How to Get Ahead In America (4th of a 12-Part Series)

By Logan Flatt, CFA

NOTE: This article is Part 4 of a 12-part series detailing the “12 Refusals That Helped Me Pull Ahead in America.” To start at the beginning of the series, click here.

4. Refuse to live a lifestyle you cannot afford on the income you bring home each month.

    Many Americans today run out of cash each month after paying the bills that enable them to live their chosen lifestyle. Their lifestyle leaves them no cash left over to set aside and save for their future. Without savings, these Americans have little to no chance of achieving financial security and freedom in their lifetime.

 

 

    Unfortunately, what is true for many may be true for most. The U.S. Department of Commerce’s Bureau of Economic Analysis’ statistics suggest that the typical American family sometimes spends all of its cash and then dips into existing cash savings – or borrows cash from others – to keep spending even more. If the government’s personal saving statistics are to be believed (many economists believe these statistics are flawed), the typical American family is living beyond its means, choosing to live a lifestyle it truly cannot afford on the income its breadwinners bring home each month.

 

 

    Fortunately, your family does not have to live like the typical American family. Your family can choose to be different. You can choose to set aside part of your income each month to build up cash savings. Then, you can invest those savings wisely so that your family can pull ahead of the typical American family over time. After all, why choose to “keep up with the Joneses” materially when you can just as well choose to beat them financially? Is it challenging to do? Sure it is. But, you can do it. You just have to think radically.

Let’s Get Radical

    Let’s think radically for a moment. Would it not be a completely radical idea to do the exact opposite of what the typical American family does with its cash income each month? What would it feel like to save more cash than you spend each month? Think about it. Imagine paying all of your bills out of your monthly cash income yet still having more cash left over than what you just paid out in bills! Can you imagine that? Wouldn’t that be nice?

    Well, here is the secret on how to get it done: cut back on your monthly expenses significantly.

    Hey, I never promised that getting ahead financially was going to be fun, did I? Mentally and financially, cutting back on your monthly expenses is very dull, hard work, especially at the beginning. It requires you to make hard decisions and sacrifices, and to have patience. However, once you get started, your cash savings start to build up. You can then use this accumulation of cash savings to build wealth over time through the commitment of that cash savings to sound, long-term investments. So, the sooner you get started accumulating cash savings, the sooner you can choose to live off the income from your investments instead of the income from your own labor. Or, if you want to, you can choose to continue to work. That is the great thing about doing the opposite of the typical American family: you have greater freedom to choose what you want to do when you want to do it. This is what is meant by achieving financial security and freedom, perhaps the best way to have fun and enjoy life.

    Now, you and I are likely separated by many miles as you read this, but I can hear you muttering to yourself how difficult and unattractive it would be to get radical: “Cut back significantly on my monthly expenses? That would suck!” Yes, it would “suck.” Significantly cutting back on your monthly expenses could dramatically alter the lifestyle to which you have become accustomed, perhaps a comfortable lifestyle somewhat beyond your means. You might have to move to a less expensive house or apartment in a different part of town. You might have to sell your current car and buy a less expensive, more fuel-efficient car, carpool with someone else, or take public transportation. You might have to stop eating out at restaurants multiple times a week and just eat self-cooked meals at home and at work. You might have to cancel your overpriced (and overindulged?) cable or satellite TV services. You might have to live without the latest gadgets and gizmos and just stick with the perfectly good technology you already own. You might have to forgo exciting vacations overseas and just take cheap road trips here in the good ol’ U.S.A. You might have to do all of these things until you are living well within your means, living a lifestyle you can afford to live on the income you bring home each month.

Your Life Could “Suck” Worse

    Yes, downsizing your lifestyle would “suck.” But, do you want to know what “sucks” worse than slashing your monthly expenses so that you can save and invest for the future? I’ll tell you:

•   Growing old poor, unable to afford to travel and visit your grandkids living with their parents – your grown children – in another city or state

•   Having only meager Social Security or pension checks to live off of in your retirement

•   Living your final decades on Earth as a potentially unwanted financial burden on your grown children’s families and their own futures

•   Having no choice but to work up until the day you die because, over your lifetime, you failed to create any personal wealth that enables you to choose to stop working in your old age

•   Dying penniless, leaving behind no legacy of financial security for your family’s future generations

   That is what “sucks” worse. And, that is exactly what many Americans will be doing in the coming decades, all because they continue to spend today the cash they could be saving and investing for tomorrow’s better years.

Choose to Be a Finadic

   You do not have to live your lifestyle the way you live it today. Your lifestyle is largely a matter of choice – your choice. With the exception of financial obligations such as government taxes, court orders to garnish your wages, debt payments to creditors, or other payments for which you have a moral, ethical, or legal responsibility to pay, the cash you earn each month is your cash, and you alone choose to whom you hand over your cash each month. In other words, to save or not to save your cash is largely your voluntary choice.

 

 

   Stash a large chunk of the cash you earn each month into savings – what a radical idea, huh? Well, if the U.S. government’s personal saving statistics are to be believed, saving cash apparently is a radical idea in early 21st century America. Each month, “financial radicals” across America choose to stash a large chunk of their cash income into savings – cash held at the ready to provide financial security and/or to fund sound, long-term investments. These financial radicals demonstrate a strong preference to save and invest for a brighter future than to spend their hard-earned cash on wealth-depleting consumer goods and services in the here and now.

   What about you? If you have made the choice to do what it takes to build wealth over the long term, consider living a “finadical” lifestyle. To do so, make whatever lifestyle changes necessary for you to minimize the amount of cash that you voluntarily hand over each and every month to retailers, restaurants, finance companies, entertainment companies, utility companies, grocery stores, and others. Use the cash left over each month to build financial security and freedom for you and your family over the long term. It all starts when you refuse to live a lifestyle you cannot afford on the income you bring home each month.

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Next Up: The 5^th Refusal That Helped Me Pull Ahead in America.

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Comments

[Miranda]

Great post! The fact that this basic personal finance concept has now turned into a "radical" practice is somewhat disquieting. I referenced this on my Yielding Wealth blog: http://www.yieldingwealth.com/are-living-within-you-means/

[Super Saver]

Logan,

Excellent post and excellent points.

I hope you were able to get a few converts:-)

[Moneymonk]

Bravo Bravo Bravo !!! Excellent post. I guess it's all psychological