NOW IS TIME TO SET YOUR GOALS

By now, you should have a handle on your spending habits, how much income you have and what you have to save each month.  Hopefully, you have gone to your boss and maybe you have some more money in income from either a higher position or a raise.  If not, it’s okay, we will be looking at additional ways to generate more money shortly.  In order to get to the next step, you need to start putting a plan together for the following things:

• Pay off debt
• Create an emergency fund
• Start looking at investment opportunities

Ideally, you would be able to do all of the above at the same time, but I understand that if times are more difficult, it may be harder to do it all.  As you review your finances and your monthly cashflow, you will be able to determine what you can spend and when.

PAY OFF YOUR DEBT

This is the most important aspect of wealth creation.  Debt will simply drag you down.  That said, there are different kinds of debt like credit cards, car payments, school loans and more.  The trick here is that I am not saying you have to pay down ALL DEBT before you can start saving.  If you have $25,000 in school debt, it would be great to pay it off immediately, but the interest rates on those loans might be less than what you would get in an investment.

For example, assume you have a school loan at 4% interest and you are paying off the debt each month plus principal of that debt.  Now, let’s assume you have an extra $100 per month.  Then, assume there is a real estate investment fund that generates 6% interest.  If you put that $100 into the real estate fund, it will generate more money for you than paying off that school loan.

So, what’s my point here?  You need to organize your debt into the highest debt interest to the lowest.  In general, I recommend:

1. Get rid of your credit card debt first – with interest of around 17% – 25%.  If you already have the mindset to get rid of your debt, here is an excellent trick!  If you open a new credit card with a different company, many credit card companies will give new customers an interest free period of 6 months to 1 year on balance transfers.  SO, if you move a $10,000 debt to a new account with no interest for one year, you can work on paying off that balance and pay ZERO interest.  There is only one caveat.  You have to cut up the first card.  You CANNOT use both cards for buying more stuff!
2.  Car loan – ideally, you would be able to figure out how to pay off your car.  According to Lending Tree, the average monthly car payment in the U.S. is $563 for new vehicles, $397 for used vehicles and $450 for leased vehicles. Overall, Americans owe nearly $1.4 trillion in auto loan debt. Auto debt makes up 5% of American consumer debt.  You are here because you want to be different!  Big Surprise – You don’t have to have a car payment.  You don’t need to be like everyone else.  To be wealthy, you need to make sacrifices and $563/month is a huge amount each month for many people.  I personally had a car payment of $550/month.  I paid down my car and refinanced the loan after two years and now I have less debt and a $320/month payment.  My goal is to continue to pay down the debt until I have no payment and then use that original $550/month for investments.
3. Other loans.  Look at other loans you have and determine if it makes sense to pay off.  I purchased a travel trailer with an $11,000 loan.  The loan cost was “only” $110 per month.  During the pandemic, I made it my mission to pay off all of the loans I could and get rid of any of the smaller loans I had.  This is where most people get busted.  The “only” $100/month for a trailer and “only” $40 per month for a Peloton membership and “only” $6 per month for another subscription.  The next thing you know, you have “only” $500 in monthly payments.  Get rid of the things you don’t use and subscriptions you don’t need.
4. Mortgage loans.  Most mortgage loans are now less than 4%.  If you don’t have a loan lower than 4%, you better be on the phone right now with a mortgage lender to refinance your loan and save that monthly payment.  Again, this is not a loan worth paying off since the rates are so low and your extra money can generate more money elsewhere (more on that later).  Plus, you are getting a tax write off on the interest you are paying every year, so really the interest rate for most people is almost nothing.

ESTABLISH AN EMERGENCY FUND

The worst thing that can happen in your journey is an accident or an unexpected charge you weren’t expecting. An emergency fund is money that’s set aside for unplanned expenses, such as a medical bill, home repair or loss of income. Using emergency savings to cover unexpected expenses is better than paying with high-interest credit cards or taking out a new loan.

How do you start an emergency fund?  The first step is to create a new bank account for the fund.  An emergency fund needs to have enough money to cover 3-6 months of core expenses like monthly living expenses (home mortgage or rent), utilities, food and other necessities.  In your cashflow analysis, you should have a good idea of what you spend each month.

