Top 10 Ways To Get Started on Your Road To Financial Freedom

When we work with individual clients on a one-to-one basis, in The Money Gym we use as a framework for our coaching calls, a practical 10-step process called the Financial Intelligence Programme.

I am going to be sharing with you some of the key concepts covered by each of the modules in the Programme. Each has their own action steps but to get you off to a flying start, here are the Top 10 things you can do to get ready to improve your financial situation right now. A warm up, if you like.

1. Why Do It At All ?

Find your motivation. No-one will ever care as much about your financial well being as you do. Just think about how it would feel to work because you want to, making confident financial decisions, never having to answer to anyone again? Listen to the news knowing that you are unlikely to be affected by redundancy, be able to make life choices based on other criteria than just money. Feel strong and supported with a financial cushion behind you. Give back to your community in some way or work in the third world. In the words of the bank, there is another way and you can create it.

ACTION STEP: Write down how you would like to be living your life, on a Tuesday in two years time and another Tuesday in ten years time. Write down where you are, who you are with, what you are doing from the moment you get up to the moment you go to bed. If you carry on as you are, are you likely to be able to live that life? No? Is this compelling enough yet? If not, go back and make it more so.

WARNING: This is the first hurdle that most people fall at. If you think that this step is pie in the sky and can be bypassed, be warned. If you can't be bothered to do this properly, you will probably never be able to create financial abundance for yourself - successful people take the time to create powerful visions for themselves. It makes the goal setting so much more fun and takes away the need for "self-discipline".

2: Discover the 4 Lanes of The Wealth Highway

The greatest relief of all is that there are only four ways to create real, lasting, sustainable wealth. I'll be going into the four lanes of the wealth highway in more detail in later articles but, for the moment, think to yourself, Phew! that's not too overwhelming - I can learn about just four things! Those four lanes are Property Investment, the Stockmarket, Minding Your Own Business and Profiting From Your Passion. Each has a myriad of vehicles to ride in - perhaps a pushbike will suit you better than a juggernaught initially. Perhaps you will want more than one vehicle in each lane!

ACTION STEP: Decide if you are a pushbike person or a Ferrari person. Both will get you there but one will be faster. Think about which lane of the motorway you are going to drive down first - and no, you don't have to get a vehicle on all of them to start with, but if you can be aware that the more vehicles you have on each lane, the faster you will get to your destination.

3: Give up Self Discipline for Simplicity

I mentioned self-discipline briefly earlier. I don't actually believe in self-discipline. I believe in creating a compelling vision, setting chunked-down goals and timelines, setting things up so that they are as easy to achieve as possible and designing environments and support systems to ensure your success. We have talked a bit about the compelling vision and the second part of the puzzle is simplicity. The secret to financial success is KISS (keep it simple, smartie!). I have tried every accounting package under the sun (Microsoft Money worked for a while) but they are all just too complicated. You don't need all that stuff! A simple Excel spreadsheet that tracks your bank account and feeds into a 12 month cashflow forecast will do the job nicely.

ACTION STEP: Learn how to use Excel fast. Nothing fancy, just a few simple basics.

4: Pull It All Together

The oil that lubricates your vehicles is information. How can you make good decisions if you don't have all the information you need at your fingertips? Here is where we gather everything you will need into one place. Don't worry! You don't have to do anything with it just yet.

ACTION STEPS: First of all, The Equipment. You will need a ring binder or two, some coloured file dividers (minimum of 5), plastic wallets to keep small items and loose sheets in, a hole punch and a stapler. Three pens, black, red and blue or green. Gather everything together first, because if you need to get up from your seat for anything, you will get distracted by the kettle, the washing, the cat, and you will lose the momentum. Next, gather The Information. Recent bank statements, credit card statements, wage slips or sales invoices (if you are self employed). Tax stuff, put it in a separate pile. File the bank statements at the front section, in date order, oldest at the back. Credit card statements similarly. Next the "money in" section, wage slips or invoices. Then the "money out" section. Receipts or invoices for things you buy. How much you divide each section up is entirely up to you - again, keep it simple to start with. Get a printout from the bank of all current direct debits or standing orders.

