If you don’t like your financial situation, then you have to change how you think about money. Of course, plenty of people are doing just fine financially and in that case, may not need to make any adjustments. But the truth is most people are living paycheck to paycheck with a massive amount of debt. If that’s the case, you may want to read this.
Change How You Think About Money
How do you change how you think about money? What does that really mean? I think the bottom line is that you need a big enough reason why if you’re actually going to change your financial situation.
Most of us are lined up to be in debt for the rest of our working careers. Do you want to follow that inevitable outcome or do you want to make some changes?
And that’s the hard truth for most people, that if you continue on the same path you’re going to be in debt and broke until you’re old and decrepit.
Is that a good enough reason?
Now what I’ve realized about changing the way I think about money is that if I had done this years ago I’d be a millionaire now (and likely so would you). Bold statement? Sure. But it’s simple really.
Let me explain. Take a look back at the last decade of your life and consider some of the things you’ve purchased that you didn’t need. In other words, wants instead of needs.
Now imagine if you took that money and invested it instead. How much money would you have invested? $1,000 a year? $10,000 a year? Now imagine whatever you invested being doubled. Now imagine it being 10x what you put in. Do you see where I’m going with this?
Maybe you wouldn’t be a millionaire but you’d be far better off financially. Obviously. And a lot of this is something that anyone can do. It’s not like it takes some special talent to invest. It just takes discipline.
Of course, past performance doesn’t equal future performance. But we can look at charts and see look back and see where we would have made money previously.
And when I’m talking about investing in assets, it could be anything, stocks, real estate, gold, cryptocurrency, a business, or even just paying off debt instead of investing.
Now, I know what you’re thinking…
You Need Balance
I mean this is basic stuff, don’t wastefully spend money and save/invest it instead. Gee how insightful. But it’s something people don’t actually tend to do.
And I get it, we need to have fun in life, and every now and then we need get some things we want. I mean we work hard for it, right?
Here’s the issue. When almost 4 out of 5 people are living paycheck to paycheck and in massive debt maybe our balance is already way off.
Of course, we need balance. But imagine being financially free and not being forced to pay bills and interest every month. We’re simply out of balance if we’re living paycheck to paycheck still in debt.
If you’re forced to go to a job everyday then it’s probably your own fault (speaking from a perspective of living in the United States).
Do You Like Working?
I mean really, do you enjoy your job? If money wasn’t an issue would you still show up every day? I’m guessing the answer for most people is a hard no.
But if you look at how people spend money you’d think they love working. Now granted not everybody is bad with money. And of course, we are all going to spend money on things we want. But an example of something middle class Americans are overspending on would be brand new cars.
Who has $30,000 or $50,000 to buy a car with??? You see people making middle class blue collar salaries driving brand new cars all of the time. The truth is, they don’t have the money, they just think because they can make the monthly payment on it that they can afford it.
Just to be clear, there is no judgment here whatsoever, I’ve personally made plenty of bad financial mistakes as well. Hence, this blog.
But anyway, let’s think about this real quick. Let’s assume you take out a car loan for $25,000. This certainly isn’t uncommon. Let’s say you’re lucky enough to get a 6% interest rate, and let’s also say you’re lucky enough to be able to pay it off in 4 years.
This would make your payments $587.13 per month and you would pay $3,182.03 (per calculator.net). So, in other words, you aren’t really paying $25,000, you’re paying $28,182.03 total for the car.
I’m sure this car is really nice.
But, just for a moment. let’s imagine you instead decide to be really frugal and take out an $8,000 car loan. It isn’t pretty, but it gets you by.
Alright, that same loan would be $187.88 over the same 4 year period. You would pay $1,018.25 in interest on the loan leaving you with a total amount of $9,018.25 that you paid for the car. So right off the bat you just saved a bit over 19k. Not bad.
Granted, this is a depreciating asset so maybe the answer is somewhere in between. But the idea is that you could probably cut out some of the bells and whistles for something that is more of just an A to B vehicle.
Invest Instead
First off, none of this is financial advice. I’m not a financial advisor and I’m not pretending to be one. I’m simply giving my financial opinion. Of course there is risk in investing and nothing is guaranteed. That being said…
Let’s assume you don’t be a dumbass with the money you saved from the above scenario and instead invested it. What would this look like over 4 years?
You just saved $400 a month, ok ok technically $399.25. So here’s what you have after investing that every month for 4 years instead of pissing it away on a car payment that you don’t need.
Assuming you get a 10% return then you would have made $4,072.60, leaving you with just over 23k. Now, that’s pretty much the average return you should see in the stock market, but what if you did better than that?
