***Photo taken near Nakano Station in Tokyo, Japan***
I am probably losing readers by the truck loads. First, I want people to amass six figures or more. Next, I want people to invest thousands of dollars a year. I am sorry, if your looking for looking for a get rich quick scheme this probably not for you. However, if you want build real, long term, wealth then keep reading. Quick question, how much did you spend on eating out last month?
If you can’t answer the question above, in less than 1 minute, then you probably need a budget. My personal opinion is you should manage your money like a successful business. Here are three key points worth noting.
One, successful businesses know how much money is coming in and going out. This is cash flow and you want the number to be positive whenever possible. Two, long term negative cash flow (you’re losing money month after month) is bad, meh kay. Three, they understand opportunity costs. Opportunity cost is what you give up to do X instead of Y. For example, you spend $500 a month eating out instead of cooking at home once in a while! Not saving or investing that $500 a month would be a opportunity cost.
I want you to think of every dollar you earn as an employee in your own personal business. You want your employees out there making you more money! You definitely don’t want to waste them on frivolous crap!This is especially important during the wealth building phase of your journey. The sooner you start saving and investing the better. Lets make a quick example using the oh so popular “Coffee a Day” approach.
- You buy a coffee every day before heading into work because the coffee at the office sucks
- The coffee costs you $5 and you work 5 days a week
- That is $25 dollars a week
- Which is $100 dollars a month
- …and a WHOPPING $1,200 dollars a year
I don’t know about you, but I would deal with work coffee to SAVE $1,200 a year. This isn’t the end of our story though. Now what if we decided to INVEST the $1,200 we saved. Lets assume a 7% annual return (after inflation) similar to our WTF stock example in our last post.
- A $1,200 investment after 1 year could be worth $1,284
- At 5 years; $1,683
- At 10 years; $2,361 (which is almost double your starting investment!!!)
I would deal with work coffee today to have $2,361 in the future. Let us take this one step further. Lets say you save $1200 a year now that work coffee is semi-tolerable. You do this for 10 years. You know have $12,000, right? Correct, but instead of saving the money lets say you invested it every year!
- Year 1 is the same as above, you have $1,284
- At year 5; $7,384
- At year 10, $17,740!!!
For $17,740 I will love me some shitty ass work coffee. This is just one example. Take some time to think of other places where you could make small changes in your spending. Now imagine how much money that could be in the next 5, 10, or 15 years. It could literally be $100,000 or more!!!
We will have more posts on budgeting in the future. This post was meant to just highlight the value behind having a budget. In the meantime I recommend you checking out Personal Capital or Mint. Both are 100% free and both allow you to generate a great overall picture of your financial health. Sign up today!