Are you tired of working the same job you’ve sworn you’d quit countless times? Are you stuck in a rut and envious of the exciting lives of your more successful friends? Instead of dwelling on their care-free Saturday morning hikes and huge retirement accounts, you might want to examine the ways in which they approach problems and opportunities to learn their key to success.
Keep reading to discover what you can do to be financially successful like your friends.
You Need to Budget
You know that friend you’re always hitting up for money? Well, that friend thinks you’d really benefit from a budget. Fortunately, making one is pretty easy thanks to technology.
“Find an app or system that works well for you, such as Mint, You Need A Budget or just an Excel spreadsheet,” said Kate Holmes, a certified financial planner and director of stakeholder engagement at Financial Planning Standards Board Ltd. “Import the last few months of all checking, debit and credit card transactions, and see where things are at. You’ll likely be surprised by some of the category totals.”
Holmes encourages you to consider how much happiness each budget item brings you, as means of tracking down unnecessary expenses. Here’s a breakdown she recommends:
- 50 percent of your take-home pay for food, housing and necessities
- 30 percent for discretionary spending
- 20 percent for paying off debt and building savings
You Don’t Save Enough
According to a recent GOBankingRates survey, 42 percent of Americans will retire with less than $10,000 saved. And if you’re banking on Social Security to get you through, think again. As of September 2018, the average monthly Social Security check was just $1,417.22 for retirees. So, what can you do to prevent tarnished golden years?
Utilize your workplace retirement plan and take advantage of your employer’s matching program. Experts recommend saving 10 to 15 percent of your gross pay for retirement. If you can’t swing that, just start with what’s manageable for you.
You Don't Have a Plan to Pay Down Your Credit Card Debt
The financially savvy view credit cards as a convenience, not a debit account. According to Experian’s annual credit study, the average American has $6,354 racked up in credit card debt. If you carry a high balance month to month and have high interest rates, you’re paying a premium for the same purchases your debt-free friends make.
Consider taking out a personal loan to consolidate and pay off the credit card debt you do have — this can dramatically lower the interest you have to pay on the debt. As of Oct. 24, 2018, the average credit card rate is 17.08 percent APR, according to CreditCards.com, whereas lenders such as PenFed Credit Union offer personal loans and bill consolidation loans with rates currently as low as 6.49 percent APR. Then, you can take the money you save on interest and use it to pay down your principal balance even faster.
You Don’t Invest
Chances are, you think you can’t invest because you don’t have the money. But, what if you don’t have the money because you don’t invest?
Having passive income can make all the difference for your finances, especially in the long term, as it provides you the opportunity to generate an income and build wealth while you’re busy doing other things. And, it doesn’t have to break the bank. Starting to invest can be as simple as opening a Roth IRA or using a micro-investing app like Acorns.
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You Don’t Solicit Financial Advice
Self-made millionaires don’t have all those commas in their bank account balances based solely on their own genius — they had the good sense to seek out help from financial planners and money managers. By meeting with a professional, you can learn about potential improvements in everything from cash flow to investments to financial understanding.
Don’t understand disintermediation or the efficient frontier concept? Join the club. That’s exactly why successful people keep a pro by their side.
You Never Consider the Opportunity Cost
Every single purchase you make has two costs: The price you pay for the product or service and what you give up when you make that purchase. Folks in finance call the latter the “opportunity cost.” You bought the shoes, so now you can’t afford that contribution to your IRA.
Billionaire investor Warren Buffett often quotes his partner and self-made billionaire, Charlie Munger, when speaking about opportunity costs, calling them “mistakes of omission.” In regrettable moments, the duo didn’t invest in something when they should have or weren’t able to because their money was tied up elsewhere. Like those shoes, the mistake lies in the opportunity omitted when you don’t consider the opportunity cost.
You’re Still Driving Manual
When that coveted paycheck comes in, it’s a whole lot more tempting to splurge on venti lattes or video games than it is to squirrel away savings.
Instead, automate your financial security. Sit down with your company’s HR department and request that a percentage of every single check goes straight toward your savings or investments. “The truth is, you’re too busy to spend all day thinking of wealth building. You need a system that works while you sleep — a system that is automated,” David Bach wrote in his book, “The Automatic Millionaire.”
