7 Steps To Wealth: Plan

7 Steps To Wealth

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Welcome to the 7 Steps to Wealth. You’re on Step Two, Plan.

STEP TWO: PLAN

Plan for what? You have to plan to be rich

Much like our first step, Decide, most people never accomplish Step 2, Plan. It can feel daunting, especially if you’re overwhelmed by the prospect of wrangling financial documents and crunching numbers. 

Let’s break it down. Building wealth has a few core components:

The 7 Steps to Wealth are:

Save regularly, and spend less than you make.

When money comes in, it goes three places: taxes, saving, or spending. What you don’t spend, you save, and vice versa.

Whichever option you choose dictates the other.

Makes sense, right? Most people, though, choose spending first. They save what’s left, which is typically not much, then spend their whole lives being dominated by this math–and frustrated with their results. 

If you follow media headlines, you’ve probably gathered that many Americans are worried about retirement. Social security funding is dwindling, pensions are scarce, and because many people struggle to follow the “save more than you spend” rule of money, they don’t have a nest egg to rely on. 

Remember how I said that every story of financial failure you’ve ever heard was a result of failure to execute on one or more of the 7 Steps? 

Not feeling prepared for retirement is no different.

The first component of a wealth plan, which you cannot ignore, is deciding to make some tradeoffs between today and tomorrow by putting money into a savings or investment account instead of spending it.

Simple, right? But…not easy. Life is expensive. I get it. And the more you make, the more you’re likely to spend.

Remember my personal rock bottom story I shared in Step One? At that point in my life, I was spending the entire balance of my checking account and more. (Thank you, credit.) 

Saving didn’t come first, and because it didn’t come first, it didn’t come at all.

Of course, knowing you have to spend less than you make isn’t really a step or a plan–it’s more of a necessity if you want to achieve financial success.

So, what do you do about it? You make a conscious decision to save, and then you build a plan to make it a consistent habit.

And if you want to make it easy on yourself, you automate it.

Automate your savings. (Really, automate everything.)

This takes a bit of legwork on the set up, but the mental load you’ll save in knowing your savings are automated—and you’re more likely to outlive your money—will be worth it.

First, a primer: Cash flow is literally the flow of money into and out of your accounts as you earn and spend it. 

What I recommend: Automate your cash flow through a system of multiple accounts and automatic transfers between those accounts. 

Automation allows you to first save for things like retirement, taxes, vacations, or your next car before you spend your money on the immediate gratification of going out for food or buying yourself a treat. 

Cash flow automation allows you to fund your financial goals without thinking about it. (It’s autoMAGIC!)

This method of management makes it so much easier to spend realistically because you save first–in an account you cannot easily access–and then what’s left in your checking account, you can spend down to zero every single pay period without sacrificing your long-term financial goals or stability. 

Inconsistent income can make cash flow automation a bit more tricky, but not impossible. Consider a real estate agent who might have zero dollars coming in for months, then get a check for six figures: 

She can predetermine what percentage of every check is going to get saved for taxes and long-term savings. In my experience, the best thing to do is keep the account where that lump sum income gets deposited at a completely different bank from your personal spending accounts. 

(Don’t let your brain trick you into thinking it’s available to spend!) 

By organizing your accounts and automating transfers, that six-figure check can get distributed in smaller, equal transfers over four, five, or more months. That way your bills get paid and you don’t overspend.

Financial automation takes the drama out of your financial life. I have many, many multi-millionaire clients who swear by this system of managing their cash flow. 

When I speak with people who struggle with managing their cash flow, most think they have an income problem and need to earn more. The truth is most people have a spending problem and are failing to plan. 

Wealth is measured by how much you save, not how much you spend.

And people who have a wealth plan spend less and save consistently.

Saving takes discipline, which makes this a fun fact: Did you know the number one predictor of wealth isn’t an inheritance, a high IQ, or where you went to school? It’s personal accountability.

A man named Steve Siebold discovered this when he wrote the book How Rich People Think. He interviewed a thousand millionaires (!!) and concluded the number one predictor of wealth was a sense of personal accountability. 

Rich people believe they’re responsible for their results, and that is correlated with being financially independent. So, taking responsibility for your life can feel like a burden, but the truth is that taking responsibility is the only way to get true financial freedom. 

Having a plan creates a sense of personal accountability, which means you take responsibility for the results you see in your life… instead of being a victim to the past. 

It means you look around and say, “I have control over this. My decisions are going to right this financial ship.” Because no one else is going to do it for you.

If your current financial habits include spending money you know (deep down!) you shouldn’t, then you really can’t get in alignment with a wealth plan. 

But before you start to blame and shame yourself for this “lack of willpower,” I invite you to consider that overspending may not be a willpower thing. It’s deeper than that, because overspending is a Money Operating System® problem! 

Your mind is so powerful. Until you identify the flaws in your Money Operating System® and begin to rectify them, you’re likely to repeat the same patterns over and over again. 

In my story, I was spending all my money–and then some–so I could live the life of a rich person. I wanted to look like I was rich, but I missed the point:

Being rich isn't about how much you get to spend, it's about how much you get to keep.

Over-spenders aren’t always irresponsible or short-sighted… it’s more likely that they just don’t have a plan.

For every single one of my firm’s wealth management clients, we have a plan in place for them that we are checking in with on a regular basis inside our partnership. Without those plans (and making course corrections as needed!), we wouldn’t see the success that we have to date.

And in case it’s not enough for ME to tell you that you need to plan:

According to surveys done by Charles Schwab, people with a written financial plan are 60% more likely to increase their savings rate over time and twice as likely to stick to their savings plan than those who don’t write it down. 

Furthermore, 76% of people with a written financial plan report feeling more in control of their finances, and a whopping 96% feel “very confident” they’ll accomplish the goals they set for themselves. 

By contrast, only 40% of people without a plan feel secure, and 18% have confidence that they’ll reach their financial goals.

The statistics are pretty compelling, but only 36% of Americans say they have a wealth plan in writing. 

In fact, according to a study published by Statista Research Department, more Americans played the lottery this year than created a wealth plan…but winning the lottery is not a plan you can count on. 

You know the saying: If you fail to plan, you can plan to fail.

So what should your wealth plan include?

Your plan needs to take into account your short-term goals, like buying a house, a car, going on a vacation, or paying your kids’ tuition. It also needs to include your long-term goals, like saving for retirement or building generational wealth.

There’s a lot more to say about this, and the wealth plans we build with our clients are much more comprehensive and individualized based on their goals, but the point is: 

If you want to grow your net worth on a consistent basis, you won’t get far without a plan. 

But if you accomplish deciding that you want to be rich and planning to achieve your goals, my friend, you have achieved more than most people ever will when it comes to their money…

And you’re ready for the next step.

Ready to feel more financially secure? Get started on your wealth plan today!

Click here to download The 7 Steps to Wealth

You’ll get all seven steps delivered straight to your inbox, with accompanying audio lessons and journaling prompts–including a list of action items to help you prepare a net worth statement and create your wealth plan.

All investing involves risk, including the potential loss of principal. There is no guarantee that any investment plan or strategy will be successful. Advisory services provided by Hendershott Wealth Management, LLC (“HWM”), an investment advisor registered with the U.S. Securities and Exchange Commision. Registration does not imply a certain level of skill or training.

All written content in this article is for information purposes only. Opinions expressed herein are solely those of HWM, unless otherwise specifically cited. Material presented is believed to be from reliable sources and no representations are made by our firm as to another parties’ informational accuracy or completeness. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation.
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