Embracing Reality
Understanding Your Limits and Rising Above
The hardest truth for most people to accept is that they are average. We’d all much prefer to be like the few people gifted with special talent. The reality is that a very, very small percentage of the population ever achieves greatness.
At the Olympics, there can only be one gold medal winner, the best in the world at that particular event. Many will dream of becoming famous actors and actresses, but few will actually achieve that goal. Some will devote their lives to scientific research and never make a significant discovery, let alone win a Nobel Prize.
There is absolutely nothing wrong with being average since most people face natural limitations to their physical, social, and intellectual abilities. However, accepting being average is always irritating.
Overcoming Limitations
Like most people, David had a deathly fear of public speaking. His early public speeches scared the pants off him, but like any skill, he got better with much practice. Intellectually, he has fed his thirst for knowledge through new hobbies and interests. Physically, he continues to strive for excellence. David will never play in the NHL, but he does enjoy doing his best on the ice every week with a group of his hockey peers.
The Power of Financial Knowledge
While most people will experience physical, social, or intellectual limitations which cannot be overcome, financial knowledge is available to all without limitation. It just has to be learned; it’s that easy. While your body limits you from becoming a professional athlete, you can read and learn how to manage money responsibly. You may never become a billionaire, but you can be financially comfortable. To repeat – financial knowledge is available to us all without limitation!
Hands down, this is the best place to rise above average since it has the greatest potential pay-off. You can create an emergency fund and sleep well at night knowing you’re prepared for the uncertainties that can drastically affect our lives. You can experience the sense of freedom and harmony that comes from being debt-free. By saving and investing wisely, you’ll be rewarded with a secure and well-funded retirement.
Don’t settle for being average and following the average lifestyle. Financial knowledge is within your grasp, and with a healthy dose of discipline and incentive, it can lead you to an above-average future.
Start with Small Changes
You don’t need to overhaul your entire life to be money wise. Start with small changes. Track your expenses for a month to see where your money is going. (Get our free financial tracker Free Personal Finance Excel Template.) This simple step can be eye-opening and help you identify areas where you can cut back. Maybe you’re spending more on dining out than you realized, or perhaps those small, frequent purchases are adding up.
Create a Budget
Once you have a clear picture of your spending, create a budget. (Read more articles on budgeting – A Complete Guide to Creating Your Personal Budget, Financial Recovery Is a Journey to Financial FreedomHow to Be Money Wise: Simple Steps to Financial Success for Canadians). The 50/30/20 rule is a great place to start. Allocate 50% of your income to needs, 30% to wants, and 20% to savings and debt repayment. This simple guideline can help you manage your money effectively without feeling deprived.
Needs
Needs are essential expenses such as housing, utilities, groceries, and transportation. These are the things you cannot do without. By keeping these expenses to 50% of your income, you ensure that you are living within your means.
Wants
Wants are non-essential expenses like dining out, entertainment, and hobbies. While it’s important to enjoy life, allocating only 30% of your income to wants helps you stay balanced and avoid overspending.
Savings and Debt Repayment
The remaining 20% of your income should go towards savings and paying off debt. This helps you build a financial cushion and reduce financial stress. The 50/30/20 rule is a flexible guideline that can be adjusted to fit your personal circumstances, but it provides a solid foundation for managing your money.
Build an Emergency Fund
Life is full of surprises, and not all of them are pleasant. An emergency fund can be a lifesaver when unexpected expenses arise. Aim to save at least three to six months’ worth of living expenses. This fund will give you peace of mind and financial stability during tough times.
How to Start
Start by setting aside a small amount each month until you reach your goal. Consider automating your savings to make it easier. Even a little bit saved consistently can grow into a substantial emergency fund over time.
Pay Off Debt
Debt can be a major burden, both financially and emotionally. Make a plan to pay off your debts as quickly as possible. (See our post on Strategies for Paying Off Debt Efficiently.) Start with high-interest debt, such as credit cards, and work your way down. Paying off debt frees up more of your income for saving and investing, helping you build a more secure future.