THE POWER OF AUTOMATION

One of the great things about today’s society and technology is the power of automation.  One thing we discussed here is the elimination of subscriptions.  Well, why do you even have subscriptions?  Because companies know that these are automated expenses that you just take for granted and pay because they are a pain to cancel and they are automated every month.  Well, the beauty is that it goes both ways.  There are a number of ways to automate your income savings. If you create a new bank account for your emergency fund, most banks like Chase bank have a feature that will allow you to transfer funds automatically every month from your main account to your emergency account.  You create the setting, the amount to transfer and the date.  I recommend creating the date on the day after you get your paycheck.  I have automated settings to transfer $250 out of two monthly payments to a real estate fund account I am trying to build up to purchase real estate.  It’s automatic and I don’t think about it, but I can tell it’s really cool every few months to see an extra $1,000 in that account.

On a more broad note, automation is what is going to make you wealthy.  Going back to the Millionaire Mindset, at some point, you will have money making more for you while you sleep.  WHAT?  How is that possible?  I’ll explain that in a bit, but this is what you need to understand now.

YOU PROBABLY SPEND WHAT YOU HAVE IN YOUR BANK ACCOUNT AT ANY GIVEN TIME!  For example, if you make $5,500 per month and take home $4500 per month after taxes, you have to pay all of your bills out of that money.  If your bills are:

• $1,250 rent
• $750 food
• $500 shopping
• $500 gas/car expenses
• $500 entertainment
• $500 credit card payments
• Total: $4,000

This leaves $500 left over.  Most people’s first reaction would be “Cool. What can I spend an extra $500 on today?”  If you look at these expenses above, a couple of things stand out. 1) this person has $4,000 in expenses each month.  Does this person have $16,000 – $24,000 in emergency savings?  2) none of the money above is going to savings.  This person is doing just fine spending $4,000 per month and getting everything they want and need.  In this person’s case, I would suggest two things:

1. Create an automated setting to move $250/month into the Emergency savings fund
2. Use another $150 to pay off credit card debt until it’s zero (up to $650/month)
3. Personally, I would use the last $100 to buy something extra.

Now, the FIRE movement people would tell you to move shopping to $100, food to $500 if possible, spend every extra dime on credit card payments and make entertainment close to zero.  Like I said, I don’t think you want to miss out on everything in life to save every penny, but this is where your choices will determine how fast you climb the mountain.  If you decrease your spending, move the payments over to your credit card and emergency savings, you could have that funded in 6-12 months. Otherwise, it could take longer.  It’s up to you.

If the person above can cut expenses to the following:

• $1,000 rent
• $650 food
• $300 shopping
• $500 gas/car expenses
• $300 entertainment
• $500 credit card payments
• Total: $3,250

This would leave $1250/month left over.  Once the credit cards are paid off, it would leave $1750 left over.  Without making an extra dime, this person could put $1,000/month away, STILL HAVE $250 for expenses and fun left over and have an emergency fund funded within one year.  By the way, with that extra $250 or other money, start using your debit cards to pay for things.  You can’t keep racking up credit card debt.  Using the debit card will control your spending.

Did this person make sacrifices?  Yes.  Maybe they moved into a smaller place and spent less on shopping and a little less on food.  But at the end of one year, they would be protected in case of an unexpected event.  More importantly, they would have a lot of extra money to start investing!

The biggest takeaway here is that you will not miss the money that is automatically moved to your savings account.  You will adjust your living expenses and your spending habits to account for having less money from each check.  The automation is truly out of mind as it just happens automatically.  I understand that living paycheck to paycheck is hard, but I’ll tell you once you start seeing the money accumulate (and your Net Worth numbers start increasing), you will start adding to the automation.  Got a raise?  Add to the automation!  This is where your journey will really start to accelerate.

THIS IS YOUR CROSS ROADS

We are on Step five.  This is your first big challenge on your expedition.  Can you change your habits and not purchase the jacket you saw at Nordstrom Rack or Macys and instead put that toward paying off the balance of your credit card?  Can you choose not to eat out and spend $75 and use that to pay off that credit card faster?  At this point in time, you haven’t made any more money so the only avenue you have to continue your journey is to change your buying and spending habits.  It goes without saying that the more choices you make to forego buying more crap and more luxuries and instead focus on paying down the debt, the faster you will climb to your next plateau in your journey.

