Ensure your financial independence

INVEST IN YOURSELF FIRST

Most people have many similar goals, ambitions and expectations like a comfortable home, a reliable car, an annual vacation, and the ability to provide for the family's needs. All of which require money. Most of us would like to have the ability to live comfortably on our own income without being dependent on others. Some of us are quite happy with a simple lifestyle that does not require much money. We need to set our own objectives and priorities. The problem is that we rarely set our financial goals clearly and write them down on paper. Even if you only want to maintain your present financial situation, some planning and goal setting are necessary. Few people end up having financial independence and even fewer have the ability to lead a life without having to worry anymore about money.
Find out what the market place is looking for. Study the various options available and choose something that you like to do. The secret is to figure out what you really enjoy doing, without paying too much attention to the potential financial rewards. It is very important that you work in a profession that gives you some sort of satisfaction and a sense of accomplishment. You don't want to end up making a lot of money and being unhappy in your work. Become the best you can be in your chosen field by thinking how you can best help others. You can take charge of your financial destiny by investing time and effort acquiring the skills, education and business acumen that will help you climb the salary scale ladder. Work harder on yourself than you do on your job. If you work hard on your job you can make a good living. However, if you invest in yourself, you can substantially increase your chances of having financial independence and eventually achieving financial freedom.
Apart from making yourself as attractive to the market place as possible, you also need to have some plans to improve your financial situation. The starting point is to do a thorough appraisal of your current financial position. By reviewing your present situation, you can determine how you are spending your money. The next step is to find ways of making better use of your resources and of managing your money more effectively. It helps if you set certain goals and have a plan to achieve them. Naturally financial goals and plans will change over time as your circumstances change. When I started working and was single my biggest investment was in a used car. Every month my pay check was going directly to the garage which was constantly repairing and maintaining my car. When I got married, my wife and I were primarily concerned with buying our first house. Now I have a family with three young adults, my wife and I are managing and investing our money to protect our purchasing power, welfare and lifestyle. As my children leave us and start their own careers, my financial needs will change to planning for retirement.
Make a habit of paying yourself first, before everything else. Take ten percent or whatever you can afford off your weekly or monthly salary and put it into savings or invest it wisely. Start this habit as early as possible since nothing makes so much of a difference in the long run. Certain incidents or events may happen during your lifetime that necessitate a drastic change in your financial plan. For example, you may be laid off from your work, or your marriage breaks down and you find yourself divorced or you become sick or injured for a long period of time. Be flexible and adaptable to these situations. There is therefore a need to reassess your financial position regularly in order to meet your current needs and objectives. You can then adjust your financial plan so that you have sufficient income when you need it. If you invest in yourself first, you have already taken the first steps in ensuring your financial independence. As a first rule, you should have readily available a reserve fund valued at about your net income for the last six months.


