Achieving financial freedom is really about setting your priorities

By Lew Nason

Insurance Pro Shop


Financial freedom doesn’t just happen. It’s a series of conscious decisions we make about our spending, saving, investing, insuring and planning wisely for the future. It's all about establishing a clear set of financial priorities. Many of us unconsciously go through life satisfying our immediate wants, without deciding if we really need it.

Where is all our money going?

In the 1960s, the average family size was 3.29 people. The average sized new home being built was just over 1,200 square feet. Today, the average sized family is only around 2.58 people. However, the average size new home being built today is over 2,349 square feet. That's almost double the home size of the 60s! If our families are smaller, then why are we buying these huge homes? Do we really need a bigger home, or is it that we want a bigger home? Doesn’t a bigger home cost us more? Don’t we need more furniture with a bigger home? Won’t we have to spend more of our hard earned money on property taxes, utilities and other household expenses? Is all this added expense really necessary?

Who are we trying to impress when we end up being house poor?

In many cases today, both spouses are working, so there is no question that we need two cars. But, do we really need two new cars, which come with two large car payments? Or gas-guzzling luxury cars?

How many TVs do we have in our homes? How about DVD players, computers, radios, entertainment centers, etc? Are they all really necessary? Is it any wonder that many of us don’t have any money left at the end of the month for savings?

The biggest obstacle to accumulating wealth

Have you ever said, "We can’t afford to put any money away right now. As soon as we ......, then we will start saving?" The problem is we always seem to have somewhere else to put our money.

There is never an ideal time to start saving! You can always find a reason to put it off.

Procrastination is the primary cause of financial failure and it will do more harm than receiving the worst investment advice or picking the worst investment vehicle. If you want to be financially independent, then you need to start right now to pay yourself first.

The actual cost of procrastination

Consider, if at age 20 you decide that you want to have $1 million by age 65, you need only save $113.44 per week at 5 percent. However, if you wait until you're age 50, you would need to save $860 per week.

In case you are saying to yourself, I can do better by investing in mutual funds, even with a 10 percent return, at age 50 you would need to save $576 per week to have $1 million at age 65.

But some of you may be thinking, "I’m plenty young, I’ll wait until next year. I’ll be making more money and it’ll be easier for me to start. After all, what difference can one year make?"

It makes a big difference. Using the example above, by waiting until age 21 to begin saving, you would have only $945,584 at age 65. The cost of procrastination is $54,436 less savings at age 65.

Pay yourself first

Benjamin Franklin said, "A penny saved is a penny earned." When you understand that a portion of all you earn is yours to keep but not to spend, great wealth won't be far behind.

Does this sound familiar? Every month, we all sit down and pay our bills. We deposit our paychecks into our checking accounts and then we set about paying the monthly bills. Generally, we pay the mortgage first, then car payments and other loans, followed by the phone bill and utilities. We save the credit cards for last, and based on how much we have left in the checking account, we determine how much we will pay to each credit card company. By the time we are done, our checkbook balance is at or near zero.

We promised ourselves that we’d save some money this month, but as usual, there is nothing left. In fact, we barely had enough to pay the bills themselves.

There is a remedy to this all-too-common a problem: you must pay yourself first. Before you pay any other bills, write a check to yourself for $50 or $100 or more before your checkbook runs out of money.

If you’re concerned that you will run out of money, consider this: Don’t you always run out of money anyway? This way, you’ll run out of money after you’ve paid yourself. And isn’t that the point?

Summary

We have a very serious problem in the United States that is going to affect all of us. In 1975, as a nation, we were among the best savers in the world, saving over 9 percent of our incomes annually. Today, we are considered to be among the poorest savers in the world. For the past few years, we have been saving at an annual rate of negative 1 percent of our incomes. What is going to happen when it comes time for this generation of poor savers to retire?

Who is going to foot the bills for them to survive? Will Social Security be there? How will this affect our standard of living and our ability to save for retirement? What about the future of our children and grandchildren and their retirement?

Are you setting good financial priorities for your family? If you aren't, then how are you going to help your friends, family, clients and prospects to spend, save, invest, insure and plan wisely for the future, in order to achieve financial independence?