If you wish to become wealthy, it’s very important that you have a proper planning and fixed goals. Many people don’t become rich because they spend all the money that they earn, and secondly, they don’t know where to spend their money. Since most people don’t have their fixed goals, they spend unconsciously from moment to moment. Since all the hard money is spent, it is unlikely that those people will become ever wealthy.
Unconscious spending is more prevalent in our society than we realize. 80% to 90% of the total population follows the same habits. Except for a handful of people, the vast majority have no idea where the money is spent until they are asked to write down the details of all their expenses in a notepad. Many people get scared when they have to draw lines on their finance. That’s why they seek for professional help.
You need to be very relaxed and carefree with your financial matters. Money is not a scarce resource. You can work overtime to increase your income, sit for extra time on a regular basis to plan and review your finance. Then you can systematically separate a portion of your income to build savings and investments for the future. When you don’t keep a track of your money, you will realize that a lot of it has gone towards wasteful, extravagant and other expenses that were unnecessary.
After you have reviewed your finance and know the income and expenses, next thing to do is to set some goals with proper planning. You can take out one or two hours and prepare your plan and then review it everyday to see if everything is happening right.
Goals will help you to stay focused on your future and will stop you from any overspending habits. If your goals are set concrete, you will be more committed towards achieving the targets. You must set some timeframes and break them down into manageable steps. This will make your goals more realistic and easy to attain.
Along the way, you need to set aside some portion of your money from your income so that you can build more savings. Fixed costs are your essential costs that need to be paid on a regular basis. For example, mortgage or rental payments, personal loans, and credit card repayments, insurance, council rates, and school fees. Based on your lifestyle, you can measure how much you can save each month after paying these necessary expenses. If your fixed costs are too high, you will probably be living on a paycheck to paycheck and remain worried about the next large bills that will arrive. If your pay goes towards a large portion of your fixed costs, you will have less to spend on other necessary items, and often little for luxuries, unless you go farther into debt.
Next are variable costs that include your essential expenses and it can vary on a daily basis. This will include your costs on food, clothing, groceries, mobile phone expenses, medical and motor vehicle running costs, such as petrol and repairs.
There are some other discretionary costs which are totally non-essential and highly variable. You can keep these expenses in full control and know how much you can save at the end of the month. These costs will include entertainment, dining-out, presents, holidays and all luxury items that we love but can live without.
Recent statistics show that 40% of the people are able to live comfortably after paying their fixed costs. People above this percentage live a lifestyle that costs them more than what they can afford. People falling in this category might have spent more on their homes, cars, furniture and forced to having excessive debt. If you want to become rich, you have to keep your fixed costs below 40% at any cost. Then you can allow more saving that can be easily channeled into additional savings and investments. So the key to good financial management is managing and controlling your fixed costs. By following the set goals, you will accelerate your wealth and therefore become rich.
If your fixed costs are too high, formulate a debt free plan and keep your spending within control. This way, you will not go more into debts. Learn to live with cash. Do not use credit cards to make purchases that you don’t need at all. Plastic money is the easiest way to get you more into debts. If low income is your problem, consider all alternatives to increase your income. Everyone has some talents within themselves and you will be surprised to see that people are ready to pay for the products or services that you can offer in exchange of their money. Do part time work, turning hobbies or crafts into cash, or investing in additional training to expand your career prospects. With your fixed, variable and discretionary costs in full control and earning money from all sources, you will be able to create more savings. This is the guaranteed way to accelerate your path to wealth.
This entry was posted on Monday, January 28th, 2008 at 7:02 pm and is filed under Personal Finance. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.