Content of the material
- 1. Create a Budget
- 4. Start Building your Canadian Credit History
- 10. Long-term view
- 2. Don’t get complacent with your current income
- 2. Analyze and determine your net worth
- Trait 10
- 2. They make sacrifices at first
- Be Patient
- Set SMART Goals
- Trait 8
- Look at the Numbers
- Final Word
- 4. Never stop educating themselves
- 5. Track your expenses with a money management tool
- 10. Avoid personal debt
- 7. They dont assume they already know everything
- Save and invest
- Practice Determination and Discipline for Financial Success
1. Create a Budget
One of the simplest and most effective things you can do to get control of your finances is to know where your money goes. Understanding how and where you spend can be a powerful insight, and it can help you create realistic savings goals. The Consumer Financial Protection Bureau (CFPB) offers a free Income Tracker, Spending Tracker, Bill Calendar, and Budget Worksheet to help you get started.
4. Start Building your Canadian Credit History
- Secure credit products to help you demonstrate your responsibility as a customer. You can do this by applying for a credit card. It is important to use this wisely and not build up debt at high interest rates (credit cards generally charge more than 19% in interest). Other credit products that will help you gain a credit rating include getting a phone that you pay monthly or registering utilities in your name.
- Make sure to pay all your bills on time. This will also help you avoid high interest costs.
- Keep your account balances below 35% of your available credit. This helps lenders see that you can handle credit and according to TransUnion, also helps you build your credit score.
10. Long-term view
No matter how you view the meaning of financial success, it is essential that your definition includes longevity. If all you plan for is today, you will not get results that last.
Compound interest is a concept that can help build wealth over time. By applying compound interest, interest gets calculated on the previous interest in addition to the principal. The more your account grows, the more potential it will have for further growth.
The impact of compound interest increases with accounts that have higher compounding rates. These accounts add the previous interest to the principal more often, so they grow faster. Since things like money market accounts, CDs and savings accounts may have different compounding rates, being aware of these subtle distinctions can help you build a portfolio with more profitable returns.
2. Don’t get complacent with your current income
Most financial planning accounts for a steady increase in income over time. This can come in several forms, such as incremental raises for longevity and/or performance, income adjustments to match inflation, promotions within your company, and/or income increases that come with moving to a different employer.
Over the course of your working life, you should seek out opportunities to increase your income when possible. Ask for raises if you think you deserve them, negotiate higher earnings when taking a new job, and be on the lookout for new career opportunities that raise your income and allow you to save more.
2. Analyze and determine your net worth
How long will it be before you achieve your goals? It is not always easy to tell. Put things into unambiguous terms by determining your net worth, or the difference between your assets and liabilities. Stop weighing your financial success definition on the scales of society-at-large. Realize that each investor is unique, and that each investment plan needs to be individualized.
The Law of Sowing and Reaping
The farmer knows that if he works hard planting the field and then waits patiently that the harvest will come. Successful people have learned from the farmer. They understand that success takes time and hard work.
You study so that you can get good grades that allow you to enter a good career, college, or training program. You spend time in that program so that you can get a better job. These actions, hopefully, put you in a position that allows you to earn more money. These habits begin when you are a child. Hard work and patience is the key. A financially successful man told me once that he became successful by working half days; his average workday was twelve hours. I am not encouraging you to become a workaholic, but sometimes it takes more than eight hours a day of effort to get to where you want to be.
2. They make sacrifices at first
The financially successful will accept a reduction in income, drive a cheap used car, and downsize their house when they’re first starting out. They then take the money they save and invest it or re-invest it in something that will make them more money down the road. Sometimes, wealthy people choose to live frugally their whole lives. Warren Buffett is known for driving his car until it looks so disreputable that his employees pressure him into buying a new one.
Bad things happen to good people. Despite the best plans, setbacks happen. Jobs are lost, investments fail, tragedy strikes in ways big and small. Be patient. Don't let the small, temporary setbacks distract you from your long-term goals.
Set SMART Goals
So how are you going to build some financial confidence? First up, set a budget, monitor your money regularly to see where it’s going, and once you’ve got a grip on that, start setting some financial goals. The goal with this is to give you what’s known as “self-efficacy,” a psychological term for your gaining confidence in your ability to handle challenging situations. Part of self-efficacy is internal, and part of it is external. For instance, if you want to lose weight and you refocus your social life around physical activities and healthier food and start going to nutrition talks, you’re placing yourself in contexts that support your goal—walks and hikes, education with like-minded healthy folk, and so forth. Sipping black coffee solo at the doughnut shop and mourning crullers? Not so helpful.
With respect to goal setting, consider the acronym “SMART” which stands for Specific, Measurable, Achievable, Relevant, and Time-bound. The “SMART” concept is credited to ideas espoused by Peter Drucker, the management consultant, and surfaces in conversations about everything from professional strategic planning to health and fitness plans. The SMART approach lets you create a controlled experiment with a high likelihood of success, and helps you create a realistic framework for achieving your goals. When you’ve seen yourself succeed at a financial goal, you’ll feel empowered to set another, and another, and another.
What’s an example of a realistic goal? Consider a specific goal (paying off a $2000 credit card balance or your student loans) that is measurable (you can watch the balance decline), achievable (you can afford to pay an extra $150 a month above the minimum payment, and having this funding isn’t contingent on, say, hit-or-miss commissions at work or an unpredictable Airbnb clientele), relevant (you’ll eliminate the debt), and time-bound (you have a timeframe in which you plan to achieve the goal—say, 10-12 months.) Once you’ve seen yourself hit this goal, you can set another—or a bigger one, as long as you consider realistic steps to achieve it.
