How much money will you make during your working life? How much money have you made so far during your life? If you think back over the past 5, 10, or even 20 years, the number might shock you. This number was an eye-opener for me! Most people never think about this. If you are not sure how much money you have made or want an exact figure, you can go to the Social Security Administration website and pull it up! 

After my initial shock, I tried to justify why I did not have more to show for this money. The US’s median household income is just over $65,000 per year. This means that in 10 years, they have made $650,000! If they have been working 20 years, they have made $1.3 Million! Where did all this money go? What are the daily choices that lead most down the path of financial ruin instead of financial independence? 

Some of the initial excuses I told myself for the reasons why we did not have more to show for all the money we had made so far were:

• We lived comfortably. Aren’t we all told to get as much house as we can afford?
• We could start saving later. Aren’t we constantly bombarded with advertisements telling us to enjoy the moment?
• We deserve good things. We work hard; therefore, we should reward ourselves by buying everything we want, right? Does this bring long-lasting happiness?
• We were making memories. I used to tell myself that “they” (not sure who “they” are) could take your money and stuff, but “they” cannot take your memories away. I used this to justify vacations we could not afford at the time and should not have taken.
• You never know what tomorrow might bring, so we are enjoying life now. This is the excuse that I used to justify why we should take vacations we could not afford. Now I use it to motivate me to save and invest more of our income!

Do any of these sound familiar? Which ones have you used to justify a purchase that deep down inside you knew you should not make?

WE CAN JUSTIFY ANYTHING TO OURSELVES.

The thing we all want more than “stuff” is time. I can prove it to you. How do you feel the day just before you go on vacation? How do you feel on a Friday afternoon? I believe that we feel good on Friday afternoon and just before going on vacation because we know that we will be controlling how we spend our time. How do you feel on your last day of vacation? How do you feel on Sunday night? I believe that we feel miserable the day before we come back from vacation and on Sunday evenings because we know that we will have to give up control of our time.

What we all want is control of our time! We “buy” control of our time by saving and investing the money we make. When the savings and investments produce as much income as your job, you have bought your freedom. 

What is the point of working all your life to end up surrounded by “stuff” and not being able to have the one thing we all want, which is control of our time? Most have probably heard that the one regret people have on their death bed is that they didn’t spend more time with loved ones and friends, not that they wished they would have bought more “stuff.”

As humans, we always try to justify our actions to others and ourselves. When we buy something because we feel that we “need it,” most times, the item ends up in a closet or garage only to be touched (not even used!) until we are ready to give it away or sell it. Think about your last ten non-grocery purchases and see if this is true for yourself.

WE WANT TO LIVE COMFORTABLY

Who does not want to live comfortably? Really. Many of us fall into this trap when we are looking for a home. We have all heard the adage “Buy as much home as you can afford,” but rarely do we think of the costs associated with owning and maintaining the bigger home. Your home expense is not just your mortgage payment. You need to add utilities, landscaping, and other associated maintenance expenses. From Air Conditioning & Heating to landscaping, a bigger house will cost more than a smaller home to maintain.

Many of us fall into the trap of getting the most expensive house we can afford without thinking about how this will affect us financially. The biggest expense for most of us, as a percentage of income, is usually housing. Not just the mortgage or rent, do not forget all the other recurring monthly costs associated with owning a home like the utilities. While we would probably all like to live in a mansion, not many think about a bigger house’s maintenance costs when looking to buy a home. 

When people fall for the idea that their home is an investment to justify purchasing the biggest house they can afford, they simply have not done their research. Looking back to 1891, the prices of homes have increased 3.2% per year before inflation and only 0.3% after inflation, not necessarily the performance you would want from an investment. An investment in the Dow Jones Industrial Average historically appreciated 7.75% before inflation and 4.85% after inflation when you go back to 1921! Would you rather your money grow at 3.2% or 7.75%?

WE COULD START SAVING LATER

When you think about it, this is the reason why we are where we are. We procrastinated starting to save part of our income, and now we have to catch-up. The key to saving and investing is not necessarily how much you saved, but how long the money has had to “work” for you. I used the following to show my teenager how she could have a Million Dollars in 31 years by saving and investing. The assumptions are:

• Start with $10,000. 
• Add $1,000 per month
• Investments grow at 6% per year on average 

After 31 years of doing this, you end up with just over $1 Million in your retirement account. 

Most people would agree that you should have some cash “cushion” saved for emergencies. This should be at least six months. If you spend $4,000 per month on household expenses, then take this number and multiply it by six. If you do not have enough saved in case of an emergency, read on to see how we overcame the excuses we used to get our finances back on track.

The first obstacle is to stop making excuses for yourself. I know, I did it. Where am I going to find the $10,000? I finally stopped using this excuse and decided to begin. I currently save and invest 25% of my income. It was not always this way. It took some time to rearrange things, cut out the “fat” from our budget, and decide what was more important spending on “stuff” or saving for retirement.

