If you are reading this, you may think, hey Mr. Fancy Pants Money Viking, I am just no good at money. No one ever taught me how to manage it. I do not feel comfortable talking about it. I thought money was the “root of all evil”, so should I care and do I deserve to have any? Guess what, you have been set up to fail and perhaps it is time to make some changes and take charge of your own life. I believe that is the true value of sites like ours, the ability to provide inspiration and information to conquer your financial freedom!
Obviously most people in society are pretty lousy at managing money. Just look at some of the disturbing statistics. Most people would have a hard time coming up with $400 to cover an emergency. Holy crap, that is disturbing! 55-64 year olds in America have an average of $104,000 in retirement savings. Very scary low figure that will not last very long in retirement. Using conservative calculators this will only yield about $4,000/year in retirement income. These folks could live another 30 years!
There are many social, mental and educational factors at play here. For one, we are never taught about money in a healthy way in school. I don’t ever remember taking one class that offered any kind of practical advice about investing, compounding, saving, budgeting, needs vs wants, etc. 0, nothing, no class on this in approximately 18 years of formal education. And I went to pretty good schools, I can only imagine the lack of discussion at underfunded and poorly managed schools.
I was lucky to have a family that taught me many things, but that was luck. Most families probably never talk about this very important topic. Besides who you associate with and marry, managing your finances is probably the most important skill to develop in life. There are obviously hundreds of books in the market that can teach you about personal finance and may be tailored to your unique situation. Here are the basics that most experts agree if we can get right, we will set ourselves up for success. So if we suck at money do a “back to basics” approach and then ignore all the noise:
ONE: A SIMPLE BUDGET
It sounds simple but most people never take the 10 minutes it takes to do a budget. Don’t overthink it, it just takes a pencil and piece of paper. List all your monthly expenses starting with the big ones: housing, car, insurance, food, entertainment, clothing, child care, etc. Compare this to what you actually bring home each month. First, are you negative or positive? If it’s negative you are in trouble and you must make adjustments. No more Frappuccino’s at $5 a pop! If it’s positive, congratulations, time to advance. Emergency fund and extra investments are on the agenda.
This simple exercise puts you in touch with your money, just like exercise or yoga puts you in touch with your body and mind.
TWO: AUTOMATE & IGNORE
If you got the budget down, you then have to maximize the automatic contributions to a 401k or low cost index fund like through Vanguard. We have to automate because we are lousy with money and our perception of the future is flawed. We de value the future and over value the present.
THREE: GET THE BIG THINGS RIGHT (HOUSING & CARS)
Before you cut out the expensive coffee trips, you should also get the big things right. Is your house a drain? Is your car payment over $500/month? Time to rightsize everything!
Hey, we all kind of suck at money unless your name is Warren Buffett. So get the 3 big things right and you pretty easily go from a D to a B! I will take a B!