It's 2 p.m. and your feet are kicked up on your custom made desk. You just finished a late lunch with a friend at your favorite high-class restaurant. Sitting back in your chair you're thinking about how you've made it and how much freedom you have. You're the Chief Executive Officer (CEO) and it took a lot of hard work to get there.
You can bet money that the CEO of a company doesn't worry about getting the building cleaned. They have janitors to take care of those responsibilities for them. That doesn't mean the CEO has never picked up a broom. At one point, this person probably learned how to clean, but those skills are no longer required for their position.
The CEO needs time for more important tasks like focusing on the direction of the company; the bigger picture. However, to move up the ladder to CEO, the basics need to be learned and mastered.
Like a CEO, your focus is the overall vision; unlike the Chief Financial Officer (CFO), which is responsible for managing risks and financial planning. Part of your focus is taking the current state of your finances and growing them to where you'd like them to be. If you're anything like me, you've never been a CEO of a company. This hasn't kept me from adopting their qualities though.
There is much to learn to properly run our finances. Like anything worthwhile, there is hard work to do. In time, these practices will become automatic. To get there, we start out at the bottom; with a broom and a dust pan.
Let's focus on these categories:
Ideally, you would have no debt to your name, your house payment the only exception. If you do have debt, you need to formulate a plan to get out.
This may take months or even years to accomplish but once you're out, keep it that way. As the CEO of your life, you have to make sure that your company (yourself) never end up in debt again.
Calculate your monthly bills and other expenses. Figure out what's necessary and what can be cut from your life. From our "Define Your Freedom" article, if something isn't in congruence with your freedom, get rid of it, if only for a season.
Look at the plans for your phones, television and other bills in your life. Is there a way to possibly get a new plan that saves you money? Explore different options. A few bucks here and there really adds up. Just imagine what you could do with an extra $300 a month. Put it towards debt, build up your savings, or even invest it.
This is usually the easiest one to calculate, but lets really think about it for a minute. You may have only one or two ways to create income on a monthly basis. As the CEO of your finances, your plan is to increase your income in different ways. Diversification.
Create multiple streams of income. Strive for passive income. "Passive income is an income received on a regular basis, with little effort required to maintain it." (Wikipedia)
Savings is the first thing you need to have before anything else. It doesn't have to be much right now. Set aside an emergency fund; about two or three months worth of wages . If you have debt, then you can focus on paying that off. If you have no debt and your emergency fund is decent, continue to add to your savings.
Nowadays, the interest rate on savings accounts is less than desirable. You'll be expecting to get around 0.9% interest in that account. To get the most out of your savings, look into investment options. Oftentimes, this will give you a much higher return.
Investments are risky by nature, but if you do your homework, you'll be fine. The key is to find something that will only take an hour or two a month to manage. How much you can invest and when you might need it back will dictate the type of investment you'll make. No doubt, investing will take time and research. Be thorough and take one step at a time.
Putting it all Together
The idea here is to take a season and really learn about this stuff. Once you have a handle on one, move on to the next one. Do that until you're comfortable with all aspects of your finances. Develop a financial strategy that increases your freedom. Your end-state should be the following:
The Four Financial Freedoms:
- No Debt
- A Substantial Emergency Fund
- Multiple Streams of Passive Income
- Diversification in your Investments
Make your money work for you
You need to be in total control of your finances. No one will care about your money more than you will.
That doesn't mean your life should revolve around money, quite the opposite. Take some time to figure out your finances. When you're ready, intentionally hand over the responsibility of certain financial aspects and sit back and enjoy the life that you've created for yourself.
No one is going to make you do any of this. Get yourself to that beach or whatever it is you'd rather be doing. Stop the endless cycle of financial worries and get started. Like the CEO has already done, trade that broom in for your freedom.
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