Wealth Creation: A Personal Financial Plan
Creating your own personal wealth, from whatever means of income you enjoy, requires knowing where you’re going, and accounting for your own personal finances. It is essential to know what you are worth – your assets and liabilities – and Owner’s Equity – before you can start to develop a good
financial plan to create wealth. In the world of accounting Assets = Liabilities Owner’s Equity so this is what we have to establish now.Firstly you have to work out what your assets and liabilities are, then you can calculate your Owner’s Equity. When you know what you are worth, developing a financial plan to reduce your debt and achieve your financial goals is the frst
step to personal wealth.Step 1. Calculate the amount of your outstanding liabilities (or money you owe). This means you write down in a list exactly how much you owe right now on
your mortgage, credit cards, and any other bills or loans.Step 2. Now make a list of all your assets (dollar value you would get for these if they were sold). For example your cars, home and cash you have in the bank – list all your major assets.Using the Assets = Liabilities Owner’s Equity equation we gave you before, calculate what you are worth. Most financial or credit advisers agree you need to allocate money every month into responsible saving, investing and paying down your debts as crucial part of your financial success. It’s not enough to just put money in the bank when you are also carrying a credit card balance because you are losing the benefits of any interest earned on your savings.To increase your Owner’s Equity you must pay down your liabilities and avoid borrowing more money to buy more assets. It’s dificult sometimes to stick to this plan when there’s advertising in your face all the time to buy this, buy that and buy it NOW! – the “must have everything now” attitude. But you must stay with your financial plan if you want success and personal wealth.Here is an example of a good financial plan (but this is by no means th only one):1. The money you are currently investing or putting into your savings account every month, divide the total of it by 3, then – 2. Pay off one third of this money every month to your outstanding debts.3. Pay one third of this money and deposit it in your savings account at your bank. This will accumulate into a pool of money for your monthly needs. Over time you can use it to finance your family’s Read more…
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