I think most people would agree they could get a little better at managing their money. Let's face it, life is tough, the economy is (cue record scratch noise here), well who cares! It's really only our individual economic state that matters to us, right? Don't get me wrong, I love our country and I want the economy to be healthy and for everyone to have a job. But at the end of the day, if I'm in debt and feeling broke, that just sucks.
Work Hard; Play Harder.
Think about how our society views debt. For starters, we have a $17 trillion National Debt. What example are we setting for the millennial generation when we raise the debt ceiling every time we max out our limit? Not only that, according to a report last week in TIME called Americans Are Taking on Debt at Scary High Rates, the Federal Reserve Bank of New York stated that American consumers are in debt to the tune of $11.52 trillion. That includes mortgages, auto loans, student loans and credit card debt. So, if their parents are $11.52 trillion in debt and the country is $17 trillion in debt, what message are millennials receiving? I know my own parents used to say, "Save up, and then spend it." Today the slogan seems to be, "Got Debt?"
I have to be honest, I didn't always get the message my parents were sending. Sometimes we stereotype our parent's spending habits. Parents can be good at planning or spending, or saving, but kids can view it as being a tight wad, thinking, “My mom is so cheap.” Sometimes kids rebel against that. I didn't have a credit card when I was in college, but when I graduated and discovered them, I didn't get just one. No, I got six! Every time I was asked if I'd like to save 10% today by getting a credit card I said, "YES! Sign me up!" I bought a $30,000 Toyota MR2 T-Top Convertible sports car as my first car out of college... with no money down. My girlfriend went to Liverpool, England for a semester and I went to visit for a week. All paid for on credit. (Although, she did eventually marry me, so maybe that wasn't such a bad move.)
I made every mistake in the book. I even bought a second car with no money down. A Nissan Pathfinder, because...you know...I needed something to drive in the winter. So my two car payments were higher than my apartment rent. I lived paycheck to paycheck. The bigger my paycheck was, the more I spent. Paying the minimum on my cards, missing a payment, you name it. And when I paid late, I was rewarded with a rate increase from 12% to 24%. Six credit cards at 24% interest is not easy to get rid of.
Spend it while you've got it.
Listen, I get it. We live in a world of easy access and instant gratification. Spend it, and then work to pay it off. It seems, these days, most people work for their creditors. When was the last time we paid cash for something that cost more than $20?
What about student debt? No job, but hey, a free tee-shirt for filling out a credit application my first day on campus? I'm in! The credit card companies know you'll get a job eventually...right?
Be careful. It's easy to say, "I've had a hard day / exam / semester... I deserve to treat myself." Most people only look at their credit card statement at the end of the month. Ever say to yourself, "Wow! I spent that much?" I think most of us have been taken by surprise one time or another.
Don't get me wrong, I'm not against credit cards if they are used for important expenditures and they are paid off at the end of the month. But, hyper consumption is not okay. I have seen so many students get in over their head with credit card debt. I can even understand why. There is so much stuff to buy these days. And marketers have certainly figured out what makes us want to get that new must have widget. What cracks me up is that we stick our noses up at any app for the phone that costs more than a buck, but will spend $9 on lunch at Saladworks without hesitation...because, you know, it's good for you. I do love Saladworks.
However, if you make $45,000 per year, assuming you are taking home around $30,000 of that after taxes, you'd have to work for 40 minutes just to pay for your lunch that day. That's probably okay occasionally, but maybe a bad idea every day. And if you are stopping at Starbucks on the way to work and then later buying lunch, make it a full hour of your workday spent on those two decisions. Just food for thought.
Lunch → $9 → $9 x 30 days = $270 per month x 12 months = $3240 per year = $64,800 in 20 years.
Bring lunch → FREE → invest the $64,800 = retire with dignity as the interest from your money compounds over time.
I cringe every time I hear someone say, "You'll always have a car payment". Today, I have no debt. It has opened up the opportunity to save and give at a whole new level. Here is where I started.
I love these two questions from Thomas J. Stanley's book The Millionaire Next Door.
1. Do you have a clearly defined set of daily, weekly, monthly, and lifetime goals?
2. How much time do you spend planning your financial future?
"Have you ever noticed those people whom you see jogging? They look like they don’t even need to jog, which is why they look so fit. People that are wealthy are they same way. People that are not financially fit do little to change their status." - Thomas J. Stanley
So what do we need to do?
