We start out life with all kinds of optimism and confidence. We make plans. Armed with a college degree, we nab our first job and assume the pay will only get better as the years and experience come. Or is that true?
Those in their 50s, 60s and 70s can tell story after story of trials and tribulations. That life isn't necessarily a straight-line pointing upwards 100% of the time.
Lessons from a Cabbie
Many years ago I took a cab to the airport from my home. The cabbie and I got to chatting. He looked like he was on the tail end of middle age and that life had been rough. I asked him if he liked being a cabbie and how long he had been doing the job.
He confessed he didn't necessarily like it, that he had made some big mistakes in life that cost him dearly. He had, at one point, retired with millions in investments and was living large. He entrusted his accountant to take care of all the investing and monthly bill paying.
After a few years, his accountant had taken all his money. It was easy to do because 1) the cabbie confessed to not paying attention at all and 2) the accountant had 100% access to manage the finances as he saw fit.
During those “retirement” years, he traveled and led a lavish lifestyle. Then one day, just like that, his accountant was gone, bank accounts were empty and he was left with a ton of debt and back taxes.
The Only Constant is Change
We can layout a plan for our lives and what we want for our future but the only thing constant in life is change. Being prepared as best we can for any change that comes our way is more important than a plan.
If you are thinking, “well, I won't allow anyone to manage my money, that guy was an idiot.”, think again. 40% of Americans are literally one paycheck away from being homeless. And that is a fact. I would guess that most of these folks are managing their own money.
Wanting to work later in life and needing to work are two very different things. People lose their jobs all the time for all kinds of reasons. Don't waste your time worrying about losing your job, instead think about all the things you can do to empower yourself.
1. Lower Your Expenses
This is the quickest way to start to get a hold on your finances. Recording where you money actually goes (no guessing allowed) and trimming expenses is the fastest way to building wealth.
Besides, its much easier to retire early if your month-to-month expenses are $2,000 vs $3,000 per month.
2. Drop the Debt
The second quickest way to get a handle on your finances is to pay off all debt… Paying interest and penalties is how credit cards stay in business – free money from you.
Its always tough to know what is more important, paying off debt or building an emergency fund. For me, every persons situation is unique. My general answer is to do a combination of both. There is nothing worse than making some great headway to pay off debt only to get derailed because of an expensive emergency.
3. Downsize and/or Clear the Clutter
The third way to gain some financial leverage is to clear the clutter in your home and sell stuff for some dough. Cash is Queen. 🙂 Not only do you have less stuff to be responsible for but put that cash towards debt or an emergency fund can make you feel much lighter.
Don't Put all Your Eggs in One Income
We are told time and time again to diversify our investments to mitigate risk, yet most live off of one paycheck or require 2 paychecks to make ends meet. In this day and age, there are literally hundreds of ways to make some income on the side.
Sure we could take on a part-time job – but did you know that paychecks are the highest taxed form of income? Its true. Here in the US, the government rewards small business and real estate owners with all kinds of tax incentives so you can keep more of that money earned for yourself. Interested in learning more about different types of side hustles… check out this post from Side Hustle Nation.
Of course, none of this matters if you are going to choose to sit on the couch, watch TV and eat Cheetos, all the while telling yourself, “I don't have money to invest.” or “I don't have the time.”
I was that person, well, not the Cheetos part, but the rest of it. Then one day at 40 years old, I woke up, took the blinders off and decided right then and there -I was never going to be dependent on anyone. I shed the excuses, educated myself, work my a$$ off and am proud of who I am today. I was hungry for a better life than the one I woke up and found myself in.
$1,000 bucks-a-month Rule
Lastly, I would like to leave you with this one thought, controlling your spending has a domino effect on your finances to everything from simplifying your life to building a stronger future. Controlling your expenses and keeping debt at bay can be the difference between being one paycheck from homelessness or coasting through the unemployment months with confidence holding out for that perfect job.
You know, you don't need a million dollars in the bank to retire. As a matter of fact, Wes Moss coined the $1,000 bucks-a-month rule, which states that to generate $1,000/month one would need $240,000 in investments, to generate $2,000/month would need $480,000, so on and so forth. This is outside of collecting social security, pension, etc…
Mr Moss also notes that $480,000 is very close to the “$500,000” minimum amount “happy retires” have saved up.
So if your plan is to work until retirement age and your plan goes up in smoke… implement these steps, sleep like a baby and take the time to find work you are passionate about.