No time to read the full post now? Pin it for later!
So, you want to take your financial life seriously? Congratulations! You are on the best way.
Money doesn’t have to be difficult. It is pretty straightforward if you follow these five money rules. The key is consistency.
Most people shy away from dealing with their money for these two reasons:
- they think it is overwhelming / are afraid to see the (ugly) truth
- they think it takes lots of time / financial knowledge
You don’t have to be a math prodigy (I certainly wasn’t) to have your money s*** together. One the contrary, I know math geniuses who are bad with money. Really bad.
Finance is not about math,
it’s about behaviour.
With money, consistency is key. I’d call it discipline, but it tends to have a negative touch to it, a feeling of deprivation which is not what we want, right?. We know what happens on when you deprive yourself of all the yummy things you love for a couple of weeks (read: crash diets) – right, you get frustrated, you feel deprived, you give in, you binge… and fall right back into your old habits.
There are five basic, universal rules of financial health to live by and proudly call yourself money savvy.
Kinda no-brainer, but let me just say it: spend LESS than you EARN.
And that’s about it for the math in this post. You cannot become rich by living beyond your means, no matter how much you earn. Act your wage (I might have picked that line up somewhere). Regardless if you earn 50k or 200k a year, your lifestyle and habits eventually determine your net worth, not your paycheck. Don’t be just paycheck rich. This is the tragedy of so many stories of people at the peak of their health and income who have acquired debt (= negative net worth) by buying stuff they don’t need with money they didn’t have. Your paycheck does not define you and who you are, it is the tool you have right now to start building your net worth.
You probably know how much you earn, but do you know where your money is going? This where the Budget comes in. Yes, with capital B. A budget is the one and only tool to know where your money is going. Do your spending habits really align with who you are?
Clarity is the first step to freedom.
Apart from the oftentimes very eye-opening reality check, more importantly, your budget shows you your priorities. It can help you achieve your goals faster. And who doesn’t want that? A budget can help you learn to make conscious spending decisions, identify saving potential (I love ‘finding’ money!), can help you get pay off your debt faster and improve your overall cashflow. Life happens, and having money set aside for smaller and larger emergencies takes a lot of money-related stress away. When you have an emergency fund, things are become less of an emergency and rather than just unforeseen expenses. And no, Nordstrom sale is not an emergency. But you can budget for that, too.
Knowing what you spend on and what your goals are will keep you laser-focused and less likely to impulse-buy and give in to any FOMO/YOLO spending, and the subsequent buyer’s remorse.
Your budget shows you where your money is going now and it gives you the superpower of deciding where you want your money to go in the future. You want to travel the world, buy a home? Creating and sticking to a budget will help you align your spending with your goals.
To many, budgeting means deprivation and restriction, like being on a financial diet. In reality, budgeting is a freedom to spend on the things that are important to you. And it gives you something priceless in return: piece of mind.
You can use old-school pen and paper, if that is your thing. Actually writing stuff down on paper gives you some great accountability, btw. I have worked with a basic Excel spreadsheet for years before there were great budgeting tools like apps and awesome websites. It has worked well for me but it came witha few downsides. Big goals fire me up, so I was looking for a budgeting tool that would allow me to plan ahead, keep me motivated and achieve my goals faster.
The program I use is YNAB. It is simple, easy to use and tracks your progress. Did I mention that it has a super-pretty interface and has ah-mazing customer service? You can sign up here and get your first month free!
#2 Pay yourself first
When I was a teenager and had my first job, I remember signing up on a savings schedule advertised by my local bank. The idea behind it was that the bank would transfer all the ‘leftover’ money at the end of each month to my savings account to help me set money aside. Great idea, huh? No.
Why? Guess what happened: By the end of the month, there was nothing there to be saved. Surprise, the whole saving money thing wasn’t working as effectively as expected.
This is the reason people think they have nothing left to save. You don’t save what is left over after you paid all your bills, filled your fridge, your car, bought
clothes the designer slippers you desperately needed, and had dinner & drinks with your friends. Learn from my mistakes. Pay. Yourself. First.
I am not saying you should not do these things. You can budget for them. Your rent and utilities are fixed expenses. Groceries, travel or fashion is the more ‘flexible’ category which we tend to overspend on (enter: the budget) because we see this figure in the account. It is what we perceive as the ‘disposable’ or optional spending.
Saving is nothing else than keeping yourself from spending, aka delayed spending. Keep yourself from spending by moving the money out of your ‘disposable’ to a dedicated savings account. I use to ‘hide’ money from myself by putting it in a liquid, but physically different account so I wouldn’t see it and thus not tap that money in the first place. I treat it as a ‘me’ tax. Outta sight, outta mind.
It doesn’t have to be much, but you might be surprised by how much you can ‘spare’, when you set money aside right after your paycheck arrives.
#3 Set goals
As mentioned earlier, I like setting big goals for myself. Sometimes they can be overwhelming and discouraging, though. We tend to see the big goals as this vast gap between where we are now and where we want to be. I am a firm believer in thinking big. Your goals should be big enough to scare you a little. It is so vital to get out of our comfort zones and get comfortable thinking big.
Where there’s a goal, there’s a way.
Why is it so important to set goals? I like having big goals because it keeps me laser-focused. The beauty of dreaming big is that even if you only achieve your goal by 50% or 75% you are still better off than where you are now. It is like climbing a mountain. It requires determination and a clearly set goal to make the first step, but if you don’t think about reaching the top, you won’t start in the first place. And then you go, step by step. Sizing up your goals up in smaller chunks will keep you motivated.
Setting goals is giving your dreams a name. If you articulate clearly what you want, you are a 100% more likely to take the steps towards achieving it. Make them your goals.
#4 Pay off your debt
Debt is the little devil that keeps you from achieving your goals. Being in debt is bad, staying in debt is tragic. You are stealing from yourself, your current future paychecks cannot work towards your dreams and goals because they go to all the decisions you have made in the past. It is your money going backwards. You are paying for things you wanted in your past which you don’t need, want or value anymore. Pay off your debt as fast as possible so you can start paying yourself again, not the bank.
#5 Don’t compare yourself to others
We humans are social creatures, we like to fit in. Other people earn more, have rich uncles, share glam vacation pix on Instagram, or are debt-free while you are still scraping by.
It can be very hard to be motivated if you feel like you are falling behind. I have been there (yep, guilty). There will always be people who are richer, prettier, more successful. Comparison and beating yourself up does not help, it is just paralyzing. And not doing anything is not an option when it comes to money and life. We can’t all be Buffets, Oprahs, Beyoncés and Federers. But we can do the things they do and get pretty darn close.
It needs some soul-searching and confidence to develop and stick to a plan. Remember, the only thing that matters is YOU. There are a few things in life to be recklessly selfish about, like your happiness. Saying NO to one thing is a YES to something else. It is our choices that determine our success.
There are a gazillion right and wrong ways to approach things. Pick a strategy that works for you. That’s the only person you have to please.
What you do today matters more than what will you do tomorrow. These small and simple habits can help you get your financial life together. Start today.
What principles do you live by? What has helped you become better with money?