1. On Spending
First, spend less than you make. It sounds simple, but it’s easier said than done. It is hard to save if there is nothing less to be saved. Spending more than you make not only digs you into a financial hole but it leads to stress and hardship and conflict. Your ability to save is not a function of how much you make; it’s a function of how much you spend, but curtailing my spending habits is hard.
Do you like going to bed at night knowing that you owe? Do you like waking up in the morning knowing that you are deeper in debt than you were yesterday? Breaking poor spending habits is hard, but it is harder still to live with the increasing mountain of debt and interest that results from poor spending habits, and with that mountain of debt comes interest.
We must never forget this — Interest never sleeps nor sickens; it never goes to the hospital; it works on Sundays and holidays; it never takes a vacation. It is never laid off work. Once in debt, interest is your companion every minute of the day and night. You cannot shun it or slip away from it. You cannot dismiss it. And whenever you get in its way or cross its course or fail to meet its demands, it crushes you.
So, spend less than you make. You can’t get out from under the burden of debt and interest until you do. You can’t start saving until you.
2. On Fixed Costs
Keep fixed costs low. The most prudent thing you can do regarding financial flexibility and financial spending is to keep your fixed costs low. It turns out fixed costs are precisely that; they’re fixed.
Turns out if you get a big house payment, you’re going to have a big house payment for a very long time. A big car payment, the same thing, and those things are due every single month. These are lifestyle choices that can strain your financial flexibility.
If you’ve got a large house payment, there are fewer things you can do with the money that’s remaining. House payments, car payments, instalment payments, cable, internet, phone bills, all these things add up. The more your income is pledged to meeting these fixed costs, then the less financial flexibility you have. So, keep your fixed costs low.
3. On Budgeting
Create and use a budget. Nobody likes to talk about budgeting, but if we don’t track our spending, our spending tends to get away from us. When it comes to budgeting, it’s a pretty straightforward equation. We have inflows, and we have outflows. If our inflows are higher than our outflows, we have a surplus. If our outflows are higher than our inflows, we have a deficit. -
Now, you tell me which is easier. To increase your income or to decrease your spending? For most people, you have more control over spending than you have over your income. But if you want to have control over your spending, you need to track your spending. That brings us to budgeting. A budget has two essential elements.
Step One: You’ve got to write things down. If you’re not tracking your expenditures, how do you know how you’re doing? If you’re not writing it down, how can you keep track? What happens to the following things if you don’t measure or monitor them regularly?
Your weight, for example. If you don’t monitor your weight, it doesn’t tend to go down; it tends to go up. Your bank account. If you don’t monitor your checking account balance, it tends to go down rather than up. If we don’t keep an eye on things, they’re typically going to go in a direction we don’t want them to.
So step one in budgeting: You got to write things down.
Step Two: We’ve got to develop a plan. We’ve got to write that plan down. A plan that is not in writing is just a wish. We’ve got to have a plan to reduce our debt. We’ve got to have a plan to start savings. Saving for emergencies, saving for retirement, saving for investments. A prudent lifestyle and living within a budget give us financial flexibility. We’ve got to track our expenditures. To spend less than you make, you need to track what you spend.
4. On Investments
Be wary of clever or complex investment schemes. Nothing will take the wind out of your investment sales faster than making a bad investment and losing it all. You finally dig out of the debt hole. You finally have enough money to start putting a little extra away, and your friend tells you about this excellent investment idea that is guaranteed to provide enormous returns if you act now and, before you know it, poof up in smoke.
Your hard-earned savings are gone, and you’re back to square one.
Well, once you’ve put yourself in a position where you can start to save, please remember that if you’re considering personal savings or investment plan, and it seems clever or complex, it’s almost certainly a bad idea.
And many people around the country have lost their life savings to these get-rich-quick schemes. You don’t want to be one of those people. The truth is, there is no shortcut to accumulating wealth. The way people accumulate wealth is through one of the following four methods.
First, you’ve got specialized skills of some sort. You’re a great basketball player. You’re a great pediatric surgeon. You’re a great architect. Being great at something involving a specialized skill will often result in wealth.
Second, you’ve got some excellent business ideas; Facebook, Microsoft, Google. All of them began with great ideas from a small group of people. -
Third, maybe you’ll be lucky? You’ll win the lottery. You’ll be born to wealthy parents. You’ll be standing at the right place at the right time when someone else has a great idea and starts a business, and you get lucky and get wealthy. There are lots of rich people who are there just because they’re lucky. But being lucky is not a great strategy.
The fourth method for accumulating wealth — save early, save often.
5. On Saving
Save early and save often. Just start tucking a little money away each month.
Put it in the bank. Accumulate little savings. With little savings comes a little peace of mind. You are not only earning a return on your money, but you’re also sleeping better at night. I have found that I sleep better knowing that I have some money in the bank.
But you say, “I’m not going to get rich quick by putting my money in an ordinary savings account. That’s only earning 1/10 of 1%.”
Well, that’s right. You’re not going to get rich quick. Long, steady savings is how most people get wealthy. Long, regular savings, and savings is addictive. A basic savings account at a bank or a bank managed money market account, that’s good enough for most people to get started.
And once you put your money in there and check it online, you check that balance just like a scorecard. It’s a magnet for your money. -
Now, people say, “Yeah, but a savings account is not going to earn my rent for me and other things.” Well, no, if you want to pay next month’s rent, get a job. If you’re going to save, just put it in the bank and tuck the money away. If you’re going to invest in the stock market, you should invest in some sort of diversified fund, an index fund such as the S&P 500. That’s what I do. So I’ll give you some sure-fire investment advice.
First, diversify. Don’t put all your eggs in one basket. So if you’re going to invest in a stock market, diversify. Don’t put all your money in one stock.
Second, buy and hold for the long term. Investing in the stock market is a 20- or 30-year-thing. You’re not investing in the stock market to earn next month’s rent.
Let’s get some financial flexibility. Spend less than you make. And how do you do that? First, be wary of tying up your income with a lot of fixed costs. Adopt a prudent lifestyle. You know how to do that. Be a little careful about the apartment you get, the house you buy, the cars you buy, the clothes, and the eating out. Be prudent with your lifestyle. — Well, that means you’ll need to develop a budget. That means you will plan in advance and regularly measure where you are financial. If you’re not regularly checking where you are financial, you know what that means. It means it’s terrible news. You need to stay on top of this.
Finally, once you are in a position to save, prepare yourself for the long haul. People accumulate wealth through long, steady savings. Avoid those clever “get-rich-quick” schemes that promise out of this world returns with little or no risk. That just doesn’t happen. Invest for the long term. — You do these things, and you will increase your chances of being financially secure.
Save well, invest wisely.
The best investment is investing in yourself and choosing the best environment to nourish your life — Entrepreneur, Wealth Management, xMD, xAdvsior and xMilitary.