Friday, August 30, 2019

The 3 Financial Goals

In life there are really only three financial goals that we strive for. The schooling that we get individually affects how well we do with each of these goals, and the education about money starts at home.

By learning what these goals are, you will have a better grasp on your current situation and what you can to do to improve it. Everyone's situation is a little different, and there are many ways each of these goals can be met, so keep that in mind as you read on.

1- Survival

The first money related goal that we must meet is that of survival. There is a minimum amount of money or time that must be spent in order for our families to survive. This number never goes away and has to be met every day, week, month, and year. The power bill, rent or mortgage, food, all these items have to be paid for in some way.

So the first financial goal of any individual is to meet this minimum survival number. This is most often accomplished by getting a job where you are paid for the time you spend working, or for the number of units you build or sell. The basic education you receive through elementary, middle school, and high school is preparing you to enter the work force so that you can meet this survival number.

2- Capitol

Do you remember the first thing you bought with your own money? How long did it take? How many chores did you have to do? How many dogs did you walk, or lawns did you mow, or children did you babysit? During all that time, and work you were trying to raise capitol. Capitol is any money that you have above and beyond meeting your basic needs. It is money that is available to do something with. This is usually the first financial goal that children experience. They want something, and a wise parent will make them earn the money to buy it, or at least half of it.

College education, a technical certificate, or other additional education beyond high school helps you get a better job, one that pays for your basic needs as well as some extra. The largest problem with raising capitol through your own work is spending the extra money on unnecessary items, which raises your overall cost of living negating the pay raise that you got through your additional education. Whenever you get a raise, or a better job, pretend that you don't have extra money, and use the capitol you gain from this practice to reach the next financial goal.

3- Retirement or Passive Income

Passive income is received by owning a business, or stock in a business that pays you a dividend. This is where the amount of time you spend working goes down and the amount of money you receive goes up. As the owner of a stock that pays dividends, I don't have to do anything but own the stock before the Ex-div date. As the owner of a rental property I only have to own the house and do the work to get a renter to live there (including occasional repairs). By owning a business I set up a system that generates money, and reap the rewards. 

This type of income has no formal educational structure, it is learned by doing or by being mentored by someone who knows the ropes. By raising capitol from your own efforts or by finding investors you have the resources to "make your money work for you." You will have to do some work up front to get things going, but once they do they will continue to make you money with very little effort on your part. IRAs, 401ks and other investment portfolios have tax benefits that can help you reach this goal.

Understanding this hierarchy of financial goals will help you better understand your own cash flow and what goal you need to focus on in your personal life. Those who start working on passive income sooner have the best return on their investments, because they have the time for their money to grow, and may retire at an earlier age. So whether you are an entrepreneur or just trying to survive, figure out which of these goals will best serve you and get to work!

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