Financial Success can be a scary topic for some people. Picture this, it’s 2 AM, you are tired and you are starving. You are on diet trying to lose weight. You have no food left in your entire house, and the only place open is the dominos on your block. If you get it delivered, it will be at your place and in your mouth in 15 minutes.
Okay now, come back to reality. Be honest with me, what would you have done in that situation? I know I would have most likely bought the pizza and devoured the entire thing. How does this relate to becoming financially successful? Read on to find out.
Saving is Key
What is the first thing that you must do to become financially successful? You probably have heard it plenty of times now, but you must take some portion of what you earn, invest it and have it work for you. That money, if invested wisely, will earn you more money. Then you can take that money made, reinvest it and have it make you exponentially more money.
Seems simple right? Clearly, not too simple. According to CNBC, eight out of ten Americans are in debt. If you are in debt, you have no money to invest, or even have money for savings. The question is then, why are so many people failing to have saved anything even though it is really easy?
The Mind is Weak
Let’s take a second and revisit the pizza example. You can see that your mind might have been weak in that moment and decided to choose pizza over diet goals you had made. Here is a simple truth about the mind: When given the opportunity to bring short term pleasure, plenty of times the brain will chose that option over the option that would have benefited you in the long term.
Now let’s look at this from a financial perspective. Jessica told herself she wanted to save up for a house. She is big fan of Tesla and every car that they come out with. She sees the new Tesla model that was released and she just knows this is her dream car. On top of that, if she preorders the car now she will save a whopping 15% of the total cost of the car!!!! So she takes all the money she has saved for the house and blows it all on the Tesla.
At this point you are probably like, “Well Antonio, if the mind is weak how am I supposed to save money! When I see something I want I just go for it.” Do not worry, there is still hope for you. You can fight against this by setting up your environment for financial success. This comes down to reducing the amount of decisions you have to make in real time by making decisions ahead of time (when you are not being influenced by current circumstances).
Reduce Financial Decisions
So, how do we set up our environment for financial success? You must automate how much money you are going to spend on your cost of living, your savings, your investing, and leisure.
If you have a job where you get paid electronically, you can do this through direct deposit. If not you can split the money up by cashing money from checks. The reason why we split up the money into different accounts is to show how much money we have allocated to both. This makes it hard for us to take money from one account and use it for purposes it was not intended.
Real Life Example
Let’s see an example of how this can be done. Jessica realized her financial mistake of buying the Tesla when she did not really need it. So, she promises to have a better financial future. She makes about 2000 dollars a month after taxes. First, she calculates how much money she needs for rent, food, water, gas to get to work and other miscellaneous living costs. That totals to 1200 a month. Then she wants to set up a savings cushion for 6 months, so 10% of her income is taken straight from her pay check and allocated to a savings account to help her on a rainy financial day.
She also realizes she wants to start investing money in a real estate investment, so she takes another 10% of her income, keeps it in a savings account for investing. After all that, she has 400 dollars a month left over to spend on luxury items and general things she wants to get. She sets up her direct deposit from work to send the exact money she calculated she needed to those accounts. Next time Jessica thinks about buying a car, she checks her luxury account. If the money is not there (and then some) then she cannot afford it. It’s that simple, the decision of what to do was made for her ahead of time, so emotions could not get in the way.
On Your Way to Controlling Your Finances!
It is that simple, you want to remove the amount of financial decisions you have. This makes sure you save and invest your money and get out of debt.
Calculate the costs you have to incur, how much money you want to invest and save, and use that as a guidelines to get where you need to get to. Set up direct deposit or split the money up ahead of time. It prevents your thoughts and emotions from getting in the way of your financial dreams.
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