Debt Free

As you make the climb out of debt to become debt free, you'll need to actually have a plan on where to put your money in the future. According to the U.S. Department of Commerce, the personal savings rate in the US for Q2 and Q3 of 2006 hovered well under 1% of disposable income for the first time in decades, as personal income continued to rise. Personal income was up an adjusted 4% in October. One conclusion to be drawn from this is that the nation's citizens have embarked on a massive deficit spending program. One only needs to look at the rise in credit cards, revolving accounts and personal loans over the last few years to see where we're heading.

To make a break from the national trend, that is, along with an increase in productivity, fueling our Nation's economy, you'll need a plan. A plan that will lead to your becoming debt free and building a nice emergency fund, and retirement nest egg. To make that a reality, even as your neighbors continue to whet their consumption appetite with new Jet Skis and BMWs, you'll need a plan; a savings plan.

How can you develop a personal savings plan? Like any plan, you'll first need two things, followed by a third. The first two things you'll have to lay out are the hallmarks of any plan; goals and strategies. You'll need to have a target to aim at, and a strategy to allow you to hit that target. The third thing you'll need is the discipline to execute and pursue your plan. Focus is the key to success. I've said it before; treat it as a military mission. You must focus on your goals and objectives in the face of great adversity, and let nothing deter you from the completion of your financial mission.

The goals you set should be achievable but ambitious. Make your financial goals high and aim for the stars, as it were. The goals can be anything, but should hinge on where you'd like to be financially, at the finish. For example, as a start you may want to have an emergency fund of $25,000 in liquid assets. Or, you may want to save enough to provide a comfortable retirement income. You may have some short term sacrifice, but especially if you're relatively young, the payoff in the end will be immense. If they're too ambitious, you may fail to achieve them, but if they are to low, you may meet them and still not have the financial well being that you seek.

After you set your goals, you'll need a plan to achieve them. Obviously, funding the plan is paramount. You'll need to set an amount to regularly put into your savings and investment accounts. Many financial experts suggest you earmark 10% of your gross salary to divert to your savings plan. This amount may work for you, or it may need to be adjusted up or down. If you have substantial debt, you should probably work on being debt free first, so save less and use more of that diversion to retire your debt. After all, if you fail to retire your debt, you'll fail to retire yourself as well. The interest most people are paying on their debt will typically outweigh the interest they are making on they're savings or investment accounts.

Conversely, if you are fairly young, already debt free or close to it, and have lucrative employment, or are earning a good income from your own business, you may be able to contribute more to your savings and retirement. Even if you really enjoy working, you should plan to retire as soon as possible. Once your retirement is fully funded, you'll be left with many more options. You can always continue working if that's what gooses you. Whatever you decide as a contribution, you can always adjust it as needed, preferably up. I've said it again, but it bears repeating, if you're employer offers matching, take it. If not, you'll be violating one of the basic principles of both business and personal finance; “Don't leave money on the table.” Every dollar you leave behind, will, through the power of compounding, grow into a nice part of your retirement nest egg.

Finally, once you've derived a savings and retirement plan, you must get the ball rolling. For some the most difficult part is the execution, but execute you must. Most people never reach their goals simply because they fail to execute. It's true in business, and it's true in your personal finance life as well.

The keys of a successful savings and retirement plan are:

1. Goals – where do you want the plan to take you?

2. Strategy – How will it get you there?

3. Execution – Starting the plan and seeing it through is of paramount importance. Don't take your eye off the ball and focus on your objective like a laser.