Wealth. Financial, that is. Everyone says they want it, yet very few seem to have it. That is proven by the fact that 78% of our fellow Americans are living paycheck-to-paycheck. And that includes the kid flipping burgers at the local eatery all the way through to the local cop, nurse, secretary AND trader pulling down 7 figures on Wall Street. Because it’s not about how much money you make on the journey to building wealth, it’s about how much you keep in addition to the habits you cultivate along the way.
Most people like to daydream about having wealth. They play the lottery and talk about what they would do IF they hit it big. They fantasize about what they would do IF they could start this business or invent that product. The problem is “IF” is just a wish without a plan and action attached to it. It’s the same as with physical fitness. If you want to have a killer body, you need to begin with a good fitness routine. So too, if you want to have a killer bank account, you have to have a good financial routine. The problem is, very few are willing to put in the long-term effort it takes to walk the path of wealth. Folks, it’s a marathon, not a sprint. And that marathon has 5 clearly defined stages that you need to be aware of and prepared for if you intend to finish the race to wealth. This article will identify those stages, explain what they look like in practical terms and help you see what you can expect along the way.
STAGE 1- FINANCIAL INSTABILITY
This is where most people find themselves and this is what it looks like:
- You are living paycheck-to-paycheck
- You are borrowing from Peter to pay Paul
- You have no savings
- The smallest unexpected expense becomes a major financial obstacle to you
- You are constantly late and stressed out over monthly bills
- There is always too much month left at the end of your money and you can’t figure out where your money is going
If any of this sounds like you, then you are in this first stage. You have no control over your finances and it’s no fun. I’ve been there and it can be scary as heck. But as painful and scary as it is, it’s just not scary enough or painful enough to make some people get off their butts and get out of this mess. It has become more comfortable for them to stay here and do nothing than to get uncomfortable and take action to change their situation. The great motivational speaker Les Brown once said, “People will never change until they get sick and tired of being sick and tired.” And you too will wallow in this miserable state unless and until you get sick and tired of being sick and tired.
STAGE 2- FINANCIAL STABILITY
If you got sick and tired of being sick and tired, you might be here. In this stage you have a starter emergency fund of $1,000. You are not charging “emergencies” to credit cards and you are living within your means by sticking to a written budget every month while tracking your spending. Here is where you have actually begun to assert control over your finances and are growing in confidence that you can actually get to that destination you have defined as wealth in your mind. In review, this is what your life looks like if you are at this stage:
- You have $1,000 stashed away for emergencies
- You are living by a written budget and every dollar you make has an assignment every month
- You have stopped borrowing money to live on
- You are current and on time with all your bills
If you are here, congratulations! You have finally taken ownership of your finances and taken control over this most important aspect of your life. But no time to rest, because there is still much work to do in order to advance to the next stage of wealth building.
STAGE 3- FINANCIAL GROWTH
At this stage of the journey you are really rolling up your sleeves and putting in the work needed to dig yourself out of debt and grow your income. You are keeping your spending under control. You are also using the debt snowball method to repay everything you owe.
For those of you unfamiliar with the term ‘debt snowball’ let me explain. The debt snowball is when you line up all your debts smallest to largest and pay the minimums on each except the smallest. Any extra money you have you throw at that smallest one until it is gone from your life. After that debt is gone, you now take all the money you were paying on that smallest one and throw it at the next one in line until that one is paid off. You keep doing this, rolling your payments downhill from one debt to the next, growing them larger and larger until the last debt is finally paid off.
In this stage you are also looking for ways to grow your monthly income. That may mean selling stuff, taking on second and third jobs or starting a side business that generates extra income to use in your war on debt. See, your income is your greatest wealth building tool and the bigger it is, the faster you will get out of debt and build wealth. To review, here’s a snapshot of STAGE 3:
- You are working your debt snowball with intensity, paying them off one after the other
- You are laser-focused on growing your income
- You are keeping tight control over your spending
STAGE 4- FINANCIAL SECURITY
Now, when I say financial security, I am not speaking in absolute terms. Rather, I am speaking in a relative sense. I’ll illustrate this with a home security system. No one can claim that a home security system will guarantee their families’ safety and keep all burglars away. But it will serve as a deterrent to any would-be intruders and as a defense against any that actually do try to break in by sounding the alarm, alerting you to the danger and dispatching the authorities to the scene.
Likewise, in this stage you have relative financial security because you have paid off all your consumer debts so the only payment you have is your mortgage. Now all that money that was going to payments can now go to building up your emergency fund until it amounts to 6 months to one year of expenses. So now, if you or your spouse loses a job, if a medical expense hits or the car explodes, it’s no longer a major disaster. No, at this point it only becomes a minor inconvenience. Why? Because the security that the emergency fund gives you means that life will go on as it has without putting your financial life on hold or in jeopardy. And by the way, a this stage you have also protected your family by getting and keeping all the forms of insurance you need. Stage 4 is a great place to be so keep in mind what it looks like:
- You are debt-free excluding your mortgage
- You have funded or are funding your emergency savings stash to 6-12 months of expenses
- You have put in place all the forms of insurance you need to protect your family
Stage 4 is where your financial machine is really humming and you are lining yourself up to launch yourself into the final stage of wealth building. Hold on, because here it comes!
STAGE 5- FINANCIAL INDEPENDENCE
I want to clarify again that when I refer to financial independence, I only mean this in relative terms, not in the absolute. No one is completely immune to the unforeseen occurrences of life. Wars, runaway inflation and environmental disasters can devastate entire national economic systems. At that point, everyone is in the same boat.
So, here is how I define financial independence: The ability to generate all the money you need to cover your living expenses and then some, without working, solely from any business, savings and/or investments you might own. You are independent in the sense that you don’t rely on any outside sources of income to live.
Yes, here is where you don’t have to take crap from a boss. When your boss starts acting up you can tell him where to put his job and walk out. When you want to take the family on an extended vacation, you don’t have to beg for time off from work. And when you see someone in need, you can reach into your accrued wealth and give like no one else and effect meaningful change in that needy person’s life. How would you like to have a financial situation that looks like this:
- Your home is paid off
- You have absolutely no payments due to anyone
- Your business and/or investments generate enough income to live a life of comfort
- You can give generously to causes, institutions or individuals who are truly in need
- You have time to pursue your heart’s desire
- You can leave a legacy for the generations that will follow you
Sounds good, doesn’t it? You bet it does! In fact, this is where most of us would like to be. So, I now have two questions for you. One, what stage are you on in your journey to wealth? And two, how much work are you willing to put in to get to that final stage of wealth building? Only you can answer these questions. I can’t and neither can your mommy or spouse. Only you.
So, now is the time to look deep within yourself, figure out where you are, where you want to go and why, and how you intend to get there. A financial coach might be the thing you need to help you reach your goals. A financial coach will be your guide and your encourager on this long journey. A financial coach can help you shave years off your journey and save you thousands upon thousands of dollars in wasted time, effort and personal fortune.
Then if you are sick and tired of being sick and tired, take decisive, massive action now and make the changes necessary to live the life of your dreams. Through private, one-on-one coaching sessions, I can teach you how to build your own personalized wealth action plan. Contact me at www.org4lifesolutions.com and schedule a free discovery session. I look forward to helping you on your journey to wealth, no matter what stage you may currently be at. In the meantime, remember: Own it, Be it, Achieve it!