THE MATHEMATICAL FORMULA FOR FINANCIAL FREEDOM

What is your current financial situation? How do you pictureyour financial future? Iím sure most of us are concerned withthe quality of our life after retirement, and we find that theapproach of almost all people to prevent being broke at 65 or 70follows a common pattern ñ go to college (or at least saveenough money to go to college), find a high-paying job, setaside a part of their salary and put them in a bank or investthem in the hope that they will grow considerably in the future.Unfortunately, this does not work for everybody all the time.While there are some people who might luck out in investmentsthat give a high rate of return, others might not even be ableto have a savings account (living hand to mouth as they barelymake ends meet), and end up old, poor, and miserable.And this is what happens often!So how can we steer clear of a possible retirement crisis?Financial planning is the key, and below are a few pointers thatwould bring you financial freedom.Establish your goals. Before anything else, you need to determine your financialgoals, be it short-term or long-term. Are you planning to have adream vacation? Buy a house? A car? Save for your childreníscollege education? Preparing for your retirement? A clear-cut objective will give you the motivation to and driveto go through your financial plans.The basics: how to have the money?Once you have your goals in place, the first step towardsfinancial freedom is to build your base. This means acquiringthe funds or the money that you will cultivate in the long run.There are two ways to do this: Borrow. The advantage to borrowing is that you can have themoney that you need instantly. Newlyweds could have their dreamhouse on the first year of their marriage by taking out ahousing loan instead of having to wait 10-25 years to purchaseit. The disadvantage to borrowing is the idea of incurring aliability, the burden of having to pay an amount that issignificantly greater than that which you have actually received.Save. Setting aside a certain amount of money in the form ofsavings might deter your future plans, but it offers aworry-free way of building up your base ñ it adds up to yourassets, not your liabilities.Still, most people find it hard to save money and take the easyway out by borrowing. The following are helpful hints on how tomake saving work for you:Know your ìbottom lineî.The primary thing to do before you decide to save for the futureis to know your regular cash flow ñ how much money are coming inand how much of them are going out. A breakdown of your incomeand expenses, preferably on a monthly basis, would be a bighelp. You can construct a budget table that lists the following:Income ß Salary ß Bonuses ß Commissions ß Interest income (fromsavings and other investments) ß Rental income (from propertiesthat are rented out) ß Social security and/or pension income ßAlimony, others Expenses ß Rent/mortgage ß Utilities (electric,phone, cable, etc.) ß Food ß Clothing ß Insurance payments(health, home, life, auto, etc.) ß Debt payments (credit cardbills, child support, alimony, etc.) ß Health expenses(medical/dental) ß Childcare expenses (schooling, etc.) ß Taxpayments (income, property, etc.) ß Transportation expenses(tolls, gas, car payments/maintenance, fare, etc.) ß Personal(allowances, etc.) ß Recreation (vacation, etc.) ß Others(gifts, etc.) Subtracting your total income from your total expenses willyield your ìbottom lineî: ß A positive net figure means that your income is greater thanyour expenditures, and this is the amount that you save givenyour existing income and spending habits.ß A negative net figure, on the other hand, means that you donot have anything left to save ñ your expenditures are greaterthan your income. However, this would help you evaluate yourspending habits to determine where you can cut back yourexpenses, like renting videos instead of going out to movietheaters, or dining at home instead of eating in restaurants.Your savings as your ìexpensesî.Now that you know your bottom line, you can already have aballpark figure of what you can save (say, in a month). Knowingthe amount that you have to save, stick to it. The trick here isto view this amount as part of your expenditures, so the firstthing to do once you receive your paycheck is to subtract theamount that you allot for savings before allocating the rest onyour other expenses.Stay on track.Once you become used to the practice of saving a specific amounton a regular basis, do your best to keep on it. Although thereare times of crises or urgent situations that may require you todeplete your savings (an urgent trip to the hospital, etc.), donot be disheartened. Instead, learn to appreciate the value ofyour savings ñ that they are there, something that can be usedin times of emergencies. Just carry on with it, and try to stayon track.Your financial strategy: aim high or aim low?You now have the money ñ the task is to have it grow. Are yougoing to put it in a bank or at the stock market? Beforedeciding which financial vehicles to use, you have to evaluateyourself to determine to which group you belong:Conservative. This group has a lower tolerance for risks. Theyare more concerned with the preservation of their capital aswell as the safety and stability of their investments, even ifthey mean lower yield.Aggressive. This group has a high tolerance for risks. They arewilling to brave the market ups and downs in exchange for higher(or maximum) returns.Knowing your level of risk tolerance would help you choose thetypes of investments that suit you and your goals.Where to put your money?Now you are ready to expand your money base. There are a numberof investment opportunities to choose from, and some of them arelisted below:1. Savings accounts 2. Money market deposit accounts 3.Certificates of Deposit (CDs) 4. 401(k) Plans 5. 403(b) TaxSheltered Annuities (TSAs) 6. Individual Retirement Arrangements(IRAs) 7. Keogh Plans 8. Stocks 9. Bonds (Savings bonds,T-bills, Zero coupon bonds, Municipal bonds, Insured bonds,Convertible bonds, High-yield bonds) 10. Mutual Funds 11.Annuities 12. Social Security 13. Life Insurance (Term, Whole,Universal, Variable) 14. Health Insurance 15. DisabilityInsurance 16. Long Term Care Insurance 17. Homeowners Insurance18. Auto Insurance 19. Estate Planning Additional pieces of advice:A rule of thumb: diversify. When investing your money, it is notadvisable to ìput all your eggs in one basket.î Spread it outacross several types of investments so that you can have otheroptions when one of them is no longer working out well.Never put your money on something that you do not fullyunderstand. Study them carefully. Ask questions. Seek advice ifyou must.Take your time. Do not pressure yourself when making decisions.See? Earning money is so easy. With these guidelines, you nolonger have to worry about not having enough money forretirement. To quote:"Once the laws of getting rich are learned and obeyed byanyone,that person will get rich with mathematical certainty."-- Wallace D. Wattles