Need To Save But Can’t? You Need A First, A Focus & A Fruit

 

Why is saving money so hard sometimes? It seems there is always something vying for the precious dollars we attempt to save. Sometimes savings doesn’t happen because of the bumps in life, like a medical issue, a job loss or an auto accident which requires immediate action. Sometimes it is because there are so many impulses vying for our money. Between TV commercials, social media, influential friends and peer pressure we are bombarded with reasons to spend instead of save. And there are many other reasons why we struggle to save. From a recent poll done by Forbes, here are the four top reasons Americans said they either could not or do not save:

  • Spending Money Offers Positive Short-Term Feelings, While Saving Money Does Not
  • Financial Goals Typically Take a Long Time to Achieve
  • Life Always Seems to Intervene
  • Unexpected emergencies

This contention for dollars results in a troublesome situation in America. MarketWatch reported in a 2016 study: “Americans are some of the worst savers in the developed world. U.S. adults currently save just under 6% of their disposable incomes, according to the most recent data from the Federal Reserve Bank of St. Louis. That number includes savings and retirement accounts.” Six percent is far below the levels needed to meet most family goals and obligations like retirement, college, new cars and the occasional vacation.

What’s more, the article found that: “Almost half of American adults could not cover an emergency expense of $400 without selling something or borrowing money, according to the Federal Reserve. And about 31% of non-retired adults have no retirement savings or pension at all.”

So, if saving is that hard, how do some people do it very well while most people struggle? After researching this issue extensively, and interviewing many spenders and savers in person, I think the answer comes down to this: People who save money well have a FIRST, a FOCUS and a FRUIT. Let me explain:

Good Savers Have A FIRST

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Meaning good savers prioritize saving FIRST, then spending what is left after saving. How do you do that?

Most of the people I have talked to accomplish their savings goals by consistently doing three things:

  1. They develop a set of goals and objectives and then budget, make and use a spending plan, to allow money to be put aside to meet those goals. In other words, they have a budget that ensures money is allocated each month toward their goals.
  2. Most good savers work hard to define and separate needs from wants. Needs are required for simple living and must be funded in the budget. Wants are something more and good savers usually are willing to fund goals before spending on wants. Good savers are willing to sacrifice wants in order to afford savings for important goals. By that, I mean, savers know what must be paid for, like basic housing, food, clothing and other essential needs.  For instance, let’s take housing. A good saver may be willing to afford basic housing (need) but forego something really fancy (want) because they want to save the money to fund an important goal.
  3. Last, good savers commonly use technology to pay themselves first, automatically and usually quickly so they never miss the money in their paychecks because they never see it. What are examples? Direct deposit into savings or 401K retirement accounts or 529 college savings plans. Many good savers also set up automatic payments to their credit cards so they never carry a balance. Only after all the savings and investments are completed does the remaining money become available for spending. And even then, some good savers automatically pay their important reoccurring bills automatically to make sure they never get behind on items like rent or auto payments.

 

Good Savers Have A FOCUS

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As mentioned earlier, good savers have clear goals which help them to FOCUS where their money should go. If, say, your goal is to retire from full time work by the age of 55, that will require a certain amount of saving and investing each month. Having clear goals helps the good saver stay focused on what’s most important.

There are two important mindsets that help people stick to saving for their goals that are used commonly:

Having “micro goals”. Good savers usually break down their big, seemingly far off goals into smaller goals that feel attainable and are easier to measure progress against. For some people, the goal of retiring in 30 years is not a good motivator to save because it is too far away. But if you broke that goal down into something more immediate and measurable, like “I need to save $275 from every paycheck”, it could keep a person on track to save the money.  As long as the end result of the micro goals contributes to your overall goal, this technique can be quite useful.

Focus on progress made, not the distance to the goal. When you’re working toward a big goal, it’s tempting to keep your eyes on the far off prize. After all, this is all about where you want to go, right? You’re moving in a positive direction. Why would you want to look backward? Well, because sometimes looking backwards focuses on your successes to date, which can motivate future successful actions. Case in point: saving for a big vacation. Doesn’t is sound more motivating to say “I have saved $4,000 toward our Bali trip”, than to say, “I need to save for another 6 months to afford our Bali trip”?

