How the Average Person Can Get Ahead During a Recession: Part One

This may sound too good to be true, but in fact, becoming debt free…. with substantial cash savings is not only possible; it’s inevitable… IF you stick to the plan I am about to reveal.

First, if you are already completely satisfied with your financial situation, then stop reading. This letter is not for you. On the other hand, if you would like to improve your current economic outlook then read on!

Imagine… plotting your course through life absolutely free of worry over finances. What if you could become debt free even in the worst economic times? How would you feel having excess money left over each month after all the bills are paid?

Keep reading, because I am about to let you in on a secret.

First, let me just say that more money is not the answer. I am aware that it seems logical that it would be, but just take a moment to think about yourself or a friend making more money now than in the past. What happened? Expenses increased right along with income, didn’t they?

I can remember, making $6 per hour and dreaming that I’d be set if I could only make $10 hour. Well in time I got a job making $11 per hour. Almost instantaneously my life was upgraded. This caused my expenses to go up; as a result I started dreaming again…. This time it was for $15 per hour. By the time my pay grade was $22 per hour I had amassed $50,000 in consumer debt! With every financial step I made forward I was getting myself farther and farther away from financial freedom.

Oh… by the way, I was not alone. My co-workers and friends were saying the same thing about making more money, often talking enviously of people who made more; altogether not realizing that more money is usually accompanied by a larger mortgage, bigger car payment and more overall debt to go along with the fat salary.

But, it doesn’t have to be that way! Once you understand what true wealth is, opposed to the illusion of wealth, you can start using the strategies I’m about to discuss to begin to clean up your financial situation just like I did. Today, my wife and I are free of our consumer debt, have savings, and are preparing for the arrival of our fifth child. We are just ordinary people who learned some valuable lessons about money and acted on them. Now I want to share this knowledge because I know, if we did it, anyone can do it. 

That being said I really do hope with all my heart that you take this information seriously and act. Only then will you reap the benefits you’re looking for.

Okay…. With no further adieu, let’s get started.  Just to recap what I’ve already said earlier, more money is not the answer. What I mean is, money won’t solve your financial problems by itself. Many people win the lottery only to end up bankrupt. You can easily verify this fact by entering the words “bankrupt lottery winners” into your favorite Internet search engine and see all the news stories that pop up!

So, if money in and of itself is not the answer, then what is? The answer is Financial Education, and sadly our public schools and universities in this country DO NOT teach it.

Laying Down A Foundation

The first step to wealth building is to understand what wealth is and what it is not. Wealth IS NOT a big fancy house, luxury car, expensive jewelry, or fine dining. Those things are illusions of wealth. Keeping up with the Jones’s will prevent the accumulation of wealth and never provide the economic security that real wealth provides.

So then… is $1,000,000 wealth? (Remember the bankrupt lottery winners.) How about a six-figure salary, is that wealth? What is wealth and how is it measured?

Real Wealth is the length of time a person can maintain their current lifestyle if they stopped working. It’s that simple. The longer one could go on spending at their normal rate without having to do any more “work”, the wealthier they are.

Understanding wealth is the key to achieving it. Now that you know what wealth is, the two ways to increase yours are to reduce expenses and increase passive income. This is a long-term life-changing plan. There are no shortcuts. The first step in creating wealth is to start keeping score for yourself of your individual financial game.

It’s Not How Much Money You Make

It’s How Much You Keep!

You must come up with your own Personal Income Statement. That is, a written budget that includes both income (money coming in) and expenses (money going out). Once it’s down on paper in black and white, it can be used to solve your monthly cash flow by subtracting your expenses from your income. In doing this you will be running your monthly finances like a business. This is a must, because if you don’t take care of your own business, you will be inadvertently taking care of someone else’s such as banks and lending institutions!

Ok, keep track of income and expenses… sounds pretty simple so far, right? The hard part is figuring out what all your actual expenses are. This will take a little time at first, but once it’s done you can use the same expense budget month in and month out with very little deviation.

Some of your expenses will already be determined and others you will have to plan. For example, your mortgage payment is an established number, but your grocery and clothing budget are amounts you have to plan based on your needs. Pocket money is totally up to you. Decide on an amount and right it down.

If a budgeted item on your statement needs to be adjusted, then adjust it. The point is to learn how much you spend on everything.

Create your statement on paper or spreadsheet. The important thing is that you do it. Take some time to do this first step to financial independence.

