Systems work. Systems give you the strategy so you can focus on execution. They take the guesswork out of making a positive change in your life. Systems such as Weight Watchers, P90X, and countless diet plans have shown amazing results because you can put 110% focus on execution.
SmartPath recommends a system. It starts with spending less than you make (we call that _Financial FUEL_). Then, it gives you 7 goals to reach with that money.
Financial FUEL is the most important number in your financial life. Here’s how you calculate it.
Take home pay – Expenses = Financial FUEL
That’s it. Financial FUEL is the amount of cash you have left each month after you’re done spending. It’s income minus expenses. It’s the money you need to tackle any and every financial goal in your life.
If you want to pay off debt, you need FUEL. If you want to save for retirement, you need FUEL. Thinking about buying a house? You’ll need Fuel. Want to send the kids to college? Fuel. That yacht on the Mediterranean requires FUEL. Yes, every financial goal or dream you have needs FUEL. Without FUEL, it’s impossible to establish a real financial plan.
If you don’t have consistent financial FUEL every month, you now have a single mission. Your mission, should you choose to accept it, is to do everything possible to get more FUEL. Stop worrying about retirement. Stop arguing about how to pay off debt. Forget about improving your credit score. Instead, focus 110% of your attention on building FUEL. Once you have it, you can get started on filling 7-Tanks with that FUEL.
The 7-Tank System
Now you’ve got FUEL. Nice. Celebrate – just not too much. You’ve got 7 "Tanks" to fill in order. Skip the ones that don’t apply.
#1 – Contribute up to the Company Match for Retirement
#2 – Save a 1-Month Emergency Fund
#3 – Payoff Bad Debt
#4 – Grow your Emergency Fund to cover 3-6 Months
#5 – Contribute 20% of Gross Income to Retirement
#6 – Save for Children’s College
#7 – Live your Bucket List
Again, fill these tanks in order. The order works. If your company has a retirement matching program, make sure you contribute up to the match. Then, if you don’t have a 1-month emergency fund, focus on filling that. If you have a 1-month fund but still have bad debt, direct your FUEL to paying it off.
Don’t try to fill all the tanks at once. Figure out which tank you’re filling and get focused. All your FUEL should go to that tank until it’s full (or finished). Then, move to the next.
Filling each tank will take time. In fact, you can calculate exactly how much time it will take. For example:
- If your 1-month emergency fund requires $3,000 and you’re adding $300 of FUEL each month, it will take you 10 months to fill that tank.
- If you can increase your _FUEL_ to $600 a month, it will take half the time (5 months).
- If your FUEL drops to $150 a month, it will take you twice as long (20 months).
By focusing on FUEL, you’re in complete control. The more FUEL you have, the faster you’ll fill the tanks. If you have less FUEL, you’ll go slower.
How much FUEL did you have last month? Do you know which tank you’re on in the 7-Tank System?