To Be Financially Fit – Live Well Below Your Means

One of the keys to being financially fit is to “live well below your means.”

So, what does that mean?

  • You have fewer expenses than income.
  • You have less stress (financial and emotional).
  • You have excess money to apply to your priorities.

And, what does that look like?

The expenses of someone who’s on track to be financially fit should be broken-down as follows:

10% – Pay your future. Immediately (automatically) put ten percent of your income into retirement. And not only move this money to your retirement account, but invest the money! (More to come on the retirement and investing topics.) [One note – If you have high interest credit card debt or no emergency fund, use this ten percent for those priorities first.]

20% – Fund your priorities. Have the financial means to reach your dreams. Allocate twenty percent of your income for your priorities. This may include paying off your debt, building a down-payment for a home, donations and charities, traveling the world, or reaching early financial independence!

70% – Live your life. Use the final seventy percent of your income to fund your immediate expenses and daily life. This includes any expenses that do not fall into the retirement or priority categories above.

You may not be at this breakdown yet, and that’s okay! It will take time, work, and commitment. (Use the Exploit Your Finances, Exploit Your Life process to get started.)

Impossible! I can’t live on only 70% of my income!

I hear you yelling at me. I’m ridiculous and I’m sure your commenting now…but listen, IT’S POSSIBLE.

Yes, this may not be your current reality, but you can make this a goal. Just start the process and see where you end up – even some forward progress is positive, and momentum will build.

Many people live on much less than 70% of their income – while still enjoying their daily life. Both FrugalPortland and Mr. Money Mustache share their savings rates – 50% or more!

My wife and I also strive to only live on only 50% of our income, while funding our priorities of travel and financial freedom. (Most months we allocate more than 50% for our goals!)

So it can be done – it’s just a matter of the effort you’re willing to contribute.

Less Stress

Besides the obvious – more money for priorities – living below your means has other benefits, including lowering your stress level.

If you’re spending less money than you make, then you don’t need to stress out about a little financial bump in the road. For example, did you remember to budget for the twice-a-year car insurance bill (surprise!)? You can sail right over this immediate-cash-need and make up for it next month – because you have extra money!

You have a 20% cushion for those emergencies. No stress here! (Remember, forget about the 10% toward retirement, this is a must!)

You can lower other stress too – work, relationships, time.  With financial control, you can sleep better at night and focus more energy on the other stress triggers.

You’ll Be…

Following the sage advice of “living well below your means” will bring you financial success that some dream impossible.

You’ll be different from those people…

You’ll be setting a foundation for retirement (with your 10%), you’ll be enjoying life and reaching your priorities (with your 20%), and you won’t stress about your daily expenses (with your 70%).

You’ll be comfortable, financially and emotionally.

You’ll ignore the small financial hurdles and setbacks.

You’ll feel positive about your financial future.

And, you’ll have started on your path to being financially fit!

Do you currently live below your means? By how much?

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Ramen Noodle Days

Do you ever look back at your “ramen noodles days” and say “I’m glad I don’t have to eat that way anymore. I finally have some money!”

You’ve come a long way from that dorm room and you should enjoy your successes and gains. But unless want “ramen noodles retirement days”, don’t go overboard.

Success brings money, money brings…things!

You can afford the nice dinners, the nice vehicles, the nice clothes, and the convenient dry cleaning.  You love being able to go wine tasting every weekend in the summer and skiing every weekend in the winter.  You should celebrate!

But as with anything, including food and beer, it’s all about moderation.

Breaking the habit of spending all of you money is hard – so try not to start in the first place!

For those of us who already have a bad spending habit, here are steps to get back on track.

1) Determine your priorities.

2) Review your cash flow.

3) Make a budget.

4) Follow your plan.

Easy! Plus, none of the steps require you to make a drastic change to your lifestyle.

Though I’m guessing you’ll be sick for days when you see how much money you’re throwing out the door. You’ll think back to the ramen days and wonder how the heck you lived on $25K a year! Now you couldn’t make it three months with that.

Or could you?

There are numerous stories of individuals saving 25%, 50%, and even 75% of their earnings, and still enjoying life. You could probably do this too…if you wanted to.