TIME TO GET EXTREME

As you start paying down your credit cards and your car loans and your other debt, a funny thing will start happening.  When you check your NET WORTH, your overall worth will start to increase.  “How can that be?” you say, “I’m not making any more money and I am not making any investments yet.”  When your liabilities decrease (ie your credit card balances go down, your home mortgage loan decreases, your car loan balance decreases), guess what?  Your overall net worth starts to go up!   You have the same assets, but less debt.

Here is where you can start really making a difference.  What if you were really ready to get rid of all of your debt quickly and move even faster to your ultimate goal?  For almost everyone, the most expensive cost of any cashflow sheet is living expense.  How much are you paying for rent or mortgage?  If you have a sizable debt obligation, can you move home for a while to save while paying down debt?  Can you move in with roommates?  Can you rent out a room in the house you live in?  If you can save hundreds or thousands here, you can pay off your debt in no time and move on.

The second most expensive cost most people have is a car payment.  There is a common misconception that everyone “must have” a car payment.  My wife decided to lease a brand new Lexus and it costs $550/month.  The funny thing is she works from home and drives the car about 100 miles a week.  Maybe.  She has a fantastic job and she can afford the luxury, but I have to say it drives me up the wall every day I see that thing in the street.  That is way too much to spend on a car that sees the road almost never.  Her comment is “well, everyone has a car payment and I want to drive a nice car.”  Mind you this is a leased car and we have no ownership of it and it’s never driven.  I try to explain that if she had a used car, it could still be nice and we could save money that she could either save and invest or even shop with.

What if you had a car and could sell it and maybe downgrade to something nice and instead of a $500 or $600 monthly payment, you could buy an older car with cash while you pay down debt and get ready for the next leg of your journey?  If you could save $500-$600/month and simply drive a different car for a while, would it affect your life?  It won’t affect your daily life, but that savings could contribute to your financial future.   Mark Cuban is a billionaire who started out with nothing and drove a car he paid $200 for ($1000 in today’s dollars).  I’m pretty sure no one here would argue with his choices.

THE PAY OFF

The beauty of all of these steps is that you will see immediate results!  We live in an age of on demand everything.  We want to see the tv shows or movies we want to see immediately at the click of a button.  We want results immediately.  We don’t want to wait.  When you use the tools outlined in these steps, you are able to login and start seeing the results of your efforts on a monthly, if not daily basis. As you pay down your debts or start putting in saving accounts, you will start to see your debts disappear and your net worth rising.  As you gain more confidence at work and look for ways to increase your income you will subconsciously look for more and more ways to increase your net worth and you will be on your way to your ultimate goals.

My biggest regret in my 30s was that I had a small business that paid my expenses, but because I never tracked my net worth or spending, I just went out and wasted money on everything from restaurants to cars to material things.  If I had something that I could use to easily to track my progress and saving and see that my efforts were resulting in more net worth, I would be far wealthier than I am today.  I just spent what I had, paid down some debt when I had it and spent some more.  Today is different.  You have all of the tools you need at your disposal and the ability to see results of your saving efforts immediately.

If you have gotten this far, it’s actually pretty exciting.  Only three steps down and you should have a clear understanding of how much you are worth, how much income you are generating and how much money you are spending.  This is where it gets fun and agonizing at the same time.

THE AGONIZING PART

I have to start with the agonizing part first because it requires you to start cutting things.  It is easier to stop spending on things than it is to immediately make more money.  After the completion of Step Three, you should have an in depth, monthly chart showing exactly what you are spending each month.  I am pretty sure that you have found some things in your chart that are completely surprising.  What?  We spend $1,200 per month eating out?  We spend $1,000 on clothing and shopping?  We spend $400/month on subscription services?  Sometimes, you just have no idea what you are spending until you see it in writing.

So, let the cutting begin.  The first step here is understand how much money you have to work with.  If your income is $7,000 per month and your expenses are $6700 per month, it probably means you’re living paycheck to paycheck.  It also means you have $300 per month to play with.