2020 was a crazy year in the stock market and there were plenty of stocks that 10x’d…in less than a year, let alone 4. So imagine you invest that money and it 5 or 10x’s over 4 years, which is totally possible. Your 19k total put in could be worth well into the six-figure mark.
As an example of this, I’m going to use a specific stock to look at. Now, investing doesn’t mean you have to invest in the stock market, this additional money could be invested in a business, or real estate, or bitcoin, or whatever.
But going back in time and looking at specific stocks gives us an exact answer to what would have happened with your money. It isn’t debatable, it isn’t a “possibility”, it’s reality.
Here is a stock many of us know about: Tesla. Elon Musk’s net worth has exploded since the pandemic and it’s primarily from what has happened to Tesla’s stock in 2020.
I actually wrote about this a few months ago as well as I had invested for the first time in my life in 2020 and Tesla was one of the stocks I invested in. You can read that here if you want.
Anyways, above, I gave you an example of how over 4 years you could have saved yourself $19,000 by taking out a smaller car payment. How many of us could have done this? Maybe it wouldn’t be $19,000 you would have saved. Maybe you could have taken out a $6,000 car loan instead of a $16,000 car loan and saved $10,000 though. Most people could have done that, it’s not at all impractical to think we all could have saved up $10,000 over 4 years or so from just that alone.
Now, let’s take that $10,000 and look back in history and take a look at what it would be worth now had you invested that $10,000 in Tesla stock.
In mid March when the stock market dropped, Tesla’s stock went down to $74.94 per share. Tesla’s stock is now worth $880.02 per share as I currently write this article (1/10/2021).
That $10,000 invested in Tesla would have bought you 133.44 shares which would now be worth $117,429.94.
That’s right, it has 11x’d since March. Completely insane.
Now, how many of us would have either drove a shittier car for a few years or cut back on spending to save money so we could invest it at the right time knowing that now?
Everybody would do that. Anyone who says otherwise is either lying to you or stupid.
The reason people don’t do this is because they know there is no certainty and decide instead to enjoy their money now.
Well if that is your mindset and you spend whatever you make (or more by taking out more debt) then you’re always going to be broke. And you’re always going to have to work.
This is what most people do. They live their entire life working a job they don’t like so that can pay their bills.
So again, do you like working?
Make More Money
Now, the easiest solution to your money problems is simply to make more money. That’s obvious. I mean if you go from 60k to 80k a year then that is a much easier way to save and invest than if you try to cut back spending on that much. You obviously will have a much easier financial path.
The point is to not spend money like you make 80k a year when you only make 60k a year. If you can do that then once you up your income then simply keep the same lifestyle you have now and invest the additional money you earn (or payoff debt) as opposed to what most people do, which is spend it.
But of course, making additional money doesn’t have to be limited to a job. This can be done by starting a business as well, whether that be a brick and mortar business or an online business (my favorite option).
A brick and mortar business is obviously a huge leap and change of lifestyle, but this is an opportunity for people to make more money.
An online business is another option to increase your income.
The great thing about an online business is you can do it with a lot less capital. So people who are reading this who live paycheck to paycheck and may even have bad credit and can’t realistically start a brick and mortar business could take this route instead.
The world is obviously going virtual (or has already gone) so there is just as much if not more opportunity there to make money.
Whether you can create a full-time business that matches or surpasses what you make now, or whether you just create some additional income to help your financial situation this is a great avenue to go, especially since you can do it part-time while working your full-time job. For a detailed article on this check out this article.
This brings up the next important topic.
Time is Money
Now, this is another important aspect to consider. That time is money. There are a few different aspects of this we need to look at.
First off, taking what you make hourly and applying it to your daily life can help put things in perspective. This is a good way to determine your value.
It doesn’t matter if you’re on salary, hourly, or commission necessarily. You can take your annual income and figure out what it comes out to.
The average income in the United States varies quite a bit but to make things easy let’s look take $30 an hour as the example here (equates to about 62k per year full-time).
Is It Worth Buying?
When you go to buy something in the store, ask yourself, is it worth X amount of hours working? Is the $30 shirt you’re about to buy worth staying over an hour today? Think about it on a daily basis.
The other thing to consider is what you’re already paying in interest on other debt. So spending $500 on a nice piece of furniture isn’t really costing you $500, it is actually costing you more than that because that is interest you could have paid down on debt or as we showed earlier, money you could have invested.
So if $500 would be 2 months worth of car payments where $100 of that would go to interest…well then it actually cost you $600. Ouch.
So, if you’re making $30 an hour, that “$500” piece of furniture just cost you 20 hours of work. Is it worth 20 hours of work? It may be. I’m not telling you how to spend your money, I’m just breaking it down to give some other perspective.