But you don’t have to start this big, this can be a goal. Just like being debt free could be a goal.

You don’t have to starve to make this happen. Little wins – $25 here, $50 there, bringing lunch to work twice a week – all add up. Just get started.

Soon you’ll see results and have the itch for more.

You’ll start dreaming even bigger.

Debt free, financially free, financial independence, world traveler, more time with your children, location independent job, and early retirement. All possible!

So enjoy your success, but be realistic. Build a healthy relationship with your money which will last a lifetime.

Do you ever look back at how far you’ve come? Do you ever pine for the good old days?

Overcoming Our Fears

Iceland Searching

The negative thoughts crept into my head.

Could I really start my own business while still working full-time? Could I make enough money? Was I comfortable charging people for a service?

I started to get anxious and couldn’t sleep.

What was I doing? I want to travel. I want independence. If I have on-going clients, can I still do everything I want?

“Yes you can,” said my astute wife. “You’re just making excuses. Look what you’ve already done. It’s time to step-up or move on. We’re always going to need income, even when traveling, just decide where you want it to come from.”

She was right…again! (Seems like she’s right a lot all of the time.)

I was letting my negative thoughts get the best of me.

Negative Thoughts

I was letting my internal fears dictate how my life would be – and let me tell you, if my fear had its way, then I wouldn’t do anything.

I’d never leave my job for another (or self-employment), never try new food, never swim in that river pool, and never travel.

I’d try to blend in, rather than take a stand. I’d be afraid to do things differently, to be unique, or to seek adventure.

Reflecting, I realized I was in a funk – cause life ain’t so bad!

My wife and I have made a commitment to exploit life.

We’ve found a way to take advantage of our (corporate) jobs to travel the world.

We’ve taken control of our finances and worked our way to being debt free.

We have a plan for the near future and we are taking huge strides on reaching the goal.

I’ve started a business to help others financially.

Internal Fears – Ignore Them

We all face our internal fears daily. They never go away.

Sometimes our voices are good and are protecting us from danger – wanting to pet a baby Grizzly in the forest…probably not a good idea. But other times they’re detrimental to our potential, they hold us back – not making financial priorities because we don’t know anyone else who’s done it.

And by default most of us listen to them.

Stop!

Learn to ignore them, or listen to them less often in certain situations.

Doing something unique, going against the grain, trying to exploit our finances and exploit our life, is not dangerous (most of the time). Rather it’s exhilarating! It’s fun and makes us individuals.

Ignore the voices when…

  • You want to start a new project, but have never done it before. Instead go learn and start.
  • You want to be financially independent when you’re 45, but you’ve never seen it happen. Instead make a plan and start.
  • You want to travel the world, but your Aunt Betty tells you about all of the dangers. Instead travel the world, because it’s probably just as dangerous in Aunt Betty’s hometown.

Easy to Talk

It’s easy to tell someone to ignore the voices, but hard to actually do so.

I’ll continue to struggle with my own fears, I know that. But I do have my realist wife by my side, who can slap me across the face (metaphorically speaking, most of the time) and tell me to get my shit together. I’m supported.

Having the right support structure can help you on your journey. If you don’t already have it, seek it out. Surround yourself with others who support your crazy (or not so crazy) endeavors and who are looking for their own quests.

Don’t let your fears hold you back from life.

Be motivated. Take action. Ignore the negative voices.

Are you held back by fear? What would you be doing if you could ignore your negative thoughts?

Review Your Pay Statement, Regularly

*This is an item to mark on your calendar.

Review your pay statement regularly – two or three times a year – and especially after any major changes (moved to another city or state, new position, raise, started contributing to retirement, new benefits).

Most of us glance at our bank account each pay period and say “well, looks accurate.” But it might not be! And you may be negatively impacted.

We’re all human, including the individuals in your Human Resources and Payroll Departments, and mistakes happen. Fat fingers happen. Employee Self Service has bugs. Errors, updates, missing data, and typos.

Regardless of the reason, you may not have the correct taxes withheld, the correct benefits being applied, or correct pay being received.

Taxes

If your taxes aren’t set up correctly, then you may be under or over-withheld. Or, you may be having the wrong state taxes being taken out!

