People don’t just wake up one day and become millionaires unless you’re born into a rich family, of course. Most people can’t even pay off all their student debt or purchase a house.
If you want to get ahead, you have to make risky or difficult life decisions. And then follow through with these decisions until it’s a lifestyle over an extended time.
What are the key financial decisions that can change your life for the better and the future?
1. Live below your means over a consistent period
Living below your means is spending less than you earn. While obvious and a bit of a broken record, it’s one of the core concepts of financial freedom.
Moreover, it’s a significant decision to adhere to this lifestyle over an extended period. Not for a day or week out of a year, but consistently.
What are solid examples of living below your means?
- Living with roommates when you can afford to live alone
- Purchasing a smaller and more affordable home even if you can qualify for a more expensive home
- Spending a low percentage of your credit card limit even when you can spend more
- Buying a used car instead of a new or luxury vehicle
- Focusing on needs instead of wants
Living below your means does not mean cooking at home on Friday night instead of dining out with drinks galore. It’s one night. If you apply this discipline consistently over weeks and months, that is living below your means.
Each person’s “necessities” differ as well. I skip out on expensive gym memberships and exercise at my local gym because that’s the most effective solution for me. On the other hand, other friends are willing to drop $200 a month for the best of the best, which motivates them to work out daily.
Spend your money on what is important to your happiness, not to impress others. I drive my trusty used Honda Civic because cars don’t provide me fulfillment.
I really need it for two purposes:
- To get from Point A to Point B.
- To be safe
There are definitely things I’m willing to splurge on, one of which is housing. In terms of living arrangements, I’m at the point in my life where I no longer want to live with roommates. For years, I’ve done that, and after purchasing our home, we decided to prioritize our privacy and sense of peace.
2. Getting a new or additional job
Your current job may not be enough to make your ends meet. Or maybe it’s just enough to get by each month.
You need to make the conscious decision to get a new job to improve your income or take on a second job to supplement your current salary.
When I was a college student, I wanted to make as much money in my part-time jobs as possible to pay off my student loans quicker.
While I enjoyed my friendly team and stress-free job on campus, I knew to further my career and increase my income, and I had to leave eventually.
So I decided to do the following:
- Apply for jobs that paid more
- Choose an opportunity that aligned with my career path.
- If I had enough time, apply for a second job.
I went from minimum wage to $16/hr. I then decided to apply for another part-time job to match that $16/hr pay. Not bad for a broke college student. While they weren’t perfect career solutions, both jobs got my foot in the door to embark on my professional career.
It wasn’t easy working 30 hours a week as a full-time class schedule. But I persisted with this rigorous schedule during my last two years of college, and the reward paid off tremendously.
3. Moving to reduce your cost of living
While this is a drastic decision, it can be instrumental for several reasons.
Moving to a cheaper apartment in the same city or moving to a different state altogether.
Below are some of the benefits I noticed after relocating to Washington.
- No state income tax = more money in my bank account!
- Higher salary
- Fewer distractions
- Cheaper rent and houses
Moving to a state without state income tax felt like an instant raise on top of my higher base salary. And I knew I would almost double my salary with relocating. While there were opportunities in my suburb, I’d have to venture further into the city or another state to make something more comparable to my experience.
The pure truth is that I had fewer friends after my move. My after-work activities were minimal, and I focused my time on work. Eventually, that translated to a fatter wallet. Fewer friends equaled fewer brunches, dining out, and nights on the town.
4. Start budgeting with a purpose
You have to tackle debt like no tomorrow, and that starts with budgeting.
Set up what your goals are and then subsequently calculate your income versus expenses. Whether it’s an app, cash envelopes, or spreadsheet, find the best resource that works for you.
Separate your fixed expenses like your mortgage, rent, car payments, and student loan payments. Then follow with your flexible expenses like groceries, clothes, travel, and entertainment.
In college, I started with spreadsheets and would notice my spending balloon in certain categories during specific times of the year. November and December were big spending months as I would go crazy and buy gifts for my loved ones without a budget in mind.
Once I noticed the astronomical amounts, I started budgeting for gifts earlier in the year. I would want to save $500 for gifts during the holidays and stick with that amount. I would make purchases for celebrations in small increments rather than blowing my savings during Black Friday.
It can be a comforting feeling when you start budgeting and feel like you received a raise.
Takeaway
To build your wealth and reach significant financial goals, grit is key.
You have to make conscious decisions every day and prioritize where your money is going. Lifestyle inflation is a tempting trap that can suck people in as they receive raises or climb the corporate ladder.
But it’s the substantial decisions to live below your means, increase your income, relocate to reduce your cost of living, and starting your budgeting journey that ultimately shapes your financial future for the better.
This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any significant financial decisions.