Chapter 1: Personal Money Story
Write your own Personal Money Story. What is the earliest memory you have about money, and how old were you? For many, it will involve some combination of a piggy bank and an allowance or birthday gift somewhere between ages 3 and 6. Then rate this experience numerically between +10 for a great experience and –10 for a scarring memory. Continue this pattern, marking all of the notable experiences you had with money—good and bad—throughout the course of your life. Then, with the +10/–10 continuum on the vertical axis and the timeline on the horizontal, plot out a visual picture of your history with money.
If you’re single, consider journaling on your experiences and/or sharing your conclusions, and any resolutions you make as a result, with a close friend or family member. If you’re married or heading in that direction, conduct this exercise individually and then share it with your loved one. You may have a “lightbulb moment” that changes the course of your life, but at the very least, you and the people that love you will better understand your background with money.
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Chapter 2: Personal Principles & Goals
This Timely Application also qualifies as Timeless Truth. Benjamin Franklin is a legendary historical figure for many reasons—not all of them noble. But there is little doubt that his was a life of purpose. He deliberately set forth to accomplish certain things, yes, but his accomplishments sprang from what he referred to as his personal virtues. These were the values and character traits he hoped would mark his accomplishments on this earth. I encourage you to read these not to make them your own, but to get an idea of how to discern your own. If you try to make Ben Franklin’s virtues and goals your own, you’re likely to fall short of your unique potential and purpose, but the study of the principles that marked the life of this great man are sure to inspire as well as entertain:
Ben Franklin’s 13 Virtues
1. Temperance: Eat not to dullness and drink not to elevation.
2. Silence: Speak not but what may benefit others or yourself. Avoid trifling conversation.
3. Order: Let all your things have their places. Let each part of your business have its time.
4. Resolution: Resolve to perform what you ought. Perform without fail what you resolve.
5. Frugality: Make no expense but to do good to others or yourself: i.e., waste nothing.
6. Industry: Lose no time. Be always employed in something useful. Cut off all unnecessary actions.
7. Sincerity: Use no hurtful deceit. Think innocently and justly; and, if you speak, speak accordingly.
8. Justice: Wrong none, by doing injuries or omitting the benefits that are your duty.
9. Moderation: Avoid extremes. Forbear resenting injuries so much as you think they deserve.
10. Cleanliness: Tolerate no uncleanness in body, clothes, or habitation.
11. Chastity: Rarely use venery but for health or offspring; never to dullness, weakness, or the injury of your own or another’s peace or reputation.
12. Tranquility: Be not disturbed at trifles, or at accidents common or unavoidable.
13. Humility: Imitate Jesus and Socrates.
Deliberate over that which you want to mark your life. Write down a word or phrase that will be your Personal Principle, and then give a sentence or two of explanation. These are yours, but I encourage you to share them with a good friend and your spouse, if applicable. (One of the nuanced difficulties and benefits of marriage is the necessity of allowing your Personal Principles to be folded into those of your spouse. If your spouse is a willing participant, encourage him or her to complete this exercise as well to develop a set of Unifying Principles for your family.)
Your goals—especially your financial goals—may be better informed when you complete this book, but practice now writing down a few goals that meet the specific, measurable, attainable, and meaningful criteria, then come back to them after completing the book. Financial goals will then be broken down into specific steps to meet those goals in your Action Plan in Chapter 16.
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Chapter 3: Personal Financial Statements
Personal Cash Flow Statement
Through the online banking systems of most banks, you can now view a history of your expenditures for specific periods of time in seconds. If you prefer to do things the old fashioned way, your recent bank statements will also show you your spending past. Seeing what you’ve spent is step one in creating a cash flow statement. Step two is categorizing your spending—where exactly have you spent your money? This can be an eye-opening experience.
Personal Balance Sheet
Collect all of the statements for every bank account, investment account, 401k, IRA, and so on, along with every statement detailing your debts—mortgages, auto loans, college loans, credit cards and such. Add up your assets and your liabilities and then subtract the latter from the former. The resulting balance is your net worth.
Every dollar that you expect to receive in the coming month should be allocated to a budgetary category. Your fixed expenses are the easiest to plan for, but you must also estimate what your variable expenses are going to be. You also can’t forget about those expenses that come quarterly, semiannually, or annually. This should include things like your water bill or insurance premiums that you pay on an interval other than monthly, but it should also include those personal expenses like vacations.
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Chapter 4: Personal Debt Audit and Debt Elimination Plan
If you refer back to the Personal Balance Sheet you created, you will have already compiled your debt information in the liabilities section. Next to each liability, put an “X” next to bad debt and a check mark next to better debt. Then, transfer the bad debt to the Debt Elimination Form available on our web site and customize your Debt Elimination Plan. List the debts in the order in which you will pay them off. If you want to get that ball rolling faster emotionally, take Dave Ramsey’s advice and pay your cards off in order of smallest to largest balances. If you want to save the most in interest payments, list the debts from the largest interest rate to the smallest.
When you make that last payment, celebrate! Take your next month’s payment—a significant chunk of cash flow that you’ll now be able to plough into more generous budget categories and investment for the future—and throw yourself a party. Invite family and close friends who’ve supported you throughout, and enjoy the peace of mind that comes with being debt free.
If you don’t have any Xs on your Debt Audit because you only have better debt, you need not put yourself through a financial boot camp, but deliberate over the debt you do have and consider whether or not a debt repayment acceleration plan may be right for you. If so, use the Debt Elimination Form to plan your course of action.
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