Having clear goals to save toward give us our “why saving is the priority” when we are tempted to spend in the moment on less important items.

 

Good Savers Have A FRUIT

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In order for people to save and/or continue to save, they need to see fruit from their saving efforts. Most good savers consistently do a couple things that bear fruit in their saving journey:

Celebrate small wins: They celebrate small wins to build momentum to continue the quest. Celebrating little wins does two things: It recognizes progress and it allows us to include others into the progress of meeting our goals. It also prioritizes the attainment of the goal over immediate gratification through meaningless impulse purchases.

Another fruit of good savers is knowing that giving up something “good” (an immediate purchase) in order to obtain something “great” (achievement of the goal), builds a higher level of satisfaction and ultimately, self-worth. It builds and shows character that leads to financial freedom!

BONUS – One More Thing – Prepare for Life To Happen

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No matter how wonderful your plans are, sometimes life just intervenes. Murphy’s Law. Whatever you want to call it. Life happens in the form of emergencies, crises, and unexpected costs.You lose your job. Someone gets sick. Your car needs replaced. Your hot water heater fails and floods your basement. Making it hard to make financial progress. And, with that, your plans start to go awry. The path you were on is suddenly diverted and the big goal seems farther away than ever. It begins to feel impossible.

It doesn’t have to be this way. Good savers can take action early to protect their progress toward big savings goals in the way of an emergency fund. Most savers start very early in making their emergency fund. They scrimp, save, live beneath their means and earn extra money to build a fund, usually 3-6 months of expenses, that is there in case of an emergency and make sure the fund does not get eaten away by other expenses. Once the emergency fund is establish and available, they stop contributing to it and start saving towards their other goals.

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Really, the emergency fund is self-insurance. Not only does the emergency fund prevent a run up of wealth-stealing debt, it provides the piece of mind and confidence that goals are attainable and worth saving toward.

Having Trouble Saving?

When it seems like you can’t save money no matter how hard you try, sometimes changing your focus can help. Yes, life happens and sometimes it gets unpredictable and expensive. But by prioritizing savings before spending, having a laser like focus on your goals and celebrating small wins as they big toward the larger goal can be just enough to keep us going and, eventually, realize the goals. That’s why good savers have a first, a focus and a fruit!

 

Should Financial Independence Enrich Our Lives Or Define It?

Recently, I was sitting amongst a group of thrifty friends discussing financial independence (FI) and how important it was to each of us. Some of the discussion was around the definition of FI, and I learned that the definition of FI differs from person to person. Some of the discussion was around dates and amounts of money needed to meet FI. Most of the discussion focused on how important FI was to the group. After about an hour or so of discussion, it occurred to me that FI was the only topic we discussed. There was no discussion of life goals (beyond FI), family, friends, work, sports (Go Astros!) or recent adventures. I found that a bit interesting. On the one hand, FI was a central theme to everyone there. That’s no surprise. Clearly, FI was a top goal for each of us. But on the other hand, is that all there is to our interests and pursuits? Don’t get me wrong, the conversations were interesting and spirited. I really enjoyed it. But it left me asking: Is there more to our lives and our friendship than financial independence?

Which precipitated the topic question in this post: Does financial independence define our lives or does it enrich our lives with the freedom to pursue the goals and dreams in our hearts?

Financial independence: What Is It?

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Financial independence (FI) is a term often used without consistent meaning. Typically, FI means having enough income to pay your living expenses for the rest of your life without having to work full time or be dependent on others.  It also usually includes being free from debt, worry and anxiety about money. Some simplify the definition and see it as simply being self-sufficient. While each person might define it differently, it was obvious that FI was the primary focus for each of us. But in this particular conversation, FI was the only thing being discussed. Aren’t we more than the pursuit of financial independence?

A Case For FI To Define Us

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Starting with a little help from Webster’s Dictionary, being defined by financial independence means to be described or identified with the nature or essential qualities of financial independence. In this case, that means, identified as being frugal (living below their means), having ample income outside of a regular full time job to meet all money needs, dependent on no one other than themselves, free of debt, free of worry and free to pursue one’s goals or dreams. Sounds worthwhile so far!

