There are two facets to creating wealth: (a) creating money and (b) controlling how we spend it. The key to successfully get out of debt and start creating wealth is to accurately address both.
Financial Hardship is characterised by the severe lack of money to meet your basic survival needs: food, clothing and shelter. People on social welfare, the unemployed or those recently bankrupted would fall into this category. In this category, I place anyone where the total cost of providing for their essential needs takes up, or is greater than, the total amount of their income.
One of the main characteristics of this stage is confusion. Most people do not know exactly what they spend their money on. Overall, there is considerable confusion about money and generally how to manage finances. The most important thing in this stage is to get out of the confusion you have about money. Managing money is simple and my aim when designing the money program was to make it as simple as possible to understand.
The strategies to assist you in mastering this stage and to get you on the road to wealth creation are:
1. Get out of confusion with money.
2. Know your finances.
3. Set goals.
4. Start to develop a plan.
5. If you are in serious financial hardship, you need to create more income. Use short-term methods, if necessary such as part-time or extra jobs.
One of the greatest mistakes you can make in managing money, is not knowing where your money is going. About 90% of the people who come to see me do not know exactly what they spend their money on. Some may have small notebooks where they scrawl their monthly accounts but when they start to put everything down on paper, they are always surprised, if not shocked, to see the real state of their finances.
As obvious as it seems, most people just do not know their finances. This is always the most difficult part of The Money Program because, invariably, this is often where they realise they are spending more than what they earn. It is scary. Urgh! Who wants to know there is a cancer growing out of control in their wallet? No-one. But it is only when you face that cancer that you will be ready to heal it. Now you will know why you are getting deeper and deeper into debt and have no savings after years of being in the workforce.
The first thing you need to do is to create a planner. I prefer to call it a planner rather than a budget because of the connotations the word ‘budget’ has to a lot of people. ‘Budget’ often sounds too restrictive. It is like the word ‘diet’. It can conjure up feelings of denial and restraint and is, therefore, often doomed to failure.
I believe that the road to success should not be so barren that there is no enjoyment in travelling it. Money is there to provide security, satisfaction and joy in our lives. We should be allowed to have some of life's little luxuries along the way. Even though, particularly in the earlier stages, we sometimes need to cut back on spending, a good program still allows us to have a little ‘play’ money.
The program should be designed to ensure that, firstly, you are living within your means and, secondly, that you do not spend all of what you earn so that this surplus can grow into the reservoirs of investments that will eventually lead to prosperity. Initially, this may mean you have to cut back a little, but it is usually directed at eliminating wastage and extravagance from your life.
I believe that extravagance and over-spending is just the other side of the ‘scarcity’ coin. It is often the belief that there is not enough that will lead you into spending too much.
Copyright © Ann M Marosy 2008. Ann Marosy is an accountant, consultant, and former university lecturer. She was formally the Financial Controller of the Fortune 500 Company, Jardine Matheson, and Finalist of SA Executive Woman of the Year. Ann is the author and creator of ‘The Money Program: How to Manage the 6 Stages of Wealth’.
Visit her website at http://www.moneta.com.au