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?
- I like to go to restaurants with my friends occasionally
- I LOVE to travel
- I like to buy things when I want
- 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.