GET RID OF SUBSCRIPTIONS OR LOWER THEM

The next step is looking at the easy things you can cut.  This would be SUBSCRIPTIONS!  Over time (and especially if you have kids), I guarantee you are spending money every month on subscriptions you don’t need.  Here are some example ways to lower your monthly subscriptions.

• Check your Apple Pay account.  Millions of people have an Apple account and many people are probably paying for subscriptions they don’t even know about.  The following is a link to view and cancel subscriptions – https://support.apple.com/en-us/HT202039
• Cut the Cable.  According to a recent report, U.S. Cable & Internet Market Size and Household Spending Report for 2021, The report found that the 82% of U.S. households with a Cable & Internet bill spend $116 per month, or $1,392 per year.  The average cost for broadband internet alone is $57/month.   If you add in Netflix ($13/month for standard package) and one other channel at $6/month (like Disney+), the total cost would be $76/month saving you $40/month.
• Check your credit card for other monthly services and see if there are competitors offering lower rates
• Check your mobile phone bill and call your service provider.  Cell phone companies are constantly changing plans and pricing.  You might be able to save $20-$40/month on your cell phone bill by combining family members or cancelling services you don’t need.  Personally, I think the insurance plans are a waste of money.  You can pay the $11/month in insurance or buy a 3rd party insurance plan.  You can pay $69 for two years through companies like Upsie (click here).  AT $11/month through an insurance carrier, you can save $195 over two years.
• Check your car insurance rates.  There are many companies that will compare car insurance rates (like this one: https://compare-auto-insurance-quotes.com/)  and you might be able to save money on insurance.  The big saver here has to do with the coverage.  Check your coverage because you can lower your coverage a bit and get much lower rates.

After this exercise, I have to believe you can find $100-$200/month in expenses at least that you didn’t need or didn’t even know you had.  Ok, now please bear with me.  THIS IS NOT NEW FOUND MONEY YOU CAN JUST SPEND FREELY.  This is money we need for the next phase of the journey.

GET RID OF YOUR HIGHEST DEBT

The average credit card debt of U.S. families is $6,270, according to the most recent data from the Federal Reserve’s Survey of Consumer Finances. I am fairly confident if you are reading this article, that you have at least one credit card and that card has at least some balance on it.  Some of you might have a lot of debt on their cards.  The average credit card interest rate is about 17% APR.  Paying the minimum payments off a large balance will take years.

Example

If you have $12,000 in debt at an average of 17% APR and you were making payments of $200/month, it would take 11 years and 2 months to pay off that debt.  The worst part?? At the rate above, you would have to spend $27,000 in all to pay off your $12,000 debt.

I have discussed a very important concept in these blogs and it’s CHOICE.  You have VERY HARD CHOICES to make here.  You already know what your bills are, what you spend and what you make.  After the first exercise above, you should have some additional money to pay off those credit cards.  However, if you choose to spend that extra “new found” money and not focus on paying off your worst debt cards or other debt or start saving, you can probably pack up your things right now.

WHERE YOU CAN GAIN

I have already mentioned this before, but as you analyze your expenses, this is the time where you can look at your income. Many people fear change and they are complacent about moving jobs. However, unless you have some sort of ownership in the company, you have no loyalty to them and they have no loyalty to you.  So, there is one thing I have always said to my wife, “If you are good at what you do, they are lucky to have you and you are not lucky to have that job.”  You are on a mission now.  You can’t waste your time in a job with a company that doesn’t value you and your contributions.  So, the easiest way to increase the money side of your cashflow sheet is to:

1. Compare your salary. Go online and find your position and zip code and determine if you are getting paid a fair rate for your job title.  If not, go to your boss with some supporting materials and other job postings where companies are paying a higher salary for your same position. Ask for more money!  The worst he can say is no.
2. Ask for a promotion.  I tell my wife that if the company promotes you with a better job title but not a huge raise, it’s fine.  That job title is most likely worth more at another company and after a couple of months, you can go back to your boss and follow the instructions above.
3. Go to another company.  I know change is hard and going to a new place with new people can be challenging, but you are here which means you are ready to get out of your comfort zone.  There are millions of jobs available right now and employers are paying more money.  Easily increase your income by finding a new job where they will pay more for your time.

If you are maxed out on your salary and you love where you work, the next area you will want to look at is making extra money doing side gigs (more on that later).  The items listed above are the most immediate way to impact your current income.

