This last week I went camping with my family. No cell phone service. No sports, work, or social media distractions. Just a lot of connecting with nature, fishing, playing card games, and talking with one another.
It’s always been funny to me that we spend so much money and energy on crafting a nice lifestyle with every modern convenience, and then for fun, some of us willingly go sleep on dirt. However, the reason is that camping, or any other type of vacation, gives people an opportunity to reset and unwind. We can get away from the stresses and distractions of regular life to take time to focus on what’s most important — getting back to the basics.
During the trip, I found myself thinking about the basic principles of personal finance. In my experience, if you can master the basics, you will outperform 99% of your neighbors. The majority of finance can be boiled down to:
Spend less than you earn
Maintain a high savings rate
Invest consistently, diversify, and do it with a long time horizon
Via Giphy
While these concepts are simple to understand, they’re not easy to do. Mastering these skills requires years of discipline and consistent good behavior. Statistics show just how few people practice these principles. A whopping 62% of Americans have less than $1,000 in savings, the average savings rate is only 6.7%, and 47% of people don’t invest at all.
Being good with money has less to do with technical knowledge and everything to do with good habits. More important than knowing what to do with your money, is actually being able to do what you know.
I recently saw this picture swirling around the Twitterverse and felt like it illustrated this point nicely:
So, how do you get better at doing?
Keep things simple. The simpler your financial plan the more effective it will be. Identify your most important goals and what small, monthly steps you need to take to reach them.
Once you have a plan, create a financially friendly environment for yourself. Deciding what to save based on whatever’s leftover at the end of the month is not a sustainable savings plan. There will always be an excuse not to do it. Decide beforehand where you want your money to go and automate all of your savings, debt payments, and bills.
“You do not rise to the level of your goals. You fall to the level of your systems.”
- James Clear
Find someone who can keep you accountable. Open, honest conversations about money lead to smarter financial decisions. Personal finance is better with a buddy.
Just as it’s important in life to get away occasionally and take a vacation, it’s also important to get away from the never-ending CNBC headlines, stock market predictions, and your brother-in-law’s latest hot stock picks. Take a step back and evaluate how you’re doing with spending, saving, and investing. Personal finance isn’t rocket science and it doesn’t need to be complicated. Focusing on basic financial principles will provide the foundation for your success and be the main factor in reaching your goals.
Thanks for reading!