Getting Started on the Road to Freedom: Putting Money Away
Everyone wants financial freedom, but very few of us understand how to get there. I believe our educational system here does little to nothing about teaching us how to manage finances, and unless your parents knew how, you are pretty much on your own!
My Boss Did Me a Favor
I had a boss over twenty years ago who did me a huge favor. She took me into a huge conference room and told me to sit down. In my head, I was asking myself what I did wrong to get in trouble, and was I about to get fired from the job I had worked so hard to get? She told me in no uncertain terms: I had to put 15% of my paycheck into our company 401K, and 15% into the stock purchase plan. She did not give me an option.
Okay, so 30% is drastic. Probably unobtainable for most. But, I was young, newly married, and just getting started. So, I did it. We were able to afford to do it, because my job was new to us, and we had been living off my wife's income. In case you are wondering.
I reached out to my old boss a few years ago and asked if she remembered that conversation. She said "yes, why?" I responded, "Thank you!" Because I was not really given a choice (I guess I could have said no), it set me on the path to becoming financially free one day. I am still on this journey, but getting closer every day.
So, you are probably asking yourself when I will shut up with my story, and start to help you understand how to get started? Well, here goes...
Getting Rich Takes Time
For starters, you do not get rich quickly. It takes time and patience. If you are young, your biggest asset is time. Use it to your advantage! Set up an account at a bank that you are not going to easily access the funds at that bank, and then set up a direct deposit(if you have that option), and start putting $25 or $50 a month(anything) into what I call your "Verboten" account. Verboten is German for "Forbidden". To me, this means you cannot touch this account. It is the base of your financial freedom and must be treated as a sacred account upon which you build your future.
Your first goal is to get three to six months of living expenses into this account. This will potentially allow you to afford a sickness or job loss, without having to go into debt.
Setting up this account only takes a few minutes, and you should be able to link your main checking account to your new account, so you can make transfers if you do not have direct deposit. The rate of inflation is currently 1.9%, so you might want to find an account that pays 1.9% or greater (there are a few good ones, but do your research). The reason being is that you are actually losing buying power when you leave your money in this Verboten account. The time value of money states that one dollar today is worth more than one dollar tomorrow. If you are putting this money into an account that at least matches the rate of inflation with the interest it pays you, you are at least keeping that dollar value worth a dollar.
Now you are saying, how do I come up with that $25 a month? Analyze your spending. A classic example of how to save a few dollars a month is to make your own coffee at home. If you are stopping to get coffee every day, five days a week, at even $2 a cup, you are spending $40 a month that you could be saving. Another example of how to save is to cook at home if you do not already. We might go out to eat once or twice a month, but all of our other meals are cooked at home. We spend around $250/week to feed a family of five. If we went out to dinner each night, we would be spending around $1400 a month, and that would easily get out of control.
Now, go set up that account, and start saving!
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