retirement

7 steps to financial abundance

Do you live from a sense of financial abundance? Or does a belief in scarcity cause you to live in fear?

I meet many people who do not feel they live in financial abundance, despite the fact that their wealth far exceeds the basic human requirements of food, shelter and clothing.

It's important to move from a fear of financial scarcity to a sense of abundance. This transformation requires a commitment to actively manage, protect and control one's financial activities.

The following seven steps to financial abundance will not guarantee fiscal security, but at a minimum they should help reduce the fear of scarcity.

1. Spend less than you earn 

Creating excess earnings is the first step on the path to financial abundance. Excess earnings represent the amount of money remaining when yearly expenses are subtracted from yearly income.It is reasonable to save excess earnings of at least 15 percent of after-tax income. To meet this goal, consider the "pay-yourself-first" approach. On payday, make your first payment to the excess earnings fund. This fund can be used to buy a first house, pay for your children's education or help fund retirement.

If you have not already done so, use some of your excess earnings to build an emergency fund. This is an account that provides six to 12 months of income when a short-term emergency occurs. Be sure to keep the money highly liquid so you can access it quickly.

With an emergency fund, you can weather a job layoff or short-term disability without prematurely using funds from your retirement account.

2. Maximize your financial resources 

There are several ways to maximize your savings income and build wealth. For example, if you have a company-sponsored retirement plan, contribute enough money to earn the maximum amount your company will match.

Typically, the company will match a certain percentage of your salary. If the company matches 50 percent of a portion of your overall contribution, the match becomes "free money" that guarantees an immediate 50 percent investment return on part of your retirement savings.

Use Coverdell education savings accounts or Section 529 college savings plans to save for your children's educations. Your educational savings will grow and no taxes will be owed on the earnings from these plans, so long as the money is used for eligible education expenses. For more information, check out Bankrate's article on college savings plans.

Are you responsible for your own health insurance coverage? If so, sign up for a high-deductible health insurance plan that allows you to open up a health savings account. Funding an HSA to the maximum amount allowed will virtually guarantee a lower after-tax health care cost. To find out more, read Bankrate's article on high-deductible health plans.

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These are only a few of the many strategies that can be used to maximize the income and growth of your financial resources.

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