Eventually, you realize it’s a powerful opportunity we can implement in our daily lives. Today, we can start to apply essentialism to three primary parts of our lives: work, family and finances. It’s not about getting more and more things done. Likewise, I think we’ve all tried that and probably failed. Then we’ve also heard ‘work smarter not harder’ (been there, done that). Instead, it’s about investing in the ‘right activities.’ In other words, “essentialism” is a disciplined systematic approach for determining where our highest point of contribution lies, and then with little effort execute on those things.
A great question an essentialist will ask is “what are the trade-offs I’m willing to make?”
Therefore, a trade-off isn’t a negative.
Particularly, we can apply this to our daily lives and our finances. However, I’m not talking about more stuff, but instead perhaps less financial stress. Particularly, having clarity on our goals and envisioning what our retirement looks like will cause us to make different or better decisions today to achieve our goals sooner.
In order to reach your financial goals, here are the key steps you need to work on each day.
Be honest with yourself
Obviously, you know your strengths, weaknesses, likes, dislikes, etc. Yet the biggest question you need to ask is what trade-offs am I willing to make so I can accumulate $1 million by my goal date. As I discussed above, trade-offs are not negative. They are just trade-offs, plain and simple. Especially when it comes to technology – it can track all the ins & outs of money in your life. Thus, embrace it and let it do its job. When it comes to budgeting most will fail because we are not honest with ourselves. We are really good at outlining all the big expenses. But we fail in the day-to-day life and balancing out our wants. Consequently, it becomes freeing when you understand where your hard-earned money goes each month.
Right-sizing your life
In short, trade-off all of the big houses, fancy cars, expensive clothes and the theme continues to shine through. In spite of the opinions of most advisors, it’s extremely comforting to have $50,000, $100,000, $250,000 or a $1 million just in cash. I can’t tell you how many people I encounter disagree with having so much in cash but when they start to experience how this positively impacts their life, they are hook line and sinker in on their way to becoming a millionaire! In truth, it’s totally freeing knowing you have financial control and money readily available to address whatever issues arise.
At the same time, you need to pay yourself first. Focus on one key number, your gross savings rate. For this purpose, I’d target 15%-25% of your gross earnings. Surely this is the most important number in your planning. Frankly, if you don’t get this number right, reaching your financial goals will be almost impossible. Yes, that’s a big number but you have big goals. Plus, this number is very attainable within a short period of time if you’re not doing it today. If you can’t do it today, it can be achieved in 1-2 years.
To illustrate, this is also the most challenging area of financial planning and because it’s the hardest most struggle to adhere to it. One of my favorite words is “synergistic.” Within this manifest, all these strategies have a synergistic relationship. If you succeed in only three out four areas, that fourth area will bring your results down. Make no mistake about it. In order to obtain the best results you need to hit on all four cylinders.