If the key to financial success was merely physical accumulation of wealth, then MC Hammer would never have gone broke. Becoming a financial success might sound like you need to make a ton of money, but it’s actually more about what you do with the money you have than the size of your annual income. Here are 5 keys to financial success that prove it is more about action than accumulation.
Earn Income Consistently
Yes, you have to have some income. Good, steady, consistent income is preferred. Why? Because if you are earning income consistently and not going through periods of unemployment, it is easier to budget, plan, and save. If you are socking away a little bit into your retirement account every month for a steady 35 years because you had a consistent income, you get to reap the benefits of that stability through compound interest. If, on the other hand, you have a more mercurial income trend with periods of unemployment or wildly fluctuating salary, you may view money as something you cannot count on and you do not plan for the future with, or you have years where you stop contributing to retirement or other savings goals because money is too tight. Fluctuating between different income levels can wreak havoc on your budget and can cause a lot of stress due to having to frequently adjust your lifestyle and costs of living. A good middle ground is to keep your living expenses and lifestyle costs relatively low to begin with so that if your income drops or becomes inconsistent you can still afford your mortgage and other essentials.
Work Hard and Grow Your Value In The Workplace
Work smarter and harder. Both will gain you positive kudos in the workplace and make your company see how integral you are to their success. That way, if the company succeeds you succeed. Having a good work ethic does not mean that you have to work 15 hour days and never see your family. Instead, work smarter to find ways to be more productive both personally and on a company level, add value by becoming a necessary wealth of knowledge and experience which benefits your colleagues and company, and think macro about how your role impacts the company as a whole and how you can improve upon it. You can work harder by having a good attitude, staying focused and professional, and volunteering for the hard assignments that require critical thinking and problem solving (and maybe a few extra hours here and there). Doing your best not only makes you feel proud, but it also grows your value at work and can set you apart from your colleagues, putting you first in line for promotions, raises, bonuses, and other financial incentives.
Live Below Your Means
Living below your means is such a simple and reasonable theory, but can be incredibly hard to put into practice. This is where the rubber meets the road and where your financial success is built based on your mental strength and ability to delay gratification. It also means that you need humility, acceptance, and gratitude– three concepts which can be hard to consistently practice. Knowing what you can and cannot afford, accepting those limitations, and being happy with what you have are the keys to living below your means. Buying a home which you cannot comfortably afford even if your spouse loses their job, not over extending yourself by paying for expensive vacations which are not planned and saved for, committing to non-essential monthly and annual expenses which eat up most of your disposable income, and failing to budget in savings and just spending right up to the limit of your monthly income are all ways many of us over-reach and live beyond our means. That’s not to say that you should not enjoy a nice vacation or pay for flute lessons for your kid, but you should be aware of where your money is going and how much of it is committed to non-essential lifestyle expenses. Learning to really identify wants vs. needs will blow your mind and completely change the way you spend your money when you stop spending for emotional gratification. Living below your means also means thinking long term about your financial needs and not just living in the moment where you spend all of every paycheck right away. Be sure to be socking away savings each month for retirement but also for emergencies and long term plans like vacations and home improvement projects.
Set Your Savings On Autopilot
An easy way to overcome the desire to spend all that you earn is to automate your savings, then you can spend what is remaining. Out of sight, out of mind is the key phrase here. If you have to remember to transfer money every month to your savings account, you are more likely to find an excuse for spending the money on something else you need this month (see above on wants vs. needs) or just plumb forget. A better alternative is to create monthly distributions out of your paycheck before the money even hits your bank account. Your HR department can easily set you up to divert a set amount of every paycheck into your savings account. While you are at it, work with your HR department to set up pre-tax deposits into your retirement account. If you are self-employed or work for a company which does not offer these distributions, you can still set up automated transfers to savings and investment accounts through your bank. Once the money is out of sight and safely tucked into your growing nest egg you can freely spend your remaining money without selling yourself short by failing to save.
Find Peace With The Joneses
Now for the hardest part. If you have followed suit with the above four points, you have set yourself up for success. But even if you have done well by consistently and automatically saving, buying a home you can comfortably afford, and are living within your means, it is still hard to not want to keep up with your friends and neighbors. Again, humility, acceptance, and gratitude are key here. Knowing day to day when you are out in the world where you stand financially and making smart decisions that are right for you, even if they are not the decisions you see others making. Perhaps your neighbors and your kid’s friends all send their kids to an expensive private school which you would love your kid to attend as well, but if you spend the tuition money on it you cannot also afford to save for your retirement. Perhaps your colleagues go to a restaurant every day for lunch but joining them daily will bust your budget. Remember, your self worth is not tied to your ability to spend money. If you have to politely decline a daily lunch invitation, join a few times a month instead to keep within your budget.
Prioritizing
Prioritize your spending and financial goals. If payments for a private school are not on the top of your list, then don’t make them even if others around you are. Remember, personal finance is just that– personal. You get to make the choice to spend your money according to your preferences and means. Spend on what is important to you and if you cannot afford to do something you see a friend or neighbor doing that is okay. Being grateful for what you have and accepting your financial station and goals can help you find humility and understanding that your financial choices are your own to make. Besides, you likely don’t know the true financial picture of your friends and neighbors and perhaps they cannot truly afford their lifestyle expenses anyway, so you don’t want to be jealous of someone’s expenditures when it may put them in the poorhouse eventually. Just be sure to pay attention to tending to your own garden and don’t worry about someone else’s.
The keys to financial success are far more about mental toughness, consistency, and the ability to be responsible and humble far more than they are about out-earning your spending or lifestyle. It is all too easy to get carried away with thinking that a large income is the key to financial success, but what you do with your income, big or small, is far more important. Learning to live on less than you make, spend smartly and not try to keep up with other’s spending patterns, regularly saving, and regularly earning are your keys to financial success.
