The two sides of “live within your means”

Often when people hear, “Live within your means,” they think of cutting back, scrimping, and reducing their lifestyle. That can often be the answer in the near term to get you on the right financial path, however it has is own dangers in having this as your dominant financial thought.

I see the phrase as having two parts. The first part is to spend less than you make. If you are spending more than, or even everything, you make you will never get ahead financially and need to make whatever adjustments to live well below what you make. You must have free cash flow that you can invest, first in yourself and then second into a business or the market, and the more free cash flow you have, the faster it can grow.

In the book The Richest Man in Babylon, the author describes this concept as viewing money as a worker who goes out and brings you back more money. As I started working on my financial thinking, I began to see that every dollar I spent was a dollar that would not be working for me to bring back more dollars.

The danger of focusing just on spending less than you make is that you start thinking like a miser. It starts to create thought patterns and habits that limit your potential. That’s why it is so important to know why you are improving your finances. What’s the end goal? Or as Stephen Covey put it in his book 7 Habits of Highly Effective People, “begin with the end in mind.”

So to support this growth mindset, this thinking pattern that sees growth and a bigger future, I would add a second, critical part to the phrase, “live within your means,” and that would be, “make more than you spend.”

You may be saying to yourself that making more than you spend is the same is spending less than you make, and you’d be right. The difference is on the emphasis. When you emphasize spending less than you make, it tends to lead to a limiting life, a dead end of doing no better than you are right now. But when you make more than you spend, it opens up a bright future of possibilities. 

That’s not to say that just making more than you spend of the answer. You need both, making more than you spend and spending less than you make. Yin and Yang. Breathing in and breathing out. One without the other will also leave you unbalanced.

I’ve seen people who live by the mantra "make more than you spend." They say things like, “I’ll just make so much money that I don’t have to even think about what I spend.” There may come a point in your life where that is the case, but along the way you’re going to have developed some frugal habits and thought patterns to even get to that point.

Ignoring spending less than you make and just focusing on making more leads to a never ending pursuit of money. You may make more but you’ll also end up spending more. I remember being just out of college and seeing how big that paycheck looked from my first professional job. I also remember how small it looked just a few short years later, after a few raises, when it felt like I was no better off even though I was making significantly more money. I never seemed to be able to have the free cash flow to turn into little workers that would bring me back more money.

How to check your social security

My son just looked at his first paycheck and lamented everything that was taken out. One of the notable amounts withheld from his paycheck was FICA, or the Federal Insurance Contributions Act.

The Social Security Act was signed into law by President Franklin D. Roosevelt in 1935 as part of the New Deal. Originally it was 2% of your income was sent to the government to make sure you would not be destitute when you reach old age. By 1966 when they added Medicare, it had risen to 7.7%. Today between employer contributions and withholding for both Social Security and Medicare, 15.3% of your income is put into the program.

There have been several discussions about the inability for Social Security to fulfill its promises sometime around the year 2035 (about the time I would qualify to start drawing from Social Security). This does not mean that Social Security goes away, but it will mean they will either raise taxes (again), reduce benefits, or a combination of the two.

You can see what you are currently promised for Social Security by visiting the Social Security website. This will allow you to see how much you can receive per month if you retire at 62, 67, or 70. It also shows you how much you could receive per month if you were disabled as well as how much your survivors could get if you were to pass away.

We don't know how much you will actually get, but this gives you an idea of what they are currently promising.

How to check your credit report three times a year for free

Your "credit score" is a number assigned by three agencies that receive reports on your credit history, Equifax, Experian, and TransUnion. These three companies collect data about the debt you have and the payments you make (and not just debt payments) and evaluate how risky it is to lend you money.

You can get an estimate of your credit score for free at websites like CreditKarma. These sites are great for getting an idea of the direction of your credit score, but don't give you much detail about what all is taken into account. 

Knowing the details of your credit history is important because identity theft is so common. If someone gets a hold of some of your personal information, they could open a credit account in your name, rack up the balance and then default on it. If you don't want to manage your credit yourself, you can get a identity theft insurance (which you may want to get anyway). 

There are a few things you can do to minimize your risk of identity theft for free. First, you can check your score estimate at CreditKarma (updated every week). You can also freeze your credit, which prevents anyone (including you) from opening new credit accounts in your name until it is unfrozen.

The last thing you can do for free is to get a look at everyone on your credit history. Normally you would pay to get a peek at your credit history. However, there is a service, Annual Credit Report, that allows you to peek at your credit history from each of the agencies for free once a year. It is a little convoluted of a process to prove that you are who you say you are (what banks have you banked with, what streets you've lived on, etc). 

Getting a peek at your credit history once a year is pretty nice, but you can actually look at it three times a year if you do it just right. Each of the agencies will give you pretty much the same information, so you can just get your report from a different agency every four months. This allows you to get a view into your credit history three times a year for free.

When you get your report from the agencies, save a copy for reference. Then look over the reports for accounts that don't look familiar or things that may have been reported incorrectly. If you see an unfamiliar account with hundreds or even thousands of dollars balance, that may be a fraudulent account and you should report it immediately.
 

 

The problem with massive action

Tony Robbins says, "The path to success is to take massive, determined action." I really like Mr. Robbins and so it is straining on me to find fault with this statement. The funny thing is that another author I really like (who incidentally doesn't like Tony Robbins) says in one of his books essentially the same thing.

Why do I have a problem with this statement? Because I have taken massive, determined action many times that has led to something much less than success. The problem was, I was quickly heading down a path that would not lead to success. Each of these times I did learn a lot, but did not attain the success I sought.

