Is creating financial security and wealth that confusing? Take a survey of your Facebook home feed on any given day, and it’s certain you’ll see countless posts from people about their financial despair, or their complaints over five cent problems. Why is financial management so mysterious for the average person?
Considering how much time people spend in pointless classes in college (read: classes with no relevance to real world application), it really is a crime that after tens of thousands of dollars invested you can learn more about finances from a $4 used book like The Richest Man in Babylon or Rich Dad Poor Dad. Alas, I have had to get all of my financial education from the bookstore. (Yes, there is a reason to go to bookstores after college, and for more than just 50 Shades of Grey.)
Though my life has had ups and downs financially, at a very young age I committed to a few certain financial commitments. These commitments ensured I was never in a position to be afraid, and was always in a position for long-term wealth and success.
What if I told you there were proven ways that you could ensure long-term security for yourself and your family? And what if I told you that those methods would very likely ensure wealth (or at least, a comfortable retirement.) I am not a financial advisor, nor am I a genius of finances. These are simply my observations from what has worked for myself and other wealthy freedom fighters I am well acquainted with.
Warning: It’s also entirely likely you won’t like what I have to say because you’re not willing to do what it takes. You probably think you ‘deserve’ more. You probably think you’re special. You probably got all sorts of ‘effort’ awards in grade school. I hate to burst your bubble, but the financial world doesn’t care about your ‘participation’ trophy, and you can’t pay your mortgage with your ‘effort’ awards. This world takes work, planning, and consistency, but for those that do these things, massive EARNED rewards await you, Mr. or Ms. Snowflake.
Without further adieu….
1. Save At Least 10% of Your Income
One of the first principles in the book The Richest Man in Babylon is to always pay yourself first. Before you pay debt, buy toys, spoil your kids, or do anything else, set aside at least 10% of your money. This is your estate. This is what you’re going to do to build your freedom over the long haul. This money is to be used for saving, or investing, and nothing else. It’s not your rainy day fund. It’s your future. As you build a bigger income in your life, consider setting aside 20-30-40%. But never break the 10% rule. Always pay yourself first.
Save at least 10% of your income no matter what.
2. Pay 20% of Your Income Towards Bad Debt
Bad debt (credit card, school loans) is your next priority. Living with debt not only can cost you a fortune in interest, it is also emotionally and mentally soul-crushing. If you’ve been there, you know this. Budget 20% of your income to go toward your bad debt (assuming that pays what you owe). If you can afford to pay more – PAY MORE. But only after you’ve completed Step 1 (paying yourself first). When your debt is paid off, you can increase the amount you pay yourself monthly.
3. Don’t Live Beyond Your Means
We know what some of you were thinking after the first 2 steps: I can’t afford to save 10% and pay 20% toward debt. Yes, what we are saying is that you need to learn to live on 70% of your income (at the most). 99% of people have expendable income, and spend it in unnecessary ways. Yes, you’re young, so you want to go to yuppie foodie bars and restaurants while spending $12 on a glass of Pinot Noir to feel sophisticated. You want to have a Louis Vuitton purse (with nothing in the pocketbook). You absolutely have to drive a nice-ish car, live in as an upscale location as possible, and buy everything organic. We know, we know. Image is everything.
Except when you’re not planting seeds for a great future. Suck it up. You don’t need Call of Duty. You don’t need to give your kids every single plaything they desire. You need a budget. You need a plan.
These are the rules. You pay yourself 10% first. You pay the next 20% to debt. And you have to pay the rest of your bills with the 70%. If you can’t, you need to lower your expenses. Combine driving trips, buy in bulk, go out less, eat at home more, drink less alcohol, and track your finances.
If you save $500 per month, every month, for 40 years, at 10% interest, you will finish with ~$2,678,185.00. It is estimated that a Gen Y individual will need at the MINIMUM $2,000,000 USD to retire at 65 years old. Here’s your plan.
Now imagine if you save and invest….more?
4. Have At Least 2 Sources of Income
“But, but, but – I want Call of Duty. I want to have and do yuppie things.” Of course you do, who doesn’t? Who doesn’t want to spend $20 on a gourmet hot dog once in a while?
So that’s why the next step is: always have multiple sources of income. This is where we start to get into the “wealth” component.
Unfortunately, in our silly world, kids are taught to go to school, be a doctor/lawyer/engineer, and put all your eggs in the corporate basket, and expect said company to coddle and take care of you forever. Maybe that happened in the baby boomer era, but it’s not happening today. Job security is at an all time low. Having a 2nd and even 3rd source of income is essential in today’s day and age. So what do you do? You should discover ways of opening a business, investing, and having side projects. What skills can you teach? What do you have to offer? Start there.
Another thing many people (millions) are doing is joining a good direct sales or network marketing business. It’s a business people can build part time in conjunction with their established careers, and build an extra income (and for many, planting the seeds for long term success). In 8-10 hours a week, someone can promote a product they believe in, help others, and also enjoy the tax benefits of a government endorsed industry (in fact, Bill Clinton did an entire video endorsing direct sales for working professionals, and George Bush spoke at the annual conference for the Direct Sales Association). Check out it. If you want to learn more, read The Business of the 21st Century by Robert Kiyosaki.
Not sure what you want to do? Look around. Read The 4 Hour Work Week by Tim Ferriss, Crush It by Gary Vaynerchuk, and Linchpin by Seth Godin. Those books are a great place to start. Read Entrepreneur magazine, Inc., and other business publications. Discover, and have fun. Life isn’t about clocking in and clocking out. It’s about eventually pursuing your passions. And building a 2nd or 3rd income in conjunction with your career will be one of the most gratifying, smart, and secure things you could possibly do.
5. Always Be Networking & Looking for Opportunities
The last and most important step of this plan is to always be networking, always look for opportunity, and always associate with people that inspire you. Never undervalue the potential of a relationship. You never have any idea what might come up, and if you make a good impression, who might want you involved.
One certainty of the human race is that we are heavily, heavily affected by our environments and who we spend time with. People often judge wealthy/affluent people for being “high and mighty” because you see they tend to spend the majority of their time with one another. Well who should they spend time with? People that believe money is the root of all evil, people that hate their jobs, and people that are too afraid to take risks? Of course not. You need to hang out with people that have goals, inspire you to be better, inspire you to make good decisions, and people that have greater ambitions than you.
The cheapest way to make progress and find opportunity is to network with, go to meet ups, and socialize in places where entrepreneurs, idea people, and positive people hang out. Google it, and get involved.
Always learn people’s names, smile, and build friendships. This is a “who you know” not a “what you know” world in 2013.
With the above plan, you have in place mindsets, habits, and practices that will ensure you build a nest egg for yourself, pay off your debt, don’t make bad financial decisions, increase your income, and network with the right people that can exponentiate your opportunities.
What will prevent this from happening? Lack of discipline. Seeing something shiny and telling yourself you’ll save more next month so you can justify the purchase this month. Resist. Force yourself to earn more money from your 2nd or 3rd source of income to buy that toy. Create sound financial habits, and success won’t be a matter of hope, but a matter of when.
Have thoughts? Other essential ideas? Share them in the comments below.