Art of War Chapter 5 Summary explains the use of creativity and timing in building your momentum. The control of a large force is the same in theory as the control of a few men.
Personal Savings Rate
All too often I find individuals focusing far too much energy on investment returns and not enough on their savings rate. The cold truth is that investment returns barely matter when compared to your actual savings rate. We have all heard the common saying “spend less than you make” but how many people actually take it to heart and follow through? How in the world can you expect to build a million dollar nest egg if you barely have enough capital to invest? Popular talking head Dave Ramsey claims saving $100/month over 40 years will generate a portfolio of $1 million dollars, I find that claim absolutely absurd! Not to mention if we continue on our current economic climate $1 million dollars would seem absolutely worthless 40 years from now. $1 million dollars might buy you a house but that’s it, definitely not enough to sustain retirement for the next 20-30 years and that’s assuming you obtain a portfolio of that size. While I did reference Dave Ramsey’s bogus claim, I want to avoid arguing over financial rhetoric and focus on providing tips to increase your savings rate in order for you to have an enormous amount of capital to deploy towards building your financial fortress!
Spend less than you make – Seriously, if you did this one thing you would be far ahead of your peers. If you net $2500/month from your paycheck your budget should be less than $2500.
Eliminate All Debt – Yes you heard me correctly. Destroy any and all debts that you have and after you have done this absolutely refuse to incur any other debts throughout your entire life. There is a huge debate in the financial community about paying off mortgages early. My personal opinion is unless you have an extreme amount of financial knowledge and job security it is in your best interest to pay off your mortgage as quickly as you can. I believe a lot of individuals assume that you will always have a job and times will always be rosy, my motto is to “prepare for hard times when things are good and grind through the suck when times are bad.” Deploying every extra dollar you have available towards debt during your early years will provide a substantial benefit throughout the remainder of your life.
Financial Responsibility and Courage – It is very easy to feel sorry for yourself when facing extreme amounts of debt. I know all too well that the first step is the hardest, however I firmly believe if you have the courage and will to fight your debt then you will succeed. No it will not be easy, in fact it will be a constant struggle but anything worth having doesn’t come easy.
In our current day and age the marketing industry has laid siege to our households and wallets. Let’s think about it, you cannot go ANYWHERE without seeing an advertisement to buy something. And if you want to get technical they are past laying siege to your household, they have broken through the gates! If you turn on your television you are bombarded with advertisements, movies, tv shows, etc that tell you what you should be eating, drinking, wearing, buying, the list could go on for days!
I have compiled a “bare necessities” list of expenses that the common family needs in order to survive. In my opinion if you are trying to get out of debt or build a financial fortress through stocking investing or real estate, then you should put this list into practice.
Shelter – We all need a place to lay our heads. What we do not need is a Mcmansion where we only utilize 50%-60% of the entire square footage on a daily basis. I have friends and family who own these massive homes and they have admitted to me on several occasions that they barely use half of it. The fact is as human beings we should be active, getting out of the house and interacting with others. It is imperative that you differentiate between the space you actually need for your family and the amount of space “society” tells you that you need.
Food – Our number one energy source in terms of survival. I understand the stress and time constraints are daily lives present to us, however foregoing fast foods or restaurants will save you tremendous amounts of money in the long run. To be quite honest chances are you will eat healthier as well. My wife and I recently started the paleo diet and have noticed that we spend less at the grocery store than we normally would.
Clothing – I would never advocate looking like a complete bum but I also find the notion of paying hundreds of dollars for clothing items absolutely absurd. I personally do not have a huge closet full of clothes and the clothes I do have are very presentable yet reasonably priced. Take your focus off of name brands and focus on the price tag instead.
Transportation – In my opinion a car is for one thing and one thing only, getting from point A to point B reliably. I’ve never been fascinated with all the gadgets cars come with and to all those out there who are car buffs I would normally say sorry out of politeness but I’d be lying. I’m not sorry, I find the idea of spending $40,000 on a car gut wrenching. Don’t worry about what you’re driving and how it stacks up to your neighbor or co worker. Focus on having a dependable vehicle that serves its purpose, after all a car is nothing more than a depreciating asset that has expenses along with it.
Sacrifice. It’s definitely not something you hear about or see every day, you wouldn’t be quick to consider it a modern word. People hear the word sacrifice, and instantly fear something will be stripped away from them, it’s no longer a word of beauty. Sacrifice, to most people, means loss in a world that tells us we deserve everything. But I believe sacrifice is a victory in this financial war because it requires us to give up something for someone or something you love more than yourself. Perhaps you desire to leave your children with your estate so they can pursue their dream career or send them to college without drowning them in debt the second they graduate. Sacrifice while bitter ensures long term victory.
What financial sacrifices are you making?