Throughout our history, and even as we move through the beginning of 2018, financial stability is still one of the most prolific and common-place problems that just about everyone seems to face. From memes and jokes on social media, to real life situations, money management has long been a worldwide epidemic. This has been the case for a number of reasons — including the increased cost of living, slower wage growth, a general lack of financial accountability and know-how, and even some millennials who irresponsibly define what it means to live their "best life," even at the cost of sinking deeper into debt to sustain that life. The truth is there is no one group of people, event, or circumstance to blame. However, no obstacle should hinder your arrival to financial freedom, no matter what generation you were born in and no matter how bad of a rainy day you may encounter.
The fact of the matter is while no single entity or situation can be blamed for a world of monetary mistakes, YOU are responsible for YOUR own money and its management (or mismanagement), and the impact it has in your life. In this article, you should walk away with ample knowledge to arm yourself and defend against the ease of financial curveballs, discord and imbalance, to not only survive the rainy days, but thrive in them! Below are five important, simple tips to effectively manage your money and build your wealth.
Tip 1: Pay Yourself First - Save Money
The worst part of our collective financial irresponsibility is that many people repeat the cycle of blunders, putting unimportant things first. On payday, for example, some people can't run fast enough to the malls to spend up their entire paycheck on the latest fashions and accessories. Often times, these folks are so accustomed to this reckless pattern of behavior, that money has become a one-direction currency for them - OUT of their pocket. For some, it even appears to almost be an uncontrollable addiction which leaves them with great stress, worry, and anxiety when they realize that they're unable to pay their rent, bills, and other necessary expenses.
Then there are those of you who are not shackled down by shopping sprees, but instead collapsing under the weight of being buried deep in debt with unnecessary credit card bills, growing expenses, and the lack of resources to manage it all - where your paycheck is disintegrated by these monthly financial obligations before you have a chance to do anything else with it.
When are you going to break this unhealthy cycle?!
In order for you to get a serious grip on your money and have more of it to use in a way that not only meets the obligations of your expenses, but also affords you some of the treats that we all want, you must first learn to PAY YOURSELF FIRST! Simply put, this means that you must take a certain amount of money, off the top out of your paycheck before the money is allocated toward anything else (bills and expenses included) - and SAVE IT!!! That's right, paying yourself first simply means to save money!! For me, I strive to take out at least 30% of every single dollar I earn, and I lock it away inside of a savings account that I do not touch! When you do this, you are guaranteeing that you will always have money for YOU...not for clothes, not for food, not for bills - for YOU!
Saving money (paying yourself first) allows you the critical opportunity to start building your CUSHION OF OPPORTUNITY (discussed more below), where you are able to take care of legitimate crisis-type emergencies, fulfill life-long financial dreams like home ownership, or even have the resources available to start the building blocks of your dream! So next time you get the itch to spend money, or you start to feel the burn in your pocket, make sure you have written that check to YOURSELF first, just like you do when you pay the landlord, or credit card company.
It's that simple: Pay yourself first, and you'll have money for a lifetime!
Tip 2: Create a "Locked" Savings Account (a.k.a. Cushion of Opportunity)
Once you've started paying yourself first. you will most certainly need a place to park all that cash. That's what leads us to the next tip - creating a "locked" savings account. Of course, you've heard of a savings account before, and you're probably wondering what I mean by "locked" savings account. It's very simple. A "locked" savings account is an account where money goes in, but never comes out — unless there is an exigent or life-changing reason! So many people defeat the true purpose of a savings account by constantly dipping into it and taking money out. There is no way a barrel can hold wine if there is a dripping leak. The exceptions for taking even a single penny from your savings must be extreme, even unimaginable, where there is no other source of finances to handle the situation. Some examples of times when it's okay to withdraw from this savings account include being stranded overseas, losing your home, losing your job of 25 years, contracting a Martian virus, or a zombie apocalypse.
Having a disciplined and hyper-responsible mindset in place will guarantee that your "locked" savings account will quickly grow larger and more substantial over time, affording you much of the cushion necessary for you to finally feel free of financial stress and strain. Isn't it time that you stop living check-to-check and start living cushion to opportunity?!
Rainy days are aplenty in the world today, and even when it seems like you're in the longest drought, having a cushion of opportunity is something you'll always appreciate. Another huge advantage of having a locked savings account is that it serves as your own insurance for any unexpected situations that life throws your way. The best part of this type of insurance, is that you're always in control of how much you pay into it, and it's always within your reach.
Here's your first test: you just found $50 while on a walk through the park. What will you do with your newfound bonus cash? The choice, and opportunity is yours.
Tip 3: Be Willing to Sacrifice Now to Get What You Want Later
While everyone would rather see the world in their youth, you don't have to see it immediately. As we've evolved with technology and become impatient beings who want everything "right now," sometimes it's worth it more to just wait. It doesn't hurt to put off buying that plane ticket or the fancy car, or the Louis Vuitton purse. If you're being financially responsible, you realize it's more important to save than it is to spend. By resisting the urge to have instant gratification by purchasing things that will lose its value in weeks or months, you will more quickly be able to invest in the things that will have a lasting impact on your life and career – like a new home, an incredible vacation, or even starting a new business. Having a "get it now" attitude is sure to set you up for emptiness and senseless spending, which can derail the stable and sustainable life you desire. It's more important to have the resources for your future, than it is to have the latest pair of Jordans or Gucci glasses!
