Know What You Pay For: Step One on the Path to Wealth

Warning: if you’re looking for the secret way to get rich quick or get your dream sports car or that baller apartment you can’t even contemplate affording, and especially if you’d even consider taking out a serious amount of debt to do so, then I regret to inform you this article is not for you. If you want to get rich quick, the only advice I can offer you is to have a brilliant, world-changing, rapidly scalable idea that helps people, combined with the ability to ruthlessly execute and an unparalleled work ethic to bring it to life, backed by the ability to convince the world why it needs your idea. Or start another hard seltzer company.

Do you know where your money goes?

To be completely honest, I didn’t have a clue for more years than I care to admit. In my early 20’s, I went about doing things in my day-to-day life and, well, I wasn’t broke or going into debt, so everything seemed OK. And really, it was OK. I was even able to scrounge enough away to take the occasional nice vacation or buy myself some nice things, but by no means were these transactions stress-free. I was getting by, even having fun, but not really getting anywhere. And I just couldn’t seem to see any way that I could get anywhere without sacrificing any of the fun.

That was before I opened my eyes and got clear on my relationship with my money and how I choose to use it. That was before I made a real commitment to myself. Now? I’m doing more things that I love to do than I was then, still traveling and seeing the world my way, and saving and growing my money on a path to long-term wealth that’s visible at the far end of the rainbow — getting where I want to go, while living on my terms. And it all started with a step back to look at how I use my money.

So I ask you: do you know where your money goes?

No, really — do you know where your money goes each month? That money you work hard for every day and seem to never have enough of to put away and reach your big goals.

I’m not talking about having a rough idea. You’re reading this because you want to get serious about your financial future, right? Then it’s time to get serious about understanding exactly how and where you spend your money.

Before we go any deeper, I want to let you know now that this isn’t going to be about creating some strict, categorized budget that’s impossible to stick to. Lord knows I’ve tried that, and failed, so let me save you the waste of time, effort and headspace on your path to wealth.

So. Assuming you’re reading this because you’re earning enough to have some disposable income, and you’re wondering how to start turning your income into real wealth, let’s start with a simple question: what are you spending your money on?

Seriously. The very first step that all of us need to take before we can start creating wealth is to put on some nice music, turn off the TV for an hour or so, and figure out where the hell our money goes every month. The great part about this first step? You should only have to do this once, now, and then only occasionally throughout your life as your circumstances change.

I can’t overstate how simple this first step is, and yet so many people never take the time to do it until later in life, years after they could have started building. And in the universe of compound interest (we’ll get to that in another article), those lost years are most certainly bound to be the difference between you achieving your goals and not.

I’m going to walk you through this first simple step, exactly as if I were giving the same advice to my best friend, and then I’ll provide a step by step exercise at the end of the article. And believe it or not, I’m not going to try and sell you on anything. Just some straight up easy explanations and steps to follow.

Uncovering Your Opportunities

This section is all about understanding the take-home money you have coming in, your basic expenses and commitments, and ultimately (and most importantly) how you’re spending what’s left. If it sounds like an obvious thing to do, that’s because it is. But so many people never take this first step, afraid that they won’t like the results.

So, how much do you really need to cover your basic expenses and commitments? Things like rent, utilities, car payments, insurance and basic meals and groceries.

Now, how much do you have left over after you subtract your basic expenses from your take-home pay each month? We’ll call this your disposable income.

For example — if you bring home $3,000 a month (after tax withholding, benefit contributions, and the like) and spend $2,000 on your basic expenses each month, you’re left with $1,000 of disposable income, or the money you have left for other things.

Take a hard look at that number.

For a lot of people who have never done this exercise and consistently struggle to save, thinking there’s just not enough money coming in to do so, realizing the amount of disposable income you’ve actually had before mindlessly spending it all can come as a little bit of a shock.

You, right now: But, Benjamin — everything is so expensive, I need all of my disposable income if I want to have any fun. I love my morning walk to get a cup of coffee at the local shop and it’s not my fault that it costs $4 for a latte, I love going out to eat with my friends, and what about all of the fun trips I take?

I want to be very clear — it is none of my business to tell you that you need to change anything about the way you live your life. I’m not passionate about forcing people to do anything; what I’m passionate about is helping open people’s eyes to the choices they make, and the habits and behaviors they’ve formed, that are hiding in plain sight as opportunities to create a path to real independence.

I also want to get clear with you that I am not here to tell you how you’re going to make a lot of money fast — though I do think it won’t take long for you to start feeling wealthier and more comfortable with your finances, and that’s really the most important thing. I can’t tell you how many people I know who make a lot more money than I do, who are a lot more stressed out about their money month-to-month than I am because they’re not clear on the effects of their choices — overextending themselves for a car lease that eats up all of their disposable income, being OK with credit card debt (eek!), stretching themselves for apartment or home payments in areas they can’t afford, and the list goes on.

I’m going to get into the myths we tell ourselves about making money and about what will make us “happy” that I see hold all kinds of people back in another post. But for now, I’ll just say that your life, now and 20 years from now, is all about choices. If you think you want to own your own home one day, have kids that you’re able to put through school, retire comfortably, or anything that increasingly seems to require an unattainable amount of wealth unless you mortgage the hell out of your life, and you have a decent amount of disposable income after you cover your basic expenses, then you need to realize the only reason these things seem so unattainable is because you haven’t gotten serious about your choices.

But fear not! I’m here to let you know that if you’re reading this, and your ready to take a good look in the mirror (i.e. at your money), then you are doing the most important thing you can do, and that’s taking the first step.

We’re about to start on the path to building your wealth — your kingdom — in a way that will not only save you money but actually make you a lot more money over the course of your life (I promise I’ll be convincing you about the super sexy world of compounding interest soon!), so whip out your phone and order your favorite meal from your favorite local restaurant (try ordering directly from them, they’ll appreciate skipping the commission to the not-so-local food delivery behemoths and you’ll help out your favorite local spot along the way). Treat yourself. Not only do you deserve it for adulting so hard, but the amount you spend will pale in comparison to where you’re going.

When the food comes, sit back, relax, get out your laptop or smartphone and a notepad, and let’s get intimate (seriously, is it just me, or is there something so ridiculously attractive about a person taking their future seriously??).

Exercise: Get To Know Your Money

Now that you’ve got your meal, some nice music going in the background and maybe even a little glass of wine, it’s time to get to know your money.

Summary

If you’re living and spending on idle, then you’re not doing yourself any favors on your path to building wealth. And it’s never too early to start. Professional Financial Planners and Advisors I’ve spoken with all say the same thing: the majority of their clients come to them after they’ve built their wealth, when really the core of their profession is to help people attain wealth in the first place.

Be proud of yourself. By taking the above steps, you’re signaling to yourself that you’re ready to make a commitment to actively building your future self and attaining wealth. You’re not waiting for wealth as a prerequisite to more wealth (a lot of young, disillusioned people increasingly think it is). An exercise in self-awareness is just the first small step, albeit one of the most important ones you can take. When you wake up tomorrow, you’ll be clear on your money. If you don’t like the picture, I’ll be here to help you on your way to changing that. Don’t panic. You’ve got this.

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I have a passion for helping others, in particular young professionals, to grow their wealth and reach their goals--"adulting," if you will.