5: Can I Have A Receipt Please?

Receipts fill in the knowledge gaps between your bank and credit card statements - especially if you make a lot of cash withdrawals. Try to get into the habit of paying by switch - it lists the shop name on your bank statement and helps you figure out what you spent where (unless you are trying to stick to a budget by taking out a fixed amount of cash per week and living on that!).

ACTION STEPS: Get into the habit of asking for a receipt for every purchase you make. It's easier to ask for a receipt every time, than trying to remember what you need receipts for (or not). Tuck them immediately inside your purse, an envelope in your bag, or a plastic wallet in your filofax. Once a week, empty them out into one of the plastic wallets in your lever arch file. Label the wallet "Receipts - w/e 31/12/03".

6: I'll Just Get The File Out

Mark Forster, best selling author on Time Management, says that when you tend to procrastinate about doing essential tasks, the best thing to say to yourself is "I'll just get the file out". I will go one further step back here, and ask you to think to yourself, "when, each week, is the best time for me to just get the file out"? Unless you schedule some regular time to look at your finances, you will never get round to it, the receipts will pile up and it will swiftly become a psychologically insurmountable task.

ACTION STEPS: Start slowly Don't expect to be able to change the habits of a lifetime overnight. If you can just get into the habit of collecting the information you need and keeping it tidy, you have all the tools at your fingertips for when you are ready to move to the next stage. Well done! Make Time If you schedule some time each week, you should be able to do everything required to become a financial whiz kid in about 2 hours maximum. Sunday or Monday mornings are good, so are Monday evenings.

Perhaps you want to take a day off to get started? Or use that dead week between Christmas and New Year. So when ARE you going to "just get the file out"? Get support You could talk to your partner, spouse, etc. and tell them how you want to get a handle on your money, and tell them the time you have set aside to do it. Ask for their support, by not distracting you or tempting you with offers of "more exciting" things to do. I promise, as your financial intelligence increases, as you take more action, as your wealth creation gathers pace, this will swiftly become one of those "more exciting" things - that allows you to do even more "more exciting" things.

7: Saving v Investing

I never understood the point of saving. What did you save for? Things you were going to buy later. Why not have them now then? I didn't understand the difference between saving and investing. And the interest rates were so pathetic what was the point? I totally didn't get the power of compounding. Nobody told me that what counted was not what you earned but what you kept. Nobody said that the reason wealthy people are wealthy is because they are taught to put an extra step in between "earning" and "spending". That extra step is investing. Investing in assets that produce income themselves.

Then about three years ago I saw a drawing that changed my life. Here it is just below this section. The blue line is your income, the red your outgoings, the black arrow being the difference between the two (what you keep) and the green line the interest your savings can earn you taking into account the power of compounding. When the green line crosses the red line - you are financially free. Blew my mind.

ACTION STEPS: Read the greatest book on wealth creation (apart from mine!) by Robert Kiyosaki, author of "Rich Dad, Poor Dad" . Buy that book and read it from cover to cover then read his "Rich Dad's Guide To Investment" and then "Prophecy" and then go look for his hub on Hubpages!

8: Take Your Financial Driving Test

You wouldn't expect to get in a car, never having driven before, blindfolded, no seatbelt, hanging your legs out of the window, drinking champagne, driving the wrong way up the motorway in the wrong lane and not end up in a car crash, would you? Well, so many people take their first excursion into wealth creation with no skills, no training, no advice, no mentor or coach, no wonder they come a cropper!

How many folk do you know, who buy a share on the stockmarket based on a hot tip from a bloke in the pub, then wonder why they end up losing money. How many people leave their job and start a business doing something they loved to do as a hobby, then wonder why they end up as one of the 85% whose business fails in the first year? How may people invest in "buy to let" then wonder why their "hot property" sits empty or worse, ends up being "squatted" by a bad tenant?

ACTION STEPS: Decide which lane of the wealth motorway you are going to tackle first. Get a book, take some training, find a mentor - get started - by all means as quickly and inexpensively as possible, but get help!