MANAGE YOUR MONEY AND YOUR FINANCIAL RESOURCES

Whether you like it or not you handle money in one form or another everyday of your life. Money has a vast range of symbolic association and meaning to different people. For some people, money means freedom, happiness, status, power, security, worth, fame or a combination of all of them. For others, the subject of money arouses strong feelings of envy, oppression, guilt, fear, shame, injustice and ignorance. The fact is money can buy hundreds of everyday, practical freedoms. Money is a facilitator with which you can purchase things you want and do some things you otherwise could not do. Successful management of your personal finances empowers you to seek the most out of life. A personal financial plan is the only sure way to reach your money goals. This is not just a choice but almost a necessity for financial survival. So take action now and have a financial plan that will provide for you and your family. Learn to plan the way you spend your money. Planning, however, does not mean budgeting in the miserly, penny-pinching sense. Instead you should be spending your money on your main priorities, which may represent people or things that are important to you. Make sure you balance your income, expenses and savings wisely. You simply cannot consistently spend more than what you earn, without landing in financial trouble. A good rule of thumb is to save ten per cent of your income on a regular basis before you have a chance to spend it. Set financial objectives and periodically review and monitor them. To simplify the planning process, allocate income, expenses and savings on a monthly basis. By allocating income to specific purposes, you can use your income to your best advantage and acquire those things you want most.
An important aspect in the financial planning process is to know how to manage your money. The starting point for your planning is to review your current financial position. It is amazing how few people know: what is their current net financial worth, how they are spending their money or the difference between what they really need and what they wish to have. How you handle your income, expenses, assets, debts and investments will determine your financial health. When you are starting out on your own, maintain a frugal living standard and look for barter opportunities. Buy only things that you require and find them at bargain prices whenever possible. Have some savings so that you can take advantage of special bargains or investment opportunities. Learn to stay out of unnecessary debts that bear relatively high interest rates like credit card debts. If it is possible, borrow money and apply the principle of leverage, investing at a rate of return in excess of the interest cost. Allow a longer period of time for results. This strategy, however, should be treated with caution.
One of the best pieces of advice in financial management is to live within your means. It is not wise to spend more than you earn on a consistent basis except in some special cases. This road usually leads to debts which can accumulate very rapidly. Look carefully at what you really need and what you can afford. You may even have to go without some necessities for a short while until you are able to afford them. Choose to live more simply. Don't even try to keep up with the Jones's. Living within your means does not mean you should accept and be content with what you are earning without trying to better your financial situation if you want to. By living within your means, you can reduce your stress due to financial considerations without giving up your goals.
You have to determine the income you need to maintain your lifestyle. My advice is to aim about fifty percent higher than your estimate. Aiming higher costs no more and protects you against future cost increases. If it happens that you do not need all the income you earned, you can always save some of it for investment purposes and use the rest to help out other people and charitable organizations. If you have accumulated debts in the past, have a plan for debt payments incorporated in your budget. Realize that it might take some sacrifice on your part to pay back debts or to save some money. Take small steps in these directions and be flexible and realistic in your long-term financial goals.
Personal budgeting is often viewed as difficult, tedious and restrictive but it is an essential tool for managing your money. The preparation of a financial plan will result in a certain peace of mind in the long run. A personal financial plan consists simply of the following:

Calculate the amount of money you expect to receive after deduction of income tax i.e. your total net income. Prepare your statement of net income on a monthly basis for simplicity.
Estimate the regular living expenses: food, household needs, housing costs, transportation costs, fixed insurance costs, miscellaneous taxes, family allowances etc. Prepare a monthly statement of household expenses.
Estimate the flexible expenses: clothing, household furnishings, entertainment, medical and dental care, charitable donations and gifts etc. Establish priorities for these discretionary expenditures and see that the priorities are maintained. Average these expenses over a month period.
Make sure all estimated expenses can be paid on time to build credibility and safeguard your credit rating.
Decide on some goals. Target a saving goal of ten percent of your net income. Plan to set aside some money for long-term goals, for example, the financing of major expenses like a car, a house, and the cost of educating your children. Identify their relative priorities and decide on some target dates. To meet these large expenses on their due date will require discipline and some flexibility.
Invest regularly and wisely:
Short term (1 - 3 years) - Conservative investment
Medium term (3 - 5 years) - Balanced investment
Long term (over 5 years) - Aggressive investment

Don't make the mistake of planning your financial goals on what is left after all the expenses, including the flexible and discretionary expenses. Saving and investing what is left over usually does not work because often there is nothing or very little left over. Don't depend too much on your friends' advice. Professional financial planners can be very helpful if you can afford their advice. Many financial planners will offer their services for free if you give them your business. My best advice is to learn for yourself. Nobody cares as much about your money as you do. Improve your knowledge by borrowing financial planning books and by attending relevant free seminars that are available to find out the most effective ways to increase your assets and maximize your investments. Realize that it takes many small steps, as well as a few big steps, to build up sizeable savings and assets. Think in terms of various stages, with financial security as the long-term goal. Set up a plan to conserve and develop your assets. The real test comes in sticking to the plan once you have made it. However, after you experience the results and feedback, and see your goals being met, this should be easy and self-motivating.
Manage your money well but don't become a slave to money. Use your money to buy things you need and enjoy. Of course, money is important and we all need it to pay our bills and other expenses. But other intangibles such as happiness, love, enjoyment, self-esteem and self-fulfillment are much more important if becoming your best is your goal. Use your money wisely to contribute to your growth as a human being.


