I still remember the words of a highly successful business man that I respected in my youth. “About any financial plan will work if you follow the financial plan.” Of course, the point he was making was the difficulty was in living the plan, day-to-day, week-to-week, year-to-year, decade-to-decade. He inspired me to develop a plan and live the plan. I confess, situations in life forced my wife and I to modify the plan, but overall it has worked well for us and afforded Janet and me a life without financial stress (regardless of our income) and the retirement package we hoped for.
Essential to this plan would be that we would live below our means. Rather than spending more than we would make, we would spend less. Debt, outside of our mortgage payments, has always been viewed as a four-letter word. Several financial advisors heartily agree on this. Staying out of debt, especially credit card debt is essential. Living below our means, our very simple plan has been to distribute our money as follows. Ten percent would be given away, 10 percent would be saved, and 80 percent we would spend.
If all Americans would follow this plan, the completion of our country would change. First, if all Americans would give away 10 percent of their earnings, then churches and social service agencies would have so much money deciding how to spend that money would become the major issue.
As a society, we would be in a position to effectively help others who are struggling. Second, saving 10 percent of your earnings is essential to financial freedom. Even with the ebb and flow of the financial market, the value of saving cannot be overstated. Saving throughout the life course, from your twenties until retirement, affords the financial freedom we all desire. Where we keep our savings is important and financial advisement can be very helpful.
Third, enjoy the remaining 80 percent. You have earned it and you deserve to enjoy it. I encourage college students to never feel guilty about making good money. After all, they are making sacrifices every day to make their dreams a reality. There should be a decent payoff for these sacrifices. Of course, the more money a person makes, the more money you have to share and to save, both of which contribute to the stability our country.
In order to make financial freedom happen, there are a few rather simple rules:
— Rule No. 1: It is not how much you make, it is how much you save.
— Rule No. 2: See Rule No. 1.
— Rule No. 3: Live by a budget.
— Rule No. 4: Don’t make the five major financial mistakes: (1) Fail to understand how money works. (2) Have no financial goals. (3) Have no financial game plan. (4) Overpay for basic items such as cars and clothes. (5) Procrastinate starting your financial plan. Begin young and live by your financial plan.
Sadly, the consequences of not living by a financial plan are many. Happily, the consequences of living by a financial plan are many also.