The journey to financial freedom may be challenging, but the good news is that no matter your current financial situation, you can still begin to build wealth from today and you can still achieve significant success. You may be wondering how to begin, where to start from, and the first thing you need to do. The AGALEC strategy is designed to help you kickstart that journey, build the capacity required to sustain your wealth, and move from income depletion to income replenishment.
Here are two common questions I get from my clients during coaching sessions:
“I do not make enough income to cover my expenses, how can I possibly build wealth when I can’t meet my expenses?”
“I have a college degree, but it is difficult to find a job. I am currently unemployed, so how do I start?”
These are all very important questions. Many people see themselves asking these questions or wondering where to begin.
Let’s take a look at where we are financially, so we can determine where to begin.
A: You fall into this category if you make enough income to support your expenses. You have a good-paying job and/or business(es). While some people in this category may be able to afford a luxurious lifestyle now, they may not have adequately prepared for the future. They may not have prepared for emergencies like loss of job or business, or for the wealth they can pass onto their next generation. It is also possible for some people in this category to have prepared for the future and achieved financial freedom. Congratulations if you are in this category! But wait…You still need the backbone strategies, so read on!
B: If you make little income compared to your expenses, or spend more money than you make, then you may fall into this category. The bottom line is that the income you make is not sufficient to cover your current expenses. This means there may not be any plans for the long-term future or short-term emergencies. Or maybe you have a plan and actually doing something; Sounds good, but you can do even better.
C: You fall into category C if you do not make any income at all and you are still struggling to find ways to earn some kind of income.
THE AGALEC STRATEGY
Whatever category you find yourself above, the AGALEC Strategy provides a defined approach to get you started on building wealth and to continuously build wealth from whatever financial position you are currently. Achieving financial security is not about how much you make, but about how you are able to turn your income into wealth.
Yes, having a job or a business and earning income is essential to achieving financial security, but that alone is not a guarantee for sustainable wealth. What if you suddenly lose your job? Or your business? Are you prepared to sustain yourself and your family for at least six months or one year? Let’s take a look at the future; if for any reason you are no longer able to make the level of income you make now, or you are retired, are you prepared to live your desired lifestyle in the future?
The only way to answer yes to these questions is to turn your income into wealth through savings, investments, and other forms of wealth, and secure your financial future with income that will not disappear if your job or business does. Here is the signature “AGALEC” approach – six steps to take as you embark on the journey to financial freedom.
The AGALEC strategy to sustainable wealth, therefore, stands for “Awareness”, “Goals”, “Actions”, “Financial Literacy”, “Evaluation”, and “Consistency”.
AGALEC PART 1 -The first three steps are the key starter steps – Awareness, Goals, and Action.
AGALEC PART 2 – The last three steps are what I call the backbone -Financial literacy, Evaluation, and Consistency.
THE STARTER STEPS – AGALEC PART 1
The starter steps are the key steps you need to take to get started. It is important that they be followed in order: Awareness/assessment of the financial situation, set financial goals, and take action.
1. A – Awareness: Become Aware of your Financial Situation
Can you successfully put pieces of a puzzle together without first looking at the picture on the box? I guess not. Before you embark on that journey to financial freedom, before you set that financial goal or even take any action, the first thing you need to do is to have a good knowledge of your finances just like the doctor would perform a health assessment before treatment. To become aware of your finances means performing an initial assessment of your four capital stocks. This includes human capital, social capital, cultural capital, and financial capital.
Whether you are employed or unemployed, own a business or not, even if you do not make any income at all, this initial assessment is key to creating sustainable wealth, and will direct you on which area of your finances to focus on. For those who earn some kind of income, this assessment will help you become aware of your money, where it is coming from, and where it is going. The key is to write them down, and add them up!
This assessment will help you become aware of your different capital stocks including Human capital, Social capital, Cultural Capital, and Financial capital. Here are four key areas of your financial capital to focus on:
Income
A popular misconception is that everybody knows his or her income, but a good number of people do not keep track of all income they make. Pick up a pen and your journal and write down all income you receive even if it does not come from traditional employment or business.
Here is why this is important: Assume that you earn 3,000 dollars monthly but have other extra income sources that add up to 500 dollars a month. Your total earnings are 3,500 dollars, not 3,000 dollars. If you keep in mind that your income is $3000 only, you are more likely going to spend the extra $500 without knowing it because you are gauging your expenses based on $3000 instead of $3,500. Keeping track of this will get you focused on saving more of your income. Include things like interest received, rental income, dividend, royalties, and any other income sources you may have. Add them up, write them down, and always keep them at the back of your mind.
Expenses
Track all your expenses! You must have heard of this so many times, but that is the key. You need to know where your money is going and how much is going to what. Don’t forget to write them down and add them up. If you only write them down without adding them up, you only see the individual little numbers, but you will only see the true picture when you get a running total of all your expense items.