HAVE A COMPANY?

I have owned my own web design company for about 25 years.  I am not a self-proclaimed “hustler” where I get in front of hundreds of people to pitch my company for services.  The fact is, I am really good at what I do and I have generated most of my money through referrals and I spend money on Google Adwords to generate traffic and leads.

While I was at a self help seminar one weekend, I sat back and listened to the guy talk about most of the things I have mentioned here in these blogs.  “Get out of your comfort zone.  Think about it and it will come. Starting a business or investment is the fastest way to wealth.”  The guy asked if anyone had their own business and I stood up.  He asked me “What would be the one thing you want from your business that you are not getting now?”  I replied “Well, it would be great if I could make more money with my business.”  And he replied back “Are you good at what you do?” “Of course” I said.  His reply was great, “Well, the easiest way to make more money if you are truly good at what you do is just charge more money.”   I just stood there deep in thought.  Uhhh.  Duhhh.  So I went back to my office and start raising my design fees and my hosting fees and, lo and behold, my revenues went up by 20%.

If you own a company and you are good at what you do, the easiest way to make more money is to charge more for what you do.

The next step in your financial preparation for your journey is to understand how much you are spending each month and how much you are generating in income each month.  It goes without saying that saving money when you are spending more than you are earning is extremely difficult.  This process is going to be one of the most difficult because it’s going to take you face to face with what you are actually spending and bring you to the reality of the difficult choices you are going to need to make.

ASSETS VS. LIABILITIES

The Basics part of this blog is an introduction to finances that will include words and definitions you absolutely need to know.  The first two big financial concepts are Assets and Liabilities and the definitions are pretty straight forward:

• Assets are things the generate money
• Liabilities are debts and things that cost money

That seems pretty simple doesn’t it?  So what are examples of assets?

• You (assuming you have a job).  Yes, you are an asset and you generate money for yourself and/or your family
• Stocks and Bonds.  Stocks in companies especially ones that generate dividends are assets.  Stocks can increase in value and generate money from dividends
• Investment Real Estate.  A home that you purchase for purposes of renting out and that generates more money in rent than it costs is considered an asset
• A Business.  If you own a business and people work for you and the business brings in more money than it costs to run, it’s an asset

All of the above examples are considered assets because they generate money coming in each month.  So, what are examples of liabilities?

• Credit cards.  Credit cards provide a way for you to borrow money to pay for items.  If you don’t pay off your credit cards, you are getting charged, in many cases, 17% – 25% in interest.  That is a lot of money and your balance on your credit cards is considered DEBT or a liability
• Your primary home.  While you might consider a home an asset, if you are spending money on a mortgage every month, it is considered a liability.  You have a DEBT you have to pay every month.  This is not to say you shouldn’t own a home or purchase a home.  There are many tax benefits of owning a home and the value will increase over time.  However, this is an example of a liability because it costs you money.  That said, if you rented out a room and/or constructed an add-on granny flat (Accessory Dwelling Unit – ADU) in your backyard and rented that out to someone, it could turn your liability into an asset
• Car loan.  Your debt that you owe on a car and your monthly payment is a liability
• Any other loan.  If you like to purchase toys like boats or trailers or other items like payment plans for braces, furniture or pelotons, these are all liabilities
• School loans.  This is a debt you owe and considered a negative with a monthly payment
• Monthly subscriptions – this is a big one people get caught in.  Many companies realized they could get a lot more customers by providing very low monthly payments for products or services.  In many cases, people don’t even realize how many subscriptions they have

In the examples above you can have liabilities that can turn into assets.  For instance, if you purchase a boat and owe $300/month in payments, but you rent that boat out when you’re not using it and you receive $400/month in income, that liability becomes an asset.  You would need to factor in the repairs as an expense since more people are using the boat but again, if the rental money you receive per month is more than loan payment plus the repairs, you’ve got an asset.

