Tag: expenses

YOUR Wealth Generation Plan

This is another chapter in The Money System That Never Fails and finishes one of the most important parts of the book, your wealth generation plan. This section covers how to make it your own.

Remember, this is YOUR Wealth Generation Plan. Make it your own. While I provide my template and how I do it, change it up as you see fit. As long as you’re positively working on each of the four areas, to a lesser or bigger degree, then you will move in the direction you want to go.

The point of this plan is that you’re paying attention and working to optimize each area. Depending on where you are currently with your money, you have stronger and weaker areas. You also have areas where more can be done, and areas where you have less.

If you don’t make much income, and your expenses are high, then investing is not the most important thing for you to focus on now. Instead, it will be income and expenses. If you have a good income, and expenses are fine, then how you work with your savings and investing becomes much more important. Put your attention, action steps and goals there.

In a way, there is kind of a progression through this:

Expenses
Savings
Investing

Note that I do not include Income on this progression. That’s because it is the accelerator, regardless of everything else. Some people make tons of money and spend all of it and more. That’s the star athlete that lives big because of the million-dollar contract, but doesn’t have any money management skills.

Thus, the first step is to make sure that your expenses do not outstrip your income. This typically means cutting your expenses, as that is easier to do than earning more money (at least in most cases).

Once your expenses are under control, you start focusing on savings. Build up your savings. The best thing to do when you get a raise, or start making more income from anything else, is to not spend more, which is the natural human reaction. Instead, start saving more. Bump up your percentages or automatic investing.

After you’ve saved for some time, and start to have some real money, then you can start learning more about and participating in investing. There really isn’t any point in focusing on investing until you have thousands of dollars to do so.

With me personally, my expenses are managed well enough. I’m always tweaking the savings amount, working to move them higher and higher. Now that I achieved my big goal of buying a house, in addition to paying that off, I will work even more on the investing area, while still seeking optimization in all
others.

As such, this also means that all books about money tend to cover one or more of these areas. Besides what you’re reading now, I haven’t found many that talk about all of them, at least not with this same kind of clarity.

Where you are at will determine what you should additionally study. In consumer debt? Something like Dave Ramsey, where he talks about cutting out the lattes might be appropriate. Looking to grow your investing? That same book is likely not going to be so useful.

Wealth Generation Plan Review

I like to do this monthly. Other people, who aren’t quite as hands on with their finances, might be fine to just do it once a quarter. At some point, I’ll probably switch to that, but currently, I like to review it monthly, even if I don’t make any changes.

Reviewing your wealth plan means reading through it and doing the following:

Updating your strategies as needed
Crossing off To-Do’s and adding more, or changing as necessary
Crossing off Goals and adding more, or changing as necessary
Updating savings percentages and automatic saving/investing amounts
Updating any other details that need updated

If you do this, it means you’re constantly updating what you’re doing. Hopefully, you’re learning along the way, including from any financial mistakes, and thus you’ll get better over time. This plan is not a set-in- stone document, but something to evolve along with you. Over time it will be what gets you to wealth, hence the name.

In NLP, one of the maxims is that “There is no failure, only feedback.”

That’s why I call this The Money System that Never Fails. It’s not that you won’t make mistakes along the way. Or that you won’t learn new better things that can make this work better. It’s just that you follow the plan, and adapt the plan along the way.

Ultimately, it is this framework for a plan, covering the four major areas of money, that is why it is a
system that won’t fail. The only way for it to fail to work, is for you to fail to work with it.

For more The Money System That Never Fails is now available in paperback and Kindle at Amazon.

If you missed the first chapters you can view them here:

Defense – Savings & Expenses

This is another chapter in The Money System That Never Fails and continues one of the most important parts of the book, your wealth generation plan. This section covers the “defensive side” of the financial equation, with savings and expenses.

Savings

My savings strategy is as follows:

Save weekly for all savings accounts typically done on Saturdays. Savings in investments are done
automatically.

Pretty simple. Here is where you’ll determine which accounts you’ll save to: business (if applicable) and personal. Here is where you write in the percentages you’re using. There are sections for both the manual as well as the automatic savings. Alter this as you see fit.

Write any action steps you need. In the beginning, this will include setting up the accounts you need to use.

Write any savings goals you have. This may include getting up to a certain percentage of savings. This may include specific numbers in specific accounts.

Money System - Income minus Savings

Expenses

Here, my strategy is simple:

Work to minimize expenses and track monthly totals to keep an eye on them.

If you want to use a budget, here you can detail that. For instance, $XXX is used for food per month.
While I have budgeted in times past, I haven’t found that all that useful. What I have found is that as long as I track my expenses and make sure they’re not getting out of control, I don’t have to look at them except once a month.

Specifically, I use one credit card for each business, and one personally. I pay off the bill in full each
month. If ever I am unable to do that, then I take a closer look. When I had issues earlier, I wouldn’t use credit cards at all. More to be covered on expenses later.

As before, write any action items or goals you have in this area. This can include making specific
purchases you’d like to make.

This is the proper place to include charitable donations as well since they are a financial expense, even if they give you non-financial returns.

This is also the place to cover your tax strategy, as taxes tend to be one of the biggest expenses for most people.

For more The Money System That Never Fails is now available in paperback and Kindle at Amazon.

If you missed the first chapters you can view them here:

Most Important Part of the Money System

We continue in The Money System That Never Fails with The Most Important Part of the Money System.

If you missed the first couple of parts you can view them here:

This system started with the book, The Richest Man in Babylon by George S. Clason. This old classic can be found for free online in many places online such as this link here.

