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Money talk.

MONEY TALK

Whenever I talk to people about beginning to build for financial freedom, their very first response is this: "Building your financial estate is a great idea, but my family doesn't have any "extra money' to invest each month. We do well just to pay the bills and keep our heads above water.' You're probably thinking the same thing right now. Even families with above-average incomes are feeling the pinch of inflation and the tax bite.

But don't give up too easily. If you're serious about building financial security for you and your family, there are ways to arrange your present income (what you are actually earning now) to free up funds for investment.

Let's look at some options:

1. Pay yourself first. This is one of the most important concepts in my program. Briefly, paying yourself first means putting yourself and your family before any other demands on your money. Deposit a set amount each and every month into an investment program, no matter what other financial obligations you have. It's amazing how fast your money will build if you invest even a small amount regularly, at a good rate of return.

2. Adjust your priorities. If you're like most people, you spend money on things you don't really need. Or, you don't really manage the money you do have; you just spend as expenses come up. Don't feel bad about this--we've all done it. It takes a little more time to develop a management attitude about your spending habits, but it's essential that you "get control' of your spending.

Probably the best way to do this, at least at first, is by budgeting. Determining what you will spend on certain items, and sticking to that plan, can make a world of difference in where your money goes.

Budgeting is also a great way to determine where you're wasting money. As a family exercise, keep a budget for one month. Don't make it so much trouble you won't keep it up; just a rough record will do. Whenever family money is spent, jot it down on a budget sheet or even a legal pad.

I promise you at the end of the month you'll have a real eyeopener. You'll be amazed at how the little things add up to big dollars!

After you've done this exercise for one month, sit down with your family members and try to prepare a rough budget for the future. Allow for items like gifts, and put a dollar-amount limit on what you will spend for each. Having a definite figure in mind helps you avoid rushing to the store and spending more than you can afford.

The main purpose of a budget is this: It gives you control of your own money. You actively decide what will be spent and where your money can best be put to good use. There's nothing quite as good as the feeling that you control your money, rather than your activities and expenses controlling you.

3. Adjust your lifestyle. Along with controlling your money comes the matter of priorities. And along with setting priorities comes one tough rule of life: You can't have everything. If you want to achieve financial independence, you may have to make sacrifices for an extended period.

A part of the budgeting process is distinguishing between what you need and what you want. For example: you might need a second car, but you might want a Cadillac.

Too often, purchases, even major ones, are made on the basis of want. If you're ready to get serious about your financial future, you may have to postpone some of your desires and wants. It's a kind of trade-off--do without something now so you can have more later. If you usually stay a week on out-of-town vacation trips, trim the time away to three days and plan enjoyable family activities at home for the balance of time.

I know it's tough. But, in most cases, it simply has to be done. And oftentimes, it can be done in basic ways that eliminate extravagance without any decrease in enjoyment!

4. Earn additional income. If your family income is very modest, things may still be so tight that it's tough to invest more than $10 to $20 a month. If you want to make significant progress, consider taking a part-time job to get the extra income for starting your investment program.

5. Realing your assets. Another way to free up additional income for savings and investment is to realign your assets. This simply means that you move assets you have around to produce cash. You may be able to "free up' money to get your investment plan started immediately.

There are two major areas in which most Americans are not getting their money's worth:

a. Low-interest savings accounts with banks, savings and loans and insurance companies. You can take money from a 5 1/2 percent savings plan and invest it in an area that has the potential for higher returns.

b. Low-value, high-cost life insurance. You can replace your out-dated, expensive life-insurance policies with term insurance and currently save as much as 30 to 70 percent.

A potential asset for most people is an Individual Retirement Account. When you invest the maximum amount allowed in an IRA, you can deduct that amount from your taxes-- --thereby saving money you would normally pay to Uncle Sam.

6. Avoid the credit trap. Credit cards are good for convenience and emergencies. But be careful to avoid the common pitfalls of "plastic money.' Pay off your charges at the end of each billing period--otherwise, you may pay 18 to 21 percent in financial charges. (Most banks now charge $20 to $30 just to issue a card--whether you use it or not!) Be careful not to overspend. It's so easy to say "charge it,' but you'll have to pay up sooner or later.

Installment loans are another area of caution. It's tempting to buy something on "time.' One drawback is that by the time you pay off the loan, the newness of the item has worn off--it may even be broken or damaged beyond repair. Save your money and pay cash--it's the only way to win!

For purchases such as furniture or appliances, save your money and pay cash instead. If you must use an installment loan for a necessary major purchase, like a family car, finance as little as possible and pay it off as soon as possible. Don't load up your loan contract with extras like credit life insurance, disability or automobile insurance.

Now, see how many options you have. And just a few short minutes ago you were convinced you couldn't come up with any money to start on your path to financial freedom! But these are the facts: You can do it. You do have a choice about your financial future.
COPYRIGHT 1985 Saturday Evening Post Society
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1985 Gale, Cengage Learning. All rights reserved.

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Title Annotation:building financial security
Author:Williams, Art
Publication:Saturday Evening Post
Article Type:column
Date:May 1, 1985
Words:1144
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