I recently went on a property investment course that cost £1880. Expensive? I learnt two things that made me a minimum of £40,000. Starting to look cheap now! You CAN learn this stuff and you should be ready to invest in training in the same way you paid for your driving lessons. And if you are finding yourself resisting that idea, think about the hot tips from the bloke in the pub. How good is "free advice" really? Usually the reason it's free is because it's worthless!

9: Create A Wealth Team

But there are people worth listening to. Find a great bank manager - usually a business bank manager rather than a personal manager. Imagine how many businesses they see per week - they see the good and the bad, the ones who are successful despite themselves and the ones that fail even thought the idea is good. A good accountant can help you set things up well for you before you even start. A great solicitor will help you avoid legal problems you may not even know about.

I have two or three wealth "buddies" - people who are more successful than I am and who love to talk about what they are up to. Inspirational, knowledgeable, supportive, aspirational, and they love to share what they know. In the same way, avoid people who are negative about everything or who are "energy vampires". They will come out of the woodwork as you become more interested in wealth creation and finance and it always amazes me how much energy they will put into trying to discredit what you are learning about or trying to do, rather than improving their own lives!

ACTION STEPS: Make a list of all of the people you spend significant amounts of time with. Work colleagues, friends, family and anyone else you may network with. Put a tick next to their name if they are positive, supportive and successful in their own right. Use your own definition of success here. Start to identify who could be in your Wealth Team and begin to ask some searching questions.

If you want to get involved in Property Investment for example, then ask everyone you meet (and particularly everyone you are thinking of including in your Wealth Team) these kind of questions. Are you a Property Investor? How many properties do you have? What is your investment strategy (or plan)? If you are interested in starting your own business, ask they if they have any other businesses on the side, what they are, what the plan is for that business? If they answer in the negative, go and find people who are involved and already active in what you want to do. Surround yourself in action orientated people.

Why would they talk to you and tell you their business? Because successful people have an abundance mentality, they love to share what they know, and learn from other people. For all they know, you may be able to teach them something new! And you will, one day.

10: No Magic Wands

So sorry there are no magic wands. Sorry that you will have to take action. Sorry that there are no knights in shining armour. But remember, doing something 30 times makes it a habit. If you just ask for a receipt 30 times it will become second nature. If you just get the file out 30 times, you will be in the habit of sitting down to spend some time on your money. Don't give up if it seems overwhelming, get help.

ACTION STEPS: Make it fun - play games with things like debt busting! Draw a grid for each debt with a square for every repayment you will make on each debt and colour each square in every time a standing order goes off. Get Cashflow 101 (see www.nicolacairncross.com/resources.htm) and practice wealth creation on a boardgame first! The more fun this is, the more likely you are to take action. Find a buddy who is into this wealth creation mularky as much as you are, and get your partner/spouse on your side and excited about the possibilities of financial freedom for them too. Find a mentor or get a coach, one who actually does the things you aspire to do.

But whatever you do, do something! I know you can.

Good luck & best wishes

10 Easy Steps To Financially Intelligent Bank Accounts by Nicola Cairncross

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One of the things I have struggled with for years is the question of having different bank accounts for different activities (which makes sense) yet trying to keep things simple because as sure as eggs is eggs (sic), any money is invariably in the wrong account at the wrong time. I know that all the other living-on-the-edge-entrepreneurs will know what I'm talking about!

The other challenge I have is how to account for items spent using credit cards. Physically how to enter them into my "day-book" so that they make sense to my money, and to the tax man - as my day-book is used to prepare my accounts.

I needed a blueprint on how to design a supportive environment using my bank accounts. One that would be almost automatic, one that would "work".

The first glimmer came when I read US coach Mike Neill's "Freedom Fund" tip; I think it's perfect for employed people who want to leave their job and start a business. I'm going to go into it a bit below, but to read it in full, join the Silver Level of this site and it's one of the recources in Module 3: Cashflow.