This can cause severe headaches if not caught during the year. If you don’t notice it until you receive your Form W-2, then you may have to wait to file your tax return until the system is corrected and a corrected Form W-2 is processed. Delaying your tax filings (obviously) causes unnecessary stress.

Make sure to check your tax withholding elections as well (Update Your Form W-4).

Benefits

Some benefits are taxable, some are not. Some benefit plans have pre-tax deductions, some have post-tax deductions.

Make sure you review your pay statement and confirm you’re enrolled in the plans you selected. Are the deductions correct? Does anything seem to be missing?

Is your 401(k) balance what you expected? Did you recently get married but your employer still shows your spouse as a domestic partner?

Employer benefits impact both your taxes and your take-home pay.

Pay

If you are an exempt employee (not hourly), then this is pretty straight-forward. Depending on the number of pay checks you receive a year, divide your salary. (Example – $52,000 salary divided by 26 pay periods is $2,000 a pay period.) Is this what’s on your pay statement (less taxes and deductions, plus any taxable benefits)?

If you are non-exempt (hourly), then make sure you’re being paid for the correct number of hours in the pay period. Did you have any overtime? Were the hours recorded properly? Was your pay rate adjusted correctly?

You may be missing money that is technically owed to you. (Hey, mistakes happen…)

Review and Reach Out

If you see any errors, or you have any questions, reach out to your Human Resources or Payroll Department – today.

Some errors may have been occurring for years – to your detriment – so don’t assume that because you don’t see a change in your take-home pay that everything is okay.

A quick confirmation can help a lot when it comes to taxes, benefits, and pay.

Have you ever found errors when reviewing your pay statements? Were they easy to fix?

How to Refocus After Ignoring Your Budget

Life can easily get in the way of our financial priorities.

A busy month can turn into two busy months. Soon we’ve ignored our budget for too long to continue to keep track of all of our purchases in our head. We stress about it. We talk about getting back on track. We have only good intentions, but it’s not enough.

Don’t worry! We all mess up. We all have times (days and months) where we stray from our financial path. But this doesn’t have to stop us from achieving our goals.

When you find yourself in a similar situation, one where you’ve reverted to (or created) a bad money habit, don’t beat yourself up or freak out and ignore the problem. Instead, take a deep breath, revisit priorities, revise your cash flow, and start again.

Deep Breath

Relax! You’re not alone. You’re not an anomaly because you can’t follow a budget or can’t find time for your money – everybody does this!

The worst thing you can do is start to shut down. Begin to not care about your finances or your goals. Start to ignore, instead of fix, your habits.

Take a deep breath. Realize that you have control of your finances, they don’t control you. Now start taking the steps necessary to show your dominance over your money.

Revisit Priorities

You wouldn’t be working toward your goals, if you hadn’t prioritized what was important in your life and in your finances. (If you really don’t have financial priorities, visit the first step of Exploit Your Finances.)

Revisit these priorities.

Do you still feel passionately about your original goals? Make sure you care enough about them that you can blame them, get back on track, and change your behavior. Remind yourself why you’re working so hard.

Maybe your priorities look different. Well, change them. Find ones that are more important. You may have slacked on your budget, because you weren’t craving the end result.

Revise Cash Flow

Depending on the outcome from revisiting your priorities, you may need to make some changes.

If your goals are the same, but your budget just doesn’t allow for flexibility in your daily life, make sure to consider this. A healthy financial life is about balancing fun now and balancing fun later. Without current happiness and enjoyment, you will not be able to achieve results in the long-run.

If your goals have changed, redo your cash flow to account for your new desires.

You may not need to make any changes to your monthly finances. You may have just needed the reminder of why you review your finances monthly. The “oh yeah” will be enough to jump-start your motivation.

Start Again

Look at this as a fresh start.

Don’t look back and have regrets. There’s nothing you can do about your prior mistakes. Rather, take accountability of your next decisions.

You can do this! You can exploit your finances and exploit your life.

And, whenever you have a future indiscretion…deep breath, revisit priorities, revise cash flow, and start again.

How do you refocus and continue down your path toward exploiting life?