Money Management 101
Managing Money is a skill that must be learned.
The basics are simple but it takes patience and discipline to become financially free.
Prepare these Personal Financial Documents:
1. Monthly Budget: Cashflow-in (eg. income) versus cashflow-out (expenses, taxes, bills). The goal is to cut expenses, while increasing income. Invest the difference.
2. Net Worth Calculator: Assets minus Liabilities (eg. debt). Purchase assets that appreciate in value over time (eg. real estate). Do not purchase depreciating assets (eg. cars).
3. Debt:Income ratio and Debt:Asset ratio. If your debt is too high, then create a "debt snowball" to get it under control. If you are asset heavy, then borrow against the asset and invest the cash (financial leverage).
4. Determine your % Active Income vs Passive income. Your goal is to have 100% passive income.
5. Forecast your net worth in 10, 20 and 30 years using compound interest.
6. Create a gameplan for acquiring affordable education & training to increase your income. Is there a Return on Investment (ROI) within 3 years or less?