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You Need an Emergency Fund
Life has a nasty habit of throwing curve balls in the form of emergency car repairs and unexpected medical bills, among other unwanted surprises. When you’re suddenly treading financial water, your friends are looking on from the life raft and lamenting your lack of financial foresight.
No matter your emergency, listen to Holmes: Whether it’s a job layoff or worse, you want to ensure you can cover all necessary expenses for at least three to six months. If you haven’t yet reached your emergency savings goal and find yourself in a rut, don’t reach for your credit card just yet. With a personal loan, you can borrow the money you need to cover an emergency at a lower interest rate — just make sure not to borrow more than you need.
You Live Above Your Means
Did you know that Warren Buffett leads a super frugal life? He buys breakfast for less than $4 at McDonald’s every day. Mark Zuckerberg drives a Volkswagen and Mark Cuban has lived in the same home for almost 20 years. They’re all billionaires, so if money isn’t the reason for these cutbacks, what is?
Good money sense. Some of the richest people on earth recognize that living below your means is essential to financial sustainability. Take Bill Gates, for instance, who famously said, “I can understand wanting to have millions of dollars, there’s a certain freedom, meaningful freedom, that comes with that. But once you get much beyond that, I have to tell you, it’s the same hamburger.”
You Give Up Too Easily
If you weren’t born wealthy, you have to work much harder for your earnings and adopt a strong, steadfast attitude that translates into wealth.
“Look at every successful person across a wide spectrum of industries and activities,” said award-winning marketing advisor John Mulry. “All had their obstacles, demons and downfalls, but their desire to succeed and ability to overcome was greater than anything else. They were willing to stop at nothing to achieve.”
Most friends won’t tell you that you’re a quitter. That means it’s totally up to you to make the hard call yourself, and that is something only winners do.
You Eat Out Too Often
Just about everyone loves a latte in the morning and lunch with colleagues in the afternoon. Meanwhile, your brown-bagging co-worker secretly knows that you’ve just wasted $25.
Based on 2018 Starbucks menu prices and adding on a conservative 9 percent sales tax, buying a Grande Frappuccino at Starbucks five days a week will set you back about $1,266 per year. But back at home, according to site Tough Nickel, it costs at most $1.80 to brew a cup of coffee yourself (and probably even less) — that’s an annual saving of at least $796.
Rethinking your Starbucks addiction yet? Your successful friends made that change years ago.
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You Don’t Have a Clear Financial Goal
So you’ve got a buddy who runs marathons, climbs mountains and made $1 million before she turned 30. The first thing she’d tell you is that you need a clear goal to accomplish anything and properly manage your money.
A lack of goals can result in a lack of direction. By setting goals — be it for retirement, a vacation or something else — you’ll be able to determine what steps you need to take each month to reach that goal in the long term. Whatever your financial goals, write them down and then budget for them. If you get stuck, call that friend who climbs mountains for advice.
You Need to Learn to Say 'No'
Saying ‘no’ to friends or family who need to borrow money is tough and sometimes unavoidable, but successful people didn’t get to the top by lending people money. “We give to others because [it] feels good,” said LSS Financial Counseling program director Elaina Johannessen. “It might be difficult to say ‘no,’ but in the end, you have to do what’s best for you and your family.”
Johannessen advises friendly lenders to consider the risks and opportunity costs of lending and to refer struggling friends to resources like local county offices or charitable organizations whenever possible.
You Spend Too Much on Trends
You know your frugal friend with the iPhone 5, Old Navy jeans and bulky TV? He’s silently shaking his head at your iPhone XS Max, Dolce & Gabbana denim and massive smart TV. When it comes to impulse buys, trust your gut — you know when you’re being indulgent.
Another great trick to curb your spending is to pay with cash. This tip makes spending much less convenient while giving you a very real feel for how much you are truly dishing out. The feeling of handing someone cash can make a purchase feel more significant than when you simply swipe your card.
Ultimately, patience and planning are two of the most crucial habits of rich people. Consistently managing your finances, saving and investing won’t immediately fill your bank account; it’ll expand your balance slowly and steadily over time, like the tortoise who eventually won the race.
If you didn’t start taking advantage of compound interest when you were 18, don’t give up. Start saving, investing and planning now. As the best-selling author and national financial radio show host Dave Ramsey reminds us, “Get rich quick doesn’t work. Crockpot mentality always defeats microwave mentality.”