CASHFLOW VS. WEALTH

Like I mentioned, it is vital that you understand your current starting point and your net worth, but understanding your cashflow is just as important.  Your net worth is the amount of money you are worth at any given time.  Your cashflow is your monthly income minus your expenses and allows you to determine how much you have to spend or save.  The more expenses you cut out, the more you have to save toward your goal.  Conversely, the more money you earn, the more you can save (assuming your expenses don’t go up).  This is the hard part for many people.  If they get a raise or a bonus, the first thing people think about is “what can I buy with this new found dineiro???”  For a millionaire, you have a couple of choices:

1. Spend it all
2. Spend some and save some
3. Save it all

To be honest, I’m a #2 kind of guy.  If I get a big bonus or raise, I will buy something small as a reward and save the rest.  Again, this is new found money.  You were doing just fine before the money came in and if you put it all in savings, it wouldn’t change your life today, BUT it will add to the steps up the mountain on your expedition.  The more you put away, the faster you can reach the pinnacle.  Because I am a #2 type of guy, my journey might take longer than the FIRE people who put 70% or 80% of their income away.

Throughout this process, the goal is to figure out how to both increase your monthly income AND decrease your monthly expenses.  The point of this post is to understand where you are at today to get started.

TOOLS YOU CAN USE

In order to determine your monthly cashflow, there are quite a few tools you can use.  The following will give you a start on how to determine your monthly expenses and your income.

• TD Ameritrade Cashflow Calculator:  Click Here
• How Stuff Work Cashflow Calculator: Click Here

As you can imagine, these tools require a lot of numbers.  Many of these should be easy to input like your monthly rent or mortgage, your income from your job or easy monthly expenses like childcare or your phone bills.  The harder numbers are going to be things like travel, shopping and miscellaneous expenses.  This is where people start getting a little confused and disillusioned with this process.  To make this part easier, I recommend the following:

• You don’t need the exact numbers for every one of the categories but you really do need some idea of what you are spending
• I recommend using one credit card is possible for all of your transactions
• If you are using Mint.com, it will pull in all of your credit card transactions and automatically assign them to categories.  All you have to do is go through the transactions and make sure the transactions are in the right categories.  Once you are done and the transactions are in the right place, Mint.com will give you summary reports of every category of spending and how much you spend each month
• This could take a little time, but I recommend you do the categorization for at least the last 9 months.  When you take all of the categories and spending and average it out, you will get a great picture of what you spend.

By the end of this exercise, you will have completed the preparation phase for your expedition!

By now, you have read the first few posts and you’re thinking to yourself, “I am ready to make a change.  I am ready to change some habits and focus on a plan to make myself wealthy and generating enough money to retire.”  AWESOME.  You are changing your mindset to put out in the universe that you are going to create a goal and make choices to reach that goal.

SO WHAT’S THE NEXT STEP?

You can’t start an expedition or a journey if you have no idea where you’re starting.  Every expedition has a starting point and your starting point is your current financial situation.  Some of you might be further along than you think and some already understand that it will be hard work to get out of debt and will take time to get on a path to success.  The most important aspect is that you ready to make the leap and focus on a better outcome.

The next step is to find an online resource you can use to organize and update your financial status as you move along the journey.  There are a number of personal financial applications you can find online, but I personally use Mint.com (www.mint.com).  This is a web site that ties in all of your accounts into one place and will organize your finances, accounts, loans and spending habits.

If you can imagine that your life and your family is a business, you need to know some simple things to be successful:

• How much money does the business generate (on a monthly basis)?
• How much money does the business spend (on a monthly basis)?
• How can we limit spending and increase the money coming into the company?
• What are the things the business owns and what are the business debts?

If your business makes $100,000 a year but you are spending $110,000 per year, that business has two options, 1) it will go out of business because it spends more than it generates to pay the bills, or 2) it will have to borrow money to cover the additional expenses.  A business is just like your life.  If you are spending more than you are making, odds are you are borrowing money from credit cards to cover the increased spending.  In this scenario, you will not only hurt your chances of being wealthy, but more likely you will head for bankruptcy.

What a personal web site like Mint will do is give you an overview of your current financial situation:

• How much money do you have in the bank?
• How much money do you have in investments like stocks?
• How much money do you have in retirement accounts?
• How much is your house worth?
• How much do you owe on credit cards, mortgages, car payments, etc?
• How much are you spending each month and in what categories?

