Getting right into it because its the end of March and its still way too cold out with yet another snow storm coming to NYC... It's not time to mess around.
So, a question. If you had to tell somebody about your finances, but could only tell them one thing, what would be the best barometer of whether you were on track to becoming financially successful?
I'm sure most of you answered salary, savings, or net worth right? That’s what I hear the most when people start to explain their financial world to me…
But without a doubt the most important number, and really the only number that matters at this point in our careers, is HOW MUCH CAN YOU PUT AWAY A YEAR. That’s it. Because It’s never about how much money you make…it’s about how much of it you can save. Think about it. If every dollar you make is coming out (ie being spent) than you’re not really building any sort of “wealth” over time. You may eat really well (still not an acceptable reason to Instagram your meals, as far as I'm concerned), get to run up a ridiculous bar tab that you don’t remember the next morning, and have nice things but you’re not actually becoming wealthy and you’re not any closer to retiring early, sending your kids to the best schools, or buying a beach house. You’re just circling the hamster wheel, never any closer to getting off, wholly dependent on that high income stream to maintain your lifestyle with nothing behind it.
A quick story…A new client was in one day last week and he asked me how he compared financially to my other clients (I hear this all the time…especially from people our age that come to me with no plan…because comparing yourself to your roommates, girlfriend, brother-in law etc. is the next best thing….even if it’s irrelevant to your personal roadmap). Anyway, he was worried that he doesn’t make enough…and the truth was, he was right…he makes less than some other people at this stage of their careers. Then I told him, that despite making less money than some of them, he’s actually in way better shape he was actually on a real path towards being able to afford his first home, start a family and invest for the future. Why? Because he was disciplined as heck. He was conscientious about how much he spent, he valued the money he was making, and with the plan we put together, he figured out that he could put away 35% of his income each year. He’s living below his means & saving a DISPROPORTIONATE AMOUNT OF MONEY each month for his future. That’s it. It’s over. (Vince Carter dunk contest meme). A banker making double his income, but only saving 10% of his salary (I see it all the time) is actually in rougher shape…if we judge better/worse as becoming financially independent and accumulating wealth over time. And because this is my blog, you’re the reader, and I make the rules around here, that’s what we’re saying!!
Now, saving more money isn’t necessarily easy to start and without a real plan, it’s definitely not easy to maintain over time. But more on that to come…The biggest takeaway should be this…evaluating your financial picture by the amount you’re able to save, rather than how much you make, is the first step to seeing the light!