Asking, “Why am I broke?” is a really important thing to do.
The sooner you can answer it, the sooner you can get on track to reach your financial goals.
And that’s really important because money has time value. Meaning, the longer you have to invest, the less money you have to put away. The shorter you have, the harder it is to reach your goals because you’ve got to save a lot more.
I spent a good portion of my 20s being broke, living paycheck-to-paycheck as so many Americans do. Fortunately, I got my act together and I’ve made a lot of good financial decisions since then. I share that because I want you to know I’ve got personal experience doing what you’re interested in doing.
In addition, I’ve helped countless people get on the right track financially over the course of 20+ years as a financial advisor. I’m honored to be named to Investopedia’s list of the top 100 financial advisors many years running.
Here’s what I know for sure; you and I have enough time to do most everything we want- but not enough time to waste.
Here’s what we’ll cover:
- Stop paying everyone else
- Stop ignoring your finances
- Stop hoping
- Stop thinking there’s a hack
Let’s get started.
Stop paying everyone else
The golden rule of personal finance is “Pay yourself first.” The opposite is “Pay everyone else first” and see if there’s any money left over for you at the end of the money. I don’t need to tell you the answer is normally, “no.”
If you’re in the habit of paying everyone else first (like I was), you live paycheck-to-paycheck and aren’t able to pursue your financial goals and objectives. Stop doing this.
I’m not telling you to stop paying your bills. I am telling you to put money towards your financial priorities at the beginning of every month. After you’ve done that, you can pay everyone else. Here’s how you do it:
- As you’re building up your emergency fund, set up automatic transfers from your checking account to a savings account at the beginning of the month. Your first goal should be to get $1,000 saved.
- Once you’ve got the $1,000 saved, enroll in your company’s 401(k) and begin making automatic contributions. Starting with 1% is better than nothing. If your company offers a match, work to contribute enough to get the full match as soon as you can.
- If your company doesn’t offer a 401(k), open an IRA and set up automatic contributions at the beginning of every month.
Taking these simple actions will pay off immediately from a psychological standpoint because you’ll know you’ve prioritized yourself and your success. It will also pay off over the long-term because you’ll start taking advantage of compound interest.
Learn more about paying yourself first in this blog post.
Stop ignoring your finances
You’ve got to pay attention to your money. When we’ve got a problem, it’s very human to ignore it. But problems don’t go away on their own. They turn into gigantic problems.
There are two things I want you to do: Monitor your cash flow, and keep a budget.
Monitoring your cash flow simply means paying attention to how much money you have coming in, and how much money you have going out. How long has it been since you logged into your financial accounts and reviewed your transactions? However long it’s been, that’s how far back I want you to go.
You’re looking for expenses you forgot about, or that you longer value enough to keep. I remember doing this for the first time and finding hundreds of dollars worth of expenses I could cut. Hopefully, you’ll have a similar experience.
Once you’ve completed your initial audit, review your cash flow on a monthly basis.
Learn more about cash flow in this blog post.
Budgeting is simply creating a plan for your money. It will tell you when you’re on track, and when you’re behind. You’ll also know if you can afford things; can you go on vacation this year? Can you invest in Bitcoin?
Without a budget, you’re flying blind. With a budget, it may not always be pretty, but you’ll know where you stand. As you’re getting started with budgeting, review yours on a monthly basis when you go over your cash flow. Once you’re in the habit, you can switch to quarterly reviews.
Dig deeper into budgeting in this blog post.
I want financial peace of mind. That means a feeling of being safe and protected.
Wishing and hoping things work out is not a winning strategy. In fact, doing so almost guarantees you’ll not reach your ultimate level of financial success. Instead, create a plan for the life you want.
One of our human superpowers is our ability to think about the future we desire, and to make plans for achieving it. I’m confident you know how important goal setting is. I did, but it took me until I was 35 to actually do it.
If I were to tell you to set goals, you might have a hard time doing it. Having a framework is very helpful. In service of helping you, you can access our Goals course for free. This will help you figure out what you want, and put plans together to make them happen.
The only way to live how you want is to know how you want to live.
Stop thinking there’s a hack
Once you figure out what you want, it’s time to get to work.
Financial success is available to everyone, but it’s difficult to attain. It will require work and sacrifice. Anyone who tells you differently may not be lying to you, but they certainly aren’t helping you.
Think about it like this; is there anything good in your life you didn’t have to work for? I doubt it.
There’s no shortcut or hack to financial security and success. You get closer to it everyday through the choices you make. Or, you get further away from it.
When you create your plans, embrace the fact that work will be required to make them happen.
How do you think successful people approach their finances? Do they pay close attention to their money, or do they ignore it?
I want you to become the CEO of your financial life. Start thinking about your finances like a business. Every successful business monitors cash flow and keeps a budget. They review these things on a monthly basis and make corrections as needed.
There will never be anyone more interested in your financial success than you. Act accordingly.
If you’re ready to take control of your financial life, check out our DIY Financial Plan course.
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