We all work hard for our money—40, 50, even 60 hours or more per week. But most people spend very little time understanding how to make that money work for them. There are many reasons why money management is overlooked or even dismissed. “I don’t like to talk about money,” is a common refrain. “It’s too confusing,” “It’s boring,” or “I don’t have the time” are other frequently heard complaints. Putting off establishing good personal financial habits however, results in us working even harder. Why? Opportunities to save are missed and we need to work more hours just to keep up.
With a few focused steps, individuals and families can move from living paycheck to paycheck to generating wealth. Will it happen overnight? No…but starting today will put you in a better financial situation next month, next year, and into the future.
As a first step, examine your attitude toward money. How does each dollar you spend make you feel? Does buying a hot latte on a cold day from your local coffee shop make you feel good? Now compare that to spending $100 for dinner at a restaurant. Does the extra $95 make you feel that much better? Eating out is enjoyable for many of us. But think about it this way…will you get more value from going out to lunch, instead of dinner, and then putting the difference into your savings account? At many restaurants, mid-day meals are similar to those at dinner but much cheaper…and babysitters might be easier to schedule!
Thinking about how you feel each time you spend money can help you identify how to get the most personal value from your purchases. Will buying that expensive brand name pair of shoes give you significantly more pleasure than a similar pair at half the price? In most cases the answer is no. The effect of focusing on the emotional purchase value is that you spend less and save more—a win, win. It’s all about your money attitude. You might not be able to have everything, but you can have those things you value most.
A great way to begin saving is to pay yourself first.
Maybe you want to save for retirement or for your children’s education? Even a small amount saved can go a long way. Let’s say you put $25 per month in a college fund. That comes out to $300 a year, or $3,000 over 10 years. Now add in the compounding effect from interest and investment gains and you could end up with a sizable amount to help pay for college expenses. You can always add to your monthly savings as your income increases. Can you put an additional $25 into that college fund? That $3,000 becomes $6,000. The same strategy works for retirement or any other savings goals you might have. “Paying yourself first” allows you to take care of those long-term financial needs and eliminates money going towards less important items.
I Can Afford It
One of the biggest detriments to saving money is making purchases because the payments seem manageable. Many people do this when buying a car. “I can afford it,” means I can make the monthly payments. The car loses value each year but those payments will run for four, five or even six years. The car loan is a debt that keeps you from your long-term savings goals—like buying a house, retiring early or going on vacation. Instead, focus on saving for that car or truck up front. Plan in advance: set up a separate vehicle savings account and put aside money each month so that you can begin to move away from using debt to make purchases. Do that and you really can afford it!
Do it for you!
Taking a few minutes each month to focus on your finances is a way to invest in yourself. Don’t you want your hard-earned money working for you, not against you? Each of these steps are easy to implement and will make your financial life much better. You will have moved from just getting by to incorporating some easy ways to begin generating wealth. Do it today!
Captain Scott Gibney, USN (Ret.) is a graduate of the US Merchant Marine Academy and a 30-year US Navy veteran. He and his wife, Susan, own Gibney College Solutions LLC (www.gibneysolutions.com), a company focused on college admissions planning, career development and financial coaching. Scott can be reached at [email protected]