Getting to middle adulthood, there are really some major shift in priorities that happens right there. Once you stop needing to count the days to your next paycheque you’re starting to make a little more money, it’s time to start planning out your financial future.
It’s really easy to avoid doing this because you’ve never had to do it before. All your life, you’ve never see a point to it right — you’ve been eating hand-to-mouth. However, now it’s no longer just for hand-to mouth — there are so many things that get in the way of doing that and you may not even realize it, so let’s talk about some of these things.
Now that you have a better income, don’t let social obligations strip it away. There are six money traps that you should avoid at all costs and I know all of them firsthand.
Buying a car that’s out of your price range.
The first time I made money, which was when I started investing and I had a good year I made a bunch of money I think I made $83,000. I went straight out and bought a Jag.
I mean, come on I’ve been in Volkswagens, Harleys. I bought a Jag. I sat in that car and it felt so good and cool. I drove it around town. Everybody obviously admired me for my fancy car. And that lasted about two weeks and then I figured out, “Huh, nobody really cares at all.”
So, don’t buy a fancy car to impress people you don’t like or don’t know just because you can- people don’t care. You know, you need transportation, but there’s so much variability in price that you have to spend wisely.
New cars can be one of the biggest money pits a person can get stuck in.
Look, I like to buy new cars, I lease nice cars fair enough, but I’m also wealthy. So, don’t do that when you’re back in your 30s and you want to build up financial freedom- it’s just going to be something that gets in the way.
A car fresh from the manufacturer, loses about the first year and half of it by the end of three years- and it’s still a good car right. Now by comparison if you buy a really solid vehicle that’s a few years old at about half price and you keep it in good condition- you’re going to have one on a much lower payment right? And by the way again no one cares what car you’re driving.
You want a fancy car go buy a three-year-old GL 450, it is going to be about half of what the car was when it was new, which was about eighty one thousand bucks, you can buy them for forty and they are still as good as the day they got it. Usually, those people take great care of them and now you’re riding around at a GL 450. You want to know what else? It looks exactly like a 2018 GL 450.
Tip: learning to protect and enjoy what we already have will make it a lot easier to set aside more income for investing.
Buying a home that’s too expensive for you.
Been there- done that. Owning a home that increases in value is a really good practical expense but there’s a point of diminishing returns. When you are funnelling every dime you have into a mortgage on a home that you can’t really afford, then you have no money left for emergencies.
You have no money left for investing, you have no money left period. The strain it puts on you, your marriage everything can be brutal. A monthly payment that you can barely manage, can place an enormous weight on your budget for 30 years on average.
Instead, it might be a better idea to keep an eye on a local market and buy when you can get a home in a good neighbourhood for a moderate price that you can handle.. In other words, put some time into really looking for a rule 1 bargain on a house.
People get into trouble financially right. The people who just can’t afford that really nice house they might get it into foreclosure- you might be able to buy that house really cheaply.
Look for houses on the edge of a really improving neighbourhoods, those houses in a few years are going to be in the middle of a great neighbourhood. Look for homes that are on the edge of something that’s getting better.
Tip: Go find yourself something on sale.
Now third, spending too much going out. Oh, we all do this- although paying for a house and a car, those are the biggest hits to monthly income- you would be shocked by the effect the littler expenses can have.
Dining out right in restaurants, used to be; go down to the cheap pizza joint on the corner when you’re a student right or run over to Chipotle. So, now that you have more discretionary income, you’re thinking about stepping it up a little.
However, it doesn’t mean you have to or you should. Okay right, everybody wants a little entertainment now and then, but you should still budget for it. Giving yourself a little room to spend on the things you really want to do is great, but keep it under control and you’ll enjoy going out and doing that thing you really want to do more often on your budget.
Some people I know just put the money for the restaurants into an envelope at the beginning of the month take it right out of the bank and when that envelope gets empty, they’re done going out.
Having an expensive significant other.
Believe me, I’ve had it both ways. So, even if you are and right now. I’m married to the most magnificent person on the planet. But, I have been in the other place. I know it’s not fun. Even if you’re the master of your own money, other people may have a habit of getting in the way of your financial plans in a big-powerful way.
Failing to communicate about how you’re working, your spending habits, etc. with your significant other, is a major cause of relationship trouble for married couples and committed couples. So, if you’re dating or you’re just getting into a long-term relationship, take the advice here.
It is very tempting to blow up your budget with gifts and entertainment and travel, and what happens is, you start to convince this significant person in your life that that’s your lifestyle. You end up being surprised when you get married to them, and find out that it aint your lifestyle — you’re back to the pizza parlor, that can create problems.
So, don’t let too many weekend getaways take away your ability to demonstrate who you really are, or going to bbe in future. So, make your expectations really clear from the start, live your lifestyle with the person you expect to live your lifestyle with, and don’t fake it. This way, you get to avoid a lot of fights over money in the years to come.
Paying a fortune on credit card bills.
There’s no reason to do that — this is the reason so many people think credit card debt is the worst debt ever- that’s because it is and so many people are stuck in it. Credit cards are definitely easy to access these days- even if you don’t have a solid income or good credit, they love to have you jump in there; you subprime borrowers.
This means that; you might have a few monsters lurking in your wallet from your college days, with interest rates higher than you can get with really good investing- don’t do that. Every time you spend money on a credit card and you don’t pay it back at the end of the grace period, you are paying with your investment capital for the convenience of spending money.
It can be very tempting to open a new credit card once you max the other ones out. I have done this and all the while more of your budget gets eaten up with interest payments. It’s a dangerous game- you better not play it. There’s an easy way to stop the cycle- just keep your budget less than your income- stick to it and don’t open new credit cards.
Not investing — biggest mistake.
Although some people are putting a lot of emphasis on short term investment gains, getting to your goal of financial freedom, is not a sprint rather it’s a marathon. The earlier you start, the more you can accumulate.
Starting an investment with a plan for financial freedom, is all about the balance between paying your expenses, eliminating current debts and always setting aside money that can help you get to your goal of having the life you want.
Life moves really fast, and you don’t want to lose track of your opportunities. You’re going to have many of them, and investing now gives you decades to pick up skills and confidence, and watch your money grow. You’ve got to get to it as early as you can — in your 30s.
Man, I’ll tell you what; I did it the first time, and did it over again — actually I did pretty well the first time around. Keep the belt really tight. Always pay yourself 10% of your income first and live on the rest of it including taxes. 10% every single paycheck goes into your investing portfolio.