Section I - Lesson 4A
Financial Plan - Pro-Active Control
Step one of your plan must be to take pro-active control of your affairs. By this we mean committing to establishing and following a master plan that will bring you financial independence, and letting all other aspects of your financial life become subservient to this.
You must move financial independence to the top of your financial priority list. You make it number one in your financial life, and make everything else secondary. Financial independence, once you attain it, means being able to maintain your current lifestyle for years and years without earning so much as a single paycheck.
When you're not committed, pro-actively, to a master plan, every small emergency takes precedence over building wealth. Look what happens when you fly by the seat of your pants.
You intend to put aside $300 a month, for example, but this month you get a traffic ticket and pay it, and can only save $200. Next month your car needs repairs for $500 and you not only fail to save $300, but end up raiding your savings account for the $200 you saved the previous month. Your wealth accumulation program goes nowhere fast.
This is re-active money management in all its glory, where we're simply responding to needs as they develop. Re-active money management is actually no management at all. Rather than working towards a long-term goal, we're reacting to events as they occur. At best we're putting out nearby fires while ignoring those that might be burning out there on the horizon. At worst we may be simply yielding to our whims and self-indulgence.
So how can you most effectively put pro-active control into action? You make a series of commitments, and you make compliance to these commitments as automatic as humanly possible. Let's go back to the earlier example where you intended to put aside $300 a month, which is, let's say, 10% of your $3000 a month salary.
What you do is contact your 401k administrator and instruct him to deduct $150 every month from your salary to go to your 401k. Then you contact your bank where you direct deposit the rest of your paycheck, and tell them to automatically deduct an additional $150 every month and send it to a mutual fund company for investment into your regular money account.
When you make these deductions and investments automatic, you are taking pro-active control. In computer-speak, you are setting your "defaults" for success. Essentially, if you do nothing to disturb things every month, everything will happen just the way you want it to.
This is making a commitment. This is putting financial independence at the top of your priority list. By setting things up this way you've sent a message to your brain that nothing is going to stand in the way of your saving and investing $300 every month.
But what about the traffic ticket and the car repair bill, you might well ask. They'll still have to be paid of course, but they'll no longer have to get paid out of your money. Your money should be earmarked for the mutual funds every month.
What you'll do is find a way to pay these other bills out of the 90% of salary that's left over after you pay the most important monthly bill of all - the 10% that goes into your wealth accumulation program.
Once you snap to the wisdom of paying yourself first and doing this automatically every month, you'll get very good at juggling all your other bills around and getting them paid out of what's left over.
Trust me, this will happen!
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