It’s that time of year again. After several weeks of over-indulgence, people are coming to their senses and realizing it’s time to make changes for the better. Some — like me — have decided to improve their relationships with food and exercise. They’ve resolved to eat well, drink less, and move more. Others have decided that 2017 is the year they’ll take charge of their finances.<\/p>\n
If you<\/em> are one of those determined to make this the year you become the boss of your own life (or if you’ve been on that path for a while and simply need a shot in the arm), here’s an overview of seven smart strategies to improve your financial position.<\/p>\n These aren’t just arbitrary suggestions. I’ve been reading and writing about money for more than a decade now. Based on my experience — and based on thousands of conversations with other people — these are seven specific strategies that work<\/em>.<\/p>\n These seven strategies form the foundation of financial freedom. Do these things and you will<\/em> master your money. Let’s look at each strategy in more detail.<\/p>\n Want more info? Check out my completely free Money Boss Manifesto<\/em><\/a>, a 70-page guide to financial freedom. Or, if you want greater depth, consider purchasing my year-long Get Rich Slowly course.<\/p><\/blockquote>\n Here’s the number-one strategy you can use to improve your financial situation: Manage your household finances as if you were managing a business.<\/strong> Choose to become the Chief Financial Officer of an imaginary business called You, Inc.<\/p>\n Whether you hope to escape the chains of debt, to save for a one-year sabbatical, or to retire within a decade, you can have the financial freedom you desire — if<\/em> you’re willing to accept the role and responsibilities that arise with becoming CFO of your life.<\/p>\n All<\/em> of the other strategies in this article are based on the idea that you’ve agreed to become CFO of You, Inc., that you’ve decided to become a money boss.<\/p>\n Your motto must be, “The buck stops here!”<\/strong> Don’t blame anyone or anything else for your financial situation, and don’t expect somebody else to rescue you. Your financial fate rests in your hands.<\/p>\n For more on this subject, check out my full article on why you should run your life like a business<\/a>.<\/p><\/blockquote>\n Managing your money takes work — lots of it — and if you’re not clear on why saving and investing are important, it’s easy to lose your way. Before you get down to the nuts and bolts of funding your financial future, it’s important to plan what that future will be.<\/p>\n Perhaps you want to get out of debt, to buy a house, or to save for your daughter’s college education. Maybe you want to build a nest egg so that you don’t have to worry so much about getting sick or losing your job. Or maybe you want to quit your job completely to start a new business or travel the world (or both).<\/p>\n Whatever the case, it’s important to be clear about your purpose so that you’ll remain motivated when times get tough<\/strong>, and so that you’ll be able to make better decisions as the CFO of You, Inc.<\/p>\n To begin, you need a personal mission statement.<\/p>\n Companies use mission statements to direct their business operations. So too, you should use a personal mission statement to help you make decisions about money (and everything else).<\/p>\n You get the idea. When you have a clearly-defined purpose, it’s much easier to make tough life decisions. It’s easier to set goals that match your mission. Your mission provides a purpose, and your goals reinforce that aim by keeping you focused on what’s important. They organize your actions and give them meaning.<\/p>\n How do you create a personal mission statement? There are all sorts of ways to go about it. If you want a polished tool, check out the online Mission Statement Builder<\/a> from FranklinCovey. If you’d prefer a simple exercise you can do on your own time, I’ve created a free PDF you can download and print: Your Personal Mission Statement<\/a><\/b><\/i>.<\/p>\n Ultimately, it doesn’t matter how<\/em> you create your mission statement. It only matters that you do it.<\/p>\n For more on this subject, check out my full article on how to craft a personal mission statement<\/a>.<\/p><\/blockquote>\n After a decade of talking to people about personal finance, I’ve seen that one of the biggest barriers to financial success is how little attention is given to the work. The folks who master their money are the folks who actually spend time working with it!<\/p>\n The authors of The Millionaire Next Door<\/em> found that as well, noting that two-thirds of the millionaires they surveyed admitted to spending “a lot of time” planning their financial future. People who prioritize their finances have greater success; those who ignore the job often struggle.<\/strong><\/p>\n This isn’t surprising, of course. Whenever you dedicate time and attention to something, you get better at it. Would you expect to be able to play “Stairway to Heaven” without practicing the guitar? Could you fly an airplane without long hours of instruction? To do something well, you’ve got to work at it — and that includes money management.<\/p>\n As CFO of You, Inc., you must allocate time to build your business.<\/p>\n I recommend that you make an appointment with yourself to take care of business — and keep it. Just as you’d make an appointment with a doctor or a mechanic, schedule a regular time to review your accounts and pay your bills. I recommend blocking out an hour on Saturday or Sunday morning. Keep the appointment every week. Treat it as a priority. (JD, Inc., for instance, currently handles its accounts on Saturday mornings.)<\/p>\n It’s also crucial that you develop daily habits and routines to make things easier. Spending a few minutes every day to record transactions, for example, can reduce the workload at your weekly appointment. Plus, this constant diligence helps you become more aware of how you’re handling your hard-earned dollars.<\/p>\n Once you’ve scheduled time to manage your money, you’ll want to carve out physical space for your financial life. You’ll need a place to capture incoming paperwork (bills, statements, invoices, and receipts), a place to do the work, and a place to store your archives. For a business to run smoothly, a good filing system is essential.