Have you ever felt like your bills are massive, but the paycheck barely covers them? Maybe you work full-time, but can’t seem to make ends meet. Maybe you’re trying to save money for retirement or for a future college fund, and have no idea how much that’ll cost. Or maybe you just don’t feel any financial sense of accomplishment at your current job because your paycheck just doesn’t go as far as it could. There’s also the possibility that simply feeling broke makes you anxious, depressed desirous to get rich in a short duration of time, perhaps within 12 months.
Whatever the case may be, knowing what went wrong with previous financial plans will help alleviate these problems in the future so they don’t happen again. Perhaps you make too many impulse purchases with little to no planning. Or maybe your money management skills are severely lacking. Whatever it may be, understanding the problems in the past will help with planning for the future. This article will help you do that by providing 12 steps on how to go from broke to rich in 12 months. So let’s get started.
Reviewing Incomes and Expenses
Inorder to get rich from a broke in a 12 months period, you firstly need to face up to your finances and find out exactly where they fall short in achieving your ideal lifestyle. A general rule of thumb is that if your expenses per month exceed your income per month, then you are most likely living paycheck-to-paycheck or spending more than what is necessary for life’s basic necessities such as food, shelter and clothing.
If your expenses and income per month exceed the basic necessities by more than 10% of your annual income, you are probably living at a deficit. You can be thankful that things may not be as bad as they seem on paper; however, these deficits will still take a toll on your finances. Expenses can be as low as $4,000 per year for those who make the salaries of their dream careers like doctors or lawyers. However, families that earn less than this average salary spend an average of $7,600 annually to meet life’s basic necessities where their expenses per month exceed their income by more than 10%.
Financial Planning is a must to get from rich to broke in an year
You need to create a spending plan for this year and the next three years. This will allow you to determine your personal ideal lifestyle and determine if your current income is sufficient enough to achieve this lifestyle or not.
You can create a spending plan by creating an overall budget for all of your expenses whether it’s food, shelter, clothing, transportation, medical needs and whatever personal expenses you deem necessary based on how much money is left in your bank account at the end of each month. Do not skip out on any item that will help you achieve your desired lifestyle or to get a rich person in 12 months from a broke one; no matter how small or insignificant that expense may seem on paper or at first glance.
Plan of Action
Next, you need to develop a plan of action on how you can achieve your ideal lifestyle in the next 12 months getting rich from a broke guy.
You may want to start by eliminating all your unnecessary expenses such as electricity and heating bills. It’s also important to stop making impulse purchases and see if you can do without having anything extra in your living room or garage. You should also cut down on any unnecessary subscriptions and fee-based services that you might be paying for that don’t necessarily become a necessity like cable/satellite TV, gym memberships, etc.
Moreover, from broke, it is not so easy to transform yourself into rich in a short period of just 12 months. So, it is also important to find extra sources of income. If you’re currently employed and earning a steady monthly income, then it may be best to look for opportunities within your current job or within the company as a whole. You may be able to ask for a promotion or raise at your job. Another option could be to start looking for another job either now or in three years when you feel like you need more money in your life.
It’s also equally crucial to know exactly what you want and don’t want in life and how long you need to save your current income for. This way, you can figure out if your desired lifestyle is really worth saving up for. If the extra money will give you peace of mind from being able to support yourself throughout life, then by all means go for it.
Cash flow Management
After planning everything out, the next step is to start managing your cash flow better using basic money management techniques such as taking a closer look at all your expenses and finding ways to save more on everyday items. You should also be looking at ways to make up for any unexpected expenses like buying a more expensive car because your old one’s gas mileage was terrible and due to regular car maintenance charges. Revisit all of your savings and investments and make sure they’re meeting the needs you hoped they would.
Similarly, you can also start meeting people, such as family members, friends or local neighbors that you can trust enough to get them on board with your spending plan. It would be helpful to get others involved in your plan. They are easier to talk to about money matters, and if they see that you’re serious about saving up for something, they can help you stick to the plan and you may get your goal of getting rich from broke in the targeted 12 months time span.
The next step is finding out what assets and savings you currently have and what assets/savings you need to do better planning on how to save up for things. If you’re living paycheck-to-paycheck or spending more than what is necessary for life’s basic necessities, then it’s probably a good idea getting some sort of employment that has a higher pay rate than any of your current jobs. It may also be a good idea to save up more money than you currently have so that you needn’t live a paycheck-to-paycheck life.
Market Analysis for Investment
In addition, make sure that you’re aware of the current state of the economy and which markets are rising or falling for an appropriate investment. It’s also important to make sure that your investments are diversified among different asset classes such as bonds, stocks, real estate and precious metals like silver, gold and platinum. It’s also worthy to make sure that all of your assets (stocks, bonds, real estate, precious metals) support each other in the event of an economic slowdown; otherwise, this may result in poor investments by virtue of volatility.
You can also consider transferring your existing investments into a money market account in order to earn better returns in case the stock market fails.
Stay diversified when it comes to your investments so that you don’t have any large losses in one area of the market or have any large gains in another area of the market due to emotional investing. It’s also important to make sure that you are investing at least 15%-20% of your portfolio into each asset class (stocks, bonds, real estate and precious metals).
You should also diversify your investment sum by getting rid of the high risk/high reward stocks that could end up putting you in a financial hole.
Having Difficulty in Saving?
If you are having difficulty saving money, then you can set up an automatic savings plan with your bank or your credit union. You can also ask your bank to send you a text message or email before any transfers are made to your account.
You can also set up an automatic transfer to your investment accounts so that you don’t have to remember to transfer money at the end of each month. This method is simpler than checking the balance online every day. With this method, all you have to do is log onto your online bank account and download a program that will automatically transfer all your deposits at the end of each month into one or two investments for each account that you have.The next step is to use a simple balance sheet analysis to make sure you’re meeting your financial goals. You should also make a plan for achieving your goals and sticking to them.
If you have a friend or family member that is trying to save money on a certain goal, whether it be spending more time with the kids, going back to school, etc., then it may be more beneficial for you two get together and discuss what each of your future plans are for saving up for your goals.
If you both can foresee any future problems that might arise in your spells of savings, then you can work together to find the solutions. Also, if you see that each of your financial situations are in dire need of improvement, then you might want to put in extra blood, sweat and tears into these areas so that you both have a better financial situation when it comes time to spend your money on whatever it is that you want.
In 12 months, being ‘broke to rich’ is a really long, difficult journey. No matter how much money you start out with, the path to becoming wealthy will always involve a lot of hard work and tough decisions. In fact, many of the wealthy people of today were once broke. In order to boost your finances, try to start planning for retirement as early as possible and learn how to save more on everyday items throughout your lifetime. Further, you can also study about millionaire and Billionaire mindset to understand the ways of the rich. If you start today, perhaps you may be rich from the current situation of a broke person even earlier than the expected 12 months. The secret is simple; start right now.