This is a turning point in your life! By keeping an Income Statement you are no longer a slave to your job and paycheck. You know where every dollar goes because you’ve assigned your money different tasks. Some dollars task are to provide shelter, some dollars task are to provide food, gas and clothing, etc, etc. You are the boss and your money works for you. Each dollar is told where to go, and you now look forward to never again being left with more monthly bills after all the monthly pay is gone.

A Word About Money

Money can be a cruel taskmaster. If allowed it will dictate to the earner where and when it goes with little say by the one who toiled for it. In other words, the money is spent before the check is even cashed.

On the flip side, you have the choice to be the master over money, directing its flow at your command using it as a tool to accomplish a desired result. The principles of money are constant and either work for you, or work for someone else like a bank, the credit card companies, or the government. Decide right now. When it comes to money… Which will you be: slave of, or master over your hard earned cash?

Furthermore, the concepts I’m writing about wealth and money are nothing new. Rich people know how money works and they use it to their advantage. I told you before, many lottery winners end up bankrupt because they don’t have financial education, while people who became wealthy over time teach their children financial principles to ensure generations of wealth accumulation.

So… getting back to our income statement: Income – Expenses = CASH FLOW

The goal is to have positive cash flow! If your cash flow is positive, great, you’re ready for the next step.

If your cash flow is negative, it’s time to roll up your sleeves and get this handled. I said this plan was simple, but I didn’t say it was easy. However, you can do this! Remember…. It’s not how much you make, but how much you keep! Sometimes drastic measures are the only way to gain control of your financial destiny. The solution could be as simple as eliminating dining out and bagging your lunch, or something more drastic like selling a newer car in exchange for a late model with no payments. Sometimes a second job is the answer. The point is…. decide today how bad you want to be financially free and do something about it.

Murphy’s Law

Now that you have a little positive cash flow at the end of the month, use it to save up $1000 of available cash for emergencies. When I say available I mean accessible. A six-month CD will not do because you need to be able to access this money during an emergency. Put it somewhere you can get to it. And please, DO NOT skip over this step. Emergencies will happen! It’s not a matter of if; it’s a matter of when. Later on you will increase your emergency fund, but for now put aside your positive cash flow each month until you have $1000.

This money will save you from being forced to resort to credit cards for emergencies like car repairs, major appliance repairs or replacement, heater service, etc. Emergencies are NOT sales or new toys. Remember… master your money! Designate this $1000 for emergencies only.

And oh yeah… if you’re using credit cards now… STOP!!! Spending future earnings + interest is sound financial planning for the credit card company but a poor financial strategy for you.

What About Current Credit Card Balances?

There are several more steps to this plan, including the elimination of credit card debt. And I will carry on this teaching in future letters. In the meantime, continue refining your monthly budget/Income Statement to increase your Positive Cash Flow. This is done by reducing expenses and/or adding income. Then, put that money towards your $1000 emergency fund.

Now that you’re taking the required action to improve your family’s present financial well being, consider another financial strategy that the Financially Educated employ.

Reassigning Risk

Life insurance is affordable and protects your family’s ability to continue to pay the bills in the event of your death. Right now they depend on your ability to earn a living. What would happen if that were taken away from them? Remember, wealth is measured in terms of being able to continue the same standard of living without needing to work. When a person is dead, they’re definitely not working anymore!

People use life insurance to guarantee that they would still be providers, even from the grave. Their family would still have positive cash flow and not have to give up any of the important things like the house, a child’s education, or a number of other things we work so hard for yet sometimes take for granted.

Another scenario that can keep a person from working is an accident or illness. Disability and critical illness insurance protect by providing income should you be unable to work due to a temporary or permanent disability, or a critical illness.

Both strategies are solid financial solutions and good common sense. The financially intelligent use insurance as part of their financial planning because for pennies on the dollar they’re able to transfer huge amounts of risk from their families to a government backed insurance company.

Insurance is also a tremendous tool for reducing your tax burden especially when you have worked through the financial strategies I’m sharing and are really starting to accumulate some serious wealth.

In the future I’ll be addressing issues like debt elimination, investments, children’s financial future, passive income, and many other important topics you won’t want to miss. In the meantime, work on your financial education. You have it in your power to change the course of your financial destiny. And also… teach this stuff to your young ones. If you don’t, who will?

To be continued…