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Financial success has little to do with money, stocks, bonds, asset allocation and retirement plans. Sure those matter, but let’s not confuse financial tools with the fundamentals. The foundation is based on preparation, planning and the relationship that money has with other aspects of your life.
Five Financial Fundamentals
Set financial goals. What do you want your financial situation to look like in 5, 10, 25 or 50 years? Create action plans to achieve your goals. If you want to save $1 million in 50 years, calculate how much you need to put away each month ($140 at 8% return).
Communicate. Get your family on board. If one of you is spending as fast as the other is saving, your net progress is zero. To achieve your financial goals, you must work together. You can take different paths, but they must be headed in the same direction.
Commitment and motivation. Make sure you know why you want to do something. You’re more likely to achieve your goals if they are personal. Take baby steps to keep yourself going and reward yourself frequently.
Plan for the unexpected. We all know that a great financial road map or budget is often derailed with an unexpected expense. Incorporate the unexpected expenses into your plan. You won’t know when they will happen, but it is inevitable that they will.
Don’t delay happiness. Too often, we tell ourselves, I’ll be happy as soon as I pay off this debt… retire… earn more money… Setting goals is great, but there is no reason you can’t enjoy the road to get there too.
The same things that determine success in many other aspects of your life also apply to your financial success. Once your strategy and commitment are in place, you can use financial tools, such as investing and asset allocation, to achieve your success.
See how we’ve built our finances around these fundamentals.
This article is featured in: Carnival of Personal Finance #144.