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Embarking on the path to personal wealth is a journey filled with distinct phases, each with its own set of goals and challenges, from the initial struggle to meet basic expenses to the later stages of securing your future, contributing to society and planning for your heirs. What stage are you in right now?
1. Bill paying phase
This is where the journey begins. Your main focus at this stage is to make enough money to meet your basic needs. It doesn’t matter if you are working or starting a business. Your goal is to make sure you can feed your family, cover your rent or mortgage, and keep the lights on. At this point in our journey, other luxuries are a goal for the future rather than a present reality.
Related: 3 Keys to Building and Growing Personal Wealth Today
2. Accumulation phase
Once you’ve successfully navigated the “pay the bills” phase, you enter the accumulation phase. At this stage, your income starts to increase and you may be tempted to accumulate material goods and indulge in some luxuries. This phase can be an exciting ride, but it’s important not to overdo it and go back to ‘stage 1’. At this stage, you need to secure a cash safety net to bail you out if something goes temporarily wrong with your income stream.
3. Savings phase
As your wealth grows, it is wise to enter the savings phase. This is the phase where you build a long-term financial safety net. You also work to build your passive income resources to allow you to earn more but work less in the future when you are ready to not have to work for a living every day. Your financial focus here is to have enough passive income to sustain your current lifestyle if your primary source of income disappears for good.
Related: How to Manage Your Money with Confidence
4. Charity phase
Once you’ve secured your own financial future and your passive income is built, it’s time to think about giving back to the world. The philanthropy phase is all about using your excess income for positive impact, supporting causes you care about, and contributing to society. Finding and supporting your passion with resources is a true first step to happiness.
5. Inheritance phase
This final stage involves considering what you will leave behind for your loved ones. Whether it’s a comfortable nest egg, valuable assets, or an inheritance, planning for your heirs is critical to financial success. How much is enough and how much is too much are decisions you will need to start thinking about. We want our children or heirs to be comfortable and secure, but perhaps we should not give them so much that they become spoiled and do not contribute themselves to society. These are tough decisions.
Related: The Truth About Money Management
Three money rules for business success
Now that you understand the five stages of your personal wealth, let’s get into the rules for wealth in business. These three rules are essential to managing your business finances:
- Cash Is King: Having cash reserves is essential in both personal and business finances. It is the ultimate safety net. Whether you’re running a business or managing personal finances, having cash on hand can save you from unexpected financial shocks. The amount of cash reserves depends on your overall risk and debt. What does your lifestyle cost and how long can you maintain it if you lose your ability to produce?
- The golden rule: “He who holds the gold, rules.” Do not part with your money until you are absolutely sure of the outcome. In business, this rule applies when dealing with contractors, partners or vendors. It’s all about maintaining leverage. As long as you keep the money, you can check the result. Once you give it up, you are at the mercy of whoever has it.
- Pay yourself: Don’t forget to pay yourself when you run a business. It is necessary to maintain mental and financial well-being. Stress and desperation can lead to poor business decisions if you can’t cover your personal expenses. Don’t let this happen to you. Too many people make bad decisions about their future trying to manage their current lifestyle or problems.
In both personal and business contexts, money is a complex but vital part of our lives. By understanding the five stages of personal wealth, you can make well-informed financial decisions. Embracing the money rules for business success, such as maintaining cash reserves, maintaining leverage, and paying yourself, will lead to a more secure and prosperous future. Protect yourself, build your financial safety net and never become a financial statistician. Your financial well-being and the success of your business are closely intertwined. Remember these principles and you will be better equipped to master money in all aspects of your life.