It’s funny because we go out of our way to save 5 cents a gallon on gas that ends up saving 50 cents…but then spend $5 on a cup of coffee at Starbucks. We simply don’t tend to make much sense..or cents? (stupid pun) financially.
Again, this may seem completely insane to think about money this way, but most of us spend 40 hours a week working a job we hate just to able to barely pay our bills. Isn’t that completely insane?
It’s not like you have to adopt strategies like this permanently. You can always focus on this and really dial in for short spurts.
The Value of Your Free Time
Once you consciously think about what your time is worth, it gives you an idea of whether or not it’s worth it to do certain things.
If you work a 9-5 job but are actively working on a side hustle to make additional income then you need to understand this: time is money. If you’re out doing other things it is costing you money that you could be making.
In addition to that, it can help you assess whether or not to entertain certain side hustles.
Is selling something on eBay for $10 even worth it when your time is worth $30 an hour? Is it even worth taking 6 hours out of your day for a garage sale? Realizing your break-even point will help you decide that. A 6-hour garage sale would have to net you $180 to be worth your time.
In addition to that, if you’re working on a side hustle that has far more potential and your time is limited, then maybe even the $30 trade-off isn’t worth it.
Understanding that time is money is key to changing how you think about money.
Make a Budget/Financial Outlook
I highly doubt you have any chance of following through on good money habits if you don’t have a budget you keep and track each month.
This really is the first step to changing your financial situation. Without this, you are doomed to fail.
You have to know what money is coming in each month compared to what is going out. This gives you a starting point to getting financially free.
To really take this to the next level to help move in the right direction is to also track your net worth. Doing this will help you make sound financial decisions.
That is the part that most people miss out on. Many people who are “good with money” tend to have monthly budgets they use, but very few people actually track their overall net worth. If you do this you’ll be a step ahead of about 98% of the population.
These 2 things are a recipe for success.
Change Your Surroundings/Programming
Knowing exactly what to do is great, the next step is implementing it. Surrounding yourself with people around you who have the same goals is going to be hugely impactful.
A lot of this article is simply pointing out that most people are bad with money and if you do what most people tend to do with their money then you’re not going to do well with money either.
In addition to being surrounded by others who are bad with money, we’re being advertised to 24/7 through social media and TV.
So we’re in this constant battle of watching everybody else make poor decisions and then being pushed a new product we think we need through our social media addiction, then somehow are trying to push past this all.
It is a constant uphill battle.
Start by changing what you are reading and being programmed with. Reading Dave Ramsey was really helpful for me. I think so many times we think we already know what to do so we don’t need to read a book about it.
I mean come on, we already know what it says-spend less than you make and pay off debt. Simple.
The issue is that our subconscious mind is being taken over by the opposite. Even though in the back of our mind we know we should make better financial decisions, we don’t. We need to put this stuff in the front of our minds!
Now granted I have some beef with many of the things Dave Ramsey says, but his main premise of not following the herd to live a financially free life is something I completely agree with.
Reading books about money, and blog posts (like this website 🙂 ), will help condition your mind to make better financial decisions.
In addition to that, if you can take it a step further and surround yourself with people who have the same goals as you then you’re golden.
The Money Mindset
Some “gurus” say that this aspect of it all is the most important thing. They say it’s really all about improving your value as a person. In fact, someone who I have found influential over the years-Sean Croxton says that all of this talk about living frugally is mostly nonsense and that we simply need to change our mindset and our self-worth.
Ok, I mean he’s a millionaire so he should know. But while we’re trying to obtain that ourselves I think it’s a good idea not to be knee-deep in debt.
In fact, the less financial stress we have gives us more opportunity (and free time) to invest in other things.
Summary
Everything we’ve talked about here is a specific strategy. To go from frugal to rich, or at least financially well off. All of this is just implementing better habits. Your life won’t change instantly but over time can make a world of difference.
It doesn’t mean that you shouldn’t ever spend money on things you want, but it’s clear that most people are completely out of balance.
The “rich” people we know who can afford million dollar houses didn’t get there over night. They simply implemented good money habits consistently year after year and then this eventually started to snowball.
You need to get to that point where it starts to snowball.
The average person is being ripped off by paying interest and being sold shiny objects we don’t need 24/7. So if you want to change our financial situation than you need to take a step back and re-evaluate.
It’s a tough battle because it comes down to not enjoying as much right now so that we can have a much more fulfilling life down the road.
So the way I see it is, we can either change how we think about money, or we can learn to enjoy clocking into work for the rest of our lives.
I hope you enjoyed this article. What are your thoughts? Have you implemented any of these strategies mentioned in the article? Do you plan on changing things going forward? Let me know in the comments below!