Here’s something that may surprise you. Most people suck at managing money regardless of how much money they make. Yep, it’s possible to be good at earning money and terrible at spending, saving and investing money. It’s possible to be both a tightwad and a spendthrift simultaneously. How can one be a tightwad—someone reluctant to spend money and be a spendthrift—someone who spends money in a reckless way? Easy, we all have things that we absolutely refuse to spend or waste money on. Vice versa, we all have something that we’re passionate about, like to indulge in and spend way more than we should on. I like to refer to things that we tend to overindulge on as vices and gross habits. Truth of the matter is, we’re paying high prices for our vices. How not to suck at money really isn’t a math problem. It’s about reconciling our net income with our gross habits.
A year from now or five years from now seems like forever when you’re looking forward. However, when you look backwards, you understand an often-stated truth; time flies. Before you know it, you’re at the age that you once thought was old. In a world and a life that’s fast-paced, managing our finances effectively is crucial. We all want to live a balanced, healthy life, both physically and fiscally. To live a more balanced life fiscally, we want to earn more, save more, invest more, spend less, avoid being ripped off, and manage our money wisely.
Here’s how we can elevate our financial game and ensure that our bank account is as healthy as our ambitions.
Know Your Numbers: If you can’t measure it, you can’t manage it! The first rule of not sucking at money is knowing where you stand financially at all times. This means being intimately familiar with your income, expenses, debts, savings, investments, credit score, and more importantly, your net worth. Tracking these numbers isn’t just about knowing how much you earn, spend, save, and invest, it’s about understanding your financial flow, your financial health and your financial wealth position. It’s about identifying areas where you can improve.
When you know your numbers, you should be able to answer these questions as easily as you can sing your ABCs: What’s your gross income? What’s your net income? What’s your disposable income? What’s your tax bracket? How much are your total monthly expenses? What’s your credit score? What’s your total debt exposure? What’s the balance in your savings account? What’s the balance in your retirement account? What’s your net worth?
Set Financial Goals: If you aim at nothing, you’ll hit it every time! Without clear financial goals, it’s easy to wander aimlessly through your financial life wondering where your hard-earned money went. It’s important to set specific, measurable, and realistic goals. Whether it’s building an emergency fund, paying off debt, saving to buy a car, saving for a wedding, saving for a house, saving for college, or saving for retirement. Having concrete, realistic, specific, measurable financial goals will keep you focused and motivated on the real reason why you get up and bust your butt every day to make it happen for you and your family.
Regularly review your goals and your progress towards your goals. When making financial decisions, ask yourself, does this decision help me reach my financial goal?
Avoid Debt Traps: Debt is hazardous to your wealth! Use debt only when absolutely necessary! Even then, take extreme precaution when taking on debt and seek to pay it off as fast as humanly possible. Debt is the enemy of wealth. Debt will have you singing, “I owe, I owe so off to work I go.” Debt reduces your disposable income and hinders your ability to save. If you become too overburdened with debt and you’re unable to pay, debt can destroy your credit score. I have created guardrails on how to use debt responsibly. These guardrails will help you avoid falling off the financial cliff and into financial ruin. I’ll share my financial guardrail on the most pitiful debt of all – credit cards:
Never have more than two credit cards with a limit of more than $2,000 on each card. Never owe more than $600 on each credit card. By doing this, you’ll ensure never get trapped in credit card debt and you’ll always maintain a healthy credit utilization ratio ensuring a respectable credit score.
Invest in Your Future: An investment in yourself pays the best dividends! Investing is essential for building wealth. If you ask any current investor their biggest regret when it comes to investing, they’d say they wish they started investing sooner. If you’re reading this and you’re not actively investing for your future, START NOW! Your future self is depending on you. The sooner you start investing, the more time you have to benefit from compound interest. Compound interest is the wealth multiplier. Albert Einstein refers to compound interest as the 8th wonder of the world.
Although I’m eager to motivate you to start investing immediately, I want you to investigate before you invest. In other words, educate yourself on different investment vehicles such as stocks, bonds, mutual funds, exchange traded funds, and retirement accounts like 401(k)s and IRAs. Yes, if you’re actively contributing to your company-sponsored 401(k) plan, you are investing in your future. Your company-sponsored retirement plan is the best place to start investing—especially if they match a portion of your contribution. That’s a guaranteed 100 percent return on your investment.
Create Multiple Income Streams: Having multiple streams of income is a necessity, not a luxury!
Relying solely on a single source of income is risky. I believe in diversifying income streams to enhance financial stability. This could mean starting a side hustle, taking on a part-time job, starting a business, selling merchandise, turning your hobby into a hustle, investing in rental properties, or finding passive income opportunities.
Evaluate your skills and interests to identify potential secondary income sources. These ventures not only bolster your financial resilience, but can also provide an avenue for personal growth and fulfillment.
Practice Financial Discipline: Practice discipline or you’ll experience financial setbacks and regrets! Knowing what to do is one thing. Doing what you know you should be doing and avoiding what you shouldn’t be doing is the real litmus test. Ultimately, financial success comes down to discipline. It’s about making the right choices day in and day out, resisting impulses to overspend, consistently saving and investing and more importantly, staying committed to your financial goals. If you don’t get serious about your money, you’ll never have serious money.
Create routines that reinforce good financial habits, such as reviewing your budget weekly, looking at your financial statements monthly, and planning your shopping to avoid impulse buys. Over time, these practices become second-nature, leading to long-term financial health.
It SUCKS to suck at money, so stop doing things that set you back financially. Start making smart money moves so that you can “Get a grip on your money!”
(Damon Carr, Money Coach can be reached @ 412-216-1013 or visit his website @ www.damonmoneycoach.com)
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