Assets
Know your assets. Generally, assets are resources or anything valuable that can be converted into cash, such as your cash, stocks, bonds, real estate, notes, intellectual property, and more. Write them down. Don’t feel bad if you do not have so much on this list, you will begin to work on building and growing this in steps 2 and 3.
Liabilities
Your liabilities are your obligations or your payables. These are what you owe that you are obligated to pay back. They include things like loans, your credit purchases, mortgages (if your house is financed), amounts received in advance for a future delivery of products, credit card debts, car notes, and any money owed in any form. Again, write them down and add them up!
Congratulations, you just successfully prepared your financial statement! The first two is your income statement where you take the difference between your total income and total expenses to get your net income or a net loss. The last two generate your balance sheet, where you take the difference between your assets and liabilities to get your net worth.
Do you know your net worth? or what target net worth you should be aiming at? Calculate your net worth instantly using our signature Net Worth Calculator.
To learn more about net worth and how it is being calculated, here is a must-read blog: “How much are you currently worth? Here is why knowing your net worth is important for financial success.”
The general rule of thumb is to have your income higher than your expenses and your assets greater than your liabilities. The outcome of this financial assessment will form the basis for your next steps, which is to set goals for yourself and take action to get you to where you want your finances to be. Now you know whether to work on increasing your income or assets; or reducing your expenses or liabilities
2. G – Goals: Set Financial Goals
Successful people are goal-oriented. Depending on your financial situation as determined in step 1 above, which area do you want to see improvement? What is that you want to achieve? A new home? Vacation? Debt-free? A new car? Steady cash flow? Kids college fund? Retirement fund? Set financial goals that are measurable and precise. Whatever it is you want to achieve, think of the benefits you can derive from achieving it. Will achieving this help you live your desired lifestyle now and in the future? How would you determine that it has been achieved? How long will it take to achieve this? One year? Three years? Five or ten years?
Make a list and prioritize them, and focus on the top of your list. Now that you know what is at the top of your list, the timeframe to achieve it, and how achieving it will help you live your desired lifestyle, WRITE IT DOWN! You just set your financial goal. How will you achieve this goal? Develop action plans as described below. Ready to set goals and work on achieving them? Here is our free worksheet to help you set your financial goals.
3. A – Actions: Develop Action Plans
After you set your financial goals, create plans to achieve these goals. Begin with short-term goals first. Achieving short-term goals will provide motivation to pursue longer-term goals.
Here are simple 3-point actions to guide you as you develop your action plans. In fact, these three actions are the key to building wealth:
A. Spend less than you make.
B. Expand your income to earn more than you spend.
C. Invest smartly
These actions cannot work independent of each other. Here is how: You cannot expand your means without first mastering the act of spending less than you earn, otherwise your expenses will rise as your income rises. Investing can be a way of increasing your income and spending less can be a way of saving extra money to be invested. Therefore, you have to consistently repeat these actions to grow your assets and generate high enough income to make you wealthy.
With this 3-point action in mind, brainstorm on all the actions or tasks you need to complete to achieve the goal, then analyze them and select the best achievable tasks and actions. State when each task needs to be completed. Be specific in the actions to be taken and state how you are going to hold yourself accountable. Write them down! It is important that you set goals and follow the plans you have developed because doing so means you are taking control of your life and your finances.
THE BACKBONE STEPS
The backbone steps are the sustaining steps and can come anywhere in the process, therefore, they do not need to be followed chronologically. These steps are very important even for those who have achieved success. Remember that financial freedom is a continuous process. There is no point where one will reach and say yes, I have arrived. Since one can easily lose financial resources if not properly managed, these steps are critical to ensuring that the wealth you are building is sustainable and can be transferred from generation to generation.
4. L – Literacy: Become Financially Literate
As you work on your action plans, you will be making some financial decisions. It is important that you make decisions that will not jeopardize your goals. Take some time to educate yourself in the area of personal finance. Take some classes, attend workshops or seminars, read books, and of course “follow WealthyGen!” As you become more knowledgeable in financial matters, you are less likely to make costly mistakes and are more likely to achieve your goals.
5. E – Evaluation: Evaluate those Goals and Action Plans
As you learn more about money and how to make, keep and grow it in step 4 above, but the new knowledge or information to good use! Evaluate your goals and the action plans based on the new information you have. Things may have changed. Ensure the goals are still attainable, and ensure the action plans are still aligned with the goals. Make changes when necessary!
6. C – Commitment: Stay Committed
The sixth and most important step is to stay committed. Do not derail, stay on track. Achieving financial security is a continuous process, so stay committed and stay the cause! This is an important element of financial wellness. The 4 key elements of financial well-being are discussed here.
Feel free to share and post your comment below.
Remember, it is possible to end poverty through financial education.
Dr charity, thanks for this blog. I will use your advice to try to turn my finance around.
Thank you Isi. Our goal is to provide you with sufficient information you need to improve your finances. Feel free to share this post with your friends.
Your Advice will help me a lot, Thanx Dr charity blog
Very inspiring & knowledge filled write up. Thanks
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