Often times, many of us believe there’s a secret formula to making money. And by this, I mean, a way to make enough money to make us feel financially secure.
To gain insight, we may buy books on topics like financial management and investing, attend seminars, or look for ways to “get rich quick” (which, FYI, are usually schemes). But we’re all searching for the same thing. We all want to learn from those who’ve done it before. We want the advice of those individuals who’ve built up net worths large enough to spark envy. Secretly, what we desire is a cheat sheet on how to increase our wealth, overnight.
The problem with this, is every person’s life and circumstances are uniquely different; which means, what worked for one person, may not necessarily work for another. Most of the time, you’ll only hear success stories which encourage you to go out and do the same, but more often than not, these successful individuals fail to mention the mistakes, the struggles, and the downsides (Surprise!).
While there are entrepreneurs who strike gold with their ideas, average Joe’s who’ve been able to increase their wealth through wise investments, and others who are barely living paycheck to paycheck, everyone’s story is unique.
We’re not shooting down any hopes, or dreams here — just simply speaking the truth. Now, thinking rationally, may just be the ideal way to get yourself on the path to financial freedom.
Here’s how to do it and get your financial house in order:
Understand your financials.
One factor most financially sound individuals have in common is they know their numbers. They know why they’re investing and what they’re investing in, exactly.
It’s also crucial to comprehend your spending habits in order to recognize how much you can stow away for your future. If you don’t have a clear picture, it becomes a challenge to plan for large purchases, investments, unexpected expenses and even retirement. One of the reasons people feel like they can’t afford to retire is because they don’t understand their financials (or they simply don’t dedicate enough time to review them).
Once you understand your situation, you’ll be better able to make informed decisions regarding future spending, saving and investments that actually help you reach your financial goals.
Define your number.
We all have a number. It’s the amount of money we’ll need (in cold, hard cash) to live during retirement. It’s the number that’s required in reserve, so that you’ll never have to work a day in your life again (unless you want to). While most people have a figure in mind, many are completely unaware of what their number is.
If you don’t know your number, you can’t plan towards reaching it. Maybe you believe this number is so unrealistic, you’ll have to work until your time is up. Truthfully speaking, we all need to work towards our number as best as we can, because we’ll never know if an unfortunate situation or health concern will prevent us from working.
Knowing this number, gives you an idea of where you need to be, financially speaking, in your future.
Map out your goals.
As soon as you have a clear picture of your financial state and where you’d like to be, you’ll want to start planning. If you don’t know where to begin, consider the help of a paid, certified financial planner (CFP), a trusted friend (who’s made smart decisions), or relative with your best interest in mind.
Some people forgo the planning process of their financials and start making investment decisions without having clear direction. Some of us have only one motive — to make some extra money. While this isn’t necessarily a bad reason, investing without understanding your financial goals, can lead you to make the wrong investment decisions. And in some cases, those investments can tie up your money longer than you would’ve preferred.
Make your money work for you.
Once you have a financial plan in place, you can put your money to work. Yes, work. There’s no sense in saving money, only to invest it in a product that doesn’t earn any interest (really, what’s the point?).
Maximize your future by aligning your investment strategy with your time horizon. Then, consider building a diverse portfolio that includes several assets and investments that protect your savings, such as a limited partnership with Jakob Pek Fund. A combination of investments yielding interest between 4% — 8% would be ideal. Beware of investment schemes promising returns over this range, or in the double digits. Financial products that promise investors extremely attractive returns are usually highisk. Unless you’re willing to lose that money, you may want to stay away from these kinds of investments. If you sense it may be too good to be true, it probably is.
Always remember, what may have resulted for one person may not necessarily be the best move for you. Using rationale and proper planning can definitely put you on the path to the financial freedom you strongly desire.