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Part four of my “Stop It” guide happens to be the linchpin of personal finance. Here it is:
Stop It Rule Four: Stop spending more than you earn
If you’re living paycheck to paycheck, “Stop it.” Work more or downgrade your lifestyle or do both. The only way to get ahead financially and build wealth is to have savings. If you can’t wrangle savings out of your income, you’ll remain a financial loser for the rest of your life.
Spending less than you earn isn’t easy, of course. If it were, nearly 80 percent of American adults wouldn’t be living paycheck to paycheck. But it can be done. Here are two axioms that helped me turn my financial life around:
Frugality Ain’t Privation
Check out the below video. It depicts life in London in the mid to late 1800s.
If you have access to toilet paper and a flush toilet, you’re not only living better than the wretched refuse of years past, you’re living better than the elite of years past. So the moral of the story is this: modern frugality isn’t remotely close to privation. If you live modestly by American standards—you live in a trailer with an internet connection, drive a 10-year-old pickup truck, and go camping on vacations—you’re living better than 99 percent of the people who ever graced this planet.
One trick I learned to practice frugality and still live well is to be half normal. Just spend 50 percent or less than what the typical American spends on a particular item. If the typical American lives in a 2,000 square foot home, you live in a home that’s 1,000 square feet or smaller. If the typical American spends $38,000 on a new car, you spend $19,000 or less on a new-to-you new car. If the typical American spends $800 a month on groceries, you spend $400 a month or less on groceries. You get the idea. Just go modest or super modest on the Big Three—housing, transportation, and food—and you’ll have a much easier time spending less than you earn.
Aiming and Guile Are Your Friends
As Jordan Peterson has pointed out, we’re aiming creatures. We are built to hit targets. If our first attempt to hit a target misses, we have all the sensory tools we need to recalibrate and get closer to the target on our second attempt.
Now let’s take our aiming skills and target a savings goal. Let’s say we have a poor schlub who wants to save $500 a month. So he begins his quest by plugging the one major spending hole he’s acutely aware of: he’s only going to eat out at work on payday. For the other nine workdays during a given pay period, he’s going to prepare his lunch the night before at home.
Now let’s assume that our poor schlub successfully plugged his eating-out-at-work spending hole for the past month, but he was only able to realize $200 in savings. He’s still $300 short of his target. So what does he do? He recalibrates. He hit the spending side of his savings goal on his first attempt, now he’s going to couple that strategy by hitting the earning side of his savings goal. He’s going to deliver pizzas once a week or drive for Uber once a week.
So where does our poor schlub find himself at the end of month two? Well, with the aid of just two strategies—eating out at work only on paydays and having a once-a-week side hustle—he was able to save $600. Voilà! He not only hit his savings goal, he smashed it.
Exactly what saving strategies will work for you are impossible to say. Everyone is different. Some people have to concentrate on the spending side of the savings enigma. Others have to concentrate on the earning side. And this is where guile comes in. You know your financial circumstances best. And you know your financial strengths and weaknesses best. It’s therefore up to you to figure out how to crack your savings enigma. Just start with a modest savings goal and try to hit it. And keep recalibrating your saving strategies month after month until you do hit it. This is exactly what Mrs. Groovy and I did when we got sick and tired of living paycheck to paycheck way back in 2003. In a few short months, we were easily saving $500 a month. And by the time we relocated to Charlotte in May of 2006, our aiming and guile delivered us to the fantastic savings goal of over $2,000 a month. So it can be done. Aiming + guile = fantastic savings.
Stop It Guide Series
Stop It Guide to Personal Finance: Part One
Stop It Guide to Personal Finance: Part Two
Stop It Guide to Personal Finance: Part Three
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