We are not financial advisers.
But we have a few things to tell you anyway just in case you aren’t going to hear it from anyone else before it’s too late.
We will keep it short.
There’s nothing quite like the feeling of getting a REAL paycheck, especially when it’s 4-digits.
But are you confident in managing your money besides paying your rent/mortgage, car payment, groceries, utilities…? Do you have a budget that includes saving or investing? Do you know what your actual monthly expenses are; Your monthly discretionary income after your bills are all paid? How much are you saving? Over the long term, can you afford the choices you make? What if your car breaks down or your dog gets sick – do you have emergency funds set aside?
Flying home from a conference last week, I sat next to an impressive young man named James (Hi, James!) who grew up not far from my home. After high school, James was fortunate enough to be offered a sales job making a pretty significant commission and was doing quite well for himself!
But James didn’t really have someone to advise him in making good financial decisions. Quite the contrary, his employer even hooked him up (as well as his other handsome young employees) with a potentially shady accountant, putting James at serious risk for a rocky financial future.
Fortunately, James is smart and open-minded and listened to a few words from an opinionated mom-like stranger, as follows:
The average millionaire
becomes a millionaire
(and stays a millionaire)
because he/she lives
below his/her means.
What does that mean, to “live below your means”?
Most simply, don’t spend more than you have. In fact, don’t even spend everything you have. Save as much as you can (without being a complete cheap ass. Don’t argue over the restaurant bill unless your friend is in the habit of scamming out.) This can be a hard thing to do. Just because you have the money and can AFFORD it, doesn’t mean to have to spend it.
Buy a used car, not an expensive new or leased car. You don’t need a “nice” car. Why do you need a nice car? Why does ANYONE need an expensive car? Do you need to show clients that you are successful? Or are you really just showing them that you are materialistic and are making too much money off them? The only car you might need is a decent, reliable one.
Don’t buy something on a credit card that you can’t afford to pay cash for. NEVER carry a balance on your credit card. Don’t use one if you can’t pay it off IN FULL every month.
(This is not only the smart thing to do, but you are also building your credit rating, something Americans are overly-obsessed with.)
Choose your friends wisely.
(This is no joke!)
Don’t hang around with people that you feel pressured to keep up with, especially if they have expensive habits.
Find friends that are as careful with their money as you are,
or better yet, MORE careful.
Did you know that 70% of lottery winners file for bankruptcy within 3-5 years of winning? Because they go hog wild! They spend like crazy and they have a hard time saying no to demanding relatives and friends that crawl out of the woodwork asking for a handout. Because they are not careful.
Contribute to your employer’s offered 401K.
And, if they match, accept free money:
If your employer will match your 401K, contribute AT LEAST as much as they will match (e.g. 1%). If you can’t afford any more than that right now, fine, but take the free money. If you CAN afford it, contribute the MAXIMUM allowed! You’ll be glad you did!
You might think, “I don’t make enough money to afford to contribute to my 401K or to put anything in savings”. Ah! Not true! Here are things to consider:
- You CAN live without a few extra dollars a month. People do it all the time. If the money never lands in your bank account, but goes straight into your retirement account, you’ll never miss it.
- Really sure you can’t live without that money right now? The second you make a tiny bit more, immediately move the amount of your raise (or at least most of it. At least HALF of it, come on!) into a 401K account. Everyone knows the story about the tiny amount that you invest at age 25 will grow by leaps and bounds more than the amount you start investing at age 35.
- NEVER EVER BORROW MONEY FROM YOUR OWN 401K. Just don’t do it. You’ll pay a penalty and you’ll never get yourself back up to speed. Either don’t spend that money or think of some other creative (legal) way to get it, e.g. selling stuff on eBay or taking a temporary evening/weekend job. Even a small loan will hurt you less than “borrowing” from your 401k.
CRITICAL: If you make commissions or some type of wage where taxes are not withheld, set 35% aside in a savings account from each paycheck.
You WILL need this money to pay your taxes so you are not caught off guard in April next year!
- Don’t cheat on your taxes, you idiot. Have integrity. Don’t file for bankruptcy. If you make a mistake and owe someone something, pay them back as much as you can afford every paycheck/month until you have paid them back in full.
- Keep a budget and stay within it. Consider dividing up your paycheck into three buckets, like this: Spend (Bills + Food + Reasonable Entertainment), Save, Give (even if it’s just a tiny little bit). When you get a raise, don’t put it in the “Spend” bucket – SAVE IT.
No matter how much money you have, it requires DISCIPLINE.
Start your discipline right now.
Don’t tell yourself that you’ll be more financially responsible later!
When is later? “When” is RIGHT NOW. Set yourself up for financial success.