For many just starting out on their journey to financial security, money can feel like a never-ending treadmill, where you are always struggling to get ahead.
I’ve heard such comments as, “I can never seem to catch a break,” “I always feel broke,” etc.
“Getting ahead” won’t just happen one day, though. It’s something you have to deliberately choose to do. And, I can show you exactly how to do it.
Don’t Play the Victim
First, I want to get a little blunt. If you can handle it, then you’re definitely ready to apply what I’ll be showing you.
Don’t play the victim. I’ve seen many people who struggle to get ahead, who are always blaming it on someone or something else. They might blame it on the government, on the current president, on their job, on bill collectors, maybe even on God or an unjust universe.
I’m not saying there’s nothing wrong with the current economy. Plenty of things need to be fixed or improved. But, it’s probably going to be like this for the foreseeable future. If you want to advocate for a higher minimum wage, greater benefits for workers, lower tuition costs in college, or whatever else, go right on ahead. But don’t let these things stop you from getting ahead financially now.
Those who just idly complain don’t actually change anything. It’s too easy to blame it on others and stay in the exact same situation for years.
Take responsibility. Decide now that it is 100% in your control to improve your financial situation. Perhaps you don’t yet know how, but that doesn’t mean that it’s not possible. Perhaps it’ll take a lot of work, but that doesn’t mean that it can’t be done.
If you’d rather tell me why you’re the exception, why your situation really is hopeless and it’s totally out of your control, then the rest of what I’ll be saying probably isn’t for you.
But if you’re willing to open up to the possibility of taking control and improving matters, then keep reading.
The Only Thing You Need to Know to Get Ahead
OK this is really simple. But don’t dismiss it out of hand, because its simplicity is its power.
To get ahead, all you need to do is to…
Spend less than you earn.
I know, that sounds horribly simplistic. But not doing this is the basis of why anyone remains stuck.
From experience, many people treat the question of whether to spend money as a simple binary: “Is there money in the bank?” If yes, it’s OK to spend, and if no, then it’s not.
But paycheck-after-paycheck, they seem to have about the same amount left over before getting paid again. Their account is filled back up, and they spend it back down to about the same level.
As I’ve described already, this was me a few years ago. I’d end every month with about $50-$100 left in the bank, sometimes less. It never grew.
This seems OK for a while. You’re able to cover all your bills, may even have some money left for some discretionary items, so it seems like you’re doing OK.
But then, something unexpected happens. Christmas comes around and you have to buy presents. Or it’s your mother’s birthday. Or your annual car insurance bill comes due. Or your car breaks down and you have to get it fixed. Or a friend invites you on a trip you’d really like to go on.
These could be called your irregular months: months where your expenses are a bit out of whack. But, because you’re living so close to the edge, they disrupt your life. Either you have to cut way back on other things for a month or two, or worse, you put it on your credit card and go into debt.
Then you might say, “Why can I never get ahead?”
But isn’t every month a little irregular? Last month I had to go out to Providence to meet my coworkers, and had to spend quite a bit out-of-pocket. The month before that my mother visited for my birthday and we went to the casino, plus I had to take my new kitten to the vet. The month before that I’m sure something else happened, and so on.
OK, let’s say you manage to somehow keep your expenses rather regular, and have enough to cover all the necessities.
But now, what if you lose your job? Now you have to rely on the little you’ll get from unemployment, if you are even eligible for it. If you’re lucky you’ll find a new job in a few weeks, but what if it’s longer? What if it’s 3-6 months before you can find something?
Or take the situation of my mother. She decided to retire a few years early so she can get social security, but the amount is so little that she literally can’t afford to stop working, even though her health is declining. She never saved for retirement, or what little was in her 401(k) from her prior job was lost for various reasons.
I’m passionate about this because I’ve seen people’s lack of planning catch up with them. The horrible thing for me is that it’s all 100% preventable. Just spend less than you earn. Put a bit aside every paycheck. Let it grow. Then, it’ll be there when (not if) you need it.
Painting a Different Picture
Now let’s paint a different picture.
Let’s say you receive $1,500 per paycheck, biweekly. You may get a lot less, or a lot more: this will apply regardless.
Now imagine you follow my minimal advice of saving no less than 10% of everything you earn. I guarantee very nearly anyone can do 10%.
So, each paycheck, you put $150 into a savings account. By the end of the first month you have $300 saved up. Within two months you’re up to $600. After only 5 months you literally have enough to replace a whole paycheck.
After an entire year you’ve saved $3,900 (plus interest). Now when that car insurance bill comes due you have more than enough. When Christmas comes around it’s no problem. When birthdays come up you don’t have to worry. To be sure this is just the beginning. You should probably save a minimum of $9,000 as a comfortable emergency fund. But, it’s far, far better than nothing. You’re no longer living on the edge.
How Much Should You Save?
I used 10% as the minimum you should save, because it really is the minimum. If you can’t find 10% to put aside, then cut out expenses. Get rid of cable, or don’t go out to eat as much, or don’t buy coffee every day.
You might say you can’t afford to save 10%, but you literally can’t afford to not save at least 10%. If your expenses are bumping right up against your monthly income, you are not actually living within your means. You can’t afford to spend every penny you earn, because someday something unexpected will happen, and then you won’t have enough and you won’t be prepared.
Saving 10% is the minimum. Bumping that up to 20%, or even 30%, would be the ideal. Some people even manage 50%+.
If I were grading your savings rate, this would be my grading scale:
- a+: 50%+
- A: 40%-50%
- B: 30-40%
- C: 20-30%
- D: 10-20%
- F: -10%
In other words, just to get a passing grade, I’d want to see you saving 10% or more.
Of course, it depends on your level of income and also the cost of living where you are. But, you’d be surprised what you can cut out when you really try.
By the way, I’m still working on upping my own savings rate. I’m usually anywhere from 20-40%, depending on the month and how irregular it is.
You might think these numbers are ridiculous, and you do have to find your own comfort zone within this range.
But they’re not unreasonable at all. By saving, you are both supporting your current needs and wants, but also your future needs and wants, all the way up to retirement. After all, you want to one day be able to afford to stop working, I’m sure.
There are actually five levels of saving, four of which I’d say are absolutely required for everyone. But 10% is nowhere near enough to cover all five of these levels. In fact 10% would just be a drop in the bucket.
But, 10% would be enough for the first level or two, which is the bare minimum.
To learn exactly the steps you need to take to break the paycheck-to-paycheck cycle, or simply to get ahead financially, I invite you to join my free webinar this Sunday, November 11.
During this webinar I’ll also give you a special offer for my upcoming program, 90 Days to Financial Security, where I’ll discuss these five levels of savings and how they can help you take full control over your money.
So what is your current savings rate? Has this post convinced you to increase it? I’d love to hear your thoughts in the comments.
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