Do you find it hard to put some money away every month? You’re certainly not alone. In fact, according to statistics, millions of people across the globe struggle to cover any emergency outgoings.
Last week, friends and I missed a connecting flight whilst on vacation which both airlines refused to compensate for. This resulted in us having to shell out well over $1,100 to get home – an unexpected cost that surveys across both the U.S. and U.K. suggest that millions would be tipped into debt to fund.
This got me thinking.
The key driver behind this fact boils down to financial literacy, i.e. the ability to personally manage your finances effectively. Much of the blame can be placed on the education system for not covering this important topic. I believe it is the one key life skill we all absolutely have to face on a frequent basis. Curtis Carroll, in this powerful 10-minute TED talk explains how prison taught him key lessons about money, takes it a step further and suggests financial literacy is not a life skill but a lifestyle.
“Let us get to the heart of what’s been crippling our society from taking care of your responsibilities to be better life managers, and let’s provide a simple and easy-to-use curriculum that gets to the heart of a financial empowerment […]” – Curtis Carroll
Countless surveys in recent years have suggested that a large proportion of Americans have less than $1,000 in savings. GOBankingrates.com conducted a survey of 5,000 people in 2015 and 2016 and in fact found the trend to be worsening, with the share of participants with less than $1,000 in savings rising from 62% to 69%. Startlingly, one-third of Americans have saved nothing at all. Across the pond, more than 16.8m people in the UK have savings of less than £100, according to a study by Money Advice Service. Furthermore, the savings ratio has been “falling sharply” for more than a year according to the UK’s Office for National Statistics. This suggests that for millions, all it takes is one emergency for them to be pushed into debt.
The Money Advise Service found that even for those who do have cash to spare, “attitude can be a big barrier”. Just under half the country (49%) said they “live for today rather than plan for tomorrow”, with the majority of those saying they do not have any financial goals for the next five years. This puts forward the idea that people are living beyond their means, whether they are earning $30,000 a year or $130,000 a year, something best-selling Rich Dad Poor Dad by depicts in a captivating book.
“Most people fail to realise that in life, it’s not how much money you make, it’s how much money you keep”. – Robert T. Kiyosaki
Every Monday morning, while jumping on the Tube to work in London, you see thousands of commuters, many of whom are absolutely dreading the idea of going to work and already looking forward to Friday. While we certainly can’t expect everyone to be bouncing off the walls in excitement heading to work, having some financial discipline can be extremely liberating as you no longer have to go to work simply as a way to make ends meet. In addition, having an emergency fund that can keep you afloat for a few months gives you the freedom to take a career break to seek a job that is far more stimulating and rewarding (something I personally did at the start of 2016).
The solution is shockingly simple but, as with most things in life, discipline makes it extremely difficult to follow: pay yourself first. Put together a budget that allows you to save anywhere from 5-10% of your after-tax income a month. Once your salary comes in, immediately move 5-10% (or whatever your calculated target is) to a savings account or somewhere where you will not be able to spend it without considerable effort.
“Try and set aside a certain portion of your income the day you get paid before you spend any discretionary money. Most people wait and only save what’s left over—that’s paying yourself last”. – David Blaylock
Saving money and managing a budget sounds an all-too-familiar exercise for many and ends up with the most common response: “I’ll start next month”. A month, two, three pass by and yet no action is taken to change the status quo. Having a systemised way to save money enables you to do more than just meet near-term financial goals, but to enable you to retire sooner, or at least more comfortably and perhaps to look outwards and help others.
You are probably thinking I am insane for suggesting that in this day an age someone in their twenties or thirties can put away 5-10% a month. If there is interest, I can share a simple Excel spreadsheet that I personally use as a tool to manage my budget. Ask yourself the following basic questions: As a percentage of your income each month, how much do you spend on eating-out? How much do you spend on drinking? Do you know which category of spending absorbs most of your discretionary income after rent? Where is your ‘sink-hole’?
“Apparently humans are wired to take care of their own needs first, then family, tribe, country, and the world, roughly in that order”. – Scott Adams, best-selling author of ‘How to Fail at Almost Everything and Still Win Big‘
In most cases, finding the answers to these questions will enable you to take the first steps to a more sustainable lifestyle, one where you can live happier, healthier and with more financial freedom, enough freedom perhaps that you can start to think about who else you can help going forward.
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