People pursuing financial independence are passionate people in their pursuit. Usually focused, committed and goal orientated, or obsessed. Saving and investing, combined with the magic of compound interest, is intoxicating and satisfying. Each goal met just increases the desire for the next FI milestone. In addition, FI can be viewed as a great way to provide or support your family, so it is easily perceived as honorable, wholesome and worthwhile. Still sounds pretty good to be defined by our pursuit of FI!

Sometimes, it helps to find answers by looking backward on life decisions, so it begs the question: On my deathbed, will I be satisfied that my life was worthwhile and all that it could or should be if I defined success as being financially independent? Does my pursuit and ultimate achievement of financial independence completely define me and my purpose on earth?  This view of the topic question starts to shed doubt in my mind that FI should define us because it seems too narrow. Why? Because it seems to me that life should be so much more. I can’t image my tombstone saying something like “Here lies Mike, who pursued and achieved financial independence.” I’ve never seen one of those tombstones. But I have seen tombstones that have listed many other attributes to define the deceased: father, husband, Christ-follower, man of integrity, leader, brother and son, to name a few. This leads me to believe there is more to life than just being financially independent.

 

A Case For FI To Enrich Our Lives

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There is no doubt that money is absolutely necessary to live and the more you have of it, the more freedom, and choices, you have. So having money is very important. And making or getting money independent of full time work is extremely desirable. But money and financial independence do not define us, but enhance  our lives and the possibilities.

Money is just a tool for us to use to meet our goals and obligations. Whether those goals are to raise a family, travel, buy a home or eat dinner, money is just a mechanism to achieve those goals. So to define ourselves by being able to meet those needs, independent of full time work or any dependence on anyone else, seems to be too limiting. I’m not defined by other tools that I have, like a computer, a hammer or a pencil, so why would I be defined by the tool of money independently obtained from full time work?

 

Means To An End

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We are so much more than our money or possessions. Which means that we are so much more than our pursuit and achievement of being financially independent. We are (in my case) a husband, father, Christ-follower, businessman, leader, neighbor, friend, a brother, an uncle, a son, travelers and so much more. The financial independence we pursue is a better way to be all those things. But FI doesn’t define us. To let FI define us is to sell ourselves short. The faster we get to FI, the better, because we can spend more time doing what we want or are called to do, and less time working full time to make money. So financial independence enhances our lives.  It does not define us.

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So, going back to that conversation that started of this post: There’s nothing wrong with talking about something you are passionate about, like financial independence. And having deep conversations with friends and family about FI is encouraging, invigorating and informative. But since money is just a tool and being independent of full time employment is just a better means of making it, it stands to reason that financial independence is simply a means to an end. A means to achieve one’s goals in the best possible way. A means to freedom.

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Everyday More Salt & Less Pepper: FI Wisdom From Years Of Mistakes & Miscues

While recently getting my hair cut by the same person who has cut my hair for the past 12 years or so, she looked at me sheepishly and said “Mike, times are a changing…it seems like every time I see you, you have more salt and less pepper.” After a moment of bewilderment, I realized she was telling me that my brown hair was gaining more and more gray hair over time. Her statement, while funny, and true, was also a reflection of the years that have gone by in my journey to financial independence. Then I thought about it. Its been 30 years, 8 homes, 6 jobs, 3 kids and 2 careers since I started my FI pursuit. I have learned a lot. Some learning has come from wise decision making, but most, it seems, has come from my mistakes and the steps to overcome them. Here are four FI lessons from many years in the FI pursuit:

 

Tortoise & The Hair

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Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.” – Warren Buffett

Warren Buffet, perhaps the single greatest investor of our time, is credited with this famous quote. Unfortunately, it has taken me the past three decades to get it through my head that loss prevention is the higher priority over the risk of chasing huge returns. See, I have been invested in the stock market all this time. And for most of the time, I only invested in what I knew, which was high tech stocks. At the time I was in the industry. The good news was that high tech stocks have had some incredible returns. Years like 1995 through 1998 come to mind when the annual returns ranged from 20% to 37%. The bad news is that those same stocks had some horrible losses. The years 2001, 2002 and 2008 come to mind. The net result was that I made, and lost, two huge fortunes in the stock market since 1983 with very little to show for it as of the 2008 financial crisis. Hence, starting in 2009, I started to put Warren Buffet’s rules into place and have been rewarded handsomely for it. What I have learned: Slow and steady wins the race, just like the story of the tortoise and the hair. You don’t have to chase high returns with high risk stocks to get a good return. Preventing losses is more important than sporadic years of high returns. In terms of my stock investing, that means investing in high quality stocks, with a proven record of profits, growth and good management operating in good markets. For the most part, I invest in strong dividend stocks which also helps guarantee a decent return. I also re-balance my portfolio to lock in profits and lessen the chance of large losses should the market turn. While I have not had huge annual returns in the past nine years, I have not experienced ANY negative return years. The end result is that compounding the small but regular annual returns have produced more wealth than the previous 25 years of investing combined.

