Growing up, I got most of my financial advice from the likes of my parents and friends and while they did their best to set me in the right direction, there were definitely some knowledge gaps I would have to fill in down the line. From learning about different investing strategies to cultivating a proper financial mindset, your overall monetary success comes down to how much effort you put in and in my later 20s I can be confident making that statement. As such, it would be selfish to hold in the actions that helped me get ahead financially so if I were to pick 5 that moved the money needle, they would definitely be the following:
Money Move #1: Determining your definition of “wealth.”
What does wealth mean to you? This is the first question you should confront before setting out on a wealth-building journey. Deciphering your own meaning of wealth will help give your life a sense of purpose and stop you from chasing the wind. The thing is, while the majority assume that wealth is the equivalent of having a million dollars in the bank, this blanket definition isn’t necessarily true. Just like happiness, wealth triggers different meanings to different individuals. To some, being wealthy means affording material luxuries that are off-limits for the average person. These luxuries might include things like fancy cars, exotic vacations, million-dollar homes and designer fashion brands. To others, however, wealth implies financial security. That is, having enough money or assets that can sustain their lives for a long time. Both of these definitions are valid, but there’s also another group that completely isolates wealth from monetary value. To this caliber of people, wealth corresponds to non-material things that money cannot buy. Think happiness, joy, good health, freedom, and inner peace.
So who’s right and who’s wrong? The answer is no one and everyone. Listen here: The idea that there’s a conventional definition of wealth is a big, fat lie. All these definitions are valid as long as they derive long-term life satisfaction. However, I have to admit that many people grow up with the first definition drilled into them. Yet, this money-focused mentality is misleading. It creates the impression that building a fortune is the only gate-away to happiness, which isn’t true. The truth is, we have happy millionaires and those who are depressed. Similarly, we have people who earn just enough to have a roof over their heads and afford good meals-yet; they are incredibly happy.
Hear me out; I’m not implying that dreaming of a Forbes’s feature is utterly unacceptable. Instead, I’m reinforcing the idea that this isn’t the only hallmark of wealth and overall success. If having tons of money doesn’t make you happy, you don’t have to chase it wildly as most people do. Neither do you have to ditch your dream of making it to Forbes if that’s what drives your purpose. What you need to do is unravel a definition of wealth that resonates with your inner identity. Whether it’s being debt-free, owning multiple homes, or finding genuine love and happiness, chase that. At the end of the day, not all of us can claw our way to becoming billionaires, right?
Money Move #2: Acknowledging and managing lifestyle inflation
Are you wondering why your monthly take-home pay is depressing despite getting a raise last year? Perhaps, you’re confused as to why you’re still trapped in debt, yet your business generates wholesome profits. It turns out; your financial trouble could be another case of lifestyle inflation.
Also known as lifestyle creep, this is the tendency to increase one’s expenditure when their earnings shoot upwards drastically. Some common occurrences that stir up lifestyle inflation include job promotions, financial windfalls, salary raises, or radical business growth.
In the context of practical examples, lifestyle inflation manifests when you move into a lush neighborhood whose rent is twice what you used to pay or when you buy a new car and move your kids to a top-class private school when you get a better-paying job. If left unchecked, this little monster can squirrel away at your savings, destabilize your budget, and land you into massive debt. The only way to combat such dreadful consequences is to acknowledge that lifestyle inflation is a problem you’re facing, then map out a plan to help you manage it.
But before you emerge with the best strategy to mitigate lifestyle inflation, it’s essential to know the causes. Why do most people inflate their lifestyles when they get more money? Out rightly, having a skewed money mindset is the main starting point for lifestyle creep. Most people think that the journey to financial freedom is a competition, so they want to create the impression that they’re winning. Most lifestyle upgrades, therefore, are fueled by the desire to keep up with social pressures. Either you feel like buying the same car as your wealthy colleague will improve your status, or purchasing a fancy home will make you more likeable to your peers. In as much as you’ll enjoy the thrills of a new gleaming car for a fleeting moment, the long-term effects will only hurt your chances of becoming rich.
Secondly, lifestyle inflation arises from the absence of delayed gratification. Before upgrading to that new iPhone, ask yourself this question: Can it wait? More often, you’ll find that most purchases are not emergencies and can, therefore, tailgate urgent needs like saving or investing. So if your current home is still in good shape, there’s no need to spend $15,000 on a home renovation.
Now, don’t get me wrong, some of these upgrades are inevitable. No one wants to live like a college kid, yet they have a good-paying job, right? Nevertheless, a spontaneous lifestyle change will be difficult to sustain. Instead of spontaneously moving your lifestyle from point A to point Z, initiate slow changes. For instance, it’s wiser to budget and save for big purchases instead of buying them at one go and if you feel compelled to live a certain lifestyle despite not being able to afford it, sternly say no to yourself — your bank account will thank you!
