Income & Outgo – Financial Planning Foundations – Step 1

In my experience the foundation of helping people understand complex financial issues is really to dumb them down to the very most simple of concepts and slowly building on them till they are the proper mix of practical and understandable.
So with the issue of simplicity in mind let’s focus on the only two factors that matter in accumulating wealth – Income & Outgo.
Income – Money that you have to access every month (for simplicity after tax – your gross is 6k per month – 2k withheld for taxes – your income is effectively 4k)
Outgo – Everything, yes everything, that you spend money on. Health Insurance, Food, Donations, Clothing, Potato Ole’s, Books, Bills, Credit Card Payments, Gifts, Gas…everything
This number MUST be positive at the end of the week, or your financial life shall forever be in ruin.
If you find yourself in the predicament of having a negative cash flow you have two very simple options:
1.) Earn More
2.) Spend less
Most people i.e. poor & middle class think that in order to generate a positive cash flow and accumulate wealth the focus is always on spending less. Let’s cut back this expense, let’s eat out one less day per week, etc. While that is certainly an option- it is much easier (and better for society) to simply start earning more money, and maintain the lifestyle that you’ve grown accustomed to.
Ideally you should do both, but in my years of experience this has been almost impossible for the average American to do. While it is certainly frustrating that many people lack the discipline to make good financial decisions there are certainly methods to overcome this shortcoming. (Far be it from me to preach about the lack of discipline, if you ever come between me and a cheeseburger and a Diet Pepsi your life is in grave danger, but I digress)
While there are plenty of adequate books and speakers on how to increase your income, suffice it to say that it must be done, and you must use the excess income from said venture to supplement your savings plans, debt pay-off’s, and business purchasing.
If this concept is foreign to you, that you control your income, you really need to pick up a book or blog on how to earn more money. I won’t spend much time on this as it is not the main focus of my blog, but I will say this; Our society will pay you in accordance to the value you bring it’s members. If you are earning $15 per hour, I am willing to bet that you are genuinely providing a service that is quite close to providing an equivalent value of $15/hour. If you want to increase your income over the long term, increase your value to society!!!! Don’t think about asking for a raise, or getting another job, or going and getting a liberal arts degree. Ask this question “How can I provide the most value to a person/business/government today?” and the money will inevitably follow.
Some of my favorites are T. Harv Eker – he’s a bit annoying, but as he introduced me to a lot of the concepts and took me from valet to entrepreneur I shall give him top billing. If you don’t know where to start on your journey I recommend a personal friend of mine Jason Markow’s Think Here Blog who can give you the foundational support for how to start on the journey.
In conclusion, income MUST be greater than outgo. The entire financial planning process is 100% dependant on this. While you are in the wealth accumulation stage, it will not benefit you at all to win, earn, or steal 10 million dollars if you are running a negative cash flow operation.
As they say, cash is king.

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