When I did begin, I started with $500 per month, which I added to our household budget. I opened an IRA Account with an online broker and made sure to send the $500 into the account every month. As I streamlined our household budget, and an expense was cut, this money was added to the IRA “expense.” 

As part of the procrastination process, many people get stuck trying to choose the “best” broker. I will give you a tip; they are all the same. For investing in ETFs, which is what most people do, pick one and go with it. The critical step is to open and fund the account. Nowadays, ETF trades are commission-free at all brokerage houses. Unless you are looking to do your research and stock pick, which I would not recommend until you have put some time into learning how to do it, the most straightforward investment choice is to invest in an ETF of the S&P500. In an ETF of the S&P 500, you are invested in the top 500 companies that drive the US economy. If the broker you choose offers several different choices, pick the one that includes all 500 companies, charges the lowest fees possible, and is not leveraged. A note on ETF fees or Expense Ratios: on $500, a 0.03% fee is not much, but as your account balance grows, these can add up quickly!

It is usually easier to keep track of everything by using the same broker your employer uses for your 401k. You can link the accounts under your profile. Many brokers make it easy to open additional accounts because they already have most of your information. If you have accounts at different brokerage firms, consider consolidating them with one brokerage firm to make it simpler to keep track of everything. If you have questions about this, contact the broker where you will be consolidating your funds, and they can guide you through the process. It is simpler than most people imagine.

Remember, the key to saving and investing is not necessarily how much money you are saving, but how long your money is invested. You want to give your money as much time as possible to work for you before you need to access it. 

WE DESERVE GOOD THINGS.

This used to be our shopping excuse when we used to go to the mall or see some advertising about a widget online that we “had to have.” Of course, we all work hard. Most of us work five days a week, some more, and if we are lucky, get a day or two off. We spend more than 8 hours a day working, for what? We spend more time working than we do with our loved ones doing something we want to do. Does buying that “must-have item” somehow replace the time you spent away from loved ones? or does it keep you in the rat race?

Where is the last item you bought using this justification? Is it sitting in a corner? Tucked away, probably never to be used or touched again until you are ready to give it away. When I realized that these purchases were not being used, I came up with the idea to wait for at least 24 but preferably 72 hours to complete my purchase. In this way, I get the satisfaction of putting the item into my shopping cart online, but by waiting to complete the purchase, I reduce the amount of “impulse buys” that I would regret later. Simple yet effective. 

Could we have returned the items? Yes, but then this means spending more time away from family and friends. We would have to take time to go to the store or post office to stand in line to return something we did not want. We often forgot to return the item and get stuck with something we did not want anymore. While individually $10 or $20 might not seem like much individually, think about how much of your time you just threw away. How long do you have to work to make $10 or $20 after taxes?

WE WERE MAKING MEMORIES.

I used this excuse to justify taking vacations we could not afford and should not have taken at the time. Any parent knows how fast kids grow up and how difficult it is not to take them to Disney World, Legoland, or any other place. We would tell ourselves we will pay for the trip during the year, but then we would go somewhere else a few months later. We’re not done paying for the previous trip, digging ourselves into a deeper hole. The reality is that kids value the amount of time we spend with them. Think back to your childhood; what are your most cherished childhood memories? Mine are the ones spending time with family and friends at home or near our house, going to the beach, going to the lake, etc. Yes, it is nice to travel and get away, but only do it if you have the cash saved up to pay for all of the trip’s associated expenses.

We have learned to stay close to home and not plan a trip for every long weekend that the kids have off. It is interesting to see how our kids enjoy being outdoors in a park, hiking a local forest trail, or exploring a river or creek. As a family, we have found that if we go somewhere where there is no cell signal, it can be even more fun!

WHAT WILL TOMORROW BRING.

This excuse is quite interesting because you can use it to justify spending money or to save money. A few years back, this was our favorite excuse to justify our trips. We used to tell ourselves that time flies, the kids are growing up fast, grandparents are getting older, etc. Anything to justify to ourselves why we needed to take the trip. Once we began to see these excuses for what they are, ways to spend money, we began to use this same excuse as a reason to save money. Now we plan our trips months in advance, giving us time to save the money to pay for the trip and the associated expenses.

Now I am not saying you don’t visit your family or travel. This is not the case. We make it a point to travel to visit family at least once a year, but we do it differently now. We plan our trips ahead of time. We save money before the trips to pay for them and leave no balance on the credit card after getting back from our trip.

Most people would agree that you should have some cash “cushion” saved for emergencies. This should be at least six months. If you spend $4,000 per month on household expenses, then take this number and multiply it by six. If you do not have enough saved in case of an emergency, read on to see how we overcame the excuses we used to get our finances back on track.