Too many people spend money they earned..to buy things they don’t want..to impress people that they don’t like.
- Will Rogers
I’m a wealth strategist. I currently meet with dozens of clients per week, so I get a unique birds eye view of what’s happening with people’s money. I’ve also been told I have a super power: people will tell me anything and everything. I get to hear people’s truth.
I’ve peeked behind the curtain of thousands of people’s private financial lives, and here’s the truth I’ve uncovered: across every industry and stage of life, there are really only 2 main financial profiles. People who are saving money and growing financially, and people who are going into debt — some faster than others.
That’s truly it.
It may be shocking, but I never see someone without debt who doesn’t also have savings. It just doesn’t happen. If you’re out of debt, you also have savings. The opposite is also true. If you don’t have savings, you have debt.
Over the last decade I literally cannot remember a single case where someone was truly breaking even and staying there. You are either growing wealth or sinking into debt. Period.
So which camp are you in?
Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pound and six, result misery.
— Charles Dickens
You might want to argue with me and say you are living “paycheck to paycheck.” You might say you don’t have money to save, but you’re covering your bills, so that’s breaking even, right? Unfortunately it simply doesn’t work that way. Living paycheck-to-paycheck is a consistent feature of the group that accumulates debt.
I know that hurts to hear, but you need to know the truth.
Like an ostrich with its head in the sand, not seeing the truck barreling toward you doesn’t stop it from hitting you. Just as winter came to Winterfell, a big expense is coming. You need to be prepared for it if you want to avoid sinking into debt.
The problem with living paycheck-to-paycheck is you are doing the equivalent of walking the cliff’s edge. Eventually you’re going to slip. Maybe you won’t fall to your death, but you will tumble deeper into the abyss with each slip.
You might be covering basic expenses most of the time, but when the “unexpected” shows up — you go negative. Eventually this subtle deception of “making ends meet” shows its true face.
By the time you realize it’s unsustainable it’s too late.
The debt piles up at an accelerating rate and is usually beyond repair by the time you realize it.
Life isn’t predictable. In fact, the only thing we can predict is that it will surprise us. So being prepared for the unexpected with savings isn’t something extra. It’s what is required to avoid sinking into a financial hole.
I’ll say it again: if you think you’re breaking even, you aren’t.
I know I sound like a broken record, but you need to hear this song. It is the key to everything you want financially.
At the root, this is a mindset problem. You probably learned it from your parents without realizing it.
Tell me if this sounds familiar:
When you have extra cash you spend it. A weekend trip or a nice pair of shoes. A few extra nights out on the town or something special for the kids. You work hard, you deserve it. Right?
The result is that your bank account becomes like that cheap friend from college who always “has to go to the bathroom” when the dinner bill arrives. The extra cash just isn’t there when it’s time to settle up.
So when you’re positive, you spend the difference and break even. Then when life happens you go… well, negative. Over time this is unsustainable. This is when you slip into debt.
Everyone has a plan ‘til they get punched in the mouth.
So how do you get out of this trap?
The first step is awareness. You need to acknowledge that your current actions aren’t going to get you to the promised land. It’s ok, we all start somewhere.
The 2nd step is what separates the 2 groups.
Most people want to be “investors.” They think saving is boring. The problem is if you can’t save, you’ll never have enough to invest in a meaningful way.
Savings is the gateway drug leading to wealth abundance.
It might be something automatic like a 401(k), or a simple automatic transfer from your checking to savings account.
For many clients I advocate using a specially set up Life Insurance account, since the earnings dwarf a simple savings account, and are nearly as liquid. This is especially important for business owners, or for times when emergencies come along.
No matter the tool, automating savings is vital. I cannot overstate the importance of this point. You need a SYSTEM for savings.
Even with the best of intentions, people are inconsistent. Conversely, systems create consistency.
If you rely purely on willpower, it won’t work. You’ve probably already proven this to yourself, so you know it’s true.
Investing requires you to put money at risk, so you need to use your brain. Savings on the other hand should be done automatically and without thought. Set it up and let it do its thing. It might sound boring, but watching your account balances rise every month is a lot more fun that you might think!
Another mistake I commonly see is that people make saving optional. It isn’t. That’s why you need the system.
It is required if you want to get ahead. This is an immutable law that can’t be broken if you want to generate wealth.
Even if you don’t make a lot of money — especially if you don’t make a lot of money— you must practice savings. It is the flotation device that will keep you from drowning when the storm comes. It is also what will help you buy your dream boat after the storm left others shipwrecked.
Where there’s chaos there’s opportunity — if you have access to cash.
You might find yourself saying, “Ok. I’ll save as soon as I make a little more money”.
This is a delusion, and a common one at that. If you don’t practice with the smaller amount, you’ll never do it with the larger amount. When you’re broke this might mean you’ll save 10% into a savings account only to rob it at the end of the month for food. This is OK.
Try to save something while your salary is small; it’s impossible to save after you begin to earn more.
— Jack Benny
Just like everything else, you’ll probably suck at savings when you start. And also like everything else, the more you practice, the less you’ll suck. Then, one day you’ll wake up and you’ll actually be good at it. This is how life works. It isn’t sexy, but it is the truth.
If you have a family, begin saving now. If you don’t have a family, start saving now. I’ve never, EVER heard someone say “ I wish I hadn’t saved so much money.” You can always spend it later if you have too much!
Also, if you don’t know how, get help. I have my favorite methods, but there are a lot of different ways to set it up. Just pick a system and get it set up.
Starting is the hardest part, so do it now.