Money Move #3: Saying “Yes” Only When It Makes Sense
Did you know that learning how to say NO has the potential to make you wealthier? This is one money move I definitely wish I knew sooner. In fact, before you commit to anything, first conduct due diligence on how much value the under-taking will add or subtract from your life. If you do this, you’re putting your well-being in front of everyone else’s, and that’s totally acceptable. In fact, it’s a brilliant way to stop yourself from losing money to ventures you don’t understand. Even if the idea comes from the most educated person you know, make sure it makes sense to you first.
This also applies to how you spend your time. See, some activities seem enjoyable on the surface, yet they add no tangible value to your life. Maybe someone needs you to look after their child or help them out with an unrelated project to your line of work. If you have some extra time on your hands, you can always help. But if not, there’s nothing wrong with turning down their call so you can complete your projects instead.
The thing is, once you condition yourself to agree to anything anyone says, you’re setting up yourself for imminent failure so considered yourself warned.
Money Move #4: Learn to take bigger risks
It’s no secret that risk-taking is the cornerstone of financial success. If you’re too risk-averse, then you’ll take an insanely long period to grow your money and strike off your long-term financial goals. However, taking more significant risks is only easy on paper. In the real world, the idea of standing at the edge of the cliff and making the jump intimidates the masses. So how do you increase your risk appetite? Is it a matter of having blind faith, or is it possible to mitigate the risks involved? It turns out; it’s actually possible to outsmart risky ideas. The first step is to embrace the possibility of failing. Look at failure as a chance to start over or find new approaches for doing things. Once you get rid of your fear of failure, proceed to dig up as much information as you can about the said risk. Read books, follow blogs, listen to podcasts, and watch relevant YouTube videos. I can guarantee you that self-education is the key that will open many financial doors for you, even those that look risky. Additionally, educating yourself will give you confidence and eliminate any doubts instilled by other investors or the media.
The more you read and learn, you’ll eventually discover loopholes that increase the volatility of an investment idea. When you do, start thinking of creating a rich financial reserve. Whether you want to start a new business or invest in the stock market for the first time, make sure you have a solid backup plan if things take a negative turn. This could mean building an emergency fund for your living expenses or diversifying your investment portfolio across multiple sectors and asset classes. This way, you won’t suffer crippling losses in case one of your investments takes a dip. On top of that, having a backup plan will also help you bounce back faster if you make a wrong move.
Lastly, always trust your intuition and focus on the long-term goal. Don’t get discouraged by an investment idea that looks risky in the short term. For instance, the stock market may experience fluctuations in a year, but the long-term returns are definitely rewarding.
Money Move #5: Reviewing your financial progression over time
Of course, everyone has different parameters for measuring financial progress. Whatever financial progression is to you, it’s crucial that you emerge with a consistent system to measure or quantify it. Why is this important? Well, reviewing your financial progress is the only way to evaluate whether the strategies you’ve employed are actually working in your favor. More so, when you’re working with a finance coach, tracking your financial progression is the best way to evaluate their performance.
Secondly, tracking your progress plays a significant role in keeping you motivated. Nothing beats the feeling of looking at your bank statements, and all you see are cash inflows. Definitely, a positive record of accomplishment will boost your will power to achieve your financial dream.
I’ll use an example to illustrate.
Let’s assume you’ve been using a specific debt-repayment method to clear your huge credit-card debt in the next one and a half years. When you started using the strategy, your credit card debt amounted to $15,000, which is very damaging to your credit score. If your credit card debt hasn’t scaled down by at least 70% at the end of twelve months, this could be an indication that you’re doing something wrong. If, on the other hand, you’ve managed to pay off 85% of your debt, this will push you to finish off the whole amount.
With that said, it’s also true that tracking financial progression isn’t very straight forward. If you can’t afford a financial advisor, calculating your net worth is your best shot. Your net worth is a sum of all your assets minus your liabilities. Your assets refer to any valuable holdings that can potentially generate income. The best examples are real estate property and stocks.
Conversely, liabilities are things that cost you money. Think of any form of debt, such as a mortgage. While calculating your net worth, you’ll add the market value of all your assets, then subtract the total amount of your liabilities. The figure you obtain is your net worth, and it’s regarded as the best tool for gauging financial progress. If it’s a positive figure, that’s a good sign because it means your assets are more than your debt.
In summation, making the right financial decisions matters…a lot and these are the money moves that have helped me get ahead!