Monday, February 4, 2019
Do These 5 Things, and You’ll be Wealthy. Don’t Do Them, and You, Well… Won’t
Wealth eludes most people. When you look at the stats, they start to paint a clearer picture as to why. While I won’t negate the reality of poverty, the middle class in our part of the world lives in relative comfort. The average income is more than livable, unemployment is at historic lows, wages are slowly (not fast enough in my opinion) creeping up to the level they should be, and outside of urban centers, the cost of living is not completely unreasonable. We also have historic personal debt levels, historic low levels of saving, and historic use of government benefits. How do we navigate through what seems to be a paradox of realities? I have for you my 5 tips for obtaining wealth. They are easy to follow and proven to work. Let’s get started.
1) Master the Budget
The personal budget is the cornerstone of your financial future. Its where the rubber meets the road. It’s what will determine whether or not you live your dreams, or sad to say, your nightmares. Most people cannot, or will not, master this simple task. Money in, money out. Money out cannot exceed the money in. Simple right? Well, how do we accomplish this? We write it down my friends. Use whatever system you want. Some people use fancy apps like Mint or Every Dollar. Others use the Envelope System or even the Jar System. I simply wrote mine on a piece of paper before I gravitated to the Microsoft Excel spreadsheet. A budget tells your money where to go before it leaves. We all must pay bills, that’s life. It’s the leftover cash that fails us. What are we doing with that extra dough? We MUST direct it to a place that best serves our wellbeing. Using a budget will help you truly understand the purpose of every dollar in your life. You tell it where to go, before it’s gone, instead of wondering where it went. If you do nothing else in life to better your financial status, the least you can do is this.
2) Master Debt
Point one leads into point two. The result of a failed monthly budget is debt. It is the result of improper planning, overindulgence or lack of self-control. Those are mean words, but they are the reality. You must master debt if you are ever to be successful with money. Here is the issue we face: Debt is easier than wealth. Having wealth requires patience, self-control, and diligence. Debt requires having a pulse and swiping a card. The greatest ally we have with wealth is time. Debt wastes time. You waste time paying it off, instead of building wealth. You waste money that could be used elsewhere to service your debt obligations. You waste your valuable working years paying interest, instead of making interest. My advice is to develop a disdain for debt. When I see a balance of $200 on my credit card, I am pissed off. Be that mad. Hate debt with a passion. It must be this way or else you will become accustomed to living with it. If you have debt, fight like hell to get out of it. It MUST be this way. There is nothing holding back the middle class of our society more than crippling consumer debt. No one made us get into it. We can blame the government, or our parents, or our boss all we want, but the reality is that we put ourselves in this position so we must fight to get out of it.
3) Pay Yourself First
Point two leads into point three. What is paying yourself first? When you pay yourself first, you are taking money as soon as you get it and directing it towards your financial future. This can take the form of many different payments. Some include:
- Paying down debt
- Saving an emergency fund
- Paying down a mortgage
- Buying insurance
- Investing for retirement
- Investing for speculation
- Investing for short term goals
Many of the things I mentioned don’t seem like they are “Paying Yourself First.” Let me break them down to you. Debt is hampering your net worth (assets-liabilities), so paying it off is paying yourself first. Emergency funds prevent debt, which hampers net worth, so saving one of those is paying yourself first. When disaster strikes, people deplete their emergency savings, or retirement accounts, or home equity, so buying insurance is paying yourself first because it protects those things. A home is only an asset if it is mortgage free, so paying it down, is paying yourself first. Investing is, well, investing, so putting money into that is paying yourself first. The biggest bill you will ever pay is towards your future self. YES, IT IS A BILL and should be treated as such. This is where people go wrong. They don’t see saving like a bill. You can live without your cell phone, but you can’t live without food when you are 80. Both bills need to be paid. You must, must, must take money as soon as you get it and direct it to the things that will secure your financial future. If you cannot do this, you will never be wealthy, ever.
4) Invest intelligently
Bitcoin be gone. Remember how “cool” that was like a year ago. What is investing intelligently? It is actually quite simple. Put money away and leave it alone for a long time. In this part of the world, we all have “tax-efficient” avenues to invest our money. An RRSP, or in the US a 401K or IRA, are the places to go. We also have the TFSA and Roth IRA for even greater efficiency. What about the investment itself? For over 100 years people have invested in the market and gained financial independence by doing so. Mutual funds are tried and tested. Their cousins, index funds and ETF’s are also working well for people. There will always be blips along the way, (ie: 2001, 2008), but if you stay invested for the long run, you will win, always. Millions and millions of people have retired comfortably based on simple savings and investing practices. You should be no different. Stop focusing on the hot stock or fancy new trend. Put money away, and leave it alone, for a long time. It’s just that simple. Also, pay off your mortgage. It is the largest physical asset you will probably ever own. If in retirement all you have is a paid off home and no debt, you will be alright.
5) Act your wage
I leave this point last for a reason. What you make is less important than what you spend. While life gets more and more expensive all the time, we overwhelm ourselves with stuff we don’t need. We buy the house we can’t afford and park the car we can’t afford in the driveway. We wear clothes that no one cares about just because of the name on the tag and flaunt them at the party we shouldn’t be going to. We eat at restaurants far too much and spend way too much money on booze and vice. I will be the first to say, all those things are nice. I will also admit that we do not need them. We live in a comparison society, constantly judging ourselves based on the lives of others. If I told you that the average Canadian has over 21K in consumer debt, the picture gets a little clearer, doesn’t it? The fancy things your neighbor has, put them in debt. This doesn’t make us bad people, just misguided. Let’s stop that trend once and for all. Saving is sexy, not Versace. Goals are sexy, not Gucci. A paid for vacation is sexy, not a gassed-up SUV. If we live within our means we can have all of that, if we don’t, quite simply we won’t. The Joneses are broke, so don’t be the Joneses.
I assume I am not breaking any new ground today with this post. A little hard work, a little savviness, and a little grade 2 math and we all can reach financial freedom. Be down for the cause folks, your future.
“We must all suffer one of two things: the pain of discipline or the pain of regret or disappointment.” – Jim Rohn
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