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You can ask any 6 year old the formula for water and they will know it is H20. We are taught from the earliest age the basic formula for life. There is also a formula for wealth and success that anyone can tap into and affect their life positively. This secret mathematical formula has to do with money, choices, and financial balance. Write this magic formula down on a piece of paper that you can view every day. Place in a prominent conspicuous place such as a bathroom mirror, car console, or on a computer monitor at work:
It may look like gibberish to most but here is what it is:
Financial Success = M (GHI x 41% = “X" < FD), M (SV10%/GV10%/LO80%)
Heres what it really means:
The First Part of the Equation: M (GHI x 41% = “X" < FD) = Regarding your Money, Your Gross Household Income (GHI) multiplied by 41 percent should equal “X" number. “X" number should be equal to or less than the total of all monthly household Fixed Debt (FD). i.e. car payments, credit card payments, student loans, child support, mortgage or rent payment. These bills are usually attached to tangible purchases. Expenses such as utility bills, gasoline, food, and insurance are not to be included as fixed debt since the amount varies each month.
As an exercise, write down on a sheet of paper all your household bills that are fixed monthly debts. Next, total your entire gross household income. Multiply 41% of your gross household income and see how it compares to the first number. For instance, The Smith Family has a gross household income of $5000 per month. 41% of this gross income is $2050.00. The Smith Family consists of a Mr. Smith, his wife and their two small children. They currently pay a mortgage of $1200.00 and have a car payment of $350.00 and total credit card payments of $420.00. So their total fixed debt is $1970.00 per month. Their fixed household finances are below the 41%. So the Smith family is living within the first part of the formula for financial success.
The Second Part of the Equation: M (SV10%/GV10%/LO80%) = Regarding your Money, Save (SV) 10 percent, Give (GV) 10%, Live On (LO) 80%.
This part of the formula has to do with financial balance. Utilizing this formula and combining it with the first part would lay out a specific financial blueprint with boundaries for managing your entire household finances. The same Smith Family would set aside $500 per month for savings they would give $500.00 to their church or charity, and live on the other $4000.00 per month.
Here is how their blueprint might look: Gross Household Income $5000
Mortgage $1200, Fixed Bills $770, Savings $500, Charity/Tithe $500, Taxes $600, Food $600, Utility/Phone $375, Fuel $125, Health Insurance $225, Other $105.
Unfortunately, 68% of families in this country never take this simple exercise to plan where their money will be invested and spent each month. It is no wonder that bankruptcies and foreclosures are at an all time high. The household who leaves their budgeting to “just winging it" each month is operating by a formula for disaster. It is amazing that many American households are spending 110% of their gross income each month, going further into debt. That expenditure is a hard cost with no savings or charitable allowances. It is no surprise that families and those living by that formula are wrought with misery, stress, and hardship. Their lives are usually an endless cycle of bill collectors, evictions, and social embarrassment. In short, math does not lie and you cannot outrun the simple mathematical formula of only spending what you earn. It will catch up with everyone.
The great news is that once you learn the right formula it is as easy to adopt and memorize into a lifestyle just as the way you drive home from work. It becomes a habit. And a good healthy habit contributes daily to success in many aspects of your life including financial prosperity and personal growth and happiness. Individuals and families who adopt this formula will see bank accounts grow, credit rating improve, and experience a quality of life that is truly successful.
Charles Dickens once wrote in his novel David Copperfield:
Annual income twenty pounds,
annual expenditure nineteen nineteen six,
result happiness.
Annual income twenty pounds,
annual expenditure twenty pounds ought and six,
result misery.
The financial success formula is nothing new. It has been in place from the time of Solomon and it is the cornerstone for a successful life. It has never really been improved upon. Like any good habit, it comes with a daily discipline and commitment to success. The best habit is one that is memorized into your daily routine such as paying bills on Saturday, buying groceries on Monday, or taking the cleaning in on Tuesday. These daily and weekly routines should include the way you manage your money as well. This is why the constant reminder of the success formula is critical when trying to change a bad habit and adopt a new one. Like dieting, exercise, and smoking, the individual must break their bad-habit cycle and routine that contributes to the previous behavior if they expect any lasting result. The person who spends without forethought and without a budgeted plan must change their routine. If you have a weakness for eating out too much, identify that issue and budget one night a week as opposed to four. If shopping is a habit, find another pastime such as doing something creative or volunteer work.
One of the proven killers of healthy finances is boredom. People spend money to avoid boredom. Find a way to channel that boredom into something productive or even profitable and you can significantly change your current financial situation. Take for example, Ginger Davis. She earned good money but was always living paycheck to paycheck. Her bad habit was shopping for clothes for herself and her daughter. This was the only “together time" they shared as mother and daughter and Ginger spent a significant amount of her disposable income on these unplanned shopping sprees. Although Ginger earned a good living, she was over $25,000 in credit card debt and seeking credit counseling after a couple of years.
Learning from this mistake, Ginger redirected her spare time into other activities and avoided the malls completely. One of those activities was creating an online eBay business with her daughter, buying and selling old books and small items she found at neighborhood garage sales. Her online business created a great shared pastime and proved very profitable with little initial investment. Within nine months, Ginger and her daughter had created enough profits to pay off the outstanding debt and plan a few scheduled shopping trips, paying cash for those new purchases. Ginger professes today that it’s just as easy to make money as to spend it. And it has become her habit and embedded as part of her formula for success.
Every family or individual has a formula for success, which is personalized to him or her. It just takes planning and putting that plan into action. Once done, the result may be a life of proportionate wealth, success and happiness.
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