The first chapter is the most important but it all is worth reading and re-reading. It’s about paying yourself first, i.e. saving. The is probably the most important principle of money there is, period.

The principle is this: “A part of all I earn is mine to keep.”

This is counter to Parkinson’s Law, which originally meant “work expands so as to fill the time available for its completion”. This applies to money as well, in that the more money we make, the more we typically spend. Most people these days are spending more than they’re making with the pervasive use of credit. And our governments certainly aren’t good role models either.

Instead of fighting the natural urge to spend, by paying yourself first, you’ll be saving despite Parkinson’s Law.

This is how most people handle money (and how I did for years):

Money System - Income minus Expenses

Typically, this doesn’t leave much left in savings, if anything. Once again, many people spend all that they make, thus there is nothing left on the right side of this equation. This is living paycheck to paycheck.

But this equation can be easily flipped, by utilizing this foundational principle that allows wealth to build.

Money System - Income minus Savings

We simply take the savings out of the income, off the top, and then spend what is left. It really is that simple.

“A part” – We’ll cover how much shortly.

“of all I earn” – From your income.

“is mine to keep” – Gets saved.

That also means, the other part, is what is left over for spending for both the necessities and the luxuries.

I knew of this principle long ago. But I made some errors in dealing with it. And I realized that, for most people, for it to actually work, there needs to be a few different types of savings. Then money must be saved in specific ways for you to benefit from this principle.

However important saving is, it is just one factor of many. While we can save our way to millions, it is by no means the most interesting aspect. It must be balanced, with the other areas of money too. Eventually, once your savings grows it will look like this:

Money System - Income minus Savings + Investments

That will be discussed more later. Notice that there are four different types of money here already referred to in the last section.

The Money System That Never Fails is now available in paperback and Kindle at Amazon.

Money System that Never Fails – Money Offense and Defense

We continue from the Introduction to the Money System that Never Fails, with the next part on money offense and defense, and the four areas of wealth.

One of the pivotal books for me, that I read in that massive action period, was The Millionaire Next Door by Thomas Stanley. In it he talks about playing offense and defense with money. This was a big epiphany for me. I started to see that there were different areas of money. Offense could be likened to what you did to get money in the first place, i.e. producing an income. Defense was keeping the money and watching your expenses.

Offense and defense was a good starting point. But it became even more apparent when I added upon this idea and realized there were essentially four areas of wealth.

1. Income
2. Expenses
3. Saving
4. Investing

It seems so obvious now, but I didn’t see anyone specifically point this out. Understanding these four categories of money is the foundation to this system.

Finally, this explained why people can have huge incomes and still end up broke. Lots of sports stars and celebrities are great examples of this. The first area is great but all the other three are not. As soon as the big income goes away they’re left with nothing because they’re not truly wealthy. One strength, with three weaknesses does not equal long term success.

It even explains why some people living on meager wages can still end up with large amounts after many years. Income may not be great but the others are even more important. Still I wouldn’t necessarily call these people wealthy either.

It was another epiphany to me to realize that with just minimum wage, you could become a millionaire, just by saving and investing.

At $7.25/hour, 2080 hours worked in a year is $15,080. Saving 10% of this would be $1,508 per year. Invested into something that provided a 5% annual rate of return, it would take 72.37 years to meet this goal.

Yes, that is a long time. And I’m guessing you don’t have that long to wait. But I’m willing to bet if you’re reading this you make more than minimum wage. In California, the minimum wage is raising up to $15/hour soon. In a year this is $31,200. 10% of that is $3,120. Invested at the same 5% annual rate it takes 58.1 years.

This shows that it can be done, showing the importance of savings and investing, and the commonly touted magic of compound interest. But the trick is, if you also optimize your income, then save even more, and invest even better it can all be done far faster, and yield even bigger results.

This is just an extreme example, meant to show you the possibilities. Something to think about is how much money has passed through your hands over your lifetime so far? How much more do you think will happen over time?

If you want to look at other similar calculations you can use this online duration calculator.

Not understanding these four areas of wealth is probably the biggest setback in any money or wealth program or coaching because they are incomplete.

But what happens when you optimize all four areas? Magic!

Each area has some unique traits that best help it out, that are not in the other areas. Each area has specific habits you should do, which are not in the other areas. The good news is that you’re probably doing okay in some areas but just one or two of them falls short.

We all have our strengths and our weaknesses. In this case it is important to play to your strengths, but also to shore up your weaknesses too. The star ball player will be great off with that amazing income, if they make sure the other areas are taken care off.

Thus, when it comes to crafting your wealth plan you must include each of these areas. And each one will have goals and action steps for you to take. Let’s make sure you’re clear on what these four areas are:

1. Income

Money coming in. For a business, this is revenues. Personally, this may be an hourly rate, salary, royalties or whatever else. It also includes selling things, or services whether at a yard sale, on eBay, or wherever else.

2. Expenses

Money going out. Money is used as an exchange of value, so this is where you spend it on stuff. Of course, this occurs both in businesses and personally.

3. Savings

When you get income, it is turned into savings. Most people do this backwards, which is why they don’t have savings. More details on this in the next section. Also note that different types of savings are used for different purposes. Specifically, I consider savings when money is transferred from the income/expense account to a savings account for a specific purpose.

4. Investments

Money from income or savings can then be turned into investments. Active investments are those that generate more income. While you can invest in things like precious metals, these are stores of value, and don’t actually generate income, so these are passive. Understand this difference between active and passive investments.

All of these can be further broken down into more categories. But if you just get these four areas, and the differences of each, you’re ahead of where most people are at. A lot more on each of these to come next.

The Money System That Never Fails is now available in paperback and Kindle at Amazon.