Overall, when you subtract what you owe (your debts) from the things you own, you will get a big, giant number called NET WORTH.  This is one of the most important (if not the most important) number you will follow when it comes to your wealth.  Basically this is the number that adds up all of the money you have, the value of your property and your investments and then subtracts all of the money you owe and that is what you are currently worth.  The following is a very small example:

CASH/INVESTMENTS

• $15,000 in the bank
• $10,000 in investments like stocks
• $350,000 house value according to Zillow
• $15,000 current value of car
• $5000 – bitcoin value
• TOTAL ITEMS OWNED: $395,000

MONEY OWED

• $5,000 owed on credit cards
• $280,000 owed on home mortgage
• $10,000 owed on car
• $25,000 – School loans
• TOTAL DEBTS: $320,000

NET WORTH

$395,000 – $320,000 = $75,000.  In the example above, this person’s net worth is $75,000.

This is the starting point on this person’s journey!

WHY IS THIS SO IMPORTANT?

In my previous posts, I outlined the importance of putting your goals and dreams out into the universe.  By creating a system to track your current situation and your progress, some things will start to happen.  You will start to put $5 from that Starbucks coffee you didn’t order into savings or investments.  You can have your bank account or other investment company automatically take some money out of your paycheck and put into investments that will grow.  Then, the really cool thing starts to happen.  The Net Worth number will start adjusting up.

On your expedition, your upward climb in your net worth mirrors your upward climb up the mountain.  The one thing I will tell you is that seeing your numbers increase will give you more and more incentive every day to change your choices, save more and climb the mountain faster.  It’s simply human nature and the biggest incentive at all to see the progress you are making and want to succeed even more.

After you have signed up for a personal financial software platform, go through and connect your accounts and see where you stand.  If you have a ton of credit card debt and no house and your net worth is negative, DO NOT FRET.  Does it suck? Yes.  The goal here is to change your attitude, your choices and your financial situation to move the negative to positive and then through the roof and over the moon.

The first step on your expedition is to get prepared.  You need to understand what you need mentally to gear up for the trek ahead.  So, in order to retrain your brain, you need to erase some of the things you thought you knew.

WHAT YOU WERE TAUGHT GROWING UP

I grew up in a middle class household in California.  My dad worked full time and my mom did jobs here and there like accounting or selling real estate to bring in extra money.  When I grew up, I was taught a few simple things: you need to go to school, get good grades, go to college and get a great job so you can support a family of your own.  From my earliest days, that’s what I thought I needed to do to be successful.  It makes sense that, back then, people who worked for a company received a pension and when they were done working for that company for decades, they were set up for life with a monthly pension payment.  That system is great if a company is around forever and constantly makes more and more money, but the reality started settling in.  As more and more people would retire over the years, the financial commitment to the pensions got higher and higher and became a drag on companies financially.

Over the past 30 years, companies with pension commitments started declaring bankruptcy and all of those people who had worked their entire lives for the chance to receive monthly payments were now out of an income steam in retirement.  In addition, the average age of Americans started to increase thus requiring even more pension fund money.   Obviously, the system was broken.

WHAT DOES THAT HAVE TO DO WITH YOU?

The concept of “get good grades and get a job” was taught to all of us, but really, it goes against the grain of how the United States has provided opportunities for people to succeed through business ownership for centuries.  The good old USA was born on free trade and entrepreneurship.  People came to the US to fulfill their dreams and participate in a society where anyone can be successful and most came here and started small businesses such as dry cleaners, landscape businesses, painting and more.  The more ambitious people who came here grew their companies and their wealth.  They didn’t make their fortunes at a call center for AT&T working 9 to 5 jobs.  The US is the land of opportunity.  It’s time for you take advantage of it.

JOBS VS. COMPANIES

The first retraining you need to understand is this: the idea that 9 to 5 jobs can generate money to support your family and you will also become wealthy is not realistic.  When you have a job, there are 2 problems; 1) the government is taking 30% of your money every paycheck and 2) you are working for someone else and you are not making any decisions on your future or your salary or your position at the company.  The people above you on the corporate ladder or in business management are making decisions about your future.  Many people have a popular misconception “I have been here for 5 years and I am invaluable.  They can’t fire me.  They won’t find someone to replace me.”  LOL.  If a company has a bad year or the economy starts to fizzle or even if the company’s products or services become outdated, they can replace you, fire you or lay you off in a heartbeat.   There is no emotion in a corporate or business environment.  They have to do what they do to survive, they have to make tough decisions and your future and financial security are in their hands.

