While some mistakenly say that “the love of money is the root of all evil,” I believe it is more accurate to suggest that the lack of knowledge about money is the cause of most people’s financial problems. So many of us have so much false information regarding money, finance, budgets, debt, and income that it is no wonder that most people never accumulate much wealth.

I know people who won’t buy anything if it isn’t on sale yet who are still broke because they don’t understand how to produce income. They spend their entire life thinking money is scarce, when in reality, it’s merely a currency printed by man. I also know people who know how to produce income but never learn how to manage it and end up with none of it. While most of us believe that money isn’t the only element of happiness, we know that it’s necessary to maintain a comfortable life.

A financial plan differs from a budget and is the basic entry point to creating wealth. It serves as a road map for creating finances and correctly managing your income. It’s the financial motivation that takes you to work each day. The first step to take here is to determine your budget, or how much money you currently spend.

Next, figure out how much money you actually need to bring in monthly in order to create solvency and get all that you want accomplished. Solvency is defined as, “the ability of an entity to pay its debts with available cash or the ability of a corporation or individual to meet its long-term fixed expenses and accomplish long-term expansion and growth”. In other words, the better a company or individual’s solvency, the better off it is financially. An insolvent company or individual can no longer operate.

Solvency is a different concept from profitability, which refers to the ability to earn a profit. Businesses can be profitable without being solvent (e.g., when they are expanding rapidly); they can even be solvent while losing money (e.g., when they cannibalize future cash flows, like selling accounts receivable). A business is bankrupt when it is unprofitable and insolvent.

This is where most people fail with financial planning: They never create a plan that makes them solvent. They spend the lion’s share of their time on the budget portion: car payments, mortgage, credit cards, gas/electric bills, other utilities, insurance, food, restaurants, entertainment, dental and medical bills, etc. They completely disregard the more important issues, like future needs, savings, self-improvement, children’s educational accounts, vacation funds, home improvement funds, and retirement savings. They’re left with only a budget; they never create a financial plan; they spend their lives paying others; and they never get around to funding themselves.

A true financial plan should clearly state your monetary goals. It should outline exactly how you’re going to create surpluses of money, what to do with the surpluses, and how to manage and invest that money. A plan suggests that you’re doing something to make things happen; it’s not a historic evaluation of what has been done already (a budget).

Clipping coupons, saving money, cutting back, and anything to do with controlling expenses is all about a budget whereas a financial plan focuses on wealth creation.

One of the reasons why people never seem to have enough money is that they focus their attention on a budget instead of a plan. So take some time to determine how much money you actually need and remember there is no shortage of money on Earth; there is a shortage of planning, motivation, courage, action, and follow-through. Your own personal lack of wealth merely means that you don’t understand something or don’t have the correct motivation. Once you put a financial plan in place, you will spend the rest of your energy finding those people who need your products and services—people who will fund your financial plan and help you advance and conquer.

Once you have the financial plan in place you must skill up, hustle every day, and stay motivated working towards your goal.

Your friend in business and sales,

Grant Cardone

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