<\/p>\n Keep this process simple, routine, and — where possible — automated. It’s best to follow the old adage, “A place for everything, and everything in its place.” When everything has a place, organization becomes almost automatic. Because I know my wallet has a home by the front door, it’s easy to see when it’s missing. I know that bills live in the inbox, that bank statements live in the filing cabinet, and so on.<\/p>\n After you’ve set aside space and time to manage your money, it’s time to discover the magic of automation.<\/p>\n Sad but true: Most of us make choices that prioritize present happiness over future security. And sure, there has to be a balance. In most cases, however, we’re better off automating good behavior — saving, investing, paying bills, and so on — so that we do the right thing<\/strong> over and over without having to think about it. It’s a way of outsmarting our present-focused animal instincts.<\/p>\n There’s no one right way to automate your finances — each person’s financial infrastructure is different — but here are some common methods.<\/p>\n Real businesses pay their bills first before using what money remains to invest in their company. By automatically paying your bills and funding your investment accounts, you’re doing the same thing with You, Inc.: You’re automating good behavior.<\/p>\n After you’ve automated your financial infrastructure, you still have to pay attention.You need to be sure you have the funds to pay your bills, and you need to verify that those bills don’t contain any erroneous transactions.<\/p>\n Checking in at least once a month allows you to spot possible problems, both with your own habits and from outside sources. For instance, somebody once used my credit card info to subscribe to a porn site. Because I monitor my accounts, I was able to spot the fraud quickly and get it corrected.<\/p>\n Now that your financial infrastructure is in place, you’re ready to pump up your profits!<\/p>\n In order to survive and thrive, you need to earn a profit.<\/p>\n You already know profit is the lifeblood of every business. It’s like food and water for the human body. Although proper nutrition isn’t the purpose of life, we couldn’t exist without it. Food and water give us strength to do the stuff that matters most. So too, profit isn’t necessarily the purpose of business — but a company can’t survive without it.<\/p>\n Here’s a secret: People need profit too.<\/strong><\/p>\n In personal finance, “profit” is typically called “savings”. That’s too bad. When people hear about savings, their eyes glaze over and their brains turn to mush. Bor-ing! But if you talk about profit instead, people get jazzed: “Of course, I want to earn a profit! Who wouldn’t?”<\/p>\n Profit is easy to calculate. It’s net income, the difference between what you earn and what you spend. You can compute your profit with this simple formula: PROFIT = INCOME – EXPENSES<\/strong>. So:<\/p>\n There are only two ways a business can boost profits, and there are only two ways you can boost personal profitability.<\/p>\n When you earn a profit, you don’t have to worry about how you’ll pay your bills. Profit lets you chip away at the chains of debt. Profit removes the wall of worry and grants you control of your life. Profit frees you to do work that you want instead of being trapped by a job you hate. When you make a profit, you truly become the boss of your own life.<\/p>\n With even a small surplus, the balance of power shifts in your favor.<\/p>\n For more on this subject, check out my article on why profit margin is the most important number in personal finance<\/a>. You might also be interested on reading about the best ways to spend less<\/a> and how to make more money<\/a>.<\/p><\/blockquote>\n Here’s the dark, dirty secret of personal finance: Smart money management is more about mindset than it is about math.<\/strong><\/p>\n Financial success comes when you master the mental game of money. It’s not about understanding the numbers. The math of personal finance is simple: spend less than you earn<\/a> and invest the difference. We all get it. Instead, it’s controlling your habits and emotions that’s difficult.<\/p>\n That’s why those who are successful with money have learned to master their emotions. They don’t buy on impulse, don’t sell their investments when the stock market crashes, and they don’t allow friends and family to persuade them to do dumb things with money.<\/p>\n When I was digging out of debt, I was frequently seduced by the siren song of books and comics. I knew<\/em> it was dangerous for me to walk into a bookstore or comic shop, but I did so all the same. I spent a lot of money because I was foolish. (In 2006, I spent $692.96 on books and $3202.91 on comics. Yikes!<\/em>)<\/p>\n As I began to act as a money boss, I discovered ways to resist temptation.<\/p>\n For instance, I found that if I didn’t enter bookstores or visit Amazon, I wouldn’t buy books. If I didn’t walk into a comic store, I wouldn’t buy comics. By refusing to even browse, I had pre-committed to doing the right thing. My spending on books and comics plummeted, and I began to repay my debt more quickly.<\/p>\n This experience taught me an important lesson about being proactive<\/a>: The best way to resist temptation is to never be tempted.<\/strong> Obvious, I know, but it’s shocking how many people overspend simply because they expose themselves to the object of their desire.<\/p>\n Avoiding temptation is a great barrier to bad behavior, but there are plenty of other ways to practice being proactive.<\/p>\n All of this is easier said than done, of course. I know from personal experience. For the first 37 years of my life, I sucked with money — and all because I didn’t have control of my financial psychology. I turned things around by learning to become proactive. I learned what my bad habits were and developed methods to fight them — in advance.<\/p>\n\n
<\/span>Be the Boss<\/span><\/h2>\n
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<\/span>Have a Plan<\/span><\/h2>\n
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<\/span>Dedicate Time and Space<\/span><\/h2>\n
<\/span>Automate Everything<\/span><\/h2>\n
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<\/span>Pump Up Your Profit<\/span><\/h2>\n
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<\/span>Be Proactive<\/span><\/h2>\n
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