There are few things as important to your long-term financial success as your ability to take control of your finances.
But what does it mean to “take control of your finances?” It means having a purpose and a strategy for how you spend money. Most of us tend to “go with the flow.” While this philosophy can help you remain sane in bad traffic, it can be a disastrous philosophy for our finances.
If you’re like most people, you work hard for your money and will probably work hard for 20, 30, or 40 years. Without a sound financial strategy, years can pass and you won’t have anything to show for your hard work. This doesn’t have to be your fate. You have a choice about whether you want to “get by” or thrive.
How much do you save each month? Are you on track to reach your goals?
Knowing what you want and setting goals is half the battle; taking control of your finances is the other half. If you aren’t in control of them, they are in control of you. These next few lessons will help you get in the driver’s seat and get closer to reaching your goals.
Taking control of your net worth and cash-flow will help you measure and improve your financial health. Ultimately, it will help you obtain what you want to own, what you want to accomplish, and who you want to be. In addition to helping you reach your goals, taking control of your net worth and cash flow has several other real benefits:
- It enables you to reach your goals much faster. Many of your goals have price tags. Taking control of your finances means you will reach your goals faster because you will be able to save more.
- It enables you to reach the goals that are most important to you. Not all goals are created equal. In a perfect world you’d be able to reach all of your goals when you wanted to reach them, but for most of us, we must prioritize our goals. Often the goals that are most important—like a successful retirement or paying for your children’s college education—are the ones that occur farther in the future. If we are always trying to reach our more immediate, but less important goals, we may never have the resources to accomplish those more important goals.
- You worry less. Anyone who has taken an important test and waited days or weeks for the results can appreciate this benefit. Worry comes from not knowing. Did I pass? Did I fail? Once you find out how you did, the worry disappears—even if you failed it is better to know. Once you understand your net worth and cash-flow, you’ll have a lot fewer sleepless nights because you’ll know where you stand and you’ll have a plan for improvement.
- You can take advantage of opportunities. If you have no idea how well you’re doing, you won’t be able to act quickly to take advantage of opportunities that come your way.
- You can set realistic expectations. Everyone wants it all, and they want it now. There’s nothing wrong with wanting to reach your goals, but once you have control over your finances, you will be able to better manage your expectations.
- It helps you keep score. When it comes your finances, you’re either getting ahead, going nowhere, or falling behind. Taking control of your net worth and cash-flow allows you to determine how well you are doing. If you discover you’re falling behind, you can take the necessary steps to improve your situation.
- It gives you a greater feeling of control. Have you ever had to give a speech? There is an amazing difference between how you feel when you are prepared for the speech and when you are making it up on the spot. If you know little about the topic and you haven’t rehearsed, public speaking is one of the most painful and nerve-wracking feelings in the world. You just want it to end! If you’re prepared, you stand taller. You are in control. It’s a much better feeling. Taking control of your finances gives you knowledge and puts you in control.
Taking control of your finances means measuring, managing, and monitoring two very important issues:
1.) Net worth. Your net worth is a measure of your overall financial health. Measuring your net worth is like getting a check-up to determine your physical health. Your net worth compares what you own to what you owe. If you own more than you owe, you have a positive net worth and are financially “healthy.” If you owe more than you own, you have a negative net worth and are “un-healthy.” You will learn how to measure your net worth and monitor it over time.
2.) Cash-flow. If net worth is a measure of your overall financial health, your cash-flow is the daily exercise and nutrition that determines your financial health. While your net worth tells you how financially healthy you are currently, it doesn’t measure the health of your lifestyle. Cash-flow is composed of the day-to-day actions and decisions that determine your net worth and long-term financial health. You will quickly and easily learn how to take control of your cash-flow so it reflects your goals and improves your net worth.
We’ll review how to take control of your net worth and cash-flow over the course of the next few lessons. Stay tuned!
The proceeding blog post is an excerpt from The Six-Day Financial Makeover: Transform Your Financial Life in Less Than a Week!, available now on Amazon.
About the Independent Financial Advisor
Robert Pagliarini, PhD, CFP®, EA has helped clients across the United States manage, grow, and preserve their wealth for the past 25 years. His goal is to provide comprehensive financial, investment, and tax advice in a way that was honest and ethical. In addition, he is a CFP® Board Ambassador, one of only 50 in the country, and a real fiduciary. In his spare time, he writes personal finance books, finance articles for Forbes and develops email and video financial courses to help educate others. With decades of experience as a financial advisor, the media often calls on him for his expertise. Contact Robert today to learn more about his financial planning services.