I have been reading Chris Hogan's Retire Inspired lately and have been really enjoying the way he explains the principles he believes in for building wealth and retiring well. While reading it I got a little more inspired to continue following the plan I learned in Dave Ramsey's Financial Peace University class. I've learned the budgeting portion of both Chris's book and Dave's class is really the "rubber meets the road" moment when it comes to financial success.
Don't judge a budget by its cover...
What do you imagine when you think of the word "budget"? Do images of coupons, an empty wallet, and somewhat worn down clothes come to mind? To me, this is undoubtedly the result of the current culture's view on money as it relates to how we pay for things. The idea of being disciplined with money gives us a bad taste in our mouths. We feel as though we should be able to spend whatever we want whenever we want and that that is what financial success looks like. To a certain degree, I agree with that view, but not without making a plan first.
What do you do with your money and do you have a plan for it?
That is the question you should be asking yourself. If I asked you what your next paycheck will be spent on, could you answer that question in complete confidence that your answer will not change between now and when the money enters your hands? That confidence in having a plan for our money appears to be dwindling in our culture. Why is that?
I believe lots of that has to do with debt, but also the immaturity that grows with debt. Not only do you spend more when the money is not yours, but you also do not feel the weight of that money being spent. The "monthly payment" method creates the illusion that something is affordable, when it is slowly stealing a better, more peaceful financial future from you. When you learn about compound interest, your entire view on money changes. It is hard to understand the math behind it and not realize just how much you can't afford that new car, computer, or phone.
Are you telling me I can't have nice things?
No! Absolutely not. Do successful, hard-working people have nice things? You bet they do! You may also be someone that fits that description. Congratulations, if you are! I'm proud of you! Your hard work and success is rewarded with a paycheck as it was promised to be. You can, and should, enjoy your money. It is a blessing to be able to enjoy life on this earth.
There is something I want you to think about, though. Would you trade retiring with more than a million in your net worth for that new car you just drove off the lot that you will be paying off for the next 4-5 years, because that is what happens to people who do not have a plan and stick to it. How does that add up? Well, those car payments, when invested in a good growth stock mutual fund with a good track record of around 10-12% returns on it will be worth about 10 times as much as you bought that car for in less than 20 years! If you started investing like that at my age, 20 years old, that means you'd probably have more than $250,000 in investments by the time you were 40, and that isn't even when you'll probably be retiring. If you plan on retiring at 60, which most people do to avoid the penalties of withdrawing from retirement accounts early, and you continued to contribute that same amount every month, you'd have over $3.4 million in investments by the time you retired! Here's how I got that number if you are curious:
So, getting back to the original topic of this piece; the budget. We all know what a budget is. It is comparable to a having a map. You know where you want to go, but you need a map to get there. Similarly, you know how much money you would like to have some day and you need a budget and a plan to get there. Very few, and I'd argue no one, will dilly-dally into a comfortable retirement or wealth of any kind. People will always continue to dilly-dally their way out of wealth.
A budget is merely a plan for your money. Out of that plan, you have more confidence in your purchases, and out of that confidence you feel more free. When you know where your money will be going, you can freely pay for things because it is in the budget. It is liberating to be in control of your finances. The reason people feel a budget restricts them is because of when something is not in the budget. Although, your confidence in your plan with money should give you confidence in a better future, which gives you more confidence in your day-to-day purchases. Giving up the pleasures of now for the peace of mind later is easy when you have a goal.
Don't be like most Americans and go into your retirement with no plan. Go into your retirement with confidence and peace of mind that you'll be okay and maybe even better than okay, leaving a wonderful legacy to those who will follow in your footsteps some day.
Proverbs 13:22: “A good man leaves an inheritance to his children’s children.”
Proverbs 22:7: “The rich rule over the poor, and the borrower is slave to the lender.”