Creating a cash flow chart is vital for future financial independence. A
cash flow chart will show you if and how well you are able to save, if
you are living beyond your means and how well your financial future will
play out if you don’t make any changes. 

It will also highlight all of the problem areas where changes need to be
made, as well as assess your current standard of living. A cash flow
chart is basically a list of everything that you shell out money for
each month. 

In addition to the expenses that are highlighted in your budget such as
utilities and groceries, a cash flow chart includes expenses that you
might not think of such as entertainment, dinners out and shopping
indulgences. 

There are two options when calculating expenses for a cash flow chart:
you can estimate expenses or track exact figures for a period of time
before completing the chart. Tracking is the preferred method as it
allows you to realistically calculate expenses and see what you’re
really spending. 

Most people underestimate what they spend for certain things. For
example: You may think that you spend $200 a month eating out, but the
numbers might be much higher or lower when you calculate the total using
receipts and bank statements. 

To create your flow chart, first gather all statements that you can use
to track spending including bank statements, credit card statements,
receipts, billing statements, etc. Review the expenses on these
statements and categorize each expense using the following categories:
mortgage, utilities, maintenance, taxes, car payments, commuting
expenses, credit cards, insurance, loans, clothing, child care, food,
medical, education, vacations, entertainment, alimony and child support. 

Don’t forget to include a category for savings and investments. Include
everything that you pay out, and look for hidden expenses. Once you have
gathered all of figures, add the expenses of each category together to
create a sum total for each category. 

Now, add up your income and subtract your expenses from your income.
Hopefully, the number will be a positive number. If not, you need to
make some quick changes to get your finances in order. To improve your
balance sheet, look for areas where you can save money. 

If your cash flow chart indicates that you are spending $300 a month on
entertainment, make an effort to reduce the amount of money that you
spend for entertainment. You don’t have to eliminate entertainment from
your budget. Instead, look for less expensive ways to have fun with your
family. 

Other areas where quick changes can be made include clothing, food,
vacation and personal items. If you have a shopping habit that is
wreaking havoc with your cash flow, limit the number of times that you
go out shopping each month. Do everything that you can to improve your
numbers. Your financial future depends on how well your cash flow is
handled today. 

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In order to achieve financial independence, you need to develop a
clearly defined set of goals. A list of goals is essentially a wish list
of everything that you would like to achieve in the future.

For example: If you want to own five rental properties and a vacation
property in Cancun, your goals would include these two wishes. Of
course, goals at this point are not clearly defined or achievable; they
are merely a dream. What is needed to turn your wish list into an
attainable set of goals is a plan.

Before you can set goals, you need to identify them. Take some time to
write down the things that you would like for your future. Stay away
from vague goals such as “to be wealthy.” Instead, formulate concise
goals such as “to be able to retire” and “to be able to take care of my
family financially if I die.”

Do not be afraid of adding things to your list of goals that seem
unattainable. You may be able to make some things happen that you never
thought possible with a little bit of clever planning. If your goals
turn out to be unrealistic, you can make adjustments later.

Next, you need to figure out how much money it will take for you to
reach your goals. Let’s use the first example involving rental
properties. If you wish to own five rental properties, figure up how
much it will cost to purchase five rental properties using real estate
comparables in your area.

Be sure to allow for appreciation if you do not plan on purchasing for a
while. A house will cost you more ten years from now than it does today.

Now, you need to break your goals down into increments so that they are
easier to achieve. Break each goal down into short term (0 to 1 year),
medium term (1 to 5 years), long term (5 to 10 years) and longest term
(10 plus years). For example: If you wish to own five rental properties
in 15 years, your goal breakdown may look as follows:

* Short term – Start savings plan and contribute (blank) percentage of
income each week.

* Medium term – Invest savings into 10-year savings bonds.

* Long term – Pull money from retirement plan and cash-value insurance
properties.

* Longest term – Purchase rental properties.

Every goal that you can come up with can be broken down this way. When
you break goals down into easily attainable steps, they become easier to
accomplish. Breaking down goals this way also allows you to identify
goals that might be unreasonable under your present set of
circumstances. If reaching a goal requires saving 150% of your income,
you need to make adjustments in your current life to make your goal
possible.

