A Step by Step Guide to Creating a Plan to Reach Financial Goals
Most people have four common financial goals, which are to:
1) Live well;
2) Make enough to take care of loved ones;
3) Retire early and;
4) Have enough funds to last until the end of your life;
The pathway towards achieving financial independence starts with having a financial plan to achieve these goals.
I will give you nine super powerful techniques with the details of how to apply them that will support your success. If you use these techniques and make a habit of using them, then, over time, your life will improve significantly. The worst thing you can do is learn about these techniques and then not take steps to put them to use as part of your financial plan.
Create the Best Financial Plan for Reaching Your Goals
If you prefer to become a destitute and homeless person as you get older, stop reading this now! In that way, you will not have the suffering of both being homeless and the overwhelming guilt associated with knowing what you should have done to avoid financial ruin. You will feel so foolish if, instead of making a good financial plan and taking appropriate action, you ignored my advice and ended up broke.
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If you want to have better results, learn my techniques of how to make a successful financial plan, and follow your plan. I show a guaranteed way to become a millionaire for $200. Follow my advice, and you will have a much better chance of having extraordinary results while feeling very proud of what you accomplished.
The best time to learn about financial planning is when you are young because you have a full lifetime to apply these techniques. Nevertheless, it is never too late to improve your financial condition. No matter what your age is, you can apply some of these techniques.
Here are the 9 Powerful Master Techniques of Financial Planning:
1. Getting Out of a Financial Hole to Build Wealth
Without having a financial plan, you may find yourself in a financial hole. With the courage to address your problems, you can get out of trouble and get back on track; otherwise, you may face bankruptcy. Bankruptcy is the option of last resort. If your situation is dire and the bills are insurmountable, contact a competent bankruptcy attorney to learn about your options.
Most people go bankrupt because of loss of income and high medical bills. If you must go bankrupt, use the chance to start over with a better financial plan. Do not be like the 44.4% of people who go bankrupt twice or more. Their bankruptcies are caused by spending or living beyond their means. Those people do the same stupid things again and again. Do not be so stupid. Learn from your mistakes.
For the rest of us, who get into temporary trouble, we need to manage the problem of being in a financial hole to get out of it. After you are out of trouble, you should continue all the good habits and methods you learn from applying these master techniques to build up wealth.
We can reverse financial problems by reducing expenditures, increasing passive income, managing credit, tracking credit history, negotiating with creditors, and committing to a long-term financial plan.
Reducing Expenditures
There are always things that a person buys that can be eliminated or a lower cost item substituted:
The first step is to stop buying unnecessary things that are not a pre-planned expenditure. Do not buy anything based on just a whim. For example, eliminate all unhealthy choices such as buying pricey snacks and “junk” food.
Another thing to do is to trade down with a substitute. If you regularly buy gourmet coffee for $5 a cup at a coffee shop; instead, make your coffee at home for less than $1 per cup. Moreover, the “dollar” type discount stores can be a good place to find lower-cost items that can substitute for things you regularly use.
When shopping, make a list before you go to the store. Collect discount coupons and search for coupon offers online for the things on your list. When you are at the store, stick to your list. Do not buy anything else unless you see things on sale, which are consumables that you always use. Stock up on those things when they are offered for a good deal. Shop less frequently and order things in bulk online to save money on gas.
Increasing Passive Income
When they do not have enough money to pay the bills, the natural response of most people is to do more work to earn more money. They get a second or even a third job to make ends meet. Yes, that is a good idea, especially if you can do some work from home (an ability you must have now, due to the pandemic). However, ultimately, this does not build up your wealth enough because there is a limit to how many hours you can work. Usually, you will find yourself exhausted and still broke.
The adage “work smarter, not harder” refers to the practice of putting in less effort to get the same amount of money or more. The best income to create is “passive” income. Passive income comes from making certain investments that do not require any work efforts on your part. Except for the people who inherited wealth, all other wealthy people usually make enormous amounts of passive income.
Passive income may take the form of dividend payments, royalty checks, profit-sharing, licensing fees, and other income streams that you earn without contributing any further work efforts. For example, investing in a stock that pays an annual dividend creates passive income as that dividend. Another example is selling something like a book or software that pays a royalty on every future sale.
In real estate, it is possible to create passive income by investing in a real estate investment trust (REIT) that must pay a certain amount of money to its shareholders as dividends each year to remain qualified as a REIT. You can also own rental property and hire a property management company to take care of it, thereby having the management work done by others and the profit as passive income for your wealth-building efforts.
