Whenever you obtain extra money, it is an opportunity to take your finances to another level. Instead of racing out to spend it frivolously, I encourage you to consider how you can put that money to use in a way that propels your financial situation forward.
- Pay off a debt When you pay off a debt, it will instantly increase your monthly cash flow. This is something we call “monthly margin” around here at I Was Broke. Now I’m Not. Plus, what other financial decision is more rewarding than making a debt leave your life?
- Buy yourself out of a membership/subscription Things like cell phone contracts, gym memberships, satellite tv subscriptions, etc. Many people keep an unwanted subscription around simply because they don’t have the money to buy out the few months ‘cancellation fee’ required to cease service. This allows you to gain monthly margin and makes an annoying expense begin to fade in your rear view mirror!
- Build savings Increasing your financial reserves/cushion/margin – something we call “reserves margin” around here at I Was Broke. Now I’m Not. – is never a poor decision! This positions you to accommodate unexpected financial challenges or pursue an opportunity.
- Invest for retirement $1,000 extra today will be worth $3,300 in 10 years, $10,893 in 20 years, $35,950 in 30 years and $118,648 in 40 years. Get #FiredUp!
- Invest for college $100/month will be worth $8,167 in 5 years, $23,004 in 10 years, and $75,786 in 18 years. Excellent decision!
- Obtain more education/certifications Knowledge is power and can equal a substantial increase in your income and your value to the business you conduct.
- Purchase a(nother) home Real estate is one of the time-tested ways for people to build wealth. Plus it can produce additional income using a service like VRBO, Homeaway, or AirbNb
- Become a private investor There are lots of ways to become a private investor. You could start a small business. Maybe acquiring a minority stake in a larger existing business is more your style. Angel investing has been very popular over the past decade. Hard money lending is another way to put your extra money to work. Perhaps being a silent partner in a franchise could be more suitable for you.
- Vacation A great leader once shared this formula with me: Change of pace + Change of place = Change of perspective | I’ve found it to be true. There is something about “getting away from it all” that helps you achieve clarity on your next steps.
- Give it away There’s something powerful about giving money away. One friend told me that he “gives because it keeps him from becoming greedy.” When I give money away, it makes me want to make better money decisions so I can give even more. It connects to the “perspective” part of the equation I shared in #9.
No matter what decision you make, choose to put the extra money to work for you. Your future self is depending on you!
This post is for the person who needs encouragement in their financial journey right now.
You may have experienced tremendous challenges recently. Perhaps you’ve encountered an unexpected lay-off. Maybe an illness. The car may have broken down and a child fell and broke his arm. Maybe an investment tanked or your small business that once thrived is now on life-support.
Whatever the case, you can do this “money thing”!
In fact, I’ve discovered that financially challenging moments are where I’ve learned new financial skills.
You see, if I had never experienced an empty bank account, I would never have saved money during times of plenty.
If I had never experienced car and credit card debt, I would not have known how important it was to avoid this type of debt in the future.
You can do this!
If I had never experienced a broken down car, I would not know the joy of driving a paid-for brand new one.
If I never had credit card bills beat me home from vacation, I would not know the luxury of paying cash for vacations.
You can do this!
When you are faced with a discouraging financial situation, remain steadfast in employing the financial fundamentals of:
- Planning your income before you receive it (budgeting)
- Saving for Known Upcoming Non-Monthly Expenses (so you can avoid budget-crushing expenses)
- Invest (so you can see compound interest work for you)
- Give (there is something healing and soothing about giving to others – even when you are struggling financially)
You can do this!
Here are 5 financial statistics to mull over (and 3 challenging questions for you to consider):
- $10,890 is the median financial net worth of an American household today – According to calculations by Edward N. Wolff, an economics professor at New York University. See how your net worth stacks up using the CNN|Money Net Worth Calculator
- The average large bank is currently paying 0.01% interest on regular savings accounts (and that interest is taxed). Let’s put this in real dollars and cents. If you had $10,000 in savings, you would be paid $1 in interest for the entire year. One single dollar. This is while they lend the money back to the average American with a credit card at 12% or higher.
- The poorest give more than the wealthiest to charity. This article written by Ken Stern focuses on the research about why this is the case. The poorest give 3.2 percent while the wealthiest give an average of 1.3 percent of their incomes. According to the website JustGive.org, 75 percent of all gifts to charities are from individuals – not government or big corporate entities.
So here is the challenge for you right now – ask yourself these 3 questions and DO SOMETHING about them:
- Do you know what YOUR net worth is and where you stack up versus your peers? Take a quick moment to use the CNN|Money Net Worth Calculator to find out.
- What interest is YOUR bank paying on your savings account? Take steps to address it!
- How much money are YOU giving away? There’s nothing like giving. If you don’t like the amount you’ve been giving, take steps today to begin giving more away and discover the joy of helping accomplish great things together with like-minded people!
“If the mountain was smooth, you couldn’t climb it.”
I heard this statement the other day, and it really connected with me. It apparently connected with a lot of others as well because it became one of my most “re-tweeted” and “fav’d” tweets ever.
Let me unpack this statement while looking at it through a financial lens.
Have you ever experienced a financial cliff – a monumental financial challenge that was seemingly insurmountable? It could be paying for college, putting braces on your children’s crooked teeth, or fixing/replacing a vehicle. It might be the major task of obtaining a better job or starting a business. The financial cliff certainly presents a challenge, but overcoming it provides you an incredible sense of achievement and provides confidence like few other financial events can.
Perhaps you’ve reached a point where there are plentiful footholds and handholds and maybe even a path or two allowing you to move up the mountain at a great pace. This is when you can see the debt on the credit cards melting away and the vehicle is paid off.
Hopefully you’ve experienced a time or two where you’ve reached the pinnacle. A moment where you’ve stood on top of your financial challenges, having overcome them all. That’s the entire reason I started I Was Broke. Now I’m Not. – to help people achieve far more than they ever thought possible with their personal finances.
Of course, a look around while on the mountain top will reveal many other peaks requiring difficult climbs, but past successes will provide the fuel to get back to the top of those too.
Where are you at on your climb up your current financial mountain?
I believe most people are one or two major financial decisions away from completely changing the trajectory of their financial future.
- Increase investment by $200 per month. If a 25 year old were to change their monthly investment by $200, it would change their net worth by $2,352,955 by age 65. (12% growth for 40 years).
- Eliminate all non-house debt. This usually reduces a person’s cost of living by $500 to $1,250 per month. Suppose an individual were making $750/month in payments. $750/month would equal $9,000 per year! If this were invested and received 6% interest for 20 years, it would be worth $346,531.
- Keep the paid-for car for an extra four years. Suppose the monthly car payment were $359.96 (like my first car payment). If the $359.96 were saved each of the next 48 months, it would be worth $19,475 (at 6% annual growth). No more car payments for the rest of your life!
- Eliminate cable TV. At $75 per month, this can add up to quite an investment. Suppose this $75 were placed into an investment for 30 years at 12% annual growth. This would be worth $262,122.
- Prepare a budget. When my bride and I prepared a written budget for the first time in July 2003, we discovered more than $500 was disappearing every month for “miscellaneous cash withdrawal.” This money was utilized to intentionally eliminate debt. In 14 months, all of our debt (except the mortgage) was eliminated. In 10 years 1 month, our home was paid off. Preparing a written monthly budget every single month has been a huge part of our financial progress.
What is the one change you could make this week that could completely change the course of your financial future?
It takes tremendous courage to make a change. It will require sacrifice. It is WORTH IT.