Mastering Money: How to Build Wealth in Your 20s and 30s
Over the years, I've learned a lot about budgeting. The process itself is relatively straightforward—it's the mindset that's challenging. Whether it's budgeting for a business or personally, the critical element is earning money. Once you're earning, the goal is to maintain a "scoreboard" tracking where the money goes. Maintaining the scoreboard isn’t that hard; the challenge lies in sticking to the budget for each category, including savings and investments, which has always been tougher for me. What about you?
For instance, consider buying a car. You might plan to spend $20,000, but end up with a $40,000 loan because the salesperson focused on the monthly payment instead of the total cost. That extra $20,000 has to come from somewhere—typically, savings. Surely, I'm not the only one! After revenue, adhering to this scoreboard is the most crucial part of budgeting.
Here are three simple budgeting tips that I would share with my younger self, or any newcomer to budgeting—it's as simple as the ABCs.
A: Admit That Budgeting and Money in General is 95% Emotional and 5% Strategy
Understanding your emotional relationship with money is vital, often rooted in childhood experiences. For much of my life, I would order two meals when dining out—one to eat there and one to take home. This was because I didn’t always have enough food as a child. Recognizing such emotional triggers can help you make more rational spending decisions.
B: Before and After Taxes Saving
One common piece of advice I received as a young professional was to "pay myself first." However, after receiving my paycheck, I realized that was impossible—the government and bills like rent and car payments always came first. Years into my career, I discovered that I could indeed pay myself first by investing in pretax vehicles like 401(k)s or 403(b)s. This strategy allows you to save and invest money before taxes are deducted, giving you a financial advantage.
C: Calculate Your Scoreboard
Think of a budget as a scoreboard and always pay attention to the score! A budget is essentially a record of income and expenses, acting as a financial scoreboard. At the end of each month, you are winning if you have a little money left over. Keeping detailed records of your income and expenses, categorized appropriately, helps you see where your money goes and where you might cut back if needed. Regular updates and reviews of this scoreboard will keep you disciplined and on track to meet your financial goals.
s: Sacrifice is Discipline
Discipline in budgeting often involves sacrifice—giving up something for the sake of something more valuable. What is that 'something else' you want more than anything? For me, peace of mind and security are paramount, driving me to make tough financial decisions. That said, I sometimes still indulge in that extra meal—I'm a work in progress!
Final Thought
Budgeting doesn't have to be overwhelming. By acknowledging the emotional aspects, prioritizing pretax savings, and keeping a careful watch on your financial scoreboard, you can set yourself on the path to financial success. Remember, discipline, sacrifice, and a thorough understanding of your financial habits are essential for effective budgeting. Start with these simple tips, and you'll be well on your way to mastering your finances and building wealth.