We’ve been talking A LOT about net worth recently (see The Secret to Money the Wealthy Know and I’m Worth What? How to Calculate Your Net Worth), mainly because it is (in my opinion) the most important number of your financial life. Yes, having a high salary is great – the more money someone wants to throw at me, the better; however, it doesn’t matter if you make $40,000 or $400,000 – if you spend all of what you make, you’ll both be in the same boat at the end of the day. Albeit, one may have a nicer boat, but both will still have to keep working year after year to afford them. Um, no thank you.
Having a higher net worth represents financial security, and with financial security comes the option to live your life how you want. That may be retiring early or running your own business from home or chasing a dream job you can’t financially manage to take quite yet. Whatever it is, that’s kind of freedom your net worth could give you and the reason it’s so important to focus on that number – I want you to wake up excited about what you do every single day. Life’s too short not to, right?
Thus, I’ve come up with a step-by-step solution for you to start increasing your wealth…and increasing it quickly. It’s vital that you complete each step before moving to the next; changing your habits can be overwhelming if you change too many at once, so start small and work your way up. By the end, you’ll be able to easily afford both your mortgage and your monthly mani/pedis . Oh, bliss, I hear you calling.
Step 1: Say Goodbye to the Joneses
I dedicated an entire post to this two weeks ago and listed it first here because it is THAT important. Living below your means is the first step to increasing your wealth because it’s the one thing a) you have most control over and b) that can have the most significant impact. Like I said before, even a huge pay increase won’t get you anywhere if you aren’t intelligently utilizing it.
I understand that you want nice things. I want them, too. Every time I walk through the liquor store aisle that bottle of Grey Goose is calling my name; however, I know that 2 drinks in I won’t be able to tell the difference anyway, so what’s the point in spending more? And back to the Smirnoff I go. Just think how big of an impact it would have on your financial life if you ate at home one more night a week or refurbished furniture instead of buying new or heck, even bought a smaller house. Transformational, people. It would be transformational.
LadyBoss Move: Go over your budget and find your holes. What is draining your finances that doesn’t need to be? Next month, pull a Dave Ramsey: allocate the total you want to spend on that category, withdraw that amount in cash from your bank, and put it in an envelope. When the cash in that envelope runs out, you’re finished for the month. For bills or rent, start looking for ways to cut those costs, find cheaper options, or cancel if possible.
Step 2: Out of Sight, Out of Mind
If you’re a millennial and aren’t already doing automating your savings, feel free to slap yourself in the face.
Automating your savings and retirement funds is the easiest way to ensure that you are allocating a portion of your money to your financial goals every month. Most of us will spend whatever we see we have in our bank accounts. I mean, I have to have a record player. I HAVE to. By automating this to where money is a) taken straight out of our paycheck or b) transferred to a savings account on payday, we essentially “trick” ourselves into thinking we make less than we do, meaning we will spend less than we make. Adios, record player that I would never use. Adios.
LadyBoss Move: First, if you aren’t already participating in your employer’s sponsored retirement plan – a 401(k) for most – contact your HR department, sign up, and start allocating a percentage of your income based on what you think you can afford (but up to the employer match is best!).
Once you’ve got that squared away and are comfortable with the amount being taken out each month, set up an online savings account separate from your bank account (I use American Express) and have either a portion of your paycheck automatically deposited here each month by your employer or set up an automatic transfer (to occur on the same day as payday). These two things alone will have you and your net worth doing mid-air high fives.