Welcome to the fourth installment of our 10-week video series, which will help you avoid the most common red flags that are keeping you broke. If you’d like to follow along with our FREE guide, you can download your copy here.
The fourth red flag we're covering today is spending first and saving what's left.
I've had the privilege of helping many people navigate through their financial challenges, and overspending typically adds a lot of stress.
In the last video, we talked about how vital emergency funds are. Overspending can create a bunch of problems. The biggest one being you aren't able to save because you are likely spending all of your income and in some cases, you're spending more than you make by using debt products like credit cards to support your spending habits.
Why do most people overspend? There are many reasons, but today I want to cover a few bigger ones.
When I ask most people what their financial goals are, I get very general answers like, I want to be able to save more money. I want to save more for retirement. I want financial security. I want to get out of debt. I want to be able to have more money to do the things I love. These are great goals or ideas, but they aren't specific enough.
For the most part, these are just general ideas of what they want, but an idea isn't enough to move the needle and to stop bad habits. When a person takes the time to get super specific about what they want, I find that many people step up their game and get serious, which ultimately produces better results in their financial life.
I see this time and time again. Those who are just kind of, "meh" about their lives usually find that their finances are pretty rocky. But those who have goals and are specific about them see their money as being a way of helping them reach those goals.
No, I'm not talking about saving the world, but if you want to, that's cool!
As I mentioned, having goals is critical in your financial life. In my opinion, having a WHY or PURPOSE is the secret sauce. I've had more than a thousand people go through my membership site, Roots of Personal Finance. The members I see having the most success are those who established and discovered their WHY.
Think of your WHY as the ultimate thing you want to purchase or do. Heck, it doesn't even have to be a material possession. One of my WHYS was to open my own business, and with a lot of hard work and sacrifice, I was able to make it happen.
When you have this super defined WHY and PURPOSE, you will pass up on things and sacrifice for it because it's of such great value to you.
Another example of my WHY is freedom. Freedom from debt, freedom from a boss, freedom of choice, freedom to work when I want, do what I want and go where I want. So when I see things that I want to buy, I always ask, "Will this increase my freedom and get me closer to my why, or will it take away some of my freedom?" My answer will dictate whether or not I purchase that item.
Common sense tells you that this goes along with the first two. Without a plan, without goals, without a why, people have very little vision beyond today, tomorrow, and the coming week.
This greatly affects your spending habits. Companies that make and sell products are really good at marketing those products to people. Have you ever gone into a store like Target, Walmart, or maybe even online at Amazon with your list of things to buy, but end up checking out with a bunch of stuff you didn't plan on buying?
LAWD, Brad! You caught me red-handed!
Why does this happen? Those purchases make you feel good at the moment. We all like to buy stuff—especially things that we think will enhance our life. But how many of us have a bunch of things laying around our house that at one time felt good, and are now just junk that we don't use? Some of those things may even have the tags still on them, right?
Without that plan and direction we discussed earlier, these types of purchases and behavior will continue to put a strain on your financial life.
Establish specific, short-term and long-term financial goals.
I'll help you get started with a few ideas.
Establish your WHY or PURPOSE.
One thing is clear, having good financial goals backed by a solid purpose will propel you out