6 Ways of Building a Solid Financial Foundation in 2021

Thursday, January 14, 2021


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What are your 2021 financial plans? Is this the year you achieve financial freedom? Financial freedom is a product of financial discipline and preparedness for any situation. You cannot fish financial success from a pond. It requires step by step procedures to be laid down and followed to the latter. The outcome is dependent on the planning and execution of the financial plans in place.

Here are six ways to ensure a successful outcome.

Have a Target

There is no plan without a goal. It takes a personal decision to come up with a perfect plan. You need to set your goals and a time frame. Extensively write it down for reference and guidance. Break the goals down into phases that can be handled during a given duration. Jot down the points in each phase that will enable you to achieve your target. Share your plan with a confidant who will double up as your accountability partner. An accountability partner is someone who ensures that you achieve your set out commitments. The confidant will constantly keep you in check at the end of each phase duration to ensure you stay on track. Be careful when choosing your accountability partner lest you fail even before you start.

Once your resolution is set, take stock of the financial tools you currently have. Which assets do you possess? What is your credit score? Analyze each tool and strategize how best you utilize it to your benefit—research on additional ways and tools that you can use to boost your financial performance this year.

Have Multiple Sources of Income

A single source of income – earned income - makes you a slave to your job. It would be best to have at least four sources of income that will diversify and maintain your cash inflow. Millionaires have at least seven income sources that they use to build their wealth—a clear indication of the amount of effort to be put to acquire financial freedom.

There are seven ways to earn money: earned income, dividend income, interest income, business income, capital gains, royalties, and rental income. Use your skillset and knowledge to increase your income streams. Research widely on the types of businesses you can start, shares you can buy, ideas you can build on, or apartments you can buy and own. Once you have diversified your income, balance the attention you give each stream. It would be best if you were keen on the management of sources of income. A single wrong move can result in the demise of that stream. Therefore, to keep all sources afloat, dedicate a specific amount of time to each stream according to their income contribution.

Remember, to be a millionaire, you’ve to think like one.

Stay off Debt

Debt is a frustrating element for any financial progress.

If you have any outstanding debt, you need to clear it. Make a list of your debt. Have a system and time duration set to clear the debt. Do not pressure yourself by setting unrealistic goals. Be reasonable and avoid getting deeper into debt in a bid to clear the current debt. Look for alternative ways other than your primary source of income to finance your debt settlement.

Destroy your credit cards; destroy them. Credit cards are a source of 'financial temptations.' They will lure you into overspending and impulse buying or subscription to satisfy your cravings. It will disrupt your financial plans. You can plan and budget what you need each month. Set a specific amount of money for your needs and wants. If possible, use hard cash to purchase them. It will help you account for every coin that passes through your hands.

Work on Increasing Your Assets and Reducing Liabilities

Assets are items that you own and can generate money for you by selling or using them like savings and rentals. Contrary, liabilities use up your money through bills, taxes, or debt. To achieve financial success, you need to work on asset acquisition. Plan to get items like real estate that can generate more income. Increase your savings and strengthen your saving plan throughout the year. You should save 30% of your salary. Calculate your monthly income using the hourly wage calculator and set aside your savings at the end of the month. These calculations will help you in maintaining accountability and keep track of your savings.

Liabilities have to be reduced and reviewed regularly. List all your expenses (mortgages, loans, bills) and total their amounts. Set aside the amount for its settlement each month. Take extra measures like directing part of your extra income to pay the amount owed.

Finally, prepare your financial statement. This statement will give you an accurate picture of your financial progress each month. It pits your current financial state to the start and expected financial goals. Therefore, you can evaluate ways to improve your performance or maintain steady progress.

Set Up Your Secondary Fund

The secondary fund is the emergency fund. It is important to have an emergency fund as it bails you out in case of an emergency like diseases and accidents. Set up an emergency fund where you will deposit a specific amount of money each month. Sign up for insurance policies: medical, life, or death. They will save you once there are unexpected situations in your life. Maintain your insurance discipline by paying the required amount on time to enjoy their financial benefits

Be Disciplined

There is no success without discipline. Financial discipline is the backbone of any financial success. The end goal of any financial plan is to have the money work for you. You need to strictly follow your plan and fix your eyes on the price. Support from your family and friends will go a long way in ensuring that you achieve your goals.

It is sometimes prudent to motivate yourself by self-rewarding. Do not be afraid to treat yourself once in a while. But, do it in moderation and keep your spending to the minimum. Let it not be the reason you go off your financial plan.

Believe in yourself and go for it. It is possible!

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