Your Financial Independence Plan

In times like these, it's important to remind everyone about creating their Financial Independence Plan. I understand that we are all worried about our economy, as it is affecting everyone. That's why it's more important now than ever to secure your own financial success and not wait for the government to bring you back. What I'm about to explain is a concept that I developed and have implemented myself. It takes a lot of self-discipline, but it's worth it in the end. These are ideas that I have learned during my personal development education and have combined it all together and is what I believe the best Financial Bailout Plan out there!

First off, the key in this whole plan is what Thomas Stanley and William Danko wrote in their bestseller, "The Millionaire Next Door," is to Live Within Your Means. Most of us out there see what's on TV and see what the "Jones'" have and try to be like them. Understand that material things don't make what you are. What makes you is what value you can bring to the marketplace and the community. In the book, The Millionaire Next Door, the authors describe the lifestyle and habits of the average millionaires in this country, and they are not what you see on TV. Matter of fact, you can have a millionaire . . next door to you, and don't even know it. If you are trying to see what millionaires look like by the material things they have, then your searching is all wrong. You have to see what value they can bring to you and the marketplace. If you are single and have no children, can you justify owning a 5,300 sq. ft. home with 5 bedrooms? If you are living in an apartment, can you justify buying a car giving you a $600 monthly payment? Learn to justify every item that's considered a large purchase to you. Why is it important to you, and do you need it? If you can understand the concept of living within your means, then we can proceed teaching you a financial success plan. If not, it's okay. It took me a while to finally get it, too. I put myself in a vicious circle not getting anywhere for several years while trying to keep up with the Jones.' I'm thankful that I finally figured this out, before I was 30. I encourage you to read "The Millionaire Next Door" to help you understand better.

Now that you know that you need to live within your means, we can get to the meat and potatoes of the Financial Independence Plan.

70/30
A paycheck to paycheck life is not fun, but unfortunately is common to a lot of people. Not just people that don't earn a lot of money, but even people that do make good money put themselves in this crazy cycle. In order to really gain financial success, you have live more than just today. If you're putting all your money in to today, what will have later or when you retire? I hope you're not counting on the government or a 401k, because it won't last long, especially if you're in this paycheck to paycheck philosophy. You have to put money a side for the future. How much? Well, just a small percentage; 30%. Put 30% a side of your gross income, and live off 70% of your gross income. I didn't say net income. I said gross income. You'll understand better as you read this. The 30% is broken down in to three parts, 10%, 10%, & 10%. Now if you're already maxed out where you are, this may be a difficult transition for you. That's okay. Start out small, 97&, 1%, 1%, & 1%, but work hard to increase it over time to where you're are doing the 70/30 plan. Here are the 3 parts of the 30%.

• In order to get more you have to give more. The law of reaping and sowing is a fact of life. No matter what you believe or not believe. In order to receive, you have to give. The first 10% is to go charity, or tithing; "For God loves a cheerful giver" (2 Corinthians 9:7). If you look in the Bible, tithe means tenth. The law which God gave to Israel through Moses required Israel to give one-tenth of their goods to God. However, God will be pleased with the giver who understands that all he possesses belongs to the Lord. Such an attitude allows him to give generously, cheerfully and according to his prosperity. So as I said, if you're struggling to meet 10%, then start small and grow until you get to 10%. Just remember that "faith without works is dead" (James 2:20). Give with faith in knowing that the Lord can provide for you. He should be the first 'bill' to pay when you receive your pay.
• Pay yourself. The next 10% should go to yourself. Practically every book you read about personal finance talks about paying yourself 10%. This should be a clue. David Bach, author of "Automatic Millionaire," says that your goal it to have at least 6 months of your household income saved. At 10% a month, this will take 5 years. This not a long time. Imagine if your household earns $100,000 a year. That means in only 5 years, you will have $50,000 in cash set a side! How good will that feel to you? Especially in today's economy, where almost 1 in 100 people don't have a job, job security is not there any more. Having that money set a side is real comforting. Once you have 6 months of your salary put a side, start investing your money. Now than ever is the best time to buy in the market with everything low. Now that you have money put a side, that you're not living off of, you can take more risk. The greater the risk, the greater can be your return. Imagine making this commitment for 20 years, what type of portfolio you can build by just putting 10% a side. Millionaire's understand this concept. In addition, paying yourself, helps the 'stuff happens' fund. Most people don't save, because they seem to always have an unexpected expense occur that wipes them out. Don't do that to yourself. Leave that 70% alone so you can live, and let that savings help you in those stormy times. Start now. Don't wait for that one thing you need to take care of first. Because things will always happen, and you will never get to the point to start building your Financial Independence Plan by waiting. Trust me. I know I waited long enough.
• Build Your Net Worth. The last 10% is to build your net worth. If you keep doing what you've always done, you'll keep getting what you always got. If you don't like what you're making right now, then you have to find other ways to bring in more income. This is where this 10% comes in. Don't wait for another promotion or another job. It won't be nearly as rewarding or have even close to a greater return than building for yourself. This 10% is used to find an opportunity that can give you a ROI, return on investment. This can be a financial portfolio or investing in a business opportunity. The key is once again, you have money set a side, which allows you take a little more risk, because if you lose this money, you can still survive. Robert Kiyosaki, the author of the bestseller, Rich Dad Poor Dad, said that the only way to get ahead in life, is to build an asset that is going to pay you whether you're working or not. Think about it. If you're the only one bringing income, when will you ever be able to stop working? Start searching for an opportunity that can build you a nice passive, and even better, a residual income, that can pay you forever. I found one just a few years ago, but now that I understand that I need to always keep investing in to it, in order for it to grow faster. This little 10% you invest in, can eventually replace your full time income, and then you are able to seek other opportunities and keep building and building until you not only have enough to live the lifestyle you always dreamed about, but you have built a legacy for your family for generations to come!

