A financial plan, whether for an individual, family or organization is a unique document. Despite this fact, there are financial management words of wisdom that hold true for everyone regardless of their financial situation. These financial management strategies can, and should, be integrated into every financial plan. When integrating the following financial management strategies into your financial plan, I have no doubt that you will be able to increase your personal cash flow and increase your long-term standard of living.
“Create a Financial Plan”- Creating a financial plan is the first step towards accomplishing your personal finance goals and objectives. Without a plan, you are more likely to lose sight of your financial goals and what you have to do to accomplish them. This severely limits your ability to achieve financial freedom.
“Spend Less Than What You Make”- Accomplishing your financial goals and objectives takes positive cash flow to be used for paying down debt and growing personal wealth through various investment vehicles. We have more control over how much we spend then how much we make, thus you need to keep an eye on your monthly cash outflows.
“Maximize Tax Efficient Investments”- When implementing a financial plan, there is nothing worse than throwing your hard earned money away. When you choose to pay more taxes than you are required to, you are essentially doing just that. The easiest way to become more tax efficient is to maximize your 401(k) and Traditional IRA contributions.
“Don’t Invest, or Bet, Anything You are Not Willing to Lose”- There is risk in virtually every market and every type of investment. Even though asset allocation can help reduce these risks, your nest egg can still lose a majority of its value in a relatively short period of time. Ensure that you have enough cash to cover financial emergencies.
“There’s an Difference Between a Want and a Need”- Emotions are a necessary element in the human condition, however not your financial plan. Understanding the difference between what you need to buy and what you want to buy is an extremely important distinction. Reducing your spending on what you want to buy is an great way to save a little more money every month.
“Automate Your Financial Management Strategy”- Taking the emotion and tempting spending decisions out of your everyday financial decisions is an excellent way to save more money. You can use tools such as online banking, direct deposit and automatic allocation to painlessly automate your financial management strategy.
“The More Things You Own, The More Things Own You”- Having lots of stuff does not make you richer, its actually quite the opposite. Due to the additional costs of storing, operating and sustaining excess property you will probably end up paying more money than you originally expected. This reduces the amount of money that you can save and invest, crippling your long-term financial growth.
Despite the fact that every financial plan is different, there are a few common financial management words of wisdom that hold true, despite your financial situation.