Breaking goals down also gives you hope. By concentrating on one step at
a time, you can stop dreaming about your future and start taking the
necessary steps to make your dreams become reality.

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Recent studies show that most families spend more than they have coming in. How is this possible? Credit and debt makes it possible, but it does not make it advisable. We can use the current economy as a stark example. The economy has collapsed primarily because of credit spending and the breakdown of family finances.

Take a moment to see how your finances add up. If your budget shows that your expenditures exceed your income, you are in serious trouble. Immediate action is necessary if you wish to keep your current lifestyle and secure a financially independent future. Before we get into ways that you can reduce your debt, let’s take a moment to look at the most common types of debt that lead to financial problems:

* Credit cards * Auto loans * Impulse shopping

All three of these types of debt put a huge dent in your finances. Exorbitant finance rates jack up the price of everything, turning good deals into expensive luxuries that you cannot afford. It’s true; that economically priced KIA could cost you more than you ever dreamed. Fortunately, there is a way to reduce debt and turn things around. The following tips will help you take control of your debt and secure financial independence.

* Reduce Expenditures – You must dramatically lower the amount of money that you spend each month. Separate your needs from your wants and start eliminating bills. Some areas where most families can cut costs include entertainment, travel, clothes, gifts, home improvements and new auto purchases.

* Pay Off Credit Cards – Purchasing items with credit cards is the most expensive way to shop. If you owe balances on your credit cards, you are throwing away money in interest each month. Think about it this way: If you pay off a credit card with a 19 percent interest rate, you will save the same amount of money that you would earn placing the balance owed in an investment account with a 19 percent yield.

* Consolidate Debt – Consolidate everything that you can into accounts with lower interest rates. Transfer credit card balances to cards with low rates and flex-pay features. Take out a second mortgage to pay off all of your high-interest debts.

* Debit Don’t Credit – Avoid using credit cards at all costs. Freeze them, cut them up…do everything that you have to do to make your credit cards inaccessible. Use your debit card for internet purchases and other purchases that require a credit card. It is very tempting to let credit card purchases accumulate interest charges.

* Borrow – The greatest thing about borrowing money from family is the interest rate that you will receive. Nowhere else will you be able to obtain a loan with a 0 percent interest rate.

Your financial future is completely dependent on the steps that you take today. If you are struggling financially now, things will only get worse if you do not do something to change your circumstances.

Calculate Your Worth Most people dream of financial independence, but financial independence is always something that happens in the future for them. This type of thinking is easily identified by phrases that start with, “Someday I’ll…” If you are guilty of this type of thinking, it is time that you start living in the here and now.

While it is not a crime to dream about the future, you need to have a solid understanding of where you stand today and what it will take to make your dream future become a reality. The first step in determining how financially sound you are and how much work it will take to become financially independent is to create a net worth statement.

A net-worth statement will show you how much money you are worth currently. One of the easiest ways to create a net-worth worksheet is to download a free worksheet online. You can easily find such a worksheet using a simple keyword search and your favorite search engine.

Of course, you don’t necessarily have to use a worksheet. If you can remember all of your assets and information without the aid of a worksheet, by all means do so. The first part of the worksheet refers to all of your assets.

Here you will enter anything that you own that has value including checking account balances, savings balances, money market accounts, certificates of deposit, treasury bills, cash value of all insurance, investments, retirement funds, real estate owned, vehicles owned, furnishings, fine jewelry, collectibles and anything else of value.

Always record the fair market value of these items, not the amount that you paid for them. If you still owe money, record the amount that the property is worth. We will deduct debt in the next section. Next, list all of the money that you owe including money owed for loans, mortgages, alimony, child support, income tax liability, credit cards, personal debt, etc.

Do not enter utility payments here or other payments that fluctuate with time or can be canceled such as cable and/or internet service. This section is for debt and credit payments only. Now, it is time to see what you are made of.

To calculate your net worth, simply subtract the total sum of your liabilities from the total sum of your assets. If your number is a positive number, you are doing something right. If your net worth is in the negative, you need to make some changes to secure a financially independent future.

If your net worth is paltry or in the negative, do not fret. It is more important to face your financial situation head on than it is to show a positive net worth at this point. Before you can make any changes for the better, you need to know where you stand.