Does this mean that massive action can never lead to success? I think it can with some caveats. For instance, you had better make sure the path you're on is going where you want. Salesmen are often showing visions of success while selling wares that lead in the opposite direction (or at least a less than direct path). 

So before you go and take some massive action, let me offer a starting point. 

Never underestimate the power of consistently developing good habits.

I like encouraging people to develop habits that lead in the direction of success over massive action for two reason. First, habits are a way of automating your life. Massive action in the right direction is terrific, but can it be sustained? Think of Aesop's story of the tortoise and the hare. Consistently building habits towards success may start slowly but builds into an unstoppable force.

Second, it gives you opportunities to course correct. As you are in the process of developing habits, you can see if you are heading in the right direction and make course corrections along the way. Often as you start taking steps in the right direction you learn more and can see new steps you need to take. It becomes obvious that the path you thought you should take was mistaken as you learn more and find better paths.

As you start building these habits into your life, you can definitely start going faster as you are more sure of the path. One way to help speed up this process is to have a mentor who is already where you want to be. They can give you hints and suggestions and you can learn from their experience instead of just having to rely on your own experience. 

If you have a mentor that you fully trust has the experience to get you where you want to be, then maybe you can take Tony Robbin's advice and take massive determined action. Otherwise, start by gaining habits that put you on the right path and keep building your success one habit at a time until you find that mentor.

Rewarding music

I love music. I was challenged in my twenties to start listening to self-improvement cassette tapes (kind of like MP3s but physical). I was torn because listening to these self-improvement audios was taking away from my music listening. 

Over the years I listened to more and more self-development audios on different platforms (cassette tapes, CDs, MP3s, apps, etc). I've heard that listening to two to three personal improvement audios a day was the minimum to have a positive impact on your performance. If you wanted to have a dramatic impact, I've heard you should listen to five to ten a day. 

That got me to thinking. I wondered how many days it would take me to listen to 100 audios. I set up a tracking sheet (scoreboard) and started tracking how many I was listening to. Over a four year period I was able to reduce how long it took me to listen to 100 audios from three weeks down to 8 days. It was a time of intense learning and growth. 

Since then I've found Rascal Radio, which I now recommend in my coaching. I'm back down to about two to three weeks to listen to 100 audios, but the biggest thing was the habit I developed. One of the tricks I used to keep myself accountable and reward myself for listening to personal development audios was to set a daily minimum of audios and then reward myself with listening to music.

So I would listen to audios while getting ready in the morning. I would listen to audios on my commute to work. I would put one earphone in at work and listen while I was working. I would be listening all the time. If I reached my listening goal for the day, I would reward myself by listening to music on the commute home. If I didn't reach my goal, I would listen to personal development on my drive home. Let's just say that I was often listening to music on the drive home.

Often people say they couldn't imagine removing certain things from their life (tasty food, TV shows, theater movies, etc). Instead of looking at it as something you are removing from your life, turn it around and make it a reward for something you know you should do. This can be a powerful way to increase your motivation for actions you know you should take and decrease how often you participate in those rewards (which in some cases can be good in and of themselves). Not only that, as you participate in those rewards less often and only after reaching a goal, it tends to increase the value of those rewards in your life.

 

 using music as a reward for listening to self development audios

http://page.rascal-radio.com/

Book Review: Financial Fitness

This was the book that finally put more over the top to not only start fully applying the good financial teaching I received when I was younger but also filled in the gaps. This led me to pay off all my debt, including my mortgage, in 3 years. I'd been looking for a book that clearly taught financial principles and when I found Financial Fitness, it fit the bill to a T.

The book is divided into four sections: Basics, Offense, Defense, Playing Field. The basics are the basic things everyone absolutely needs, a mix of offense and defense. They next launch into the offense, or how to make more money, because you need to make money before you can be good about managing it. They next dive into what most people think about finances, the defense or how to keep more of what you've already earned. They then wind up talking about the playing field. This is the the environment in which we operate. It includes what money is, what affects its value, and how the market, economy, and governments can affect your personal money decisions.

Throughout the book they pick out crucial principles and highlight 47 principles of gaining financial fitness. Just mastering the first 7 principles set me up for paying off all my debt, and I am still working on the remaining 40 principles. 

I feel so strongly that the information in this book, if applied, can have a dramatic impact on almost anyone's life that I started financial coaching using this book. I have seen so many couples get on the same page as they go through implementing the basics. I've seen business owners who can double their income each year realize they were doubling their expenses each year as well and were no better off.

Money is the receipt for the value you add to society

I find that the biggest obstacle that people have to reach their financial goals is their thinking (at least it was for me). In a free society the only way to make money is to offer something that is of more value to buyer than the other things they could purchase with the same amount of money.

So this naturally leads people to think about the question, "What do other people want?" What needs or desires can you uniquely fill? When you add value to their life in such a way that you fill this need or desire they reward your efforts with a receipt, money.

As a business owner this is pretty straightforward and it even applies as an employee. An employer looks into the world to determine what the needs and desires are and they hire people to complete parts of what is needed to fill those needs and desires. So every employee sells this part of the value society wants and the company then collects all the parts and sells the whole value to meet the needs.

They phrase I have come up with that has helped remind me that money is nothing more than an indicator of how much value I am adding to society. When I look at it this way it becomes clear what I need to do if I want to increase my income, add more value to society.

Does this mean that when you add value to society you will get more money? Not necessarily. A mother raising her children adds a huge value to society and doesn't get paid for it. Often when people start a business they will add value to people's lives for free to get experience and develop testimonials.

I find it is more the attitude of adding value first, making that a habit. Once this habit is firmly established then start focusing on collecting receipts for the value. Then the money becomes nothing more than the scoreboard for how much value you are adding, or in other words, how many lives you are blessing.