Middle Class Money
Something is clearly not working for most of middle class America regarding money. From my experience working with people, here are the 10 most important changes the middle class must make to its money mindset:
1) There is No Shortage of Money
The reality is money is plentiful, and even when there are shortages, we print more. The very wealthy think in abundance. Change your mindset to think in terms of money being abundant and plentiful. This isn't some esoteric new age concept, but reality.
2) Track EVERY Expenditure
Make a list of all your spending and don't use cash. Either put everything on a credit card or write a check so you have a complete record of every expenditure. If you are going to give a homeless person money, write a check so you can have a record.
Take the last 60 days and rate all your spending on a scale from 1-5, 5 being most important. Anything not rated a 3 or higher should be stopped immediately.
4) A Budget Vs A Financial Plan
People spend most of their time budgeting the money they have rather than concentrating on a plan to create finances. I spend 90% of my time looking at ways to create income and how to invest and grow money and only 10% of my time on how I am spending it. A budget suggests what I am "allowed" to spend each month and a financial plan is a road map to creating wealth.
5) Not All Debt is Bad Debt
Not all debt is created equal. Some debt is good, contrary to what financial pundits like Dave Ramsey and Suze Orman suggest. Debt that is paid off by others or debt that actually generates income is good debt; assume all other debt to be bad. Solution: get rid of ALL debt that can not be funded by others.
6) Have Emergency Accounts
As recent economic events have shown us, the unexpected can happen. In order to bullet-proof yourself against these types of catastrophes, you should set up emergency accounts that are never touched except in urgent situations. Also your goal should be emergency reserves of at least 12 months of your income, not the popular 3 months and I would prefer 30 months.
7) Paying Yourself First
Pay yourself first. You are taught not to be self-centered but when it comes to money, be self centered -- pay yourself first and bill collectors next. This seems impossible when you first start, but it works like magic once you commit and you will actually see yourself cutting unnecessary expenses and creating more income to meet your REAL requirements.
8) Future Investment Accounts
Set up three investment accounts beyond emergency reserves that you start funding every month for future investments. I started doing this when I was 25 years old and didn't invest in anything until I was 30. I had a Real Estate Investment account but no Real Estate; a Business Account but no business and a Stock Investment account but no stock portfolio. When it was time to do these things I had the money set aside to do so.
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