Creating Your Own Financial Recovery

Personal financial recovery or stimulus (whatever your flavor) requires a plan, discipline and realistic timeframes. In a society where there is instant gratification (I blame it on the microwave oven) an environment of little patience has evolved. Everyone seems to favor swinging for the fence rather than focusing on one hit at a time. There are 3 phases of the plan.

Phase One. You must create a budget and live within your means. That may require hard decisions if you have taken a lower salary and still have expenses that were supported by more income. Only by creating a budget can you understand your cash flow. To truly stabilize your current situation you must have a rainy day fund stashed away. Most people mistakenly chase paying down debt before they secure an emergency fund. I recommend a minimum of 3 month living expenses and should be closer to 9 months in a recession or periods of high unemployment.

Phase Two. Create a plan to pay yourself first; begin to save and invest for retirement while aggressively reducing debt. You should have a 3 year horizon when predicting expenses. In addition to a retirement strategy you will need to forecast big financial outlays. Will you need a new car? Vacations? College or continuing education expenses? Baby? Parents need assistance in their old age? Health issues? Home repairs? Buy a home?

Phase Three. Take ownership of your investment plan and create a tax strategy. Many people lose sight of the fact that they can give themselves a pay raise with an effective tax strategy. If you pay $2500 less in taxes each year as a result of capturing all legitimate deductions, you have more money in your pocket at the end of the year. I learned long ago that no one will care more about my hard earned money than myself. That does not mean that I do not rely on professionals. However, I do not employ a plan unless I can remain in the driver seat.

Finally, I highly recommend multiple streams of income to secure your financial future. There are active and passive income streams. Typically rental properties and investments are deemed passive, although you can treat them as active if you follow special criteria. Active income streams are businesses that you are personally involved with. Maybe as part of a Directors Board, Consulting work in your profession, multi-level marketing or other part time home based businesses. Not only do multiple income streams give you more diversity and security, it increases your financial literacy and business acumen.