Then, over Christmas I was reading Mary Hunt's book "Debt Proof Living" (which is excellent by the way), and she goes into bank accounts in great detail. A light bulb moment. Wow! I realised that if you combined this stuff with Mike's Freedom Fund tip, it would be a great blueprint for how to set up your bank accounts to be a support system, a new "environment" to help you evolve into your new financial lifestyle.

So here it is, with thanks to Mike Neill & Mary Hunt.

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10 Steps To Financially Intelligent Bank Accounts

1. Start with creating a Freedom Fund.

So you want to be self-employed . My bank manager says that most companies fail because of a lack of profit or bad cashflow management, so let's see if you can run your company finances right now, as if you had already started.

Look at what you typically earn now, per month, and then think about that as the total income for your company (as if it existed already). Then think about what realistic amount you could manage on, if you cut out some unnecessary luxuries. Think about this amount as your "salary" to yourself. Aim for paying yourself a salary of 80% less than your company's gross earnings (your current monthly income).

Set up a high interest deposit account with 90 days notice for withdrawals, transfer your monthly income over, to be paid into the new account, and set up a standing order to transfer the 80% - your new salary - into your usual account. Live on that for a while. It'll be worth it because you are proving that not only are you a good boss because you can manage the company's money, but you will be creating a Freedom Fund. (www.freedomfactory.com)

2. Paying "Upstairs" or Paying It Forward

Anyone seen the great film "Pay It Forward"? The concept is that you should always do great things for others in the certain expectation that your kind deeds will make an amazing difference to the world. And that, , in some roundabout way, via maybe fantastical and unlikely routes, a kind deed done by someone around the world somewhere else, will find its way to you. It's a variation on the "Good Karma" theory, if you like.

Most wealth creation experts agree that if you give or "tithe" a certain part of your income regularly, you will start to create abundance in your life. Mary Hunt says that "Giving teaches my brain that I have more than enough" and I agree with her that, when you give, you are starting to move beyond scarcity. When you live in financial scarcity mode, this is one of the hardest things to do. But it's a fact that all of the world's great wealthy people give. They give their time, their money, set up foundations and do a lot of fundraising. I am convinced that, if you want to become truly wealthy, you must decide right now that you will systematically give to others a set % of your income, no matter how tiny to start with. Do it by standing order or direct debit, out of your freedom fund bank account, but calculate it on a % of your 100% not on a % of your 80% salary. Create some freedom for others, from hunger, from abuse, from disease, from fear.

3. Pay Yourself First

It's hard when you are struggling, to get your head around this next concept - Pay Yourself First. Robert Kiyosaki explains it very eloquently in his book "Rich Dad, Poor Dad".

Poor and middle class people tend to pay everyone else first. They pay the government in the form of their taxes, the car loan company, the mortgage company, Sainsbury's or Tesco's for food, the garage for car repairs, off-license owner for wine at dinner, even McDonalds for the kid's Saturday afternoon jolly. Paying everyone else first.

So why are those people or companies more deserving of your hard earned money than you? Especially the government. Did you know that, if you are employed and paying PAYE, you are typically working until April every year just to pay your tax and national insurance?

Every time you hand over cash or write out a cheque, especially while you are not yet creating one of the Funds below, remember you are paying that person or company first, before you are paying you.

Tip: A good figure to aim for here is 10% of the 80% or so that you have decided on, as your salary.

4. Your Catastrophe Fund.

Okay, we accept that we deserve to pay ourselves first. So what do we do with the money?

Out of our 80% salary, first, we must create a Catastrophe Fund, in another bank or savings account. This is not money for unexpected, irregular and intermittent expenses, you know, the ones that we forget to budget for, and end up scrabbling to find the cash for, like a new lawnmower, auto repairs or ballet classes. No, this is for major catastrophes, such as divorcing, losing your job or falling ill, when perhaps your only other fallback would have been to turn to the personal loans or credit cards. Experts usually agree that this should be between 3-6 months living expenses or you may prefer to set a particular amount of money down here.

