One of the questions I hear most often is, "how?" There's a perception that we don't make enough money. That if someone would just give us more money then suddenly all of our worries would disappear. We would finally be able to pay our bills, have our fun, and save for retirement. The truth is that as long as your mind is set in this place, you'll always be broke because having more money doesn't fix the basic problem. The basic financial problem is you. I know it's the last thing you want to hear, but I'm not very good at telling people what they want to hear, only what I believe.
Odds are that if you are unable to save, you need to change the way you think. It's amazing what people feel they need these daysI recently attended a speech given by Ben Stein, in which he compared the world we live in, to that into which he was born. Our priorities have morphed drastically. We don't have a family car, we have a car for everyone in the family. Children need mobile phones, adults need 60 inch televisions, and families need 2000 square foot homes. We continue to be the richest society in the world when we measure possessions, but what do we need?
We chant our consumer driven mantras as though they were passed down through religious text. "You can't take it with you." "He who dies with the most toys wins!" "I just have to have it." My personal favorite is that you should completely disconnect from all rational thought and spend money "...because you deserve it!"
Parents, lie to themselves when they think they're making lifestyle choices for their kids. Do kids need their own electronic tablet? What they need is both a scholastic and social education and like anything that you'd want to grow, they need sunlight. We tell ourselves that we want to give our kids a better life, but what we really want to do is relive our childhood through their eyes and enjoy all the things we think we missed out on.
We want what everyone else seems to have and we're willing to go into debt and sacrifice our life's savings to get it. Debt used to be considered an evil, but now we've let the banks convince us it's a necessity. As Bob Hope once said, "A bank is a place that will lend you money if you can prove you don't need it." So we spend everything we have on boats, vacations, cars, big homes, and electronics living paycheck to paycheck surrounded by things we don't need. We want to believe that these items give us middle class status, but it's a myth. The truth is that no matter how much money you make, if you live paycheck to paycheck then you're poor and judging from the dwindling middle class numbers, you're likely to stay that way for life.
Financial success is built over time and through one of the most elusive qualities people have these days... consistency. We often put off saving today in the hope that we'll start when we have more money, but our lifestyles always grows along with the size of our wage. The only consistency that you'll likely see in your life is the stress that comes from living paycheck to paycheck. It may not look that way to your friends as long as you keep up the facade, but when you've worked a job for 25 years and only managed to save $50,000 into your retirement plan, the fault isn't with your employer, your government, or your parents. The fault is with you. Understand it, embrace it, and change it.
If this sounds like you then it's time to pull yourself up by the bootstraps. So many people miss out on the pride and confidence of making it on your own. If you're waiting for your inheritance to save you or the government, just stop. Your parents will likely spend far more than they thought on health care costs and the government is probably the worst offender of basic financial principles. So let's get started and see if we can't make bootstrap lifting easy with just a few short steps.
Like any cancer, not having enough to pay your way through life isn't something most worry about until the dark specter of reality knocks on their doorstep. It's at this time when we look back at our lives and review the things that may have staved off the tough times. There are the obvious examples like using more sunscreen, not smoking, and spending less than you make, but they only seem obvious in the rear view mirror. So first, we have to admit that we are wrong. Yes, just like any twelve step program, we have to admit that we have a problem.
Next we need to put aside our ideas of what we think we need and evaluate how every dollar we spend goes toward our goals. Every dollar has value and purpose, even if that purpose is fun. Those who can't account for every dollar are doomed to repeat the process of losing money that you can't afford to squander. Impressions of the wealthy are that they have so much they don't know where it all goes. Most wealthy people know better where their money is spent than any of us. They even go so far as to employ bookkeepers to keep track. Model your financial life after the principles that the wealthy employ. They've proven that their way is better than your way.
Run your household the way you would run a business and be your own accounting team. Start by creating a balance sheet and know your assets and liabilities. Make a budget that includes saving 15% of what you make, spending no more than 25% of your income on your home. This includes insurance, repairs, and upkeep.
If you can't save that amount, you need to lower your cost of living. My brother used to call it, "getting small". Getting small and reducing your expenses as much as you can gives you the ability to pay off debt and start saving fast. It puts you on the autostrada toward financial health. Now not everyone can accomplish this by simply cutting out Starbuck's and mani/pedi day. Some may need to embrace a more sobering epiphany.
You're ruining your chances of being self-sufficient in retirement out of vanity and trying to keep up with the Joneses. Your social circle may have you chasing your tail trying to keep up, but the dirty secret the Jones family doesn't want you to know is that they can't afford this lifestyle either. They're trying to keep up with you! Who cares what they think anyway. Are they going to put food on your table and pay your home off?
Downsize your living arrangements. Homes have doubled in size since the 1950's when a one bathroom was enough for the family and three growing boys would share a room. This may seem absurd to us now, but that's because our frame of reference has changed. Our society believes that it's poor, yet we lead richer more possession filled lives than any time in our country's history.
Identify your goals. Start with the short term. Be clear and write them down. Now, prioritize them. Be sure saving isn't a goal. Saving, like paying rent, is a necessity. Look at your spending. Make a choice to divert money spent in places that are low on your priority list to the places that are high on your list.
Create a spending plan which incorporates both your expenses and your savings.
Stay away from shopping at convenience stores. Cook from home and don't buy the faddish prepackaged meals. Your kids will eat what you give them as long as they're hungry. They don't need Lunchables or Danimals. Let's be clear. I'm not saying that if you purchase these things you're a bad parent or irresponsible. It's a fact though that these things are often bought in such quantity that they can be a huge expense. I've seen kids go through a six pack of Danimals in just a couple of hours when a glass of water would've been a less expensive and even healthier idea.
Plan ahead. If you're on a road trip or going to a ball game, bring your snacks from home. Never take cash advances from credit cards, debit cards, and bank fees associated with overdraft protection. I can't tell you how many times I've seen people pay $37 for a $2 item because of an overdraft. To overcome this problem, save between three and six months of what you need in living expenses as an emergency fund. It might take a solid amount of time to reach this goal, but you'll be happy you did.
Finally, stay away from television shopping and impulse purchases. These sites are created with the intention of making purchases easy. Storing your credit card data, overnight delivery, creating a new account by logging into Facebook... it's all geared to separate you from your money and it works. Shop for new items from Craigslist, yard sales, and other second hand places. Most people just want to get rid of their items and will take a fraction of the value as payment. They key is to pay less than the actual value of the item. It's a lost art, but dickering can be addicting.
All these things you've heard before and probably need no explanation. So why do we continue to make the same mistakes? Put aside pride and vanity. You're the one your friends will be jealous of years down the road when you don't have to rely on your kids, or your government for your life. Stand up and fight for yourself. Fight for the pride that comes from accomplishment. Fight for your right to retire with dignity and yes my friends, fight for your right.... to party.