It is important to understand the basics of money if you wish to gain financial freedom.
Unfortunately, this isn’t taught in schools. Most parents don’t understand finance well enough to teach kids. And so the cycle of poor money habits continues.
The good news is that getting financial freedom truly is simple. I didn’t say easy.
We all know physical fitness has a couple basics…eat right and exercise. Simple, but not always easy.
The basic rules for money accumulation are as follows:
- Earn it.
- Save it.
- Grow it.
Told you they were simple steps. Follow these and you’ll find financial freedom.
Earn it.
Obviously we can’t have financial freedom without any finances. First step in getting some money is earning it. The more you earn, the faster you can reach financial freedom.
We live in a time when there are thousands of ways to earn money. Here are a few… a traditional job, freelance graphic design, your own photography business, selling stuff on ebay, mowing lawns or doing chores for your parents.
Save it.
It’s not enough to earn lots of money. Many people earn millions of dollars and still don’t have financial freedom. The problem is they spend more than they earn.
The second part of the formula is to save the money you earned. At least some of it. 10% is a number that is often used as a baseline that you should save out of your earnings. The more you save, the faster you can reach financial freedom.
I can hear you saying you can’t possibly save 10% of your paycheck. I hear you saying your bills are already more than you make. I didn’t say it’d be easy. I’m only telling you what the formula is.
You can try another formula…winning the lottery, finding a rich uncle or marrying into money. I wouldn’t count on those methods though.
The hard truth about the simple formula is that you only have a couple options…earn more and/or spend less. Earn more by finding additional clients, picking up a second job, getting into direct marketing, negotiating a raise at your job or any number of moonlighting options. AND/OR spend less by clipping coupons, canceling cable tv or eating out less so you can begin saving at least a couple percent each month.
This sounds more dramatic and difficult than it actually is. Try it for a couple months and see if you don’t feel more confident…on your way to financial freedom!
Grow it.
Okay, this is where it gets fun. Earning and saving can be tough work. As you learn to grow your money though you’ll be excited at how your money can multiply.
The way to grow your money is to invest it. Carefully!
Take your time and really learn the areas you choose to invest in. Each possibility has unique opportunities as well as potential pitfalls. Look at your personality and timeframe to see whether investing in stocks, bonds, real estate, a friend’s business or your own business make sense for safely growing your money.
Remember: Warren Buffett, one of the richest people in the world, has two rules regarding investing:
- Never lose money.
- Refer to rule number 1.
Seriously, you worked hard to earn that money. Treat it right. Don’t be careless in your investing choices. I have literally spent hundreds thousands of hard earned dollars to learn (and keep learning) that lesson. I’ll share some of those sad stories in future blogposts.
The cool thing about this little formula is that it consistently works for both personal finance and business.
Leave a comment below to let me know how you apply this simple formula to your personal finances or business.