What would make you feel secure? £2000? £5000? £10,000 or even £20,000? This will become your second line of defence against incurring debt (see below for the first line). Use a different account with a 30 day withdrawal notice period and set up a standing order from your day to day account into this account. Remember, this is a limited time period payment - when your set figure is reached, you can divert this money elsewhere.

Tip: You could either start this with your entire 10% or do half and half perhaps, leaving 50% for your Contingency Fund.

5. Your Contingency Fund

This is an amount of liquid cash, money you can get your hands on in 24 hours for the minor emergencies in life. We are talking boilers blowing up, camshafts breaking (who knows what they are but I know they're expensive!) or perhaps the roof leaking and needing to be fixed fast, before the insurance will pay up. Remember, this is a finite payment, when the Fund is full, you will divert the monthly amount put into it, into something else. Your attitude towards this fund will either make or break your new Financially Intelligent lifestyle. This is not a pool of money to be used for anything you fancy, (like a holiday or a new coat) but a cushion amount that will be used, then topped back up from the Odds & Sods Fund. Tip: Figure about £1000 for your contingency fund.

6. The Odds & Sods Fund

Okay, brace yourself. This is the tricky one to get your head around.

Before credit, people had to plan ahead. Whether you had a lot or only a little, you never spent all of it because anticipation meant survival. Then the easy availability of credit meant running out of cash didn't mean running out of money, leading us to think that being able to spend money was the same as having money.

Anticipation meant thinking only of the good things that were going to happen, like a pay rise, the monthly wage cheque, the next holiday. It didn't mean the unexpected trip to the dentist, the new shoes, the car breaking down. So we stopped anticipating, stopped planning, got sloppy. We started to consider occasional expenses as optional expenses and it's only when one rises up screeching and bites our bottom, does it become an essential expense.

We are using up and wearing out our cars, our clothes, our homes a little bit every day. How much are you thinking about the brakes on your car that are going to brake for their very last time in about eight weeks from now?

When the unexpected expenses come at us seemingly out of nowhere, we collapse in financial shock and have to reach for the credit cards, but really, they are not that unexpected are they? We just didn't do anything about them. But it is crucial to plan for those things as well and this is where the Odds & Sods Fund comes in.

Step 1. Determine your irregular, unexpected and intermittent expenses. List them, and then estimate what you spent on each, in the last 12 months. Divide each by 12 to get a monthly amount and total up that monthly amount.

Step 2. Open up a bank account called Odds & Sods Account (or any other name you like). Set up a standing order for the total monthly amount as worked out above.

Step 3. Set up a mini day-book for each category in your Odds & Sodds account, and when the first standing order goes through, enter the credit amount as your opening balance on each sheet.

Step 4. If you have to write a cheque for any category, enter it as a debit in that category. You will find at the beginning that sometimes you will have to write a cheque that is bigger than the credit balance for that category, but it will usually be covered by the amounts deposited for other categories and it will go back into credit as you deposit the next months totals.

Step 5. When you get used to using this method, enter any unexpected windfalls to this account but add them to a new category, a dream account. Add in dream categories like a new computer or perhaps a holiday.

Step 6. Your goal is to have a full year's requirement for any category in each sub-account at any one time. The best thing of all about the Odds & Sods account is that, when you reach the amount you estimate you spend in a year on any category, you can divert the extra to one of your dream categories.

TIP: Beware of thinking of your Odds & Sods account as a savings account - it is not, the money in there is meant to be spent (on the planned things!) and it is meant to ebb and flow.

7. Keeping Track

Many of my clients groan at the thought of "keeping to a budget". I know from my own experience that you can set budgets till you are blue in the face but you will rarely stick to them.

Mary Hunt talks about filling in Daily Spending Record Cards which then build into a Spending Plan. One month's Spending Records turn into the next months Spending Plan. She says "A Spending Plan is something you create for your life that is uniquely based on your desires and responsibilities........decide what you want to spend money on in advance rather than when caught up in the moment". Simply see what happened last month and project what is going to happen next month. Then if you get brave, build your monthly Spending Plan into an annual Spending Plan.

Look at each item on your last month's spending cards. If you spent £90 on Cafe Lattes, determine what you are going to spend next month on that item. If you feel, instinctively, that £90 is a bit much on coffee, but £60 would be ok, then write that down and see how you do.

