Our mission is to help you reach contentment.
We believe if you don’t have clarity about what you’re doing and you aren’t confident in why you’re doing it, then you likely won’t be content with where you are. With contentment, comes a life-altering peace of mind.
Let’s take a few moments to discuss what we believe are the four most important planning principles. These four simple steps will provide you with a sturdy financial foundation. Implementing and adhering to these will keep you on the right path financially, but it will take some work.
The first and hardest is the principle of spending less than you earn.
Yep, we know it’s tough. And, it likely means changing a lot of your habits. But, let’s break it down. What does it really mean?
Spending less than you earn means this: Start with your after-tax income. You know… the amount that hits your bank. Just for reference, that’s not the same number as your annual salary. It’s the number that hits your bank account after all the taxes, healthcare, 401k contributions, IRA contributions, etc.
What is this number? Write it down.
How much do you spend each month? Write it down.
Don’t know how much you spend? We need to figure it out. Start tracking it… religiously. And, go download your financial transactions and tally it up. For starters, take all your fixed expenses. Those things we believe are required to live. Mortgage, food, gas, cell phones, utilities, internet, etc. Take all these core expenses that happen every month regardless. Sum these and subtract them from the paycheck number that hits your bank.
Total monthly deposited income – total monthly spending = Spend less than you earn
Step Two – avoid the use of debt.
All debt is not bad. But, in general, the misuse of debt is absolutely a bad thing. As it mentions in the Bible, we believe in the principle of not being a slave to the lender. Proper use of debt is when it’s tied to assets or things with long-run appreciating value. Reasonable amounts of debt associated with buying a house, getting an education, or funding a valid business are examples of using debt to your advantage.
So, why is debt tied to most other areas bad? Because it’s tied to things that don’t appreciate. You pay a compounding rate of interest on something that loses value as the days go by. Essentially, you are paying twice for an item you’ll barely use once! How many people do you know that are still paying interest on that boat that’s in the yard and hasn’t been on the water in two years?
Removing bad debt helps keep you from wasting money buying things with little to no value, to impress people you likely won’t remember in 10 years. Save yourself the hassle, build for your future. Don’t destroy it with costly impulse decisions that don’t provide long-run value to your goals.
Step Three – build liquidity.
Cash reserves, keep you out of trouble. Once you know your monthly spend rate compared to your income, find those extra dollars. Find the areas of waste, cut them out and divert those dollars to a savings account. Single income earners should have at least six months of fixed expenses in a savings account. Dual income earners should have at least 3-4 months.
The power behind this is that it provides flexibility and security. Whether you lose your job, have an accident or some other need; there is a backup plan. A safety net when you need someplace to turn.
Finally… Step Four – set long-term goals.
The power of goals is that they provide direction and purpose. They are statements… for your life. Goals help you crystallize your thinking and provide personal motivation.
For goals to be impactful… to really work, you need to pick a few areas and set simple goals. Don’t go nuts. For your sake, let’s pick your finances. Set goals centered around how much you need and where you want to get to. Remember, make them simple.
Goals are powerful, but you have to write them down and you have to keep them in front of mind. All of a sudden your goals become real and attainable. Over time, you have the means to look back and see that you hit most things you set out to achieve.
It doesn’t matter if you make $30 thousand or $30 million, we’ve found that most people struggle with at least one or two of these areas. Making sure you are achieving all four steps and they will lead you toward becoming financially free.
Ready to see how you stack up? Get started today, by better understanding your risk tolerance level and how that fits with the investments you currently hold.
Chip Brackley is the Director of Atlanta for Archetype Wealth Partners. Chip is passionate about helping families experience greater clarity, confidence and contentment by connecting their wealth with their purpose. Archetype exists to help families thrive across generations.
Disclaimer: Our intent in providing this material is purely for informational purposes, as of the date hereof, and may be subject to change without notice. This article does not intend to constitute accounting, legal, tax, or other professional advice. Visitors and readers should not act upon the content or information found here without first seeking appropriate advice from a trusted accountant, financial planner, lawyer or other professional.