How to Move from Deficit to Surplus

In two weeks’ time I will be speaking to a

Finance

Finance (Photo credit: Tax Credits)

group of small business owners about personal and business finances. What’s interesting about this is that I am clearly not a financial expert; I am simply telling my story of some important financial lessons I have learned over the past year that has enabled us for the first time in years to do better than just keep our head above water in financial terms; it has helped us to purchase a home and six months into leaving work, I am yet to earn less than the equivalent of my final monthly salary while in employment for every single one of these months.

In my adult life, I have seen how it is possible for a man to earn lots of money and still be so heavily in debt. I have seen that when I gained an increase in salary, my net financial condition never truly improved. Even when I moved to a new job that paid £8,000 p/a more than the last job; it didn’t mean I had money to save and in fact after sometime the race to payday began again in earnest. My solution was to at least ensure that bills were paid, so I put in all my bills to come out of my account on the 26th of the month, one day after I got paid; and I never bothered to check my account on payday, I checked on the 27th to see what the bank has left for me; and this was usually not much, clearly not enough to see us through to the next month.

Around October  last year (2011); I picked up a book my wife owns and has been on our shelf for a while Rich dad’s Cash Flow Quadrant by Robert Kiyosaki;  it would set us on a timely path to understanding the root cause of our ‘not having enough money’ in spite of increased income. Among many other things the book pointed out, we were set up for a deficit living not a surplus living.  We did not have a surplus, we did not have a cushion- we simply were gushing out more than we earned ; and it seemed that with the new earnings came new taste; scouting for a house to rent in the posh part of town, planning on sending our son to the best private school in our city (not necessarily a bad thing in itself), getting a bigger car – “I’d like to have one of these four by fours”- all these stuff suddenly began to enter the lingo of our dinner table discourse. This new appetite was solely responsible for the disappearance of the £8000 we now had more than the last year and on the net we were even deeper in the negative as we began to fulfil some of the smaller ones of similar ambitions.

Kiyosaki advises that you pay yourself an amount every month and you should do so before paying any bills. I believe that the tithe should go out first as it is not just a tenth but is representative of your first fruits and positions God as first in our life and finances, secondly ‘pay yourself’- whatever amount you have decided; it could be a tenth also- the bottom line is that the amount you pay yourself should be kept safe, unused to begin the building blocks of your financial cushion that ultimately you will utilise in fulfilling your dreams like the seed money for that business you have always planned or the deposit to purchase a property.

I will cut through the chase as most people will say we know that, but we simply do not earn enough to afford to do that. Here’s what Kiyosaki did- he paid himself, paid his tithe and then determined what was required to pay his bills and subsist for the rest of the month; this would be some hundreds or a thousand dollars above his income; once he knows the difference, he goes out to find a way, whether by some odd job or using his knowledge, experience and talent to earn some extra money to cover up the difference for that month. Whatever it was, he never touched his ‘cushion’.

This principle was fundamental in our (newly started) road to financial recovery. How I wish, I can say we followed that recipe perfectly; unfortunately not; but we did substantially; interestingly we have benefitted more from the process than the results; because suddenly we were looking for a way to move into a more affordable accommodation and the thoughts of a four by four vehicle purchase has totally disappeared from our dining table talk. Within months, we were happy to know that we had some bit of money somewhere and began to think what we will do with it when it gets to a certain amount. Like many things in life, it is never smooth because suddenly came other factors that made us have a reason to dip into the cushion; but in all the principle has stood us in good stead; did I say that we own our home now (purchased via a mortgage) and it is not in the posh part of town.

 

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