Tip: The total on your Monthly Spending Plan should not exceed the amount left by your 80% salary less your standing orders for Pay It Forward, your Catastrophe Fund, Your Contingency Fund and Your Odds & Sods Fund. If it does, adjust each item's planned expenditure until it fits and you feel comfortable with it. See No 10 if this step fills you with despair!

8. Credit Card Purchases

I used to dither horribly about how to handle things bought on credit card from an accounts point of view. And, good intentions notwithstanding, living in an online world, one does have to use credit cards sometimes.

This is what you do. Keep a simple day-book record that records your payments in, and payments out, of your bank account as you make them. It's called a day-book because it keeps a day by day record of your bank balance and you can simply run five columns or break it down further. Check this off against your statement every month at least (we do ours every week).

Enter credit card payments as you spend out on the item NOT when you make a payment to the credit card company. Include the exact amount of the purchase and deduct it from your bank balance - this will keep firmly in the front of your mind what you are really spending.

When you receive the monthly card statement, check off the items listed in your record, against the items on the statement. Move any items you have listed but that don't appear on the statement to the next month of your record as that is where they will most likely appear. Enter any charges and interest as an expense, then, total all the card related entries up, and enter the total amount in the Credit column, effectively cancelling them out.

Then write a cheque for the total amount, enter it into the debit column and send it off. If you are breaking your spending down into different categories, don't enter this credit and debit, as you have already entered the individual items. Effectively you spent it, credited it and spent it again, so it only effects your day book balance once, in the end.

Tip: This technique enables you to know the real impact on your monthly Spending Plan of any purchases and should enable you to pay the card off in full, every month. If you are carrying forward any balance and you want to pay some of that off too, then enter the amount repaid off the balance in a different column "debt repayment" to any new purchases

9. Excuses, Excuses

This may all seem a bit overwhelming at first. But you can take it step at a time, and believe me, the first steps are the hardest, it gets easier after that. If you flex your financial good habit muscle it gets easier and easier.

I'm not suggesting you change your bank, just set up your bank accounts to suit you, to support you and to enable you to know exactly where you are, financially, all the time. Get your accounts named so that if you slip, and write a cheque from the wrong account for an item, you are immediately aware of what you are doing - you can then rectify it.

Information is power and that power can be yours.

Tip: If your bank manager gives you a hard time about opening more accounts, then think about changing your bank. Set up all your new accounts and then close your old one. It's easier than you think. Did you know that more people get divorced than change their bank?

10. Two of the Great Secrets to Building Wealth.

If you have looked at the above in despair, if your heart sank because you know that you could never afford to live on 80% of your total income, much less set up a Pay It Forward standing order, create a Catastrophe Fund, a Contingency Fund or an Odds & Sods Fund, then I am right there with you. I used to feel exactly the same. "It's all very well for you" I would shout at the books. "There's never enough to do all this stuff !"

Well, here is the thing. Here are two of the secrets to beginning to build wealth. Are you ready? There will never be enough - unless you learn these secrets.

Secret 1: If your books aren't balancing, you can do one of two things. You can spend less or you can earn more. The alternative is going deeper into debt.

Secret 2: The second secret is this - it's not what you earn, it's not what you spend, it's what you keep and what you do with it.

There - simple isn't it? Simple but not easy. If you are convinced that you can't spend less, or earn more, then what you need is me.

We can help you with this stuff.

Copyright: Nicola Cairncross Jan 2008

You can use this article on your website or in your ezine as long as you credit the author and link to this hubpage.

Nicola Cairncross works with bright, professional people who are always seeking to enhance their financial intelligence. Learn how to make your money last longer than your month, profit from your passion, or develop passive income flows via The Financial Intelligence Programme. She has been featured in the Times on Saturday, the Financial Mail on Sunday, the Observer Money and the October issue of Red Magazine and on CNN Breakfast News Worldwide and BBC Radio.

Visit her at http://www.TheMoneyGym.com/Welcome