Now for the purpose of this article I want to assume that you currently have a steady stream of monthly income. I am going to discuss the Paulsen 8 Keys to Financial Success but in order for these 8 keys to truly bring you success it is necessary that you already have a consistent income. For 95% of America financial problems do not come from the lack of a strong income but the lack of skills necessary to manage their income. You see we spend the first 25 years of our lives being taught how to go into the workplace and make money, but nobody ever teaches us what to do with money once we have it. That is where the 8 keys of financial success come into play.
A quick disclaimer: I did not invent these 8 ideas and I don’t lay claim to any of this content. From all my study I have simply organized my favorite and key concepts into these 8 Keys. In this article I’m going to discuss the first 4 of the 8 keys to success. Stay tuned for the last 4 keys in a future article.
- Track Your Finances. This is the first step because it makes everything else possible. What is measured can be improved and studies have shown that even corporate executives who look at financial statements everyday tend not to know their own financial situation. You must know where your money comes from and where it goes, what assets and liabilities you own, and how your current performance lines up with your financial goals. Very few people have the accountant like skills necessary to do it themselves and so to those I recommend hiring someone to do their book-keeping. Once you have a handle on your own finances the true work can begin.
- Have a Cash-Flow Budget. This is a two sided coin. First you need a budget which is a simple idea of where you want your money to go. How much do you want/expect to spend each month in dining, gasoline, groceries, etc. Second is to work on your cash-flow. How much is left over each month? How much do you spend vs bring in? This is called your Profit vs Loss in the business world and knowing that number should be your life. The other part of your cash-flow is your Assets vs Liabilities/Expenses. This number will show how close you are to retirement. Assets are things that bring you income without any work on your part. Liabilities and Expenses are everything that take your money away from you. Once your assets bring in enough each month to cover all your expenses and liabilities you can stop working your day job and retire. Making that number positive is your number one goal. To start working on your cash-flow now download this sheet from JP2.
- Create a Rainy Day Fund. Before you begin investing your money into assets or toys your number one priority is to put some cash away into a 100% liquid account with the highest interest rate return possible. MMA, or money market accounts offer the best solution. In this account you need to have enough cash to cover a minimum of 3 months of expenses and liabilities. Get this account filled as quickly as possible. You shouldn’t be sleeping well at night if you don’t have this cash set aside. Once you hit the 3 month goal continue to contribute a little each month until you reach at least the one year mark. As your expenses go up in the future you need to make on going adjustments to this fund. One year may seem extreme but this cash fund is vital to your long term financial stability and success.
- Use Credit Cards like Debit Cards. Credit Cards were designed to hurt you. If used properly however they will bring you more freedom and success. Credit card debt is never, never, never acceptable. The interest rates are way to high to justify carrying any balance at all. Many people will tell you that it is necessary to carry a balance in order to build credit but that is a only myth. If you think of a credit card the same way you do a debit card you can win the game. Never charge your card unless the cash is already in the account to cover the charge. By paying off your card each month you will slowly build strong credit over time. Also if you get a good rewards card you can accumulate points and cash back rewards that will put extra in your pocket.
UPDATE: Part 2 to this article here: http://www.jacobspaulsen.com/personal-development/8-keys-to-financial-success-cont