When I was practicing law, my colleagues would talk about how lucky they were to put their kids through college or. “I don’t know how we did it, but we put the kids through college , and now we’re hoping to start saving for retirement.” In reality, they were saying much more—“Wow! We’re so lucky to barely be able to put the kids through college, now we’re just crossing our fingers that we’ll be able to start saving enough to retire.” I was on that path too, toward a life of just scraping by, where I’d spend just as much (if not more) than I earned, living financially strapped. It was only a matter of time before I made the same comments and had the same financial destiny.
I thought having my own law practice would make me financially free, but my path (owning my own firm) wasn’t going to lead me there, as I learned from my colleagues. So I decided to get off the beaten path and head down a road less trodden, as difficult as it might be at first. In the end, the views are worth the extra effort. So why is it so difficult to get ahead?
The market has brainwashed us to buy stuff we don’t need with money we don’t have.
My grandfather bought his house for $6,500. He had no retirement after 20+ years of working for the same employer. They gave him $100 each month in lieu of a retirement check. He saved more than $200,000 over the course of his life. My grandfather clearly had respect for money. Our culture today has lost sight of this respect.
Today’s generation fears not that they won’t have something, but that they won’t have everything. Twenty-five percent to 50 percent of purchases are unplanned. What’s the big deal? The average American will retire with only $57,000 to live on.
Debt
Personal debt has increased by 123 percent. Do you know how long it takes to pay off your credit card if you pay only the minimal amount? 20 to 30 years!
Taxes
Most Americans severely overpay their taxes.
Here’s my personal challenge : Track your expenses for one month. Set your expenses up in categories. Write down every penny you spend. If you don’t want to track your business expenses, do at least your personal expenses (date, what you spent, what you spent it on). This will help you get a really good grasp on how much you’re spending.
I spoke with someone recently who has been selling stock to finance his lifestyle. That’s upside down. If you’re selling stuff to support your lifestyle, you’re upside down financially. Live on less than you make, save and invest with the difference. If you’re doing anything else, you’re upside down financially.
How many years do you have left until you’re 65?
Whether retirement is just around the corner or have many more years to go, setting yourself up for retirement is key and must start now. Do the math. If you want $10,000 and you’re investing at 5 percent, you need $3,765. If you invest at 10 percent, you’ll need $1,400. It’s great if you have a savings account (you’re ahead of most folks), but if that’s the highest form of investing you’re doing—we have a lot of work to do.
In my 30s, I started saving $50 each month. As I earned more, I saved more. If you invest in a Roth/IRA, your money grows tax-free.
Example: If you invest $1 for 40 years at…
1 percent = $1.49
10 percent = $45.26
20 percent = $1,470
Get a plan down for saving and stick to it. I was trained in trading commodities. To do so, you have to eliminate/minimize your emotion. You go in with a plan and stick with the plan, meaning you invest only under certain circumstances and if it goes down more than a certain amount, you take your loss and drop out. If your trading system loses 80 percent of the time, is this a good system? Perhaps. If you only lose $0.01 (when you lose), and you make $0.05 when you win—this is a good trading system because the winnings outweigh the losses. You can make 20 percent on some investments that are 100 percent secured (by the United States government, such as tax deeds).
A young man got into a car accident resulting in many bedridden months in the hospital and $100,000 of debt in hospital bills. Pathfinder’s “Mastering Your Money” series originated from this true story. The young man decided to pay off his debt in small amounts each month instead of filing for bankruptcy. When he was released from the hospital, he got a job, generated a modest income and stuck to his plan of paying his doctors $5 each week. He calculated with each payment how long it would take him to get out of debt. The result: he learned how to manage every penny he made.
Your overall financial wellbeing has less to do with your income than the strategies you put in place and honor. We are stewards of our money. In my opinion, we have an obligation to honor our money by treating it as best we can. It doesn’t matter how much you’re making, if you have a leak somewhere, the money will run out. Prepare for life’s emergencies. One of Robert Kiosaki’s quotes that I took away and believe to be true: “The way you do anything is the way you do everything.” Do you cut corners? Do you plan ahead? Are you disciplined? Hard working?
Speaking of discipline and preparing for emergencies…one of Pathfinder’s principles is—When you track your money, you can control it. Do you avoid balancing your checkbook? Do you blame employees and others because you don’t make enough. Blame the kids, your boss, your investment partners? Don’t think you’ll ever have an emergency? Statistics say you will, and you’ll need an emergency fund. Keep at least six months of living expenses liquid, so you have half a year to gain control over your emergency situation.
Pathfinder operates on 10 principles originating from books “Money Mastery” by Alan Williams and Peter Jeppson and “The Richest man of Babylon” by George Clason as well as information I’ve learned over the years.
Principle No. 1: money is emotional. When we make and spend money, it’s an emotional event. When we get a raise, we celebrate. When we get laid off, our routine and activities are often derailed because of it. Most of our spending patterns are emotional. For example, we don’t plan ahead of time to buy a car. Daily, we’re barraged with ads and commercials that tug at our emotions. Even if you deserve the new item and you’ve been working hard, you still bought the item emotionally.
The point: If we can acknowledge money is emotional, we can then plan and master its power over us. We’ll never change the fact that money is emotional, but we can change our spending behavior.
Student testimonials say tracking their spending helps them realize how much they actually spend. Tips from those who have curbed their spending are helpful:
To learn more about tax deductions, please visit the Free Tax Strategies main page.