I recently watched the Ted Talk of Elizabeth White, who was 55 and “faking normal”. It made me think deep and hard. It was an honest look at the personal finance crisis. She had a well-paying job after stellar education at John Hopkins, got an Harvard MBA, worked at the World Bank, but after retirement, she put a lot of her savings in a business that failed and after 9 years, she found herself basically broke.

The truth is that most of us, going about our daily lives, without a consciousness of the swift passage of time, appear to wake up one day and realise that our achievements and laurels, which we worked so long and hard for, are now in the past. We suddenly get those accolades replaced by the pronouns, “used to be” and “formerly”. We ask ourselves where the time went. It appears as if, in the words of John Lennon, we were “…just sitting here watching the wheels go round and round”, until the train of life moved us quietly into the “formerly carriage”.

This silent, relentless passage of time, without consciousness of the future, financial planning, saving & investing, suddenly lands us in the Land of the Poor. Without any notice, the conductor of the Life Train dumps us in the Land of the Poor. We suddenly realise those glittering job and business opportunities no longer abound, income dries up, our lifestyle changes, and in the twinkle of an eye, those café lattes, lunches, dinners, parties, designer clothes and bags, are simply no longer affordable.

Interesting Read: How to Design Your Dream Life

So what do we do to stop this from happening? Hopefully, you are reading this well before the train lands you in the Land of the Poor. The first thing to do is to estimate how long you have before the train reaches that unenviable destination and make a plan to ensure that when the train pulls in to that station, you simply settle comfortably in your seat, in full knowledge that this is not your stop. The further off you are from the station, the easier your financial freedom journey will be. The access to greater opportunities, power of compounding etc, will make your journey smoother. The closer you are, the more strategic you need to be and the harder you need to work. Wherever you are on the journey, you need to build a financial plan NOW!

Building a Financial Life Plan is not as complex as it sounds. The steps to take are:

  1. Calculate your PNW (Present Net Worth)
  2. Dream up your future financial life and put figures to it. That’s your DFNW (Dream Future Net Worth). Give yourself a timeline of between 10 to 25 years to achieve it, depending on how old you are and how aggressively you want to build.
  3. Prepare a budget
  4. Calculate your MPI (Minimum Passive Income) and your INW (Investible Net Worth)
  5. Determine what you will do to get from your PNW to your INW. The main vehicles you can use are:
    • Salary from Employment
    • Business Income
    • Fixed Income Investments from Bills & Bonds
    • Dividends Income
    • Sale of Shares/Equity
    • Sales from Real Estate

Remember there is no success without discipline. Sticking to your plan is all about getting the right learning, building confidence and staying disciplined. Develop habits and routines to ensure you stick to your habits, e.g. use direct debits to take your savings and investments out of your current account as soon as they hit. Ensure you measure your progress. It’s a good idea to put aside at least a couple of hours a month to deal with your finances, review your plan, audit your bank statements and track your progress. You should also invest time in improving your financial literacy.

You can measure your progress with the 11 Stages of Wealth by Joshua Sheats:

0 Financial Dependence    Debt payments > Income, Need others’ help
1 Financial Solvency    Current on debt payments, No help needed
2 Financial Stability    Built up an Emergency fund
3 Debt Freedom    Paid off all debts (perhaps excluding mortgage)
4 1 Year Freedom    Assets worth a year of Current Annual Expenses
5 5 Years Freedom    Assets worth 5 Years of Current Annual Expenses
6 1o Years Freedom    Assets worth 10 Years of Current Annual Expenses
7 Financial Security    Passive Income > Basic Annual Expenses
8 Financial Independence    Passive Income > Current Annual Expenses
9 Financial Freedom    Passive Income > Planned Annual Expenses
10 Financial Abundance    Passive Income > Dream Annual Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

I wish you the very best, a smooth and comfortable ride on the train to the Land of the Financially Free!!

Remember to Design Your Life, Live Your Dreams, Day by Day!