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The golden rule of financial wellness

The financial world is full of complex topics and concepts. Getting on a path towards financial freedom however is fundamentally simple. Following this golden rule will allow you the opportunity to establish a solid foundation where all of your other financial goals and ambitions can branch off of, and pursue opportunities to become fruitful and multiply. The goal is to use this concept as a jumping off point toward understanding the fundamentals around which everything else that impacts your financial wellness is built upon.

These four words can set you on a path toward financial independence and help you to strive to avoid financial ruin.

If you think this is easier said than done, you’re right. It’s why this is only the beginning of your journey. With the right balance of education, coaching, and action you will be well on your way toward achieving the most basic and fundamental rule to achieving financial success.

There are three steps you can take right now to help ensure you are living within your means, or get you on your way.

First things first, know your cash flow and create a budget. A personal cash flow statement is essential in helping you determine what is currently going on in your financial life. Are you spending more than you make? A cash flow statement will tell you. It doesn’t require fancy calculators, spreadsheets, or software. You can simply begin with a pen and paper and begin listing all of your expenses.

Start with your fixed expenses in one column, and then list your variable expenses underneath, now sum it all up to arrive at your outgoing cashflow. If you need some direction, look at your credit card and bank statements for the last month and jot EVERYTHING down. This should provide you with a good ballpark of your spending.

Next, add up all of your income sources. Typical income sources are your salary, rental income, or investment income, etc.

Lastly, subtract your income number by your expense number and this will provide you with your net cash flow. Et voila! You have now created your own personal cash flow statement. In addition, by jotting everything down, you have all of the raw data available to create a budget. You can fine tune this budget and get as granular as you want. A key is to create a budget you can live within, and that helps ensure you are living below your means.

Second, create a personal balance sheet. Take another sheet of paper and list everything you own that is an asset. For example: checking/savings account, investment account, retirement account, real estate, precious metals, etc. Then list all of your liabilities (debts) along with their repayment terms and interest rates. For example: mortgages, credit cards, student loans, and personal loans, etc. Now take your assets, subtract them by your liabilities and that is your personal Net worth. You want that number to be positive! By doing this, you have an added bonus of having some data around your debts and interest rates that you can use to begin formulating your debt elimination strategy!

Thirdcreate a simple strategy that you can stick to and a process to monitor your progress. By doing this you provide yourself with a road map that you can use to start taking action on and help ensure you stay accountable to yourself. Begin by selecting your top three priorities. Just make sure you make your priorities are SMART.

Celebrate your accomplishments and keep going down your list until everything gets done. You will feel a sense of accomplishment and empowerment with every small step you take, and the next thing you know you should be at a point where you are living below your means and can begin making amazing progress towards your financial goals.

Tools and resourcesMint is a great free online budgeting tool, and YNAB is also a great tool with a nominal fee. Both will allow you to track your expenses and personal net worth, and they even provide you with some great personal finance resources to help you along your way.

Congratulations on getting started or picking things back up!

Securities offered through LPL Financial, Member FINRA and SIPC.  Investment Advisory Services offered through LMC Financial Services, a registered investment advisor. LMC Financial Services and LPL Financial are separate non-affiliated entities. LPL Financial and LMC Financial Services are not affiliated with any of the referenced entities.

This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. LPL Financial and its advisors are providing educational services only and are not able to provide participants with investment advice specific to their particular needs. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.