So, you have taken the first step toward a better tomorrow. To make sure that you stay on track, recalculate your net worth annually.

Saving is vital if you want to enjoy a financially secure future. Not only do you need to learn to live within your means and save what you can today, you also need to start a savings account and begin investing in your future.

Everyone, regardless of income level, can enjoy a financially independent life. All it takes is good money sense and a smart strategy to get moving in the right direction.

To illustrate the importance of saving, let’s examine how a $10,000 windfall is spent by two different families. Family A uses the $10,000 bonus to buy a slightly used vehicle. Family B saves the money and dabbles in a few investment opportunities that pay off.

Ten years pass, all that Family A has to show for their $10,000 is a rusty car with that’s worth a few hundred dollars. Family B has been able to double their money, and is now sitting on $20,000 that will continue to grow exponentially.

As you can see, smart money management is paramount if you wish to build a financially secure tomorrow. To build your net worth, you need to change how you spend money and start putting more money back into savings. The following tips will help you do just that:

* Stop living for today, and start living for tomorrow. Sure, a new car may be nice, but do you need it? What will the car be worth in the future? How much will you spend in repairs and maintenance? Is the price really worth the momentary joy that you will receive when you are traveling from place to place? If you really think about it, your money will probably be best invested elsewhere or put into a savings account.

* Cut back on all unnecessary expenses and invest the money saved. There will be plenty of time for subscription services and designer handbags when you are financially secure. Stop spending your check as soon as it comes in, and start learning to live within your means.

* Create a smart saving strategy that puts at least 20 percent of your net income into savings each week. Build your savings account until you have six months worth of income saved.

* Once you have enough money in savings, begin investing 15 percent of your income. Put the additional 5 percent in savings so that you continually build your savings.

* Avoid dipping into your savings account at all costs. Always try to look for ways to cut costs or make extra money without dipping into your savings.

Money makes money. If you hold onto more of yours, you will not have to work as hard in the future to live the lifestyle that you are accustomed to. To ensure your financial success, save all the money that you can and invest it wisely. The goal is to put your money to work for you, rather than you going to work for more money.

Marriage is a time for optimism and happily ever after. Who wants to think about money, debt and the problems that can sneak up on you after marriage? Unfortunately, many couples put the thought of such things off until after the marriage is performed.

Many couples do not even know their intended’s financial standing until it is too late. This head in the sand attitude has led many newlywed couples down the path to financial ruin. Some marriages even end in divorce solely because of financial problems.

Engagement calls for full disclosure of financial matters. After all, debt solutions cannot be implemented unless everything is out on the table. Remember, your fiancé’s debt problems will become yours once you say, “I do.”

Credit problems may prevent you from purchasing a home or a new car. Your opportunities will be limited by your combined credit scores.

Many couples try to get around the problem by relying on the good credit standing enjoyed by one of the parties involved. Unfortunately, this can have devastating consequences. Relying solely on one person’s credit decreases the amount of credit that one can obtain.

For example: you will only be able to qualify for half the house that you could afford as a couple with two incomes. Putting everything in one person’s name also puts the person with bad credit at a disadvantage if a breakup occurs.

Debt Solutions before Marriage

Ideally, debt solutions should be implemented and carried out before the marriage occurs. You need to sit down with your intended and go over each other’s credit reports.

Come up with real solutions to improve both of your credit scores before the marriage takes place. Following are some ideas that can help you improve your credit score in as little as six months:

* Pay down credit cards. Credit cards should only carry a balance of less than 25% of the credit limit.

* Pay off bad debt starting with the most recently defaulted account.

* Improve debt to income ratio by unloading or paying off debt. For example: Sell your car to eliminate your car payment.

* Piggyback off of someone else’s credit. Your credit score is based on length of credit. If you’re young, ask to be a cardholder on your parent’s account. You will get credit for the length of time that they’ve had the card.

Debt Solutions after Marriage

After you are married, debt solutions can still be implemented with great success. However, you will not be able to start off with the life that you dreamed of. Follow the above steps as a couple.

Joint accounts with the high credit score as the cosigner can also help build up the credit score of the other person. Be sure to pay all bills on time and avoid accepting needless credit until all financial problems are resolved.

