I live in one of the richest countries in the world. The United States economy has made it possible for almost anyone to earn millions of dollars over their lifetime. Although difficult, it’s possible to save a million dollars even while living on minimum wage. Despite this fact, 78% of Americans are living paycheck-to-paycheck. This means if they didn’t receive their next paycheck, they’d have to leverage debt to fund their lifestyle. Let me say this again. Nearly everyone in the United States earns millions of dollars over their lifetime but about 78% of those same people can barely afford to live for a week. How is this possible and why does money even matter? I’ll get to these questions in a bit.
Begin With The End in Mind
Stephen Covey of “The 7 Habits of Highly Effective People” outlines habit 2 as, Begin With the End in Mind. What this means is that before you start, define your end goal. Stephen supports this statement by saying that, “If you don’t make a conscious effort to visualize who you are and what you want in life, then you empower other people and circumstances to shape you and your life by default.” This principle directly relates to your financial life as well.
Most people don’t know exactly what their savings will accomplish other than “retirement”. If you can’t explain why you’re saving or what you intend to accomplish financially, then it’s extremely likely that you won’t have the motivation to save or learn about personal finance. Without motivation or knowledge, you’re just as likely to empower other people/companies and circumstances to shape you and your financial life by default too.
What does this mean? This means you’re more likely to cave for the convenient Starbucks latte, not worry about the costs of eating out or getting drinks, and succumb to impressing others with a nice car and house. When you don’t know your end goals, you’re much more likely to live off of impulse and feelings rather than a purpose-driven cognitive approach.
Dream Up Your Future Lifestyle
Therefore, what I recommend is sitting down and starting to determine what you want your life to look like in 5, 15, and 30 years. Start to identify the lifestyle you want to live and what you want to provide for others. Do you want to live in a nice neighborhood? Do you want to have a membership to a luxury gym? Do you want to be able to vacation or travel? Start dreaming of what you want your future to look like. Below, are a few examples of different dreams I have for my future:
- 5 Years
- Happily living in a comfortable house that’s near water and a city.
- Always choosing high quality organic foods without worrying about cost.
- 15 Years
- Parenting kids that partake in extracurricular activities (travel sports, private music lessons, etc.).
- Traveling at least four times a year to visit new places throughout the United States.
- 30 Years
- Have the ability to travel and take my entire family on vacation at least once a year.
- Never comprise on my health due to financial costs.
I think it’s hard to start setting financial goals and getting excited about saving/investing without knowing what you’re working towards. If you have a partner, be sure to discuss these dreams with them too. It’s extremely important that the people around you are aware of your dreams and know what you’re working towards.
Set Financial Goals
Now that the end result has been visualized, you’re able to develop financial goals that will allow you to live that future lifestyle. Create a list of about 5 goals that you can begin working on. For example, some of the goals I’ve set to help me achieve my future lifestyle dream include:
- Payoff all debt by October 1st, 2020 which will allow me to start saving and investing for my next goals.
- Have $25,000 in my savings account by January 1st, 2022 to afford a down payment on a house.
- Allocate $10,000 in my yearly budget by January 1st, 2030 to fund extracurriculars for future kids.
- Have a $1,500,000 retirement portfolio by January 1st, 2050 to fund retirement and family vacations.
When setting your goals, make sure to adhere to the SMART guidelines. These guidelines state that your goals should be Specific, Measurable, Attainable, Realistic and Timely. By following these guidelines, you’re able to track your progress and know you’ve accomplished your goal.
How Is This Possible? Why Does It Matter?
Let’s get back to the original questions I posed earlier. How is it possible that nearly all Americans make millions of dollars over their lifetime but are still living paycheck-to-paycheck? One of the main reasons is spending. The average american spends more than they can afford and doesn’t live below their means. Here are a few examples of excessive spending:
- Buying Drinks: The average American spends ~$4,000/year on alcohol, coffee and soft drinks. Not only excessive, but unhealthy. (For more info, please read I Only Drink 3 Things)
- Frequently Dining Out: The average American spends ~$4,150/year dining out. 70% of these meals are of poor nutritional quality and they cost about five times more than cooking at home.
- Impulse Buying: The average American spends ~$2,400/year impulse buying. When polled, most people regret these purchases and find that they end up unused and collecting dust. (For more info, please read I Moved And It Made Me Feel Like a Monster)
Excessive spending is very common if you don’t implement Stephen Covey’s step 2, Begin With The End in Mind. Once you’ve visualized your future lifestyle and set financial goals to make it happen, then you can start asking yourself if the purchases you’re making today help or hurt your progress. In your future lifestyle, were you dreaming of Starbucks coffee every morning? Were you dreaming of picking up take home food after work everyday? Were you dreaming of impulse buys on Amazon? Probably not. And if you’re spending excessive money on these items, you’re undermining your dream lifestyle and financial goals.
Why does money matter? It matters because most future goals require money in some way, shape or form. If I want to live in a nice neighborhood that’s close to a city and water, it’s probably going to cost money. If I want to travel four weeks every year, it’s probably going to cost money. If I want to live as healthy as possible, buying organic and having a nice gym membership, it’s probably going to cost money. Life costs money. Our dreams and goals cost money. So, it’s time we all start caring about money and utilize it as a tool to reach our dreams.
What does your dream life entail? Spend some time laying it out. What financial steps will help you live that life? Spend some more time and write out at least 5 goals that will help get you there. Once you know what you want and what it takes to get there, you’ll be much more cognizant of your spending habits. You’ll be much more deliberate in your savings habits. And you’ll be more likely to budget regularly and start seeing money as a tool to reach your dreams. Because, as Stephen Covey said:
If you don’t make a conscious effort to visualize who you are and what you want in life, then you empower other people and circumstances to shape you and your life by default.Stephen Covey – The 7 Habits of Highly Effective People
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Hey, I am Brandon Zerbe
Welcome to myHealthSciences! My goal has always been to increase quality-of-life with healthy habits that are sustainable, efficient and effective. I do this by covering topics like Fitness, Nutrition, Sleep, Cognitive Health, Financial Independence and Minimalism. You can read more about me here.
- 78% of US Workers Live Paycheck to Paycheck
- How to Become a Millionaire on Minimum Wage
- Habit 2: Begin With the End in Mind
- Average Spend on Coffee Per Year
- Average Spend on Alcohol Per Year
- Average Spend on Soft Drinks Per Year
- Average Spending Of Consumers In The United States On Eating Out In 2017, By Age
- Eating Out: Recipe for Poor Nutrition, Study Finds
- We Spend $2,429 on Impulse Purchases Each Year and Regret a Lot of Them
- Study: The Most Wasteful Spending Habits Among Americans
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