WHAT DOES financial success look like? To some, it might mean owning a mansion, vacation home and luxury cars. But to most Americans, it’s far different: Being able to pay their bills in full, save for retirement and spend time with family is enough.
Unfortunately, even this level of financial success doesn’t come easily. Look at the current state of our financial affairs. Credit card debt is on the rise. We don’t spend enough time with family. Retirement savings are lagging. According to Bankrate, workers cite a flat or decreasing income as the main reason for not increasing retirement contributions. It will take a special effort to turn all this around.
To achieve financial success, we need to manage our money—and our lives—thoughtfully and with a sense of purpose. Everyone has their own definition of success and our definitions may change over time. My contention: We can live on less than society leads us to believe. Being more thoughtful about our spending can benefit both our net worth and our happiness.
Start by asking yourself, “What do I truly need?” Instead of accepting what the world gives you or says you need, be proactive in your decisions. Take advantage of the opportunities presented to you. You can choose to show up to work and put in the minimal amount of effort. Alternatively, you can create a life of abundance just by taking the next small step. The extra steps you take today, or fail to take, compound over time—for better or for worse.
I encourage my clients to follow these three principles to get on the path to financial success:
1. Create job stability. There are two sides to the cashflow coin: income and expenses. A reliable income sets you on the right path. Increasing your abilities through professional development make you more valuable to your employer. Diversifying your income through side hustles and investments will smooth out any employment changes. As you increase the value of your human capital and diversify your income sources, you’ll have greater flexibility in where, how and when you work.
2. Incrementally increase savings. Human beings like things to stay the same. But your savings rate should not be one of them. This means you should implement systems to help you increase savings without any effort.
If you aren’t enrolled already, sign up for your 401(k) plan’s auto-increase feature, so your contribution rate increases every year. Similarly, always contribute the maximum amount to your traditional IRA or Roth IRA. These accounts have contribution limits that rise every few years, as they adjust for inflation. The IRA limits are increasing from $5,500 in 2018 to $6,000 in 2019—and your contributions should be increasing, too.
3. Take care of your health. The No. 1 financial concern for retirees is paying for health care, according to AmericaSaves.org. You want to budget for health care expenses in your retirement plan. But you should also take action today to improve your overall health. Living an active lifestyle can save you money down the road—and bring you happiness today. I’ve found cooking meals at home, taking my dog on walks and exercising regularly helps me to be both happier and healthier.
Ross Menke is a certified financial planner and the founder of Lyndale Financial, a fee-only financial planning firm in Nashville, Tennessee. He strives to provide clear and concise advice, so his clients can achieve their life goals. Ross’s previous blogs include Slow Going, Flying Solo and Money Date Night. Follow him on Twitter @RossVMenke.