There’s a common myth about wealth. Sadly, it’s wrong.
Most people think they can’t save, invest, or get rich because they don’t make enough money. But the size of your paycheck doesn’t matter – what you do with that paycheck matters.
Are you a sports fan? Listen to this stat, courtesy of Sports Illustrated: “within five years of retirement, an estimated 60% of former NBA players are broke.”
What the HECK!
How is it that professional athletes can make hundreds of thousands of dollars, most of them millions of dollars per year, and still end up staring at a bank account on the computer screen with an ominous zero in the the middle?
It’s because they didn’t manage their money well.
If you’re spending more than you make each month, then don’t think that a pay raise from your boss will fix the problem. Your discipline and habits will continue as your income rises. Maybe you just took out a loan to buy a nice new car for $40 thousand when you could have gone with the used, functioning option for $10 thousand.
A few paychecks down the road, if your habits don’t change, you won’t magically start saving and investing. Instead, you’ll be taking on more debt to buy a new house that you couldn’t really afford.
So, whether you’re a 16 year old who just got your first paycheck from a part time job at the local movie theater, or a 45 year old making 150k a year, start building solid financial habits today that will continue for the rest of your life.
Here’s personal finance tip #1: live below your means.
Every single time you open a paycheck, part of it should get stashed away. As you become more comfortable with this and your income increases, the amount you save every month should continue to increase. That means that if you’re 16, save an extra $50 this month and buy that new pair of jeans next month. If you’re 45, max your IRA this year and wait until next year to visit Florida.
If you’re in debt right now, no problem! Instead of saving or investing that extra chunk of cash, put it towards your credit card balance. Chip away at that big red number every month, and celebrate as you watch it approach zero.
Don’t continue to put off your personal finances, thinking that there are just too many expenses right now but you’ll start saving soon. Begin building habits today that will lead to a better future. It will hurt at first, but each month will be easier than the last. Living below your means is contrary to society’s normal approach, but it’s the base principal upon which everything else in budgeting, saving, and investing is built.
Good luck getting started, and thanks for reading! I would love to hear your thoughts on this topic, so please leave a comment below and get the conversation started. I promise I’ll respond!