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On average, new budgeters save $600 by month two and more than $6,000 the first year! Pretty solid return on investment.
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Somewhere in between watching Disney’s Scrooge McDuck swimming in his money bin, when I was a kid, and getting my first bank overdraft fee as an adult, I developed a really skewed perception of wealth. There was me and my friends: the poor people. And then there were people who owned yachts and wore fancy cravats and lived in penthouses—you know, swanky types.
But, as I moved along in my career and started a family, I became more financially literate. Life experience and the aftermath of two fairly large financial recessions helped clear away the smoke and mirrors, exposing what being wealthy really means …
Being wealthy isn’t about owning a boat, multiple homes or a fleet of cars (is “fleet” the right word for multiple cars? Gaggle of cars? Quorum of cars?). In fact, wealthy individuals may not even own a home! If you’re living beyond your means—in a way that you’re at risk of losing it all at the first sign of turbulent finances—it doesn’t matter if you appear wealthy, you’re not.
In the traditional sense, being wealthy means having lots of resources, assets or money. But the “lots of” should really be “as much as you need to live how you want without having to compromise or worry about money.”
And don’t worry, Mr. and Mrs. Merriam-Webster, I get it. It’s not the most concrete of definitions, but someone with a large estate, teetering on the verge of bankruptcy, has a lot of “resources, assets or money,” but timing and liabilities can really cancel all of that out. This starts to make sense when you realize that someone driving a 1990 Toyota Corolla, living in a tiny house, might be the wealthiest person you know.
Obviously, there’s more to the equation than just amassing the things that society uses to denote “wealth.” In most cases, the type of wealth that gives us the ability to live free and financially independent will float our boat much more than a yacht ever could (I see what I did there).
It’s probably a dumb thing to ask someone if they want to be wealthy, but do you? And is it even attainable? Here’s the thing: I used to think that it requires too much luck, and only certain people can become wealthy. But then, after you spend some time reading Mr. Money Mustache or lurking on the Financial Independence Subreddit, you realize, yep. It’s attainable. The real question is: do you want wealth so much that you’re willing to do what it takes to get it? You do? OK, cool. Let’s get started.
Whether you’re at a mall (right next to a Cinnabon looking for the Foot Locker), or you’re just embarking on your journey to financial independence, you need to find the “You Are Here” dot on your map. Take a look at your bank account(s), your debt, your obligations and all of your income. Look at your assets compared to your liabilities.
Start to form a clear picture of where you are financially. You can load this up into YNAB, or you could have it all in a Google Sheet or even on paper. The more detail you have about where you are currently, the more effective it will be in determining how to get to where you want to be.
There are varying degrees of wealth and financial independence—enough to fill a whole series of articles. It’s worth doing some research on what makes the most sense for you and your situation. As you research, your level of financial independence will probably fall into one of these categories:
This may not seem like a huge accomplishment, but the sweet relief of having enough money in the bank to cover your expenses shouldn’t be underestimated. Start here.
Being free of debt means that you are free to earn, save and invest money without compound interest working against you to slow your climb. This should be everyone’s goal.
Once you’re debt-free, maybe you just want enough cash in the bank to take the vacation of your dreams, guilt-free. Or maybe you want to start your own business. Or maybe you don’t have a precise end goal in mind—maybe you just enjoy saving your money for the next big thing! (You might call that goal the “freedom of choice.”)
This seems like a no-brainer, but stagnant wages, disappearing pensions and society seemingly putting less emphasis on saving has really made this less of a reality for most people. You’ve probably seen the completely bananas statistics about people not saving for retirement. It’s frightening. Saving isn’t easy, it takes sacrifice and focus. But you can do it! (And you’ll be oh-so-glad you did.)
Even with all of the doom and gloom about people not saving for retirement, a recent Bank of America survey showed that one in six millennials already have $100k saved. You can’t retire on that alone, but it’s a pretty decent start. And it seems like the ‘saving money/frugality/FIRE (Financial Independence Retire Early)’ movement has only been growing recently.
