Question: What does the average person fear most? (The answer may surprise you.)
The correct answer is running out of money before running out of life!
Here’s the sad truth. Seventy-five percent of people run out of savings within five years of retiring.
But that wasn’t always the case.
Just two generations ago, in the 1970s, the average life expectancy for men was 68 and 74 for women. Back then, women needed enough to fund nine years of retirement. And men needed just enough money to fund an average of three years.
Fast forward to the 2000s, and the picture has changed dramatically. Life expectancy has increased to 80 for men and 85 for women. The average man must be prepared to fund at least 15 years of retirement. And the average women must have the resources to fund at least 20 years of retirement.
But wages have been stagnant for nearly five decades. After adjusting for inflation, today’s hourly wage has about the same purchasing power as it did in 1979.
The math is pretty simple.
Incomes haven’t budged in decades for most people. Prices have gone up, year after year, while life expectancy increases with every medical research breakthrough. How in the world can the average hard-working person ever hope to bridge the gap? And create a Financial Surplus to pay for all the non-working years down the road? Without a Financial Surplus, the fear will come true. You’ll run out of money before you run out of life!
But there’s a solution. The first of my Four Money Principles.
Principle 1: Pay Yourself First
Your first step toward Financial Freedom begins when you fully understand that the money you earn today isn’t all yours. And I’m not talking about the money you pay in taxes.
I’m talking about money that belongs to your future self. The tired, wrinkled person 10, 20, 30 years down the road who sacrificed and worked hard, in the hope that one day she might feel Financially Secure and finally able to enjoy life.
A portion of today’s earnings belongs to your future self!
If you don’t start putting money aside, beginning today, for the future, older you, who will? You can’t take a hope and a prayer to the bank—or to the grocery store to buy bread. Once you fully embrace this concept, once you understand it and know it to be true, you’re ready to unlock the secret to Financial Freedom.
Keep in mind, budgets typically don’t work. Budgets are based on the principle of reducing your spending and saving what’s left at the end of the month. In other words, budgets are based on the principle of paying yourself last. A New Year’s resolution to set a budget and stick to it rarely lasts. On January 31st, you’re stuck with an overwhelming sense of guilt, and no extra money to show for it! My theory is this, budgets are only good for one thing—making you feel bad about yourself and creating more Money Stress.
The better solution—the only solution actually—is to Pay Yourself First, before you pay any of your monthly bills.
When your paycheck is deposited to your Income Account, set up an auto debit transfer of a fixed amount to a second bank account. This is your Pay Yourself First account. The key that the transfer happens automatically, within 72 hours of getting paid.
Paying Yourself First is the cornerstone of Financial Freedom. Complete this step every month, and you’ll be well on your way to Freedom.
Check out Module One of Financially Fit Bootcamp for step-by-step for determining how to Pay Yourself First each month. This number is unique to you only, and simple to find!
Dr. Tony is the co-founder of MindShift.money and the best-selling author of three books on personal and business finances. Having achieved Financial Freedom at 27, Dr. Tony believes that through Financially Fit Bootcamp and Cash Flow Cure everyone can get there. He has made it his life’s mission to help others live a life where their money works for them—not the other way around.