I have been getting a lot of requests lately to give some practical pointers on how the “average guy/gal” can improve their financial Wellbeing. There are quite a few people out there who just simply cannot say with any certainty that they feel confident about their financial future. The problem is that most people start thinking about their future before they address the problems today. Of course you can’t say that you feel confident about the future if you are worried about keeping your lights on today!
So to help people visualize the steps to financial Wellbeing and ultimately financial independence, I put together this very simple pyramid:
It is simple by design. I have said it probably a thousand times; we have a tendency to over complicate things! Notice that the base of the pyramid only has three steps: Emergency Fund, Debt Snowball and Budget. Here is what is means:
- Emergency Fund – This is the most important piece of Financial Wellbeing, I don’t care if you make $100 or $150,000. If you do not have an emergency fund you are in big trouble, guaranteed.
- Debt Snowball – To be able to truly think about the future you have to be in a position where you are not saddled with consumer debt. The debt snowball is a simple approach to getting out of consumer debt.
- Budget – If you don’t know where the money is going, you cannot fix the problem. A budget is a game plan, you simply cannot keep your spending in check if you don’t have a plan.
It really is that simple. The main issue for most people is that they start to build their pyramid in the wrong section. Have you ever built a sand castle? What happens if you do not have a nice strong base when you start to build up the structure?
Guys, if you start out focused on the middle section of the pyramid before you build the base – it won’t work! Too often do I meet people who have focused on retirement savings and other worthy causes that fall in the middle section, without even bothering to tend to the base of the pyramid. They end up with thousands of dollars in credit card debt because they had no emergency fund and their spending is usually out of control. This completely negates all the work they put toward retirement!
I was sharing this exact concept with a group a few weeks ago. I had just started to wrap up and a particularly brave audience member in the back piped up. He said, “Sure this is straight forward and pretty basic, but its a lot harder than it sounds.”
He’s absolutely right! I can say with certain confidence that if you can master the three pieces at the base of the pyramid, you will achieve financial Wellbeing and ultimately financial independence. The fact is that these concepts are so integral to the whole of your pyramid that if you build a strong base the rest will fall in line.
These principals are simple but they are as hard as it gets. Remember, it is a narrow path that leads up the tall mountain to financial success. It will take diligence, determination and several doses of discipline to reach the top, but you can do it.