Once you’ve seen yourself hit this goal, you can set another—or a bigger one, as long as you consider realistic steps to achieve it.
Read More: How to Pay Off Debt
Find a Good Life Partner
Divorce is expensive. If you keep dividing your assets in half, it takes longer to create wealth. Be selective on who you decide to spend your life with, but, once you have made the decision, strive to be the best spouse you can. Do not neglect your family on your success journey. Many successful people regret not spending more time with their children while they were growing up. Plan activities and vacations; be involved in your family’s life.
Look at the Numbers
The statistics are a little scary. Of 100 people who reach retirement age, according to insurance industry statistics, only one will be wealthy. Four out of the hundred will be financially independent; fifteen will have some savings put aside. And the other 80 will be dependent on pensions, still working or broke – this after a lifetime of well-paid work in the most affluent society in human history. Now why does this happen?
Whether you’re a new investor just starting on the road to financial security, or a middle-aged investor looking at your upcoming retirement, these are the keys that can help you put yourself in a comfortable financial situation. Remember that achieving financial security often takes the greater portion of one’s life, and there are few shortcuts. If you’ve made good choices and have avoided most of life’s financial disasters, you will spend the rest of your life living on the fruits of your investments, possibly leaving an estate for your children.
What other tips can you suggest that can help lead to financial success?
Financial freedom can help you take ownership of your finances and, more importantly, your life. It’s about living within your means, being a bit frugal, and making sure that money is spent on things you really need like food, shelter, and yup even vacations (relaxation is important too, you know). By following the financial freedom tips in this article, you’ll inch closer to achieving the financial freedom you deserve. So take a look at those finances, build additional streams of income, pay down that debt, and before you know it you’ll be free.
How close are you to achieving financial freedom? Let us know in the comments below!
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4. Never stop educating themselves
Walk into the house of the financially successful and you’ll perhaps find the latest issue of Money magazine, Entrepreneur and some financial staples, such as Dave Ramsey’s “Total Money Makeover,” anchoring down their book library.
That’s not to say that they spend all their time reading, rather they stay informed on the latest tips and ideas and seek to be inspired by others in the financial and business industries.
Even the most financially successful know that there is plenty to be learned from others and life’s journey always demands new strategies and ideas.
5. Track your expenses with a money management tool
Do you know how much you’re spending on restaurants, concert tickets, that morning coffee? Paying attention to your spending habits is essential to building up your savings and staying on track to reach your financial goals.
Use a money management tool to automatically track expenses, categorize your monthly spending, and inform your decisions when setting and sticking to a spending budget. Better awareness of your spending will ultimately lead to better spending decisions.
10. Avoid personal debt
Debt is the number one thing that robs people from time and freedom. Why? It requires time to work to generate income and make the payments. Sometimes that requires overtime work!
Brearin Land, financial adviser and CEO of Irvine Wealth Management adds, “Being weighed down by debt puts a damper on a families ability to meet their retirement goals down the road. Don’t pass the buck to yourself. Staying out of debt allows you to buy life’s most important asset when you need it most — time.”
Without debt, you have a lot more flexibility and most importantly, get back the time to invest in wealth building activities such as starting a business or in creating products and services to sell. The financially successful know that personal debt is a hindrance and they do everything they can to avoid it.
7. They dont assume they already know everything
86% of wealthy people love to read and believe in lifelong education. 88% of them read educational or work-related material for 30 minutes or more each day. 63% listen to audio books as they commute to and from work.⌄ Scroll down to continue reading article ⌄ ⌄ Scroll down to continue reading article ⌄
Save and invest
Saving for emergencies and for your retirement is vital. Yet it may seem overwhelming, especially if you have large bills and are living paycheck to paycheck.
So, try to build it into your budget.
"We tend to be creatures of habit," Sprung said.
"It's really just getting into the habit and the mindset of paying yourself first," he added. "It's amazing how you can then rectify the rest of your budget around what's leftover."
Certified financial planner Liz Frazier Peck, author of "Beyond Piggy Banks and Lemonade Stands: How to Teach Young Kids About Finance," advises starting with your emergency fund first, so that you don't go into debt if something happens, like a large car repair bill.
When it comes to investing for your retirement, it's important to be consistent, she said. If your company offers a 401(k), start contributing. If not, open a traditional IRA or Roth IRA. Then automate your contributions.
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Most importantly, if you have a 401(k), check with your employer to see if it provides matching contributions. Try to max out your contribution to what your employer matches. If not, you are leaving free money on the table.
"Do what you can. Just start," Peck said.
"If you put these limits on you that, 'Well I have to be able to do 6% or 10%', you might not get started," she added. "If you can do 1% right now, if you can do $20, that's something."
Remember, the earlier you start, the better off you will be thanks to compound interest, or earning interest on your interest.
For example, to get to $1 million in your retirement account, you'll have to sock away $319 a month if you are 20-years old, according to NerdWallet. The calculation assumes you have no money in savings, get 6% annual returns on your investment and retire at age 67. If you start at age 30, you'll have to set aside $613 a month to reach that goal. At age 40, it jumps to $1240 and at age 50, you'll have to save $2831 monthly.
Practice Determination and Discipline for Financial Success
The third D is determination, which is to keep at it until you succeed in spite of all the problems and obstacles you will experience. And the fourth D is discipline – the discipline to master yourself to develop the habits necessary for achieving financial independence. Those are the four Ds. Desire, Decision, Determination and Discipline. And you can measure how successful you’re going to be in the future by measuring how well you’re doing in each of those on a scale of one to ten.