And The Single Greatest Tool For Increasing Your Financial Security Is . . .
Dave Ramsey has a saying. Actually, he has a lot of sayings. Today I’ll just focus on the one that goes a little something like this: “your income is your single greatest tool for increasing your personal wealth,” or “Ed MacMahon is not coming!” Or something like that. You can substitute in “increasing your financial security,” or “increasing your sense of financial well-being,” or whatever you like. The point is: people almost never maximize the potential for financial security that their income presents. Let’s see if I can explain this better.
When you are in financial distress, it is natural to hope for some kind of windfall or miracle to help you out of the situation. Some people hope to win the lottery, and others hope to inherit money from a wealthy relative. Some think that selling Amway (or whatever the latest multi-level marketing trend is these days) is the key to financial freedom, and others might just click on that annoying “get rick like me” ad that shows up on their statcounter page. Some of these schemes are more realistic than others, but they all are centered around the idea that somebody or something is going to rescue you from your problems. And the fact is, that rarely happens. And even when it does, if you have not figured out how to maximize the wealth-building potential for these kinds of windfalls, you blow through them in a matter of months.
The fact is that most wealthy people get that way by earning their money. And that is how they manage to stay wealthy. Sure, there are the Paris Hiltons of the world, who are born into wealth, but even she managed to turn her somewhat inexplicable and confusing brush with fame into a multi-million dollar industry involving the sale of perfume, clothing, books, jewelry, and hair extensions (yes, hair extensions). That’s right, say what you want about the rich getting richer, but even Paris Hilton didn’t just sit around and count on the fortune she was born with to support her–she’s made tons of money on top of that in a matter of a few years!
Income From Work
Most of us don’t have the kinds of (absurd) opportunities that Paris Hilton has, of course. But most of us still do have an income, and we can work with what we have to get closer to financial security. Becoming financially healthy requires time, discipline, and consistency. The first step toward this is to focus on generating a good income through your job, rather than worrying about investments which may (or more likely may not) have a high return. Your income is the only source of money that isn’t contingent upon other concerns to come in: it is there every time provided you go to work. It is the only thing you know absolutely for sure you have to work with to build your financial security, so you need to learn how to maximize its potential.
Once you have a good income coming in, you need to use a budget that ensures you know exactly where your money is going–you should always be striving to live significantly below your earnings in order to save. By using the zero-based budget religiously, whether or not you are in debt, you can ensure that every dollar has a purpose. Some people think that budgets are for people who have financial problems, but they are really for anyone and everyone who wants to have financial security and hang onto it. If you think even wealthy people can afford to operate without a budget it this day and age, you’re wrong–look at all the people who invested with Bernie Madoff and lost their fortunes. Making money is just part of the equation–the hardest part is keeping it once you’ve got it.
Stay Away From Debt
The less you use debt in your life, the more financial security you will have. Most wealthy people do not take out car loans, because they know they will lose money on that deal. Debt is risky and more expensive, so wherever possible, pay with cash and remain debt free. If you are paying off debt, strive to get out of debt as quickly as possible and never get back in. Every dollar you pay back to a credit card company has a guaranteed return: in the current market, you’d be lucky to get 5% for your money, whereas when you pay a credit card back, you are getting probably over 10% on your money, depending upon what your current APR is.
Save and Invest Excess.
These days, the rules about investing are the same as they have always been. You have to diversify your investments and only invest in things that you understand. When you leave the investment decisions to somebody else, you are putting your fate in their hands–again, just ask all of those people who used to be rich before they met Bernie Madoff!
There is no glamorous way to achieve financial security. It is all about forgoing things in the present to achieve long term gain. But it’s easier than you thought and probably won’t take as long as you think. There’s no time like the present!