MAKE YOUR MONEY COUNT

Every cent or penny counts. Take care of the cents and the dollars will take care of themselves. Spend your money smartly. You can grow rich on the money you are now wasting by investing it wisely. Buy only what you need. By knowing what you need and shopping around, you could save a lot of money. If you purchase only things or services that you really need rather than those you may want, you are making wiser and more cost effective decisions. With the money left over, you should save at least ten per cent in liquid investment for emergency use. Invest the remainder on the best return and growth. When purchasing anything make sure you are aware where you can buy the best quality for the lowest price. You can get into financial difficulty if you buy too much on credit. Borrow only for what you need and wait until you have cash for the things you simply want. If you have to borrow money, negotiate a loan with the lowest interest rate. You should pay your debt as fast as possible, particularly loans carrying high interest rates.
Develop sensible shopping and spending habits. Advertisers are trying to sell you things that you may not need, or that you may never use. Buy only things that you need and use. Go buy your groceries after you have eaten a good meal, you will not be tempted to purchase unnecessary food when you are not hungry. Buy and stock up on the necessities of life like toothpaste, soap and toilet paper when they are on sale. Buy toys, gift items and clothes that you will need when their prices have been substantially reduced even though you do not have an immediate use for them. A good time to purchase these items is right after the season, for example, Christmas cards, wrapping paper and decorations a couple of days after Christmas. Plan your shopping trip so that you can drop in at thrift shops, such as Salvation Army etc. A lot of thrift shops sell merchandise donated to them at very reasonable prices. Since you never know the quality of merchandise you may find in these shops, it is always worth a quick look. Shop around for value especially for the big ticket items you need like refrigerators, televisions, stereo systems and furniture. You can find big differences in price and quality, choose wisely. Ask for and expect a discount. Don't be scared to ask questions and to compare before buying these expensive items. Make sure there is good after-sale service and warranty. You should also buy good quality merchandise at a good price since it tends to last longer. You could also make use of hairdressing schools, dental colleges, law and business faculties in universities to have free or discounted services in their respective fields.
If you have to buy a car, buy the most economical and reliable car you can afford. A major slice of your income goes toward buying and running a car. Remember a car is not an investment that will grow in value. Most new cars depreciate about twenty five per cent in the first year, fifteen per cent in the second and another ten per cent in the third. You may prefer to let someone else absorb this rapid drop in value and buy a good used car. It is advisable to get a used car examined by a competent mechanic before you buy it. Unscheduled maintenance and servicing of a car is a drain on your income. A lot of people spend too much money on an expensive car because they think they need a status symbol. Unless you have a lot of money to spare, do not buy an expensive luxury car. If you are self-employed, it may make sense to lease a car rather than to buy it. Once you have decided on the type of car and price range you want, you should shop around for the best value for your money. Have adequate car insurance and drive carefully. Best of all, if you do not need the use of a car on a regular basis, don't buy one. It may be better to rent one occasionally when it is needed.
Use credit only when you have to and when it makes sense to do so. Before you start to use your credit extensively, establish a saving habit, no matter how little. Know exactly the cost of the loan. For a personal loan, take only the amount of credit you need. It is preferable to negotiate a personal line of credit with your bank. When you are buying on credit, make the largest down payment possible, and pay the loan back in the shortest time you can. Use your credit cards to buy items that may save you money, for instance, necessary home maintenance that will save you major repair bills later. If you have any extra money, pay off your credit card debts first and other debts afterwards. For those who have eliminated most of their debts, you can maximize your contribution to your retirement saving plan. Pay down your mortgage on your house and bring your amortization years of repayment as low as you can afford. This action alone will save you a lot of money in the long run because you will save on interest payments.
We all need some forms of insurance which are either mandatory or discretionary such as life insurance, insurance on your home and belongings and car insurance. You need to have some life insurance to protect your family. Term insurance is usually the cheapest way to buy maximum protection. For auto insurance, increase your deductibles to lower your annual premium. In every case, shop around every year to make sure you are still getting the lowest rates for the maximum protection. Send a copy of your current insurance policy to two or three other insurers to see if they can offer more competitive insurance coverage. In this way you have the other insurers reviewing your policies for you for free since you can ask for explanation regarding the discrepancies, advantages and disadvantages to you.
Have a budget for charity and choose the charitable organizations you want your money to go to. Always try to help those who are less fortunate than you whenever you can. Sometimes you do not have money to spare but you can still give some of your time, energy and service. You will be paid back handsomely and in many different and wonderful ways. You may need a lot of money to live these days, but you need a lot more of compassion, respect and love to make living worthwhile.

Extracts from my book: Become your Best –
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