The Few, The Proud, The Life Goals

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“If you aim at nothing, you will hit it every time.”― Zig Ziglar

Early in my FI pursuit I had vague, long term goals: Something about retirement, kid’s college, independence and travel. Blah, blah, blah. I focused on climbing the corporate ladder and thought regular promotions would take care of meeting my eventual goals. It wasn’t until the first major stock market crash in 2001 that I realized that my goals were too vague and too long term to foster the best FI actions. It’s true, when you aim for nothing, you hit it every time…and go nowhere! What I have learned: Have specific goals in all aspects of financial independence. That includes quantitative giving goals, savings goals, investing goals, as well as qualitative goals for gratitude, contentment and peace. The reason why? The quantitative goals provide concrete targets that are easily measured for motivation and a sense of accomplishment. The qualitative goals help us round out the true independence spirit (Freedom from worry or anxiety) as well as give more meaning to what FI is all about.

Set It & Forget It

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When I was younger, I would invest regularly, but only after I paid all my bills. Some months I had a lot to invest, but others, not so much. It was irregular at best. Also, as mentioned above,  in those early years, I really didn’t have stated financial goals. The end result was I never knew if I was on track with my saving and investing. What I have learned: As I have aged, and truly learn to appreciate having financial goals and the power of compound interest, I have learned, first, to order the allocation of money as such: Give first, save second, then spend the rest. Meaning, I give to my church and God first because He deserves it. Then I save (pay myself) second after giving to ensure all my savings goals are met. Then, I make my spending plan (budget) based on what is left over, never spending more than I have. Here’s the best part: I use technology to automatically give, save and pay bills so that I am faithful, regular and not consumed with handling money. Simple and easy.

Sacrifice Good For Great

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“There is no progress or accomplishment without sacrifice.”
Idowu Koyenikan

Sacrificing to reach a goal has never been foreign to me. Sacrificing time and effort to get in shape to play high school and college sports was normal for me. Sacrificing fun and parties to get good grades was expected of myself. But somehow, when I got into the working world, and made good money, I didn’t want to sacrifice the trappings of success for the purposes of reaching a bigger, and better, goal. What do I mean by that? I wanted, and got, the bigger house, the nice cars, the big vacations. In some ways, I was trying to stay up with the Jones…and it was very unfulfilling. Bigger homes and nicer cars cost more money and take more upkeep. After a while it felt like my stuff owned me. What I have learned: Foregoing good things, like a bigger home or a nicer car, and using that money for great things like financial independence, helps speed up the process to independence and true wealth, in a big way! I have learned to cherish my smaller home (low taxes, less to clean, less room for stuff to build up) and my old car (paid for) so that I can use the money instead to fuel financial independence! Sacrificing good stuff for great stuff also helps me appreciate everything I have even more. And guess what? I don’t miss the bigger home or nicer car. Sure, they were fun to have but they are not as fulfilling as the long term goal of financial independence.

More Salt – More Focus, More Intention, More Better!

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“There are no mistakes, save one: The failure to learn from a mistake.” – Robert Fripp

Yes, the hair is getting gray-er and the time is flying by. But, a lot has been learned and hopefully, that knowledge can be helpful to others on their way to financial independence:

  • Consistent investment gains in solid stocks are better than the vicissitudes of high risk/reward stocks.
  • Quantitative and qualitative goals help focus FI efforts,
  • Automated Fin Tech tools help assure the Give-Save-Spend prioritized relationship,
  • And, sacrificing good stuff for the sake of great stuff speeds up achieving your FI goals.

Financial independence is not easy, but it is worth it! As one of my kids would say when they were young: It’s more better!