Step 1: Take an Inventory of Your Financial Assets

  • Assign a dollar figure to each of your assets based on its current value, not what you originally paid for it. If you have debts, subtract them from your assets to get your net worth
  • I you have no debts, your assets equal your net worth
  • If your liabilities exceed the value of your assets, you aren’t on the path to financial freedom

 

Step 2: Keep Track of All Your Expenses

  • If you experience a cash flow problem, the only way to trace where the money is going is to keep track of every cent you spend
  • Keeping records of your expenses can be tedious, but it’s a necessary step if you want to learn discipline

 

Step 3: Prepare a Budget

  • Budget is a financial plan
  • A household budget includes mortgage or rent, utilities, food, clothing, vehicles, furniture, life insurance, car insurance, and medical care

 

Step 4: Pay Off Your Debts

  • The first thing to do with the money remaining after you pay your monthly bills is to pay off your debts, starting with those carrying the highest rates
  • Paying off debts will release stress and help you save more which is the next step

 

Step 5: Start a Saving Plan

  • It’s important to save some money each month in a separate account for large purchases you’re likely to make (such as a car or house)
  • The best way to save money is to pay yourself first, when you get your paycheck, first take our money for savings and then plan what to do with the rest

 

Step 6: Borrow Only to Buy Assets That Increase in Value or Generate Income

  • Don’t borrow money for ordinary expenses; you’ll only get into more debt that way
  • Only the most unexpected of expenses should cause to borrow