Nate's Secrets to Financial Success

Only 14 days till graduation! Everyone knows that any kind of academic graduation is a great opportunity to receive all kinds of unsolicited advice. Well, this time as I approach graduation, I’m turning the tables and giving out some advice of my own. And seeing as I needed a soapbox, this blog has become my advice-giving medium.

I’ve been thinking a lot about finances and financial success and how to achieve it. I’ve spent the last couple years studying financial strategy full-time, so it’s a subject that tends to occupy my thoughts. So I’ve come up with "Nate’s Secrets to Financial Success."

Now, I understand that normally when someone gives advice about financial matters, it usually helps if they have had some financial success themselves. I have not. But I haven't had any financial failures either! However, I would like to say that my lack of financial independence is because I’ve been in school my whole life, minus two years in Brazil not getting paid. Yes, I'm just a poor college student. Anyway, I really feel that these are sound principles based on the opinions and research of a lot of professors and people I respect for their financial prowess. So during the next couple weeks, I am going to post a new tip every day, or every other day. Enjoy!

Note: This is not a get-rich-quick guide. Wealth is built over long periods of time. Over 90% of lottery winners use up all their winnings within ten years, and the vast majority of all millionaires in the United States never received any money from anyone as a gift or from winning anything. There may very well be ways to get rich quick out there, but there are also a lot of ways to go bankrupt or go to prison. My goal is to avoid both, while being financially successful in the process.

#1 – Live within your means!

Everyone seems like they know what this means, but a large number of Americans seem to not really understand it. This means spend less than you earn! Wow, that’s complicated. In 2005, the U.S. personal savings rate dipped below zero for the first time ever. This means that as a whole, the U.S. is spending more than it is making. Think for awhile about that, and you will realize that it can’t go on for very long. Think about it a little longer and you might realize that the current “credit crunch” that we are seeing is related to the mindset of “If I haven’t got the money now, that’s ok I’ll just pay it at some indeterminate time in the future.

An intuitive Chinese proverb states: “Live like you’re poor, and you’ll always be rich. Live like you’re rich, and you’ll always be poor.”

I’ve found that wealth has very little to do with income. Unless you consciously fight it, your expenses will always rise to meet your income. I read an article on a financial website the other day about a woman with two kids who was making $70,000 per year. She was suddenly laid off, and two weeks later she was on food stamps. The story was written trying to show how difficult it is to get along in the world, and what a tough situation she was in. I agree, losing your job is not fun, and can create some unkind financial circumstances. However, if you dig a little deeper into the article, you realize that her neighbor sneezing could have caused some financial turmoil.

First of all, she had a $2,500 monthly mortgage payment. According to my calculations, at an interest rate of 6% for 30 years, she was living in an approximately $415,000 house. She was also obviously not saving a whole lot, seeing as what she did have saved lasted for less than two weeks. Maybe I should feel sorry for this person, but I don’t. She was living beyond her means, and she bit the dust.

So, one of the best ways to assure that you are doing this is to create a budget, and to stick to it. I created a budget in excel that Julie and I use, and it has helped us to track our expenses, make financial goals, and save a lot of money. I’ve programmed it to be completely automated, so all you have to put in is your income and expenses, and it will calculate how much you are saving, spending, etc. in any number of categories.

I’d like to make this budget available to anyone who wants it, but haven’t figured out how to post a downloadable copy of it online yet. I have put a few screenshots here so that you can get an idea of what it looks like. If any of you want one, leave a comment with your email address, and I will send you a copy of a generic budget that you can use. I don’t mind. It makes me feel like I’m making a positive impact on the world, or atleast on the two or three people that read this blog.

Stay tuned for Nate’s next “Secret to Financial Success!”

Note: The screenshots don't show all the calculations or graphs that the budget creates for you, they are just a sampling, and it is filled with hypothetical data, not anyone's actual income and expenses. (click on each screenshot to get a closer look)