September 5, 2010

Explained: One Simple Financial Decision That Could Change Your Life

A few weeks ago a guest post of mine was published on Pick The Brain. It concerned my belief in one financial decision that could change your life. In that article I gave the general overview of  the concept of living beneath your means.

In this follow up post, I am adding some detailed steps you can take to help you achieve financial stability. These are things I have done to enable me to retire comfortably a full decade before my peers. They don’t involve any specialized financial knowledge or insider information. They all involve a strong will and a real desire to put yourself on a strong financial footing. As I noted in the Pick the Brain article you must ignore the siren call of instant gratification. Realize that credit costs you. Understand that risky investments are called that for a reason. Don’t be greedy. So, what exactly is involved?

  • Develop a budget and stick to it. There is absolutely no way to monitor and control your financial life without tracking income and outgo. Write down every cent you spend on everything for at least a month. Compare that total to your income. Use those two figures as a basis for deciding what you can afford to spend and still have a positive cash flow.
  • Pay yourself first. The very first entry in your budget is what you are setting aside for savings and investments. Having the right intention but only saving what is left after every other bill is paid will not work. You are the most important line item on that budget. Take out what you have decided to invest before anyone else gets a dime.
  • Exhibit credit card sanity. Know the interest rate you are paying. Look for cards that charge less. Pay much more than the minimum every month or you’ll be in debt forever. Even better: never charge more than you can pay off in full at the end of the billing cycle. Then you are using the card for convenience and not to fund a lifestyle you can’t afford.
  • Delay gratification. Living this way means turning your back on the consumer society that fills our every waking moment. TV is not a medium for entertaining you. It is a delivery system for making you feel unsatisfied. Magazines and newspapers contain more ads than editorial content. Every sense is under assault to buy more, spend more, and charge more right now. If you want it, you deserve it. Not true. Wait for it, save for it, budget for it. Control the urge.
  • Find someone to help you. Unless you are very comfortable in making all your own financial decisions you need a mentor. It isn’t necessarily a broker or professional adviser, though it could be. It might be a friend or co-worker who has learned the benefit of living beneath his or her means. It might be a relative, a parent, or even one of your grown children. It must be someone who hasn’t just talked about it, but lived it with his own money. Run away from “hot tips” or “insider” information. Run toward someone who is financially savvy and is willing to share.
Living beneath your means takes dedication and determination. But, the end result will be worth the short-term pain and sacrifices.

I would very much appreciate your feedback and comments. Can you see yourself adopting any of these ideas? Do you already live beneath your means? How is it going? How do you stick to it? All of your ideas and experiences help the rest of us. Consider this your chance to be a mentor!

4 comments:

  1. I hope the new credit card law help against all the fees and charges. Sometimes it is hard to keep up with everything.

    Thank you for your writing.

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  2. William, thanks for taking the time to leave a comment. Yes, From what I understand the new credit card law which went into effect this summer will help with some of the fees and charges from credit card companies. It is still each card user's responsibility to know what the various rates and charges are. The new law doesn't protect any of us from misusing credit.

    Also note that if you use a business credit card instead of a personal one, some of the protections in the new law do not apply.

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  3. Living beneath one's means is really about a state of mind... a state of mind which cares not about keeping up with the Joneses. Fortunately for those who share this state of mind, the world is filled with a whole lot of exciting, adventurous things to see, do and learn about that cost very little money. Bill

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  4. Well said. My wife and I make it a sport of trying to find something new to do each week that is free or low cost. We have yet to run out of things to do.

    Thanks for your thoughts, Bill. And, I like your web site, too.

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