Owning your own company puts the decision in your hands.  You make decisions and you are in control of your own destiny.  You can change services or products to appeal to a larger audience and the tax benefits you will get from the government as a business owner are immense (more on this later).

Please note, I am not saying that you need to quit your job and start a company.  On the contrary, if you have a job and you are supporting your family, absolutely keep that job.  Do not put yourself in a position where you jump off the ledge with no parachute and you have no way of supporting your family.  As I have said, this is a journey and before you make any major moves, you need to be prepared.  You aren’t going to the middle of the mountain in a day.  The BASICS section of this blog will give you a financial foundation and understanding for your journey so you can see where you are and then provide resources to make better decisions moving forward.

For now, the purpose of this post is to get you to retrain your brain that having a job is one part of your journey, but the path to wealth is hard if you are only focusing on your job as a single source of income and that a job can be taken from you when you least expect it.

CHOICES

The next area you need to train yourself on are the choices you make.  An entire life is made up of thousands of choices and numerous decisions every day.  Do I go to Starbucks and spend $7 on a coffee and bagel?  Or do I make coffee at home for basically $0.25 and my own bagel for $0.50?  Do I take the money from my raise and buy a new purse or do I put all of the extra cash away in savings? As you move along your journey, retraining your brain to make consistent choices about saving will help you reach your goals faster.  The more you spend on things like cars, clothes and material items, the less you have to invest and the less you have to climb the mountain.  Your choices determine if you are going to stay at the base longer and slowly climb or if you can climb higher faster.

RECONFIGURE YOUR LIFESTYLE

This is the area that is going to be hardest for everyone in the beginning.  As I mentioned above, you have choices you make that can help you save faster and complete your expedition faster.  However, many times, those choices result in a change of your lifestyle.  If you constantly need to buy a new car or you have to buy the newest video games and spend your entire paycheck the minute it arrives, your journey will be more difficult.  Over the course of this blog, my goal is to show you that can have what you want, but you will need to make some sacrifices in the beginning and live within a certain means to achieve your goals.

LIVE WITHIN YOUR MEANS

There is a book I read called “The Millionaire Next Door.”  The book details interviews and analysis of 100 millionaires including their habits and choices.  Many of the people they interviewed were immigrants who came to the United States to pursue a better life for their families.  Most of the people had started small businesses like mini marts or dry cleaners or service oriented businesses.  As I read the book, the common theme was that these people spent as little as possible on cars, eating out, travel and material items, but used the money to purchase homes for their families and reinvested the money from their business into their children’s education or other investments.  Unfortunately, what disinterested me was the fact that basically these people became wealthy by giving up many of the fun things in life and saved every dollar and used business tax advantages from the government to grow their wealth.

The FIRE movement (Financially Independence, Retire Early) basically follows the same path as the book.  Save 70% of your money, rarely eat out, travel cheap, learn to hike a lot and you can save enough to retire forever at 35.  I find some issues with this approach personally.  Why?

1. I like to go to restaurants with my friends occasionally
2. I LOVE to travel
3. I like to buy things when I want
4. I am not going to let life pass me by because I want to retire at 30.  I have no problem working a little longer

The main point to the above is that it’s okay to have a fulfilling life and reach your goals.  The FIRE movement isn’t bad, but I don’t want to lose 10 years by saving every single penny and miss out on some fun things because I am so focused on retirement.

The main message I want to impart here is that you can do all of the above in moderation.  If you want to eat out, just cut back.  You don’t need to eat out every other day.  If you can cut back to once a week, you will see an insane amount of money saved.  If you love to travel, there are many ways to maximize the days and places you travel to without spending a fortune (ie, never travel to Hawaii during New Years, but you can find flights half off during October).  You can buy things you want, but you don’t have to splurge.  You don’t need the most expensive car or house or clothes every week.  By spending in moderation and raising your income, you can become wealthy.

Based on where you want to be, you will make choices on your journey and while the more you save and invest, the faster you will reach your peak, don’t forget to LIVE LIFE AND ENJOY YOUR TIME WITH FAMILY AND FRIENDS.