There are different levels of FIRE, but most of them revolve around strategies that allow you to quit your day job, and focus on things you care about most. This doesn’t always mean you stop receiving an income. You may collect dividends from stocks, rent from investment properties or maybe even just a small, part-time gig that allows you to leave the nine to five.
No matter what your aspirations for wealth may be, your success begins with a budget. Yeah. I know. Have we ever talked about the importance of budgeting before? No? OK. Well, it’s not just some tedious exercise. Budgeting creates awareness of what your money is doing, which lets you put your money towards your priorities. Literally, the wealthiest person to ever live was a huge budgeter. Budgeting works. Here are a few things to keep in mind:
It’s important to be clear about your goals. Put a basic timeline on them. “In a year, I would like to achieve X. In 5 years, Y. In 10 years, Z,” after that, the alphabet ends, and who knows what’s next?! Be as specific as possible with the amount of debt you want to pay off and the amount of money you want to be able to save and invest.
Since you already know your current picture, you’ll need to do the math behind achieving those goals. If you currently have $30,000 in debt that you’re trying to pay off and you make $50,000 a year with $35,000 a year in expenses, you won’t be able to hit your debt-free goal in a year. It’s just math. But …
Can you make extra money from a side gig? I’m always amazed by how much hustle some people have. My sister has four kids in a single-income family. She went back to school recently and wanted to do it debt-free. I called her to chat last December, and she had just gotten back from doing a side gig, delivering packages for FedEx for the holidays. She made enough in a few weeks to pay for the rest of her school for the year. Pretty crazy.
Normally, achieving financial independence requires a significant amount of sacrifice. Or, as we like to say, “shifting of priorities.”
You have to decide which things you can de-prioritize, to prioritize your goal of becoming wealthy. And this is never easy. What things are you willing to give up to hit your goals? It’s unrealistic to say “I’m never going to eat out again,” or “I’m just going to bike 50 miles to work every day.”
You still need to live! As much as I respect the FIRE mentality, after spending quite a bit of time reading about the experiences of some FIRE-ers(?), it’s easy to see that the obsession to FIRE can distract you from the fact that you need to live life and have experiences.
Saving towards your goal of becoming independently wealthy is important, but not if you race towards your goal with such, uh, fire, that you miss out on the joy of being alive. So, be realistic about what things you need to cut or decrease. Make compromises that you can live with along the way, and just like budgeting with YNAB, remember Rule Three, and be flexible.
Perhaps the biggest piece of the puzzle to becoming wealthy is also the thing that keeps most people from achieving true wealth. If you’re in debt, compound interest is your worst enemy. But, if you’re saving and investing, it’s your most bestest best friend in the whole wide world.
You don’t have to obsess over investing, and you don’t need to completely understand all of the ins and outs of how/when interest compounds or dividends pay out, but you should at least understand the power.
And, now, investing is easier than ever. With robo-advisors/products like Betterment, or more fun, gimmicky systems like Acorns, there’s really no excuses not to do it, once you have the capital. And if you have a serious case of FOMO because you didn’t get in on tech stocks like Apple and Amazon a decade ago, there’s a much more reasonable (and wiser) way to invest in the market without having go all ‘Wolf of Wall Street’ and get your Series 7 (I really don’t know what this is).
On the way to becoming financially independent, there are a lot of “the Joneses” out there. You’ll have friends who buy new cars, co-workers who are constantly going out to lunch, relatives who go on insane vacations and just a ton of people who look like they are succeeding where you are failing. And maybe some of those Joneses are truly succeeding, and that’s great. You can succeed too. But do it on your own terms, with your own goals.
Like any long-term goal, you need to revisit yours on a regular basis. Change up your strategies, take on some new budgeting challenges, adjust your timelines, and give yourself a break—or even a reward—along the way.
Remember the reason behind why you want to live debt-free, save for retirement and/or retire early—to live happily! So, even while you’re still working towards the money goals, strive to be happy during the journey. It’ll help keep you motivated, and this is what makes life great to begin with.
Remember, budgeting is not restrictive. You won’t be spending less, you’ll be spending right. You can do this! Today. Right now. What do you have to lose? Except all that debt and stress. (Ok, so kind of a lot.)
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