For starters, have a spending plan. Affluent people look at their finances at least once per week. Look at your expenditures. Write them down. If you like clothes, that's great; plan for that expenditure. How much can you spend per month on clothes? If you like to eat out, how much can you spend per month on restaurants? Part of the problem is that we tend to forego planning where to spend our money. Taking the time each month to budget and then checking in once per week to see how you're doing will get you on the right path.
The other half of the missing equation is that we don't track what we spend, so we get caught off guard. Here's my challenge to you. For the next 10 days put yourself on a FAST START to managing money and TAKING CONTROL. Write down every penny you spend in a notebook. Keep it with you. Even if you buy a gum-ball for a quarter, write it down. Better yet, do this for the next 30 days. Add it up at the end of the month. This will help you find where you are overspending. You might be surprised to find out that you are pretty much single handily keeping your favorite convenience store in business. Just so you know, that's not your responsibility.
Who becomes wealthy?
Looks can be deceiving. Two of our newly promoted, fresh out of college, district managers approached me at a conference. They were checking out my suit. One said to the other while dusting off my shoulder, “See what our top executives can afford?” To which I replied, "I got it at Joseph A. Banks." Don't get me wrong, I have some $1000+ suits, but I'm in sales and I won a few 5 star shopping sprees in my day. When it's my money, I prefer to look good for a lot less. Be careful of people that look like a million bucks, maybe they have it, but more often than not they are all hat and no cattle.
According to Dr. Thomas Stanley's research, 80% of America’s millionaires are 1st generation rich. (So, you're saying there's a chance) ... why not start now!?!
Most people don’t retire with what they wanted because they keep putting it off. After I graduate college, after I get my car paid off, after I get married, after I get a house, after we have our first child, after we have our second, after they graduate college, after my daughter gets married, once the mortgage is paid off...then I'll start saving more aggressively for retirement.
Talk to your accountant or a financial advisor about your options for saving for retirement. Depending on your annual income, you may be able to invest your money into a Roth IRA, Traditional IRA, SEP, or one of several other investment tools. These vehicles can have huge tax advantages. If you are young and just getting started, a family member's trusted advisor will likely offer you the advice you need to get the ball rolling. If you want to interview several financial advisors, check out 10 Questions to ask When Choosing a Financial Advisor from Forbes.com.
The Path to Financial Success
1) Have an emergency fund. The goal is at least three months of your total "must have" expenses. Meaning if you lost your job, the things you wouldn't get rid of, like food, rent or mortgage, utilities, etc. If you have debt currently, and no emergency fund, put $1000 in a savings account as soon as possible for now. Don't have a $1000 for now? Sell some stuff that you don't need. Get the emergency fund started. Then tackle the debt.
2) Handle debt carefully. It's not the end of the world if you have debt. It took time to get in, it takes time to get out. The more aggressive and determined you are, the faster it will disappear. And the faster you will turn your financial future around.
3) Balance savings with debt reduction. Being good at saving is just like being good at racking up debt. It's not like you have to save a boat load all at once. Just save a little every week (10-15% of your take home pay for example). Soon you will be amazed at how much you have saved. Kinda like being amazed at how much you put on your credit card last month.
4) Set some goals. When will you be out of debt? When will you have a three month emergency fund set up? When will you have $5000 invested? When will you hit your next investment milestone: $10k, $25k, $50k, $100k and so on.
5) Get educated. I listened to audio books about investing, read money magazines, and watched CNBC until I understood the lingo. You should understand where your money is going, how to avoid unnecessary fees, and how to make your money work for you. I did this when I was in debt. Even though I wasn't ready to start investing yet, it kept me motivated to get to the point where I could start working on my investment milestones.
6) Find a financial mentor. Someone that has done what you want to do and take them out to breakfast or lunch. Ask for advice. They'll love sharing it. Don't you love sharing your opinion on things you're good at?
7) Most importantly, TAKE ACTION! There's an old saying I love. If you keep on doing what you're doing, you'll keep on getting what you're getting. If you're not happy with the way things are going, do something about it. Make the commitment to take your financial life to the next level.
Finally; give. In my opinion, if you want something, you first need to give. Whenever you feel “short” or in “need” of something, whether its money, a smile, love, or friendship, give what you want first and it will come back in buckets.
Taking a mental break and in the mood for another great blog from author John Wasserman? Check out 6 Awesome Reasons to Choose a Career in Sales or Leading the Habitually Unpunctual. A new blog is posted every week.
Oh...and check out my book No Shorts, Flip Flops, or Sunglasses: How to Get and Make the Most of Your First Real Job - proceeds go to a great charity, Children's Dyslexia Centers, Inc. Thanks! You Rock!!
by John Wasserman
Proceeds benefit Children's Dyslexia Centers