Tired of living paycheck to paycheck, never having enough money to live the life you REALLY want?
You may have an awesome flat screen TV that can stream cricket matches from India if you wanted and the baddest pick-up fresh off the lot, but did you buy yourself little rewards for hard work or just more liabilities, debt, and responsibilities further holding you back from true freedom?
Wouldn’t you like to be able to take the family on a trip to Europe over the Summer ? Ever hear about the anonymous diner that left a $10,000 tip? How about thinking, “Man, how rich do you have to be to be able to do that?” Look at it from the other side. What If you had to stop working tomorrow? How long could you survive?
The path to being able to answer these questions starts with financial literacy and a few simple habits that will help you widen the gap between what you’re paying out and what you get to keep.
First, I am not a financial professional and not your fiduciary. This article is meant for educational and entertainment purposes, and shouldn’t be taken as legal or financial advice. For that you should speak with a licensed professional.
Know your net worth. This is a calculation of all your assets and income minus your liabilities. They say, “What gets measured gets managed.” Once you have this number, it becomes naturally more painful to watch it shrink and makes you feel exponentially more excited to watch it grow and grow.
A great app for this is Personal Capital. You can link all of your bank accounts, credit cards, and loans together in one spot and it will do the calculations for you. And it’s free!Have a budget. Budgets suck. They’re tedious and remind you that you’re ordering from DoorDash too often. They’re also absolutely necessary. A budget is you telling your money where to go rather than wondering where it went.
Sit down with your spouse and do a budget at least once a month. Try setting up a money date with your husband or wife where you calculate how much is coming in and allocate how much goes to food, utilities, mortgage/loans, clothing, entertainment, and other activities. You can even do the bucket or envelope method whereby you put actual cash in envelopes for each component of your budget. Once that certain envelope is empty, it’s empty for the month. You won’t be at all disappointed when you start second guessing another take-out meal.Pay yourself first. What the hell do I mean by this? Tell me if this sounds familiar. The first of the month couldn’t come fast enough. Your checking account is running on fumes and the savings account has that obligatory $5 in it just to keep it open. As soon as the W2 paycheck clears you begin to relax and the stress melts away. In fact, you’re feeling so good you decide to take the wife and kids out for dinner and the movies and even splurge on those golf clubs you’ve been eyeing for weeks. Of course, you’re a responsible adult and make sure there’s enough to pay the rent, car loan, Netflix, Amazon Prime, utilities, food, etc. However , by the last few days of the month, you’re digging in the couch cushions again to tip the pizza guy.
This scenario is so common it’s scary how few Americans have next to no savings. Paying yourself first is the practice of saving first THEN everything else. This method is described in the book The Richest Man in Babylon, a must read! The next time that paycheck clears your bank, take a portion and transfer it to your savings. Then, DON’T TOUCH IT!Make it automatic. In his book The Automatic Millionaire, David Bach recommends a set it and forget it method to building wealth. Set up automatic transfers to your savings, IRAs, credit cards, etc. Automate it all! This way you are less likely to forget and be late on a bill and far less likely to be tempted into skipping on #3 above when it’s already done for you.
Pay off your debt. Set up your accounts to automatically pay the minimums on all loans and credit cards as stated above. Then, aggressively pay down one debt at a time starting with the smallest and going up. Dave Ramsey called this the Snowball style of debt pay down. There are other methods including starting with paying down the account with the highest interest rate first and moving down or biggest to smallest balance which may make more sense in your given situation. The point is actively attacking your debt rather than it compounding and driving you closer to poverty. Believe me. I’ve been in hock up to my eyeballs and there are few things in this world that feel better than the moment when the balance on that high interest credit card is whittled down to $0!
Emergency fund
This is your cushion, your woobie, your happy little place in times of uncertainty. An emergency fund is your buffer against fear. Begin paying into an emergency fund and DO NOT TOUCH IT! While opinions vary on just how much you should keep in your fund, $1000 at a minimum for the occasional car breakdown or something and 6 month’s living expenses at the most in case of being furrowed due to a worldwide pandemic, (I know, that’ll never happen, right?) at the most.
Start building your credit
What I’m not saying here is to put a balance right back on those credit cards you just paid down. Instead I’m recommending that you build up your credit strategically. We pay for everything we can with our credit cards, then immediately pay off those cards. We never use credit if we can’t do this and almost never carry a balance from one month to the next. Remember your budget! As a result, our credit scores are excellent which makes us more attractive to lenders, more credit-worthy, and thus, are offered better rates on mortgages or other loans. My interest rate on these credit cards stays low, but that doesn’t matter since I don’t keep a balance. Additionally, we haven’t paid for a hotel or a rental car in years because we use points racked up by simply paying our bills and groceries. Credit is a very powerful tool! It can be used for you or ON you!
Get educated!
Ok, you’ve automated deposits to your Pay-Yourself-First account, utilities, credit cards, etc. You’ve set up a budget and are watching where the rest of your money is being allocated. The right balances are going up while others are going down as they are supposed to. Now, it’s time to invest, right? But what do you invest in? This is a bigger topic than can be handled in one blog article. However, start with what you want to accomplish with your investment money. Voting with your dollar is more powerful than you imagine. If you invest in individual stocks, you are voting for the success of that business with real employees and real families. You vote on the types of products and services that business provides. If you invest in residential apartment buildings, you are providing dwellings to real people to live in. For me, this is such a rewarding aspect to real estate investing! I can say that I turned an otherwise unloved property into something someone wants to pay me for the privilege of living in! That’s awesome! Knowing that I’m making this world a little better through improving people’s homes and their lives is a very rewarding feeling to my wife and me. One of the most beautiful things about becoming a wealthy investor is the real effect you can have in our world.
The first step is visualize where you want to be in 3, 5, and 10 years. How do you want to get there? Then, begin educating yourself with books, podcasts, blogs, coaching and mentoring, masterminds, etc. Invest in yourself first. Time and money spent on your own education is never wasted. Now, get after it!