I’m always amazed at how when finance writers write about those that are diligent and consistent in their savings efforts, they are painted as overnight success stories. One article I read today particularly tickled me the wrong way. The article went into successful 401(k) investors who have accumulated a balance of over $1 million dollars during their working lifetimes. What are their secrets? What do they do and know that nobody else does? The answer is simple, common sense.
One success story followed a woman, at 56, who has over $6 million in her 401(k) balance (kudos to you by the way, CONGRATULATIONS!!). In two sentences talking about her “secrets” the article conveyed that she socked away 30% of her income, has never carried debt, and has consistently prioritized saving for a really really really long time. DUH!
To me, the attitude and behavior adjustments at the beginning are the most crucial “secrets” to wealth building. Saving money has to take priority, making your budget (plus sticking to it) and devising a plan to live below your income as the foundation for financial peace. Yet these literary financial goobers overlook the tough steps and decisions that these success stories made at the beginning, and only focus on what has been achieved.
So for a “back to basics” piece, I want to focus on the baby steps that took me from nothing, to being intentional with my dollars and cents.
I. Getting a liquid emergency fund
Putting some padding in between me and life was one of the best decisions of my life. Ultimately I recommend having 6 months worth of expenses saved for emergencies. Now it won’t earn much in return sitting in a savings account or a money market account, but the peace of mind that comes with it (emphasized when you go through your first two or three emergencies) is priceless.
II. Make a budget and stick to it
Before every month begins, on paper, spend every dollar you expect to earn. Think of everything imaginable and completely re-examine the costs incurred during life. Beyond groceries and entertainment, examine how much you spend annually on expected costs like: insurance premiums, clothing, home maintenance, etc. Once tallied up, use a sinking fund and work these items into your monthly budget. Suddenly, tire replacement will become a lot less stressful J
III. Destroy credit
Focusing on destroying and dismembering all forms of credit freed up my income and allowed me to save and give like never before. I first knocked out and closed my credit card, and then punched Sallie Mae through the wall. Today I write completely debt free, 0 credit cars, 0 car notes, 0 student loans and 0 mortgage. But it’s the decision I made early on to rid the use of credit from my life that enables me to save and give in the ways that I want to.