Financial Zip

When we spend money on something is it because we need it or do we just want it. Most everyone at some point or another will buy something because they really want it. Back in 1997 my friend introduced me to snowboarding. He took me to a snowboard shop and I really wanted to buy a new board even though I had no money. So I did what everyone else does in that situation I bought the board. Did I really need the board, No but I got it any way. The lesson is that we have to have some way to recognize the value in what we are spending. We have to come up with a value system that will allow us to develop self discipline when we spend.

So lets start with an analogy. A compass. A spending compass. This will give us proper direction on how to point us on the road to financial independence. Financial independence is really the ability for anyone not to have to owe anybody money and we are free to use the money that will help increase our wealth building abilities.

So the first direction we want to head in is north. This direction will lead us to things that appreciate in value. In other words those things that will pay us money in the future in some form. So what are some forms of assets that you can put your money in that will do that? Buying a house is an excellent investment because down the road you can sell your home for more than you bought it or you build up equity in it. Mutual Funds, stocks, bonds, these are all assets that will appreciate in value down the road. One of the best areas to invest in right now, and every one has it, is debt, if you invest in your own debt reduction you can’t lose money and it will eventually free up a lot of money when you get debt free. An excellent way to pay down debt is to look into a snowball debt reduction plan. These plans just take your debt and roll it down so you can pay it off faster than you would normally be able to. These are great examples of northward spending.

Lets go in the opposite direction now, South. What represents southward spending. To summarize it is those things that represent leaks in you financial plan. Let’s think what is the biggest financial leak we have? It usually has 4 wheels and costs a lot of money. Cars. They are the worst culprits in terms of wasting our money especially if you buy a new car or lease a car. You usually lose 10-15% of the value of the car when you drive it off the lot plus you have pay for gas, and the way gas prices are going, yikes. You also have maintenance and repairs. The lesson there is buy a used car that gets good gas mileage. Other types of southward leaks are: RV’s, timeshares, boats. With southward expenses we want to limit them as much as possible and recognize they do not build wealth.

Eastward direction. These are items that we really can’t control paying they are the things that are apart of every day living. Taxes, utility bills, power bills, health insurance groceries etc… The key to eastward expenses is to limit them by shopping smart and reducing. If we concentrate on that, this direction is easy to manage.

No we come to the direction that is considered the most wasteful. Westward. These represent the things that we want or that we think we can’t go with out. For a lot of people it is eating out for others it is binge shopping, cigarettes, alcohol the list goes on and on. If you can think of a thing that you are addicted to or that you feel that you can’t go with out on a daily or weekly basis you can consider it a westward expense. The question that you need to ask yourself is, is this something that represents a want or a need? If you want to purchase the item consider one of 3 things; should I save up for it, limit it how often I get, or just flat out don’t get it. The key to financial independence is reducing the westward direction and the other 2 directions south and east.

Financial independence, is all about having self discipline, and understanding why we spend the way we spend. The key to all of this is to focus on building wealth and accumulating northward assets. With most families these days the first step is debt reduction. Understand that changing your spending habits overnight will not happen it takes putting down a financial plan and having self discipline to stick to it that will ultimately reward you and get you the financial independence you envision.