Managing Credit
Your credit balances should never be maxed out. They must be utilized with a strategy that pays them off rapidly. The most powerful positive impact on your credit score comes from maintaining credit accounts in an active but paid off status. You want to see no more than 50% utilization of the credit amount and a “paid as agreed” notation on each month’s credit report.
Use auto bill pay with your bank account to make 100% sure that your payments on amounts due are never late. A strategy to achieve an excellent credit score above 700 (a perfect credit score of 850) is to have half a dozen personal credit accounts with a very high limit. Use them up to half the limits as a maximum and pay off the balance each month before you have to pay any interest on the charges.
Find credit cards that give cashback for purchases. Put everything on one card for a specific month to charge as much as possible, then pay it off completely before the end of 30 days to avoid paying interest charges. The following month, do the same thing with another credit card. If you keep about six credit cars active in this way, you will get the best credit card offers, including possibly free balance transfers to other cards and 0% introductory interest rates for up to six months. Use credit in this way to earn cashback and award points but never pay any interest on your charges.
Tracking Credit History
It is beneficial to track your credit report history on the three main credit reporting bureaus of Equifax, and Experian, and TransUnion. There are many ways to do this. Everyone is entitled to a free annual credit report from each bureau and a copy of their credit report if they are turned down for a loan.
It is better to get your credit history information on an ongoing basis. Some banks offer credit score reporting as part of a free service for signing up for a checking account. Try to get ongoing access to your credit reports and automatic notifications if anything changes on them. Look for a way to get his information without having to pay for it by seeking out a bank that includes this as a free service for account holders. Otherwise, there are subscription services where you pay a monthly fee to get real-time notices of any changes in your credit history.
Negotiating with Creditors
It may come as a surprise that you do not need to be in financial trouble to negotiate with creditors. It is possible to negotiate with creditors to reduce interest rates or reduce the total amount due at any time if you can pay off the discounted balance. To do this successfully, you can start the negotiations before you get into serious trouble and still have funds available. If you wait until you completely run out of money, there is nothing you can offer to entice them to agree to accept a smaller amount as a full settlement of the balance due.
One technique is to work with a credit repair company and negotiate to reduce your total debts. Once they get the creditors to agree to the reduced amounts, you make a single monthly payment lower than what you currently pay. This is a way to avoid bankruptcy.
Be very careful about how you select a credit repair company to work with because this industry is full of scammers. Conduct thorough due diligence on any company you are considering and look for complaints about them on the Better Business Bureau before you decide.
Committing to a Financial Plan
Unless you experience a sudden loss of a job or a major illness, it did not happen overnight if you got into financial trouble because of your lifestyle. You need to immediately stop bad habits and make a long-term plan to rebalance your finances over the next three to five years until your new lifestyle becomes your permanent, natural way of living.
Let’s review some other master techniques that you can use to shift your lifestyle in a positive direction.
2. Minimalism
Ask yourself how much stuff do you really need? Do you want to be a slave to your stuff, or do you prefer to live in a less-burdened way that feels much more light and free? Minimalism is a megatrend that many people, especially millennials, are embracing as the antithesis of excessive consumerism.
With minimalism, it is not about denying yourself things and more about freeing yourself. You can have very-high quality things that last a long time and are very useful, and stop overloading on junk that you do not need and do not use. Get rid of clutter by selling or giving away things not needed and lower your stress.
3. Barter
There is no need to pay cash or use credit to buy things when you can trade for them.
Here are some ways to achieve things that do not use cash and instead use the technique of barter:
Stop Paying Rent
Instead of paying rent, barter your services in exchange for room and board. Manage a property, take care of children (homeschooling is way up, and tutors are in high demand), or become a caretaker in exchange for a place to stay.
Trade Services
If you have skills, carpentry, plumbing, etc., trade them for other skills, mechanic, electrician, etc.
Join a Barter Association
Joining a barter association is an easy way to trade professional services.
4. Budgeting
Your financial plan will not work at all unless you can make a budget, follow it, make regular investments, and put away reserves for emergencies. Start by collecting the data of your income and expenses monthly for the past year. Analyze your expenditures to see what can be eliminated.
If you live beyond your means, you have to find a way to cut things out and reduce expenses. Do not come up with the excuse, “I can’t!” because that is not true. You can, and you will. For example, in the winter, cut monthly heating bills by not heating rooms you do not occupy and use thicker blankets with the thermostat turned down at night. In the summer, open windows and use a ventilator fan instead of air-conditioning.
