Among the many things school doesn't teach us is how to properly handle finances.
This is unfortunate, and needs to change, since they are among the very most important parts of our lives.
Since we can't go back to school to learn these skills, we are forced to learn them on the fly, so to speak.
Many people never do, and so live paycheck to paycheck and wait to collect from social programs when they can no longer work.
What follows are simple steps that anyone can do to not only avoid an impoverished retirement, but actually create personal wealth that will allow a debt-free and enjoyable future.
1.
First, you must compare your outlays with your income.
Analyze your expenditures and your bills.
Look for ways to reduce spending on utilities: by weather-proofing your house, turning off TVs, computers, and lights when not in use.
Second, analyze what you buy.
Can you save money by avoiding certain purchases? Are you eating out too much? An average meal for four people costs only a fifth as much to prepare at home as eating in a decent restaurant.
Can you put off the new computer? The larger TV? The Music Collection? If you can reduce expenditures, great! (Most people and families can).
You now have some leverage.
2.
Look at your credit-based bills now.
Notice your interest rates.
There is a specific strategy here that will help you beat the creditors.
Take the financial leverage you have found in step one, and apply it ALL to your highest interest credit payment.
Pay as much as you possibly can on this each month until you have paid it off.
At the same time, continue regular payments on your other credit lines (make sure to pay more than the minimum payment at all times).
When you have paid off the highest interest account, apply those payments to the next highest interest account.
Pay it off.
Then again with the next, and then finally your mortgage if you have one.
This is a strategy that will take a long time to complete if you have large amounts of debt, but the alternative is to be in debt forever, most likely, and no one wants that.
3.
While you are paying off your mortgage you need to be looking into investments.
Here's the challenge.
If you have a low interest mortgage, continue to pay it off, but increase payments to equal a twenty or fifteen year mortgage.
Invest any funds that are left in as high-yielding investment as you can find.
The challenge comes up when a mortgage has a high interest rate.
If you cannot find an investment that yields significantly higher than the interest you are paying on your mortgage, then you are better off paying off the mortgage.
The reason for this is simple: If your investment yields 9% and your mortgage is 12%, you will actually be losing 3% each month of your investment, which is being absorbed by the mortgage' interest differential.
4.
Let's assume for a moment that your budget is stretched to the limit and you have little extra capital to pay off your mortgage quickly.
You have two options.
Further reduce your spending, which may not be feasible, or increase your income.
Increasing income really boils down to two things.
Either get a better job (or a second job), or start a home business.
Because I am a home business owner and love it, I always advocate that.
Check out my blog for more information.
If that is not for you, though, your choices are limited to the work that is available in your area.
5.
If your budget allows you to pay off your mortgage quickly, then do so.
Even if there is a penalty, it likely will not outweigh the tens of thousands of dollars in interest that you will save.
Then find solid, high yield investments, and funnel every ounce of capital that you have saved from eliminating your debt payments into them.
It is worth finding a good investment manager, here, or using an online service with a strong rating.
Investing can be a tricky business, but it's worth the learning curve.
Savings accounts, annuities, bonds, and most of the investments that were in vogue twenty or more years ago simply don't work anymore.
6.
At this point you have completed the steps to achieving financial freedom, and follow-through is all that is left.
Stay on top of your investments, spend wisely, dedicate time to dealing with challenges each day and you will be living a higher quality of life than you might have previously thought possible.
As with most plans and systems, the hardest part is getting started.
But once you begin this process and start cycling down your debt, you will immediately feel the benefits and begin to enjoy the process.