earned cash on things that cost you money.
Invest in Increasing Your Income Potential
You will never save up enough to buy a 20-million-dollar private jet or a 65-million-dollar yacht by pinching pennies. The only way to do that is by increasing your income dramatically or changing to an investor mindset rather than a consumer mindset, like paying for a jet or vacation home by renting it out when you're not using it.
We met a couple who owned a fantastic house on the beach while we were on vacation. They had purchased a duplex, rented out the bottom half, and enrolled the upstairs bedroom with airbnb which is how we found them. In their early 50s, they told us that renting out their unused space paid for their living expenses and allowed them to retire early.
Breaking out of living paycheck to paycheck is much easier to do when you make more as well.
Photo by Yuri G. on Unsplash
As a former bank director, I've met multi-millionaires from all walks of life. Those who make $500,000 a year live much differently than those who make $60,000 a year. It's possible to become a millionaire with a low-paying job, but it's much easier when you find ways to increase your income. Check out “150+ Ways to Make Some Extra Money This Year” for some ideas on quick ways to earn some extra cash.
A simple formula to remember is CASH FLOW = INCOME – EXPENSES.
You can take your expenses down to zero, but you won't have a large cash flow if your income is small.
It's easy to believe that you can't improve your situation, but you can significantly increase your income by investing in yourself. Buy some personal development books and start reading. Take some courses, and hire people to help you who are strong where you are weak. Highly specialized skills often translate into $$$, so go to college if the numbers make sense for your career path but don't feel like you have to do that to succeed financially.
Warren Buffett, one of the greatest investors who ever lived, put it this way:
Generally speaking, investing in yourself is the best thing you can do. Anything that improves your own talents; nobody can tax it or take it away from you. They can run up huge deficits and the dollar can become worth far less. You can have all kinds of things happen. But if you’ve got talent yourself, and you’ve maximized your talent, you’ve got a tremendous asset that can return ten-fold.
-Warren Buffett, multi-billionaire investor
Invest in yourself! Investing in your earning ability can easily add tens of thousands of dollars to your annual income. $1 invested in your earning ability can return $1,000 or more annually! Read “The Insane Math Behind Investing in Yourself” for more details.
Look for ways to boost your income, not just ways to cut your expenses.
An investment makes you more money than you spend to buy it. Anything that costs you more money in the long term than you get out of it is not an investment; it's an expense.
10. Enjoy Life
Last but certainly not least, remember that all the money in the world will bring you no pleasure if you don't take the time to enjoy life. Money can help buy things like experiences, but if you spend your entire life buying possessions that only gather dust or putting every penny away for a rainy day, you'll miss the point of having money.
A hospice nurse found five common things people regret at the end of their life.
- I wish I’d dared to live a life true to myself, not the life others expected of me.
- I wish I hadn’t worked so hard.
- I wish I’d dared to express my feelings.
- I wish I had stayed in touch with my friends.
- I wish that I had let myself be happier.
Don't make the same mistakes!
Take time to develop and maintain deep relationships with others, go after your dreams, dare to express your feelings, let yourself be happy, and don't spend every second of every day in the blind pursuit of money!
The older I get, the more I realize that you can't turn back the clock to go back and do things you wished you had done when you were younger. Yes, you will want to plan for tomorrow. But don't forget to make today count as well.
I hope you enjoyed this and found it helpful. If so, be sure to like and share!
Make it a wonderful day!!!
Dear Mr. Smith,
I really enjoyed to read your article, i found your article very practical and very interesting, as you i read a lot of success books, and i found in your list Insights that i never read before.
I'm sure that your insights will help me to reach my goals rapidly.
THANKS A LOT