Allocate your monthly income to include paying all your essential, regular expenses, making a monthly investment, and adding a reserve account for emergencies.
Stop buying frivolous things and use the money for investing instead. Warren Buffet, one of the world's wealthiest men, lives in a modest home and drives a regular car. When asked why he does not have the lavish lifestyle of a typical billionaire, he says, “There is no investment return in that.” He lives in a modest house and has one car because that is all anyone needs.
5. The Power of Compounding
There is an ancient story of a king who wanted to reward a servant and asked the servant what he wanted. The humble yet clever servant asked for one rice grain and then to be given twice the previous day’s amount for 31 days. It sounded simple enough, and the king agreed and ordered the servant to be given one grain of rice.
The next day, the servant came for his reward. The king ordered for him to be given two grains. On the third day, the servant was given four grains. On the fourth day, he got eight grains. On the fifth day, 16 grains and so on.
Do you know how much rice the servant received on the 31st day? Over 1 billion grains of rice (approximately 37,000 lbs. of rice), plus he got to keep all the rice collected up to that day of about 999 million grains more.
The modern version of this story replaces $1 for each grain of rice. Doubling one dollar for thirty-one days creates a $1,073,741,824 payment on the 31st day. That is over one billion dollars! This is the power of compounding.
“He who understands compound interest, earns it; he who doesn’t, pays it.”
Compound interest works for you if you invest, earn a positive return, and let that investment grow over time. It works against you if you have a large amount of debt on credit cards that charge a high-interest rate.
If I told you I know of a certain investment guaranteed to pay around 18% or higher annually, would you be excited to learn more about it? Well, any balance on your credit cards is paying the bank for that card balance 18% or higher. The bank is getting filthy rich from your balance. To make this work for you, instead of against you, any time you have available funds, pay down the balance on your high-interest credit cards. That is recapturing some money that would be otherwise wasted on interest paid to the bank.
6. Dollar Cost Averaging
Many Americans do not own stock. That is a serious mistake. If you want to become wealthy, your financial plan should include regularly making investments in the stock market, without paying any attention to market fluctuations. Follow a value investors’ strategy like Warren Buffet. Invest in companies that you want to own for a very long time. If you want to know what those companies are, which Warren invests in, you can research the holdings in his portfolio at Berkshire Hathaway and copy his investments.
Dollar cost averaging is when you buy shares in the same company at different intervals. It is the average price you paid per share and the basis you use to determine your investment return.
7. Invest in Yourself
8. Become a Millionaire Guaranteed
Pay yourself first by making investments on your behalf and putting aside something in a reserve account for emergencies. Invest in yourself by continuing to learn throughout your life. Do the things that excite you as your work. Follow your bliss to success.
It costs $200 per month to become a millionaire. A 20-year-old who works until retirement at age 65 and invests $200 per month, earning an average return on investment of 8% per year (long-term average stock market returns), will have $1,065,871 upon retirement.
9. Retirement Needs
To make a financial retirement plan, you need to consider the monthly budgeted amount you need to maintain a certain lifestyle, funds for emergencies, the expectations for the annual cost-of-living increases as the price of items you buy will go up, and your life expectancy.
Social Security Benefits?
If you are now 50 years old or younger, you should not count on having any Social Security benefits upon your retirement at the regular retirement age of 67 (recently raised from 65). Even though early retirement is allowed at the age of 62, the prediction is that the Social Security Trust Fund will run out of money in about 12 to 15 years. If you get some Social Security money, you will be lucky to get it; however, do not count on it.
Retiring as a millionaire
If you followed the path to be a millionaire that I described above by investing $200 per month from age 20 at the age of 65, you would have $10,496 per month as an annuity, payable for 14 years up to the average life expectancy of 79.
Conclusion
What is your financial plan? Excessive consumerism is an addiction that needs your focused attention and withdrawal to avoid pitfalls. If you need help organizing your budget and building up a solid financial plan, seek out consumer credit counseling services and credit repair advice. Search for no-cost assistance from non-profit organizations that can give you the assistance you need without adding a new expense.
I hope that I convinced you of the importance of having a financial plan. The best motivation is to think like an ant. Tiny ants can make an anthill hundreds of times their height and weight. They do this by continual effort, within their individual abilities, over a long time. Get out of financial trouble, stay out of that trouble, pay yourself first, set up financial goals, stay on track, and, as the years go by, you will be delighted with the results.