Receive an allowance each paycheck
This is not the same as paying yourself 10%. This is part of the 70% portion of your income. After all your bills have been paid, go to a bank and withdraw some cash for your entertainment and other miscellaneous expenses. We live in a debit card society, so it's important to understand this concept for budgeting purposes. This also helps when you're out and there are times where cash is necessary. Don't get too involved with the debit card. It's much more difficult to keep track of what you're doing, and you end up at the end of the month asking yourself, "Where did it all go?" This really helps for people who have a problem keeping a budget, such as myself. I liked the ease of a debit card, but it was so hard for me to keep within my budget sliding my card everywhere. Now, every time I get paid, I to the bank, withdraw some cash, and use that for my haircut, going out to eat with friends, movies, etc. Once that cash is gone. No more fun. Don't replace this with paying yourself 10%. Your 10% savings takes precedence over your allowance. If you don't have any money left over after your 30% investment and all your bills paid, do you think you deserve an allowance? Allowance is a reward to yourself for doing good. So be sure you earn that allowance.

Keep a minimum. Don't bottom out.
Once you start paying down items, and you start reaping your harvest from what you sown with your 30%, it will be easier to do this. But definitely make this a goal as soon as you can. This is more for mental and developmental purpose of your financial education than anything. Bestselling author and international speaker, Jim Rohn, taught this basic 70/30 plan. I've also heard him in a leadership conference talking about how he doesn't allow his bank account to go to a specific dollar amount. He first started with a $1,000, then $2,000, then $10,000 and so on. He knew, that if got below that point, then he was in trouble. It hurt me to see my bank account go to zero or sometimes even to the negative, and have more month at the end of my money, counting down to my next paycheck or next deposit from my business. Don't put yourself in that position, and be tempted to pull out of your 30%. Set an amount so you don't bottom out. It can be just $100 or $50. Then set a goal to keep increasing it. Trust me. It's a different feeling when you log in to your account, see all your bill have been paid after giving to the Lord, yourself, and invested, and you still have money left over! When I started this, I was in a rough position like most, so I had slow down in order to speed up. The definition of insanity is doing the same thing over and over again, and expecting something to change. It may hurt you at first, but you will move so much faster in life by implementing the plan above. Short term pain for long term gain.

