What is your current financial situation? How do you picture
your financial future? Iím sure most of us are concerned with
the quality of our life after retirement, and we find that the
approach of almost all people to prevent being broke at 65 or 70
follows a common pattern ñ go to college (or at least save
enough money to go to college), find a high-paying job, set
aside a part of their salary and put them in a bank or invest
them in the hope that they will grow considerably in the future.
Unfortunately, this does not work for everybody all the time.
While there are some people who might luck out in investments
that give a high rate of return, others might not even be able
to have a savings account (living hand to mouth as they barely
make ends meet), and end up old, poor, and miserable.
And this is what happens often!
So how can we steer clear of a possible retirement crisis?
Financial planning is the key, and below are a few pointers that
would bring you financial freedom.
Establish your goals.
Before anything else, you need to determine your financial
goals, be it short-term or long-term. Are you planning to have a
dream vacation? Buy a house? A car? Save for your childrenís
college education? Preparing for your retirement?
A clear-cut objective will give you the motivation to and drive
to go through your financial plans.
The basics: how to have the money?
Once you have your goals in place, the first step towards
financial freedom is to build your base. This means acquiring
the funds or the money that you will cultivate in the long run.
There are two ways to do this:
Borrow. The advantage to borrowing is that you can have the
money that you need instantly. Newlyweds could have their dream
house on the first year of their marriage by taking out a
housing loan instead of having to wait 10-25 years to purchase
it. The disadvantage to borrowing is the idea of incurring a
liability, the burden of having to pay an amount that is
significantly greater than that which you have actually received.
Save. Setting aside a certain amount of money in the form of
savings might deter your future plans, but it offers a
worry-free way of building up your base ñ it adds up to your
assets, not your liabilities.
Still, most people find it hard to save money and take the easy
way out by borrowing. The following are helpful hints on how to
make saving work for you:
Know your ìbottom lineî.
The primary thing to do before you decide to save for the future
is to know your regular cash flow ñ how much money are coming in
and how much of them are going out. A breakdown of your income
and expenses, preferably on a monthly basis, would be a big
help. You can construct a budget table that lists the following:
Income ß Salary ß Bonuses ß Commissions ß Interest income (from
savings and other investments) ß Rental income (from properties
that are rented out) ß Social security and/or pension income ß
Alimony, others Expenses ß Rent/mortgage ß Utilities (electric,
phone, cable, etc.) ß Food ß Clothing ß Insurance payments
(health, home, life, auto, etc.) ß Debt payments (credit card
bills, child support, alimony, etc.) ß Health expenses
(medical/dental) ß Childcare expenses (schooling, etc.) ß Tax
payments (income, property, etc.) ß Transportation expenses
(tolls, gas, car payments/maintenance, fare, etc.) ß Personal
(allowances, etc.) ß Recreation (vacation, etc.) ß Others
(gifts, etc.)
Subtracting your total income from your total expenses will
yield your ìbottom lineî:
ß A positive net figure means that your income is greater than
your expenditures, and this is the amount that you save given
your existing income and spending habits.
ß A negative net figure, on the other hand, means that you do
not have anything left to save ñ your expenditures are greater
than your income. However, this would help you evaluate your
spending habits to determine where you can cut back your
expenses, like renting videos instead of going out to movie
theaters, or dining at home instead of eating in restaurants.
Your savings as your ìexpensesî.
Now that you know your bottom line, you can already have a
ballpark figure of what you can save (say, in a month). Knowing
the amount that you have to save, stick to it. The trick here is
to view this amount as part of your expenditures, so the first
thing to do once you receive your paycheck is to subtract the
amount that you allot for savings before allocating the rest on
your other expenses.
Stay on track.
Once you become used to the practice of saving a specific amount
on a regular basis, do your best to keep on it. Although there
are times of crises or urgent situations that may require you to
deplete your savings (an urgent trip to the hospital, etc.), do
not be disheartened. Instead, learn to appreciate the value of
your savings ñ that they are there, something that can be used
in times of emergencies. Just carry on with it, and try to stay
on track.
Your financial strategy: aim high or aim low?
You now have the money ñ the task is to have it grow. Are you
going to put it in a bank or at the stock market? Before
deciding which financial vehicles to use, you have to evaluate
yourself to determine to which group you belong:
Conservative. This group has a lower tolerance for risks. They
are more concerned with the preservation of their capital as
well as the safety and stability of their investments, even if
they mean lower yield.
Aggressive. This group has a high tolerance for risks. They are
willing to brave the market ups and downs in exchange for higher
(or maximum) returns.
Knowing your level of risk tolerance would help you choose the
types of investments that suit you and your goals.
Where to put your money?
Now you are ready to expand your money base. There are a number
of investment opportunities to choose from, and some of them are
listed below:
1. Savings accounts 2. Money market deposit accounts 3.
Certificates of Deposit (CDs) 4. 401(k) Plans 5. 403(b) Tax
Sheltered Annuities (TSAs) 6. Individual Retirement Arrangements
(IRAs) 7. Keogh Plans 8. Stocks 9. Bonds (Savings bonds,
T-bills, Zero coupon bonds, Municipal bonds, Insured bonds,
Convertible bonds, High-yield bonds) 10. Mutual Funds 11.
Annuities 12. Social Security 13. Life Insurance (Term, Whole,
Universal, Variable) 14. Health Insurance 15. Disability
Insurance 16. Long Term Care Insurance 17. Homeowners Insurance
18. Auto Insurance 19. Estate Planning
Additional pieces of advice:
A rule of thumb: diversify. When investing your money, it is not
advisable to ìput all your eggs in one basket.î Spread it out
across several types of investments so that you can have other
options when one of them is no longer working out well.
Never put your money on something that you do not fully
understand. Study them carefully. Ask questions. Seek advice if
you must.
Take your time. Do not pressure yourself when making decisions.
See? Earning money is so easy. With these guidelines, you no
longer have to worry about not having enough money for
retirement. To quote:
"Once the laws of getting rich are learned and obeyed by
anyone,that person will get rich with mathematical certainty."
-- Wallace D. Wattles
About the author:
Daegan Smith the owner of
Net MLM Articles and the leader of the fastest growing team
of successful home business enterpernuers on the net. Find out
how we're creating financial freedom all across the globe and
how to get in on the action FREE =>
http://www.comlev.com
