When did struggling to make ends meat become the norm? Why do we never have enough money? Headlines raced across America recently about the dire situation we are faced with.
According to HomeServe USA:
- In America 50% of people are unprepared for a financial emergency.
- 1 in 5 (19%) Americans have nothing set aside to cover an unexpected emergency.
- 1 in 3 (31%) Americans don’t have at least $500 set aside to cover an unexpected emergency expense.
- In a different survey by MetLife, they found that 49% of employees are “concerned, anxious or fearful about their current financial well-being.”
That means 50% of people are living paycheck to paycheck in America.
For those 50%, I would like to tell you that this is not how it has to be. In fact, I would like to tell everyone toiling away with no plans of retirement or even those who want to take the standard age 65 retirement. That not only can you survive but can thrive! You can even retire early if you want to!
There are 4 Parts to Freedom!
There are many ways to reach financial goals and everyone has different views of what they want their lives to look like. People who lead you to believe that the only option to success is their proven method, or by buying their product are lying! The main goal is to be better off tomorrow than you are today, try to at least do something on the list, and if you want to never worry about money again, do all of them
Part 1. Lower your cost of living.
Take a hard look at your life. Are you working for your needs or your wants? The first step to never worrying about money again is to lower the baseline amount of how much you need. I spent a year owning only the contents of one backpack, nothing else in the world. It was freeing. It was just me. I went to a country where the dollar went further, and I was thriving on less than $500 a month. Now I am not suggesting to you to go to these extremes. I only use it as an example of what is possible.
Don’t look at this step as a negative impact on your life, getting rid of things that hold you down only allows you to rise. Also, if you need less to live, you need less to retire!
If you have never written out a budget to get an idea of how much is going and out and where of your bank account, Mint.com
is a great place to get started, and it is free. It also has a net wealth calculator built in.
- Sell your car, move to a small apartment near your work that you can walk or bike to. Not only will it save you money it has two things that will improve your life, exercise and shorter commute time!
- If you feel you need a car, make sure it makes financial sense! Do not finance a vehicle. Buy a cheap one, in cash. See: How to get an amazing deal on a car!
- Buy a home with multiple units, so your other units cover all your housing costs. See: House Hacking: Lets You Get Your Housing For Free
- Sell any large asset that is not making you money if at all feasibly possible. That means the huge house you are filling up with useless stuff. That means the car worth over $10,000 is gone. Unless your net worth is over a million, these cannot be considered reasonable.
- Cut down any monthly expenditures you can, find a cheaper cell phone, pare down to only one entertainment source, call all your current providers and see if there is a way to lower your bill, don’t eat out as much, cut out as much frivolous spending as you can.
Part 2. Increase the amount of money you are earning.
So let’s say you get through Part 1, you have reduced your cost of living substantially, and you are still struggling to keep your head above water to live let alone to invest or pay off debt. It is time to increase your baseline income, find a better paying job. If you get through Part 1 and you’re looking like you are going to be able to make a lot of motion with your ocean, it never hurts to get a little more and get that tide a little higher.
Further Reading: How to get a high paying job with no debt involved!
- Ask for a raise.
- Look for a new job in your same field. Find someone who will pay you more, use that current job to leverage you into more money!
- Get a second job. Or, if there is a spouse at home consider them taking on a small job while the main breadwinner is home. I don’t advise this just for life quality, but it is an option for speed, or if the situation is dire.
- Low earnings in your field? Switch it! Look for paid apprenticeships in construction, like plumbing and electricians. Jobs which provide their training like Emergency Services (police officers, dispatchers, firefighters.), or drivers (Truck, School Bus, Boat.) which often train you to get your Commercial Drivers Licence (CDL) which can be a huge money maker. See: How to get a high paying job with no debt involved!
- Go back to school. This can be a rough one. First, the earning potential of the job you will get from going back to school has to be very good. Make sure that one year of your projected salary can cover your whole debt incurred plus any lost income you could have been making during the time I took to complete it. Make sure to shadow your projected career, or find some volunteer job around it to see if it is a fit for you first. There is nothing worse than incurring a bunch of debt only to hate what you got out of it.
Part 3. Kick debt in the teeth.
I am not of the opinion that all debt is bad. Would it better to have no debt, YES! But, I believe in the power of leverage. Using student loans to leverage you into that job that makes you much more income. Using mortgages to get you into and possibly renovate an investment property that yields cash flow after all expenses. Getting a small business loan to grown your company and your earnings.
The key for those is the end goal must be worth it, and you must complete the task the loan allowed you to do. You have to be getting more out of the debt then the lenders are getting out of you.
Consumer debt is typically the anti-thesis of being financially healthy. This includes cars, credit card debt, any debts that are not currently making you more money than the interest they are charging you. You cannot do Part 4, investing in yourself while you have consumer debt, the interest they are charging simply cancels all gains you are getting elsewhere.
- Cut up your credit cards or make them inaccessible to yourself. (I’ve heard of people freezing them in ice and keeping them in the freezer.) I do not advise canceling them because it generally does not help your credit score.
- If you keep unfreezing those cards, it is time to have none at all.
- Don’t sign up for credit cards for the free rewards or discounts, especially if you have a track record of racking up debt. There is a reason they do these incentive programs, they more often than not get more out of you then you will get out of them.
- Attack your highest interest charged debts first for the most results, attack your smallest balance debts first for the most motivation to keep going.
- Have a ton of debt, and you can’t even get a handle on the monthly payments? Even after Part 1 and Part 2? Consider moving the debt around. Some cards will do balance transfers and give you a flat low-interest charge up front by adding it your balance. Only do this to debts you are sure you won’t be able to touch for the period it is held for because you are working on others. Wait that didn’t work, not enough wiggle room to move it: have some other large asset? Look into selling that asset to pay your debt off or getting a loan against it at a lower interest rate. No assets? Maybe it is time to consider bankruptcy.
Part 4. Invest in yourself. Diversify your earnings.
This Part is the fun one! Make sure that you are good with Part 3 though before doing things on this list unless you can manage to do them for no money or debt! If your goal is truly not to worry about money make sure to build up a buffer in a liquid, interest accruing account like a money market fund of at least 3 to 6 months of your current expenses. Remember the more sources of income you have, the less impactful losing one is, so diversify!
- Start your own side business, this can be anywhere from starting a blog, to a service like consulting or tutoring. Remember to start small and scale up with success try to grow from your earnings!
- Make sure you are matching any employer contribution into your retirement account.
- Invest in the stock market. If you like your field of employment and enjoy going to work, ramp up those retirement contributions and also invest in IRAs. If you would rather retire early, invest in index funds and dividend stocks.
- Get an investment property. Investment properties can be a really strong contributor if you would like to retire early as it can quickly push you into gaining passive income.