Tips for a Successful Financial Independence Plan.
Systematic Investment & Withdrawal. To help your self-discipline, set up everything you can for systematic investment and withdrawal. I have two investment accounts, one for my business, and my personal. For the direct deposit of my paycheck from work, I am able to choose two banks. So I have 10% dropping in to my business account, and the rest will go in to my personal account. For paying myself, I have my personal account set up to systematic invest an amount each month in to a money market fund. I can also manually buy in to it as well, so when I get a deposit from my business, I can take 10% of that and buy in to that fund. Yes, I work the 70/30 plan with my business income as well. I'm looking for a maximum return. 10% of the income generated from my business is going to the Lord, another 10% to myself, and investing 10% right back in to the business in addition to my normal 10% (This income, I earned, right? It part of the plan). Now I can't systematically pay my tithes. That's the only check I write each week. I also enroll in online bill pay and have all my bills set up for automatic withdrawal each month. It was hard at first, because I didn't know what I could pay, but once I went through the budget, I was able to set up everything to pay automatically. Once the system was in place, it was on auto-pilot.
Don't get lazy. Reconcile. Don't log in to your account every time you want to purchase something. Always know how much money you have. Always get a receipt for everything, so when you come that night, take 2 minutes out of your evening before you go to bed, and reconcile. That balance will always be more accurate than what's online, because stuff doesn't post immediately, and we sometimes forgot what we have done over the last couple of days. Get in the habit of reconciling your account.
Credit is to build leverage. Not Buy Now Pay Later. You should always have enough money to pay for everything you get. Credit is not free money. Credit is used to help you build leverage and protect your assets. Businesses know the money is coming in. They have financial analysts and accountants that tell them how much they can borrow with the revenue that is coming in. We should be no different than a business. I pay most everything with cash now. My debit card with my investment account acts like a credit card, so I have all the benefits of a credit card, such as money not coming out until month end, fraud protection, and reward points. Reward points had me wanting to use my debit card all the time, but I had to be disciplined in giving myself a cash allowance. A few reward points here and there just wasn't worth it. The only time you should carry a balance longer than 30 days on a credit is if you are building credit. It is one of the best ways to build credit. Keep a balance for 60 to 90 days, then pay it off. Good for rebuilding your credit as well. In addition, never borrow money for an asset that depreciates, then your loan is going to be greater than the asset, and you're gonna end up 'stuck' with something until that loan is paid off. A great example is a car. Most people will buy car with a loan. Cars depreciate fast. There should be only two options you should consider when purchasing a vehicle. Pay in cash or lease. I love a lease, because I can get a brand new car, pay a small amount every month, and I can turn it in when I'm done and get another one. I love mostly, though, paying in cash. No monthly payment and drive as many miles as I want. That's what gets most people when leasing. However, if you plan on sticking with the same make of a car and even the same dealer, typically they don't worry about mileage. My car is paid off in 11 months. More discretionary income! Woohoo! I'm not getting another vehicle for a while.
Own. Don't Rent. If you already own a home. Great. If not, then you may have to wait a while. It's tough to buy a house these days with the credit crunch. But owning a home gives you great tax incentives (which will be explained more later), and you can use the equity as income (probably not a whole lot of equity now, but it will come back). So a house is an asset. Definitely plan on buying in the future.

Create A Tax Shelter
It's not how much money you make, it's how much you keep. Taxes can be a killer, especially when you earn a lot of income on a W2. You may gross $100,000, but your only taking home $65,000. Ouch! What makes it even worse, is that if you make that type of income, most times you'll end up paying more when you file. Another Ouch! If you're single making a great income, then it's a bigger ouch! Don't get hurt by taxes. Develop a tax shelter. There are lot out there, but the most popular one is a business. The best tax incentives is owning your own business based out of your home. The average home-based business gets a $5,000 - $7,000 tax credit just for the intent of making money! That doesn't mean you made you anything. So if you invested in a business that cost you $1,000 and you attempted to make a profit, the Uncle Sam will put you in profit mode! Believe it or not, the tax code is designed for small business owners, because that's who generates the economy and provides the most jobs. They do anything they can to keep those people in business. You see at your job, when you get paid, you pay taxes, and then get to use what's left over. In business, you get paid, spend everything, and pay taxes on what's left over. Also, other assets, have great tax benefits, like owning a home or if you have an investment account. Many people are using their losses on their investments accounts to help them pay less taxes. People are always looking forward to that refund at the end of the year. Why let the government have an interest free loan from you? Take as much as you can now, especially if you're implementing this Financial Independence Plan. Try to get to a 'net zero' tax filing. Don't owe. Don't pay.

Put Together A Great Team
The team I'm talking about here is to have a good bookkeeper, a good CPA, and a good attorney. There is a lot of software out there today that can be great bookkeeper and help keep your budget on track. Also consider someone you trust that is great at bookkeeping to help you. Although, there are some great tax software out there, you still have to know what tax benefits you have. I would rather pay someone $100-$100 that can put me at net zero or get a tax refund, then buy some $60 software, miss out on some great tax incentives I wasn't aware of, and miss out. A good CPS is important, especially when you own a business. Lastly, but definitely not least, is to always have a legal team that can teach you how to protect your assets, review documents, and always knows what's in your best interest. Just consulting with an attorney frequently can save you tons. That's why I love the business I do!

Success is determined by the choices you make every single day. The choices you make revolve around your philosophy. It's your philosophy that determines your activity. Your activity determines your results. Your results determine your lifestyle. So if your philosophy is determining your choices, and you have not become successful, then you have to change your philosophy. In case you haven't figured it out yet, Success is a choice.

“Every morning in Africa, a Gazelle wakes up. It knows it must run faster than the fastest lion or it will be killed. Every morning a Lion wakes up. It knows it must outrun the slowest Gazelle or it will starve to death. It doesn't matter whether you are a Lion or a Gazelle... when the sun comes up, you'd better be running.”

Live To Dream Big!

James Jackson, III