Strategies
Consider using the snowball method, where you pay off the smallest debts first to build momentum. Alternatively, use the avalanche method, focusing on paying off the highest interest debt first to save money in the long run. Choose the strategy that works best for you and stick with it. (Here is an article you might also like. Comparing the snowball and the avalanche methods of paying down debt.)
Save and Invest
Saving money is crucial, but investing is what can really grow your wealth. Start by contributing to a retirement account, such as a company pension plan or Registered Retirement Saving Plan (RRSP). (Compare RRSP vs TFSA RRSP vs TFSA: Which Is Right for Your Retirement Plan?.) Take advantage of any employer matching contributions, as this is essentially free money. Diversify your investments to reduce risk and maximize returns. The earlier you start investing, the more time your money has to grow.
Types of Investments
Consider a mix of stocks, bonds, and mutual funds to create a balanced portfolio. Consult with a financial advisor to develop an investment strategy that aligns with your risk tolerance and financial goals.
Educate Yourself
Financial knowledge is power. Take the time to educate yourself about personal finance. Read books, listen to podcasts, and follow reputable financial websites. The more you know, the better equipped you’ll be to make smart financial decisions.
Resources
Look for resources like these two oldies but goodies,
“The Wealthy Barber” by David Chilton, or
“Your Money or Your Life” by Joe Dominguez and Vicki Robin.
Also, see David’s books at the bottom of this page.
Online courses and workshops can also provide valuable insights.
Stay Disciplined
Being money wise requires discipline. Stick to your budget, avoid unnecessary debt, and stay focused on your financial goals. It’s easy to get sidetracked, but staying disciplined will pay off in the long run.
Tips for Staying on Track
Set regular financial check-ins to review your progress. Adjust your budget as needed and celebrate small victories along the way. Surround yourself with supportive people who encourage good financial habits.
Visualize Your Goals
Visualizing your financial goals can help keep you motivated. Whether it’s a debt-free life, a comfortable retirement, or a dream vacation, having a clear picture of what you’re working towards can make it easier to stay on track.
Creating a Vision Board
Create a vision board with images and words that represent your financial goals. Place it somewhere you’ll see it daily to remind yourself of what you’re working towards. (I’ve never tried this, but some folks swear by it.)
Seek Professional Advice
If you’re feeling overwhelmed, don’t hesitate to seek professional advice. A financial advisor can help you create a plan tailored to your unique situation and goals. They can provide valuable insights and help you navigate complex financial decisions.
Finding the Right Advisor
Look for a certified financial planner (CFP) or a financial advisor with a good reputation. Ask for recommendations from friends and family, and interview potential advisors to find someone you trust.
Conclusion
Rising above average in financial knowledge and practice is within everyone’s reach. By making small, consistent changes, you can achieve financial stability and security. Embrace the journey, stay disciplined, and keep educating yourself. Your future self will thank you.
In my E-books (“Water Barrel” and “The Balance”) I discuss simple methods to live sensibly for today, take charge of your financial affairs, and invest safely for the long term. For more information please visit David Penna Amazon.
Disclaimer for ManageYourMoney.ca
The information provided on ManageYourMoney.ca is intended for educational and informational purposes only. It should not be taken as financial advice. The opinions shared are those of the authors and are meant to encourage sensible financial habits and decision-making. We recommend that you do your own research or consult a certified financial advisor before making any financial or investment decisions. All investments come with risks, and there is no guarantee of success. Past performance is not a reliable indicator of future results. Always consider your personal financial situation and risk tolerance before pursuing any investment opportunities.
As always, we are not a qualified financial advisors. We just relate financial management to our own experience which may not resemble yours at all. Advice is frequently worth exactly what you paid for it. Most of ours came from expensive experiences.
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