If you’re struggling with mountains of debt, or if you just plain ol’ feel like you can’t get ahead month to month, you’re not alone. Many people struggle with just the money basics. In fact, about half of Americans are living paycheck to paycheck. Have you ever told yourself any of these excuses?
“If my job paid me more, I’d be totally fine.”
“I’ll get back on track next month”…month after month.
“I can’t afford it now, so I’ll put this on my credit card so that I can pay for it when I get paid next”
The list goes on and on. If you have used these excuses, it’s time for a wake-up call.
As much as it may seem like more money will solve your problems, the fact of the matter is that bad habits will undermine any amount of money you have. Did you know that even most millionaires make (and stick to) a budget? It shouldn’t come as a surprise; most wealthy individuals didn’t inherit their wealth, they went out and earned it. When you build your own money from the ground up – as most of us do – it takes discipline, focus, and time in order to reach the big milestones.
Nail The Money Basics
There are two money basics that everybody starting out should have down. You need to have a solid foundation upon which to build if you’re ever hoping to grow your net worth and one day retire – especially if you want to retire early.
Create, and stick to, a budget every month
A budget is not a “one and done” thing. A budget is like a garden; you can come up with a plan, but it requires frequent care and attention to weed out the bad things. Those bad things in this case can be miscellaneous or superfluous spending. It may take the form of going out to lunch at work too often.
These expenses are like a pesky weed. Over time, theys have a tendency to sneak up on you if you’re not paying attention. By creating a budget monthly and reviewing how you’re tracking on a more frequent basis, you’ll instill some good spending habits that will help move you ahead.
Plan for saving first
It’s likely you’ve heard the phrase “pay yourself first” – and it’s for good reason. For many, saving for retirement is an afterthought. We prioritize other things first: things that give us more immediate benefits. But neglecting to save money for yourself – retirement or otherwise – has some bad effects.
For starters, not saving at least a little bit for an emergency fund means having to bust out the plastic every time something goes wrong. And believe me, something will go wrong at some point in your life. Having money sitting around is boring, I’ll admit. It is a lot better of a situation than not having the money you need when you need it. On a similar note, having money that you can’t touch for years can also be boring.
Look at the average and median 401(k) balances by age, according to Vanguard:
An average retirement account of just $200,000 at or after retirement age is scary. That’s not the place you want to be. If you neglect to save for yourself first, you’ll end up in this boat, perpetually working and pushing your retirement later and later.
Avoid Lifestyle Inflation
As you progress in life, chances are that you will start to gain a foothold. Follow the above steps, and you certainly will. As you start to earn more money, you start to enjoy some of the luxuries you had to forego. At this point most people will fall victim to lifestyle inflation: don’t do it. It’s easy to unwittingly add on more expenses as your income grows. It’s even easier if it grows by a significant amount in a short time. Keeping the money basics in mind will help make sure that you take care of your financial well-being and don’t end up in an even worse spot than before.
Don’t Forget the Money Basics
You’ve got a good foundation. You grow your income. If you keep the money basics in mind you’ll continue to grow your net worth and prosper. Your expenses won’t grow significantly, and you’ll begin to accelerate your savings. One day, you’ll reach the coveted position of financial independence or maybe even be able to retire early.
The road to financial independence isn’t always fun, and it’s definitely not always quick. Finding a healthy balance that works for you is important. What works for one person’s lifestyle may not work for yours.
Money won’t solve all of your problems. Money is a tool that can be used to help make some aspects of life better. Without nailing the money basics first you’ll certainly not find any real comfort in earning more.
What are your ‘money basics’ that you stick to in order to keep yourself on track?