I have created a life of financial freedom built on sacrifices that I have made growing up, and continue to make even today, that have afforded me the most incredible career opportunities, home life, vacations, and other amazing things that I enjoy today. And I did this simply by sacrificing the desire to instantly have some of the less important things in exchange for the delayed gratification, and preparation to have the more valuable and long-lasting ones.
How many people do you know who seem to have their priorities out of order, in terms of spending? Too often, individuals feel the need to boast about their name brand clothing, while the quality of their living situation is in dire straits. No one should ever have to ask anyone else for money to pay their rent or bills because they decided to exhaust their paycheck or max their credit card for an extravagant vacation or shopping spree. And thanks to social media, FOMO (the Fear of Missing Out) runs rampant with both young and old people alike, which has everyone trying to keep up with everyone else's lives. And truthfully, many of these people you are trying to keep up with don't even have the financial resources to sustain and keep up with themselves.
Of course, everyone wants to live a great life, but you will authentically achieve that "great life" when you practice the art of sacrificing today for what you truly want to have for your future.
Tip 4: Create and Stick to Your Budget
With all of the technology that exists today, there is no reason for anyone to not have a budget. And if you don't have one already, this is something that you should definitely feel is important and start creating NOW! Budgets are much more than boring spreadsheets showing you how much money you've earned and spent. In fact, developers of popular apps like Mint™ make it a goal to create an experience that doesn't bore users but engages and educates them. With the use of free budgeting apps like Mint™ or others out there, you'll get instant access to see a breakdown of your income, expenses, spending patterns, comparison data, tips and best practices, and even helpful features like reimbursing you for eligible purchases.
For the past several years, I've relied on Mint™ to provide me with an in-depth look into how I save and spend my money, including travel, restaurants, household bills, business expenses, vacation, and so much more. Using a budget tool or app is an incredible resource for you to better manage, use and grow your money.
The best way to budget is not simply to monitor what happens, but to take a proactive role in the parameters of your money management. You must allot a set amount of dollars (a limit) to spend within any given category. For example, if you earn $1,000 a month, you may want to first pay yourself $300, and lock it away in your newly created "locked" savings account; then you want to limit your monthly grocery budget to $100, your cellphone bill to $100, your dining and entertainment to $100, and rent to $400 per month. In this example, if you find that you've gone over your budget in any particular category, you must make the necessary adjustments to another category within your budget to allow for this extra spending. This means if you spent $10 extra on fast food this month, consider taking $10 from your shopping budget for this month.
If you're not budgeting, then your setting yourself up for failure. Much like writing your goals down on paper, you must have very specific financial goals, and effective tools to help you manage them. Keeping your budget stuck in your head, just leaves room for your money to fall helplessly through the labyrinth of financial cracks in your brain. Don't be afraid to use and rely on the free tools that are available to help you take control of your money and build up your wealth.
Tip 5: Live Beneath Your Means
You've won a lottery jackpot of $100,000,000! You immediately think about that mansion in the hills, the supercar, and the exotic vacation you've been dreaming of. Then, your next move is to go get them all, right? WRONG!
Way too often, people seem to believe that because they can afford to have something, they should and must have it. If no other tip in this article saves you from financial failure, this is the one that should. The "get it 'cause I can" mindset is what keeps people from sustaining the financial freedom they've worked hard to achieve and growing their finances in a more substantial way. This mindset also disrupts them from having an ongoing, thriving lifestyle.
If you want financial freedom you have to know how to implement the 30% rule: keep at least 30% of your total budget for yourself. In other words, if you earned $1,000 today, allocate $700 of that money for expenses and spending, and save the rest for YOU. It also doesn't hurt to add more to that savings percentage when you are able to, and especially as you begin lowering the amount of monthly expenses you carry. The basic idea is that if you can afford a Lamborghini, don't get a Lamborghini. Instead, get a BMW. The point here is that you don't always have to have something simply because you can afford it; and you don't have to have exactly what you can afford. You can have something less expensive, which will help you save money for something else (see Tip No. 3). Billionaire Bill Gates and others like him have many lessons to teach us about spending money with restraint and purpose, (for example, driving the most economical cars, and wearing practical, inexpensive brand-less clothing).
Of course, almost everyone wants to have the finer things in life, but we must erase a huge stigma from our minds that associates bargaining for less, to lower quality and substandard. In the long run, if you are able to refrain from exuberant spending, and find ways to live comfortably beneath your means, then you will guarantee yourself more opportunity to invest in those things that will add an overall greater value, experience and financial benefit to your life.
The Path to Financial Freedom Begins
With these 5 simple tips, you have the key information necessary to end your monetary mishaps and irresponsibility. Ultimately, we are all responsible for our own financial situations, so the way you spend or save your money is the only excuse you have to properly, and responsibly handle those rainy days that are sure to come. However, the unexpected, "torrential life storms” we all face, (not just the rainy days), is the exact reason why paying yourself first and taking control of your money truly matters.
With good practice and discipline, you should find yourself living beyond the angst of paycheck to paycheck, and instead, thriving in a comfortable – dare I say, wealthier place – where you are free to travel the world, and spend with an ease of freedom, and a cushion of opportunity. Now is the perfect time to take charge of your money, and the bright future it can help you build!