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Credit counseling services help families alleviate the pressure associated with burdensome debt. Agencies do not help overextended people file bankruptcy; rather they help establish a plan that results in immediate relief and gradual elimination of debt. There are two main types of debt services: profit agencies and non-profit agencies. Most non-profit agencies are funded by credit card companies trying to recapture money owed on defaulted credit cards. For profit agencies are individual businesses that make money counseling people with debt problems.

Non-profit agencies do not have to pay taxes and are funded with government dollars and funds from credit card companies. Profit agencies make their money solely from the fees they charge their customers. As you can imagine, non-profit agencies usually cost less than for profit agencies. However, many companies still try to charge exorbitant fees up front. The cost for starting a counseling program should be no more than $100. You should expect monthly fees of about $50. In most cases, these fees are calculated into your monthly budget.

Most profit and non-profit debt services offer the same services, however, some states bar profit agencies from performing certain tasks such as negotiating with creditors. In such cases, the counselor advises the debtor and walks them through the process of negotiation. Non-profit agencies, on the other hand, usually have the power to negotiate with creditors directly. On the plus side, creditors are usually more willing to lower fees if there is a real plan in place and you are represented by an organization. Having a counselor negotiate for you lends credibility to your case.

In this time of economic hardship, non-profit organizations are overloaded. If you seek debt services through a non-profit organization, you may have to endure a waiting period. Your sessions and one-on-one contact with your counselor may also be limited. A hired counselor may be more accessible. So, if you wish to have maximum contact and constant updates, a profit agency might be your best bet. If cost is a factor, however, the money you save with a non-profit agency might be worth the wait.

The amount of time that it takes for debt counseling agencies to complete negotiations and set up a payment plan depends primarily on how much debt you have. If your creditors are particularly stubborn, it may take a while for your counselor to complete negotiations. Again, a hired counselor will probably have more time to devote to your case which means it will close quicker.

Debt services have high success rates if the plan is followed to completion. They are also more successful if help is sought as soon as financial problems begin. If financial problems are allowed to linger and escalate, bankruptcy might be the only alternative. It is recommended that people seek debt counseling as soon as they find it difficult to make one credit card payment. Unfortunately, many people wait until it is too late.

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If someone stole more than $2,500 from you, you would be irate. You would file a report and pursue every possible lead until your money was returned to you. What if I told you that someone was in your wallet right now and that they were going to make off with thousands of dollars worth of your hard earned money? You’d pay attention, wouldn’t you? Well there is someone in your wallet; there may even be multiple people in your wallet. For every credit card that you have, you will waste thousands of dollars in interest.

The numbers associated with credit card debt are staggering. A card with an APR of 19% will take 25 ½ years to pay off if there is a $2,000 balance owed and no more purchases are made. This is assuming, of course, that only the minimum payment is made each month. Such a payment plan will cost the card holder more than $2,600 in interest. If you have a credit card or multiple cards, you are losing at least this much in interest. You may be losing even more.

You see, the numbers above only apply if the card is no longer in use. If you have a credit card with a $2,000 revolving credit limit and you purchase something every time that you have available credit, you will never get out of debt. The interest charges associated with such activity could be extreme. And that’s only considering one credit card. If you have several cards, you could be wasting more money than you ever thought possible.

Using the scenario above, let’s suppose that you bought a $2,000 plasma TV using a credit card. When all is said and done and you’ve made all of the payments, you could have had two plasma TVs or you could have taken a really nice family vacation. Throwing away money on interest charges is like throwing out your hard-earned dollars out with the trash.

Now, let’s talk about smart credit card use. Following are rules that you should always follow when using credit cards:

* Never carry a balance that exceeds 25% of your credit limit. Credit card debt that exceeds 25% harms your credit score.

* Always pay your bill on time. Late charges are astronomical.

* Do not use your credit card to finance your life. Only make purchases that you can pay off within a month or two.

* Do not drive your balance up with back to back purchases.

* Always pay 2 times the amount of your minimum payment.

Credit card debt is at the forefront of what is making people financially sick. If possible, avoid credit cards altogether. If you have to use credit cards, use them wisely. They are tools; they are not a way of life.

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