This song by The Eagles brings back fond memories of my college years, but it seems in today’s society, it has become not only a song, but a way of life. We run fast, live large and unfortunately, create a life we cannot afford.
An American Crisis
Today, 4 out of 5 families in America live paycheck to paycheck. No savings, no excess, no margin. When financial surprises arise, they have nowhere else to turn so they lay down the plastic and charge it – not knowing how or when they will be able to repay it.
Unfortunately, it’s not just financial emergencies that drive us to use our credit cards. It’s become “big business” to snag consumers at an early age and get them hooked on using credit cards. We’re told we can have it now instead of waiting until we can afford it. It’s all about immediate gratification. This is a real crisis in America.
I believe financial prison is the biggest limiter of living a purpose-driven life today. What I mean by this is by living paycheck to paycheck, we cannot take the risk of missing a paycheck to venture into a new career or start that business you’ve got a real passion for. There’s a famous quote credited to Henry David Thoreau that is a reality for far too many: “Most men lead lives of quiet desperation and die with their song still inside them.”
The good news is it doesn’t have to be that way. By using some simple tools and making a commitment to get your personal financial life in order, there is a way out.
First Steps: Emergency Fund & Budgeting
The first step is to begin to break the addiction to credit cards by creating an Emergency Fund of $1,000 that is reserved for those life emergencies like an unexpected car repair or a failed appliance. The norm is to break out the credit card and charge it, but with an emergency fund of “cold hard cash,” you can pay for it without getting into debt.
Next, a monthly budget where at a minimum your expenses equal your income. The bottom line is you have to learn to “live within your means.” This is not easy if you’ve never lived following a budget, but there are lots of apps and tools to help you organize this process. Once you’ve been able to live within your current income level, as you increase your income through raises or better career opportunities, you continue to live within your budget and use the newfound excess income to pay off your debts as quickly as possible. You can become debt free in short order if you practice this mindset.
Only after you’ve freed yourself from using credit to support your lifestyle, will you then begin to save and create wealth.
What’s Next?: Retirement
The next big hurdle is to prepare for retirement. Another disturbing reality is the lack of savings by American households at retirement age. The average savings for retirees is less than $25,000, according to some studies. This puts them in total dependence on the government to pay for their retirement, of which the average monthly payment is $1,400. It’s unlikely this will be sufficient to provide an adequate lifestyle for retirees, especially given that the average retiree has as much as $500,000 in debt at retirement age.
As soon as possible, it’s important to begin saving for your retirement. Allocate at least 15% of your income to 401K’s, Roth IRA’s and other tax favored retirement vehicles. It’s relatively easy to accumulate $1,000,000 by retirement age with disciplined investing throughout your work years. Obviously, the sooner you can begin contributing to your retirement funds the better, but it’s never too late to begin this process.
With just these few practices, you can easily create the life you want where you’re the master of your financial future. You don’t have to be one who dies with their song still inside them.