I am sure over the years I have been given a lot of financial advice that I have incorporated in some way into my life. If you are open to learning you will seek and find nuggets of wisdom in everything you do.
For this post, I was thinking about what are those pieces of advice that were real game changers for me at the time I learned them in my life. And below is the top five things on that list.
The advice I provide here is really both tactical things you can do as well as philosophical. I personally believe that in many cases you have to be willing to change your mindset on something to be willing to actually put into action a new idea or concept.
1. Save first, and spend what is left. But not all of it. Seems too obvious doesn’t it. But something can be obvious and still not be important. And I think that early on in my life I may have known this. We all do, don’t we? But I didn’t practice it.
Some people may say pay yourself first, same concept. But again the rule is easy to understand, it is putting it into practice that is the difficult part.
There are lots of financial strategies out there. A great book titled The Richest man in Babylon is a great quick read and it is story that provides a financial outline that a lot of people subscribe to. It says to allocate your money this way:
10/70/20 with earnings allocated as follows:
- 10% goes for savings for future investments. (Save first)
- 70% should go for necessary expenses, notably to provide for home, clothes, and food.
- 20% will be for paying off debt.
It’s a solid plan. I know many people that followed it and early in my financial awakening it was something I used to help manage my life.
Now that I am wiser, I would most likely to use this plan. But I also don’t have any debt, other than mortgages on my income producing real estate that is paid for by the revenue generated from those investments. If I were in my twenties or thirties and didn’t have very much lifestyle creep or obligations, I would focus on savings rate.
What is savings rate? It’s the percentage of your income left after you pay taxes and spend money. I would be trying to get to a 50-60% savings rate as quickly as possible. And then once I got there, I would see if I could save even more.
Now people in their forties and fifties may not have this ability for a variety of reasons, but as soon as you possibly can, moving to a savings rate goal is going to get you closer to financial freedom and retirement as quickly as you want it to.
I have written about savings rate before. You can check it out here. Once you see the numbers on how quickly you can get to retirement you will be motivated. I promise.
Savings rate, doesn’t mean you put that money into a checking or savings account. No, you invest that money to get a return. I put all of my money into real estate. But you could put it in the stock market or whatever else you are comfortable with.
The key here though is learning to save first, that is they key to this entire equation.
2. Never buy anything (other than assets) you can’t pay cash for. Again, it is a no brainer, but not very many people practice this no brainer.
I can remember when I was in my twenties and didn’t full understand this idea. I had a lot of monthly bills. I had my personal student loans, I had a parent plus loan that I paid, I had my normal bills such as water, gas and electric, phone, a small credit card bill, a car payment, car insurance, house payment, and there may have been a few more in there that I am forgetting. And this is back before direct bill pay through my bank.
I don’t know about you, but having this many bills come through on a monthly basis impacts you psychologically. Even if you can pay for them all easily. Just seeing the damn things every month can give you anxiety. And the reality is that when I was younger I couldn’t pay them that easily. Not when you consider all of the other spending I did between gas money, eating out, groceries, etc.
So the point I have here is pay cash for everything. You don’t want extra bills coming in on a monthly basis. Back in 2017 my wife needed a new car. We set a budget and a criteria and we started looking to see if we could find what she was looking for. To skip over boring you with all of the details. We ended up writing a check for her car. And the main reason for that was I don’t want the bill and secondly we were in position to write the check.
If you can’t write the check, or swipe the debit card today for whatever it is you are looking to buy, it means you can’t afford it. Keep working and saving until you can. This is how it should have always been, but with credit cards, pay as you go, no interest concepts people do whatever they can to delay payment. My suggestion is pay for it, or don’t buy it.
3. You can only cut expenses so far, focus on increasing income or revenue. I can remember when I was getting my finances in order I was looking at anything and everything I could possibly cut. And if you are an overspender then you should do this. But my guess is that outside of eating out too much, because that is what Americans do now.
You most likely aren’t an overspender. Look, I am just guessing. I wasn’t an overspender. I wasn’t buying Gucci, I was still buying fairly inexpensive stuff.
You can attempt to cut out your daily coffee, or your occasional nice dinner, but you can only cut so far and then there is nothing else to cut out. Where there is plenty of upside and possibilities is increasing your income or revenue. Can you work extra hours. Can you do a side hustle. Can you work on getting a promotion. Can you earn commissions.
The mentality I am focused on here is simple.
Cutting is a scarcity mindset and Increasing is an abundance mindset. You want to have an abundance mindset.
I am not saying don’t watch your spending. But your focus should be abundance minded and looking for ways to grow your income.
I wish I would have learned this in my twenties. I would have made different career choices because of it. Which would have put me in a totally different place today.
4. Buy real estate, there is only so much of it. You have heard this saying before most likely. But again, what does it really mean to you? And if you agree, you have to act on it.
Look around. All the land you see is all that will ever be here. God ain’t creating anymore of it and Elon isn’t going to get us to Mars anytime soon. This isn’t going to be another real estate post, but throughout history real estate has either maintained its value or increased in value. There are more and more people each and every year. So the needs will continue to rise.
5. It’s not how much something costs, it is how much value does it bring. This is something I really had to learn. I was the guy that always questioned costs. Why does this or that cost so much. Especially when there are alternatives that are cheaper. But I learned not too long ago that there is a reason something better costs more money. It could be the quality, it could be the service, or it could be the name. But on certain things you have to be willing to pay a higher price, because it is worth it in the value you are getting.
In 2012, I bought a 2006 Lexus LS 430. This was my second time purchasing a “luxury” vehicle as they would call it. When I bought the car it was the one I wanted. I didn’t think much about anything else. I knew I was paying a premium. What I learned over time though is that the level of service I have received has been second to none.
The best example is this: One of the things Lexus does when you have your car serviced is they provide you with a loaner. It is automatic and you don’t have to ask for it. So I could drop my car off, pick up the loaner and I wouldn’t lose any of my day. While other people I know would drop their car off to be serviced and would have to wait for it, get a ride, or figure out a way to carry on with their day. I can’t tell you the tremendous value this has brought me over the years.
My wife and I decided to do some juicing a few years ago. No not steroids. Making healthy drinks out of cucumbers, pineapple, apples, and other fruits and vegetables. You can buy these already pre-made, but they are fairly expensive. Or so I thought.
We bought a juicer and all of the fruits and vegetables to make the juices. I quickly learned what a pain in the ass juicing really was. The amount of time, waste, and clean up required after juicing just wasn’t worth it to me. The $10-$12 bottle you see at the store is well worth it to me. The convenience value of the premade one is well worth it.
Lastly, on this topic. I used to be the guy that said I can cut my own grass or clean my own house. It is easy to do, I am not that messy. Why pay someone to do it. Well, I can’t tell you the last time I cut grass and I definitely no longer spend time cleaning the bathroom. The amount of time I have gotten back in my life because I no longer do these things is worth a lot more than the money I have spent on paying someone else to do it.
What is the best financial advice you have received or learned along the way? Please share.
To your success and your future.
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