The number one question I get is HOW did I get to a place of financial security. For one thing, comparing my journey to others is difficult because it’s different for all of us. We each have different priorities and goals, so doing what one person does over another is not necessarily going to pan out the same for everyone. Also, I’m unique in that I’m getting a pension from the military which helps tremendously. Pensions are quickly becoming a thing of the past. But there are definitely similarities to what I did that can be applied to everyone.
- Education. This meant a lot of reading and absorbing information from credible people. The key word is CREDIBLE. I wasn’t enamored by the firm you worked at or who you knew, I wanted to make sure that the information I was getting was coming from people who have been there, done that and practice what they preach. Sometimes, I would get info from Financial Advisors from big firms who simply wanted to get me as a client and sell me their latest and greatest mutual fund or insurance policy. I continued to gather information from as many credible sources as I could, I read books, I listened to podcasts and just took it all in. A big part of this isn’t just taking the value for what it’s worth, but to also discuss it and CHALLENGE it. This is where forums, emails and regular discussions were helpful. I asked the most basic questions. Hell, I used fake alias accounts to continue asking questions to see if the answers were consistent. Start with gathering information, educating yourself and best of all challenging it through discussion.
- Community. This is so important. Have you ever been on a diet and tried eating right and doing the things you needed to do, but being surrounded by people who talked shit about your diet or tried to lead you back to your old habits? It sucks. But when you’re at the gym or surrounded by supportive people, it’s a different experience altogether. Dieting and exercise is hard, but being surrounded by supportive people makes it easier. Same applies to finance. As I started educating myself on money, I naturally made connections with others through forums, or discussions that led me to other people in real life. As you start talking to more and more of these people, you grow a community and different opinions to help you come up with the best solution for you. When you have one supportive friend, that’s great. But as you grow a network of people, you start to hear other opinions that help you understand a problem deeper, rather than hearing from the echo chamber.
- Inventory. Once I started to get educated and had a group of people that supported me, I was in a better, more confident position to take inventory of my numbers and actually understand what they mean. Jumping right on in and telling someone to start calculating their Net Worth, Savings Rate and discussing assets and liabilities can be done, but it helps to go there from a strong base of knowledge first. Once I had that, calculating my numbers wasn’t so bad at all. Inventory and knowing where you stand is a big step, but it has to be done. I like to use analogies of getting in shape cause the principles are the same. You may know you’re overweight, but don’t want to look at the scale because you won’t like what you see. So you remain stressed and continue doing what you’re doing cause you don’t know any better. You aren’t healthy, you don’t feel good, but you have to start somewhere so you know which direction to go. So you eventually step on the scale, get your body fat tested and compare that with where you should be. Its not always pretty, but its the first step and its necessary.
- Focus on the basics. Taking inventory and knowing where you stand is a tough step because there’s no hiding anymore. You now know where you stand and the next step is to figure out how to improve. Ultimately, it will fall on you to make the choice of where to go. Again, just like diet and exercise – there are so many ways of getting in better shape. Keto, Paleo, Carnivore Diet, Juicing, Crossfit, Bodybuilding, etc. They all work to a certain degree, but focusing on the basics is what’s key. Wanna lose weight – Take in less calories than you expend. Wanna gain muscle – Take in more calories and protein than you expend. Stick to the basics. In the world of finance, that might be things like getting rid of store credit cards, ensuring you have no checking or savings accounts fees, starting an emergency fund, opening a 401K, ROTH IRA, and a brokerage account.
- Consistency and Discipline. Once the basics are in order, it’s a matter of doing what needs to be done consistently and through discipline. If you created an intentional spending plan, you follow it. If you opened a brokerage account, you invest in it. If you opened an emergency fund, you stock it consistently. It’s truly systematic. The best part about all of this, is that it can be AUTOMATED. From the moment my paycheck hits the account, I automate a certain amount to split it to all the different places it needs to go. A certain amount to my Emergency account, Groceries, Mortgage, Car Payment, Sinking Fund, Dog Account, Fixed Expenses Account, etc. I don’t even think about it. I open my groceries account and the set amount I have for the month is there, and it’s on me to stay within that budget and so on and so forth. Literally, very little thought process.
- Tracking your progress. Every week, I check my numbers and see how it improved from the initial Inventory I did. Think of it as your weekly weigh ins if you’re trying to diet and exercise. Am I on track or am I slipping? Did I go out to lunch too much and severely deplete my ‘going out to eat’ account? If so, maybe I need to scale it back this week so I’m still within my budget for the month. Or maybe I got too restrictive and cut out entirely too much because I was being overzealous. If that’s the case, then maybe I adjust my numbers a bit to keep me balanced so I’m not living like a Spartan. In the end, humans are creatures of habit and ultimately, you know what your money habits tend to be. It’s a matter of dreaming about your goals, creating a plan that will get you there, but creating a system that’s balanced enough for you to stick to the plan long term. Tracking your progress is essential. This is also where COMMUNITY helps. Did you fall off track with your groceries and eating out? Did it make you relapse and say, “Fuck it” I might as well buy those Jordans with a Louis Vuitton purse? Well, it’s going to happen. But the key is to get back at it and try to minimize that from happening again instead of throwing the whole budget out the window. Your community will help keep you on track. Send out the bat signal and people will give you tips on what they do to stay on track. Besides, they’re going through it also, or they’ve been there and done that also.
- Habits. After following a plan to get you toward your goals, this radical change in your lifestyle isn’t so much of a radical change after all. It’s a lifestyle. It’s habitual and you don’t even think about it. It becomes a way of life. Sometimes it’s even hard for me to think back to how I did these things because I did a ton of work upfront and now just consistently live within the limits I set. It’s automated so I don’t think about it, so it just requires me to live my life how I typically do. I have emergency money set aside and I also make sure to plan ahead for big purchases by intentionally putting money toward those goals. I would like to think this is more complicated than it is, but the truth be told – its not as hard as your think. Is there some complicated math you have to learn? Not more complicated than algebraic equations.
Another common question – “How do you deal with mistakes or overspending on your budget?” Again, it’s about consistency and discipline. Will you mess up occasionally and overspend for the month? Yes. It’s going to happen. But I don’t beat myself up over it and destroy the rest of the plan for the rest of the day, week or month. I keep going. Tomorrow’s another day where you can start over and get on track. When you truly have the basic necessities covered such as a roof over your head, the utilities to run it, transportation, gas, food and water – Then the rest is really on you as a need or a want. Do I get a wild hair up my ass to go eat a tomahawk steak on a Tuesday evening cause I want to? Rarely, but yes. I set aside money each month dedicated to going out to eat because we randomly like to go out to eat. We either use it or we don’t. But that money there in the event there’s a reason to celebrate or cause I feel like going to Chuck E. Cheese for some reason. I just don’t make that outlier the habit. If going out to eat weekly is a habit, then I budget for it. But once I’ve hit the threshold of what’s budgeted, I stop. Now if our weekly going out to eat habit is getting in the way of other goals, then we talk about it and recalibrate numbers. I can cut it out altogether, but the truth is, I like to go and eat out with my family. So, maybe instead of cutting it out altogether maybe we’ll settle on once every other week and do home made pizza instead? That way I’m still fulfilling my urge, but not to the extent that it’s keeping me from my other financial goals.
Hope that helps!