Spending III

by | Jun 22, 2020

Spending & Saving

Spending – Article 3

Wealth Building

Budgeting and developing smart spending habits do more than keep you financially stable, they can also help you to build wealth. Beyond a personal spending plan, you need to develop a personal financial plan (PFP).

PFPs

When you create your Personal Financial Plan, you need to think about what your goals are. Where do you want to be in 10 years? What about in 20 years? Do you want to own a house? Do you want to have money saved for retirement? Your Personal Financial Plan should answer these questions and outline how you are going to save, spend, and invest your money in order to meet your goals.

The first step in creating a personal financial plan is making a document detailing your net worth. Once you have clearly laid out your income and expenses in your Net Worth Statement, you can develop a plan for your spending, saving, and investing.

Spending-and-saving plans are used to help you keep track of where your money goes. Look at your expenses and find areas where you may be able to cut your non-essential spending. Any money you have left over after expenses can be saved and invested to meet your long-term financial goals. Develop an investment plan early so that you can start making a return on your investment as soon as possible.

In order to protect the money you make throughout your lifetime, you should also develop an Insurance Plan. An Insurance Plan will protect your assets by providing reimbursement against losses. For example, if your car is damaged in an accident and needs repair, you can file a claim with your car insurance company, and they may pay for the repair.

Your Personal Financial Plan is a living document that will need to be altered as your needs and situation change. As your circumstances change, you will need to constantly update and modify your plan to ensure that you are on track to meet your financial goals, and work to build wealth.

Wealth Building

What are the secrets to building wealth? Well, the truth is that these "secrets" aren’t really secrets at all! There are certain key behaviors that all financially successful people share and when practiced over a long period of time, will likely result in financial success.

The first key behavior is to say "no" to debt. Interest is one of the main reasons why many people don’t become financially successful. When you take out a loan to pay for something, you are guaranteed to pay more for it than what it really costs. Some people think accruing debt is normal. It doesn’t have to be.

The second key behavior is to invest for the long-term. It’s easy to get caught up in the hype surrounding a stock or cryptocurrency. Don’t fall for this trap. Trying to beat the market is a sure-fire way to actually do worse than the market as a whole. The best way to consistently build wealth is to buy and hold for a long, long time. Discipline!

The third key behavior is to stay frugal. We have already discussed frugality, but it’s worth it to point out again that one of the best ways to build wealth is to spend less and save more! Whether you just started earning a bit more money or won the lottery, don’t radically change your lifestyle, or you’ll find yourself in trouble.

Bringing it all together, it comes down to three basic things: earn more, save more, and spend less. These seem like basic concepts, but most people who don’t make it on their way to financial success aren’t following at least one of them. If you want to put yourself on the right path, think about these every time you make a financial decision.

Before we wrap up this section, let’s talk about one more habit of successful people: negotiating.

Negotiating

Negotiation skills relate to the ability to bargain with someone who has different views or needs in order to reach a common ground. Conflict and disagreement are inevitable, and that’s why the ability to negotiate is a crucial skill in today’s world. Particularly for finance, it may save you a few bucks.

Some people think negotiating is a tool for someone to get their way. However, clever negotiators understand that it’s all about how you get along with other people. The key to being a master negotiator is to keep the other person in mind: be fair, maintain relationships, and seek a mutual benefit.

You might think that cars in a car dealership have a fixed price tag. Nothing could be further from the truth! The price of almost any car is negotiable and you should take full advantage of this. When buying a car, make sure you know the average price of the car, keep emotion out of the transaction, and shop around multiple dealers.

Negotiating is also a crucial part of the workplace. You will need good negotiation skills when discussing promotions, raises, group tasks, and even starting salaries. The key to negotiating in the workplace is knowing your value. You must be able to prove why you are valuable to the company and deserve a raise/promotion/etc.

You or your kid got accepted into a great university, but you won’t be able to foot the bills. Might as well throw that acceptance away, right? Wrong! You can (and should) negotiate the financial aid you’re offered. Trust the writer of this lesson, who increased his financial aid from $30,000 per year to $65,000 through the art of negotiation!

In summary…

Building wealth starts with you! When you plan for your future, and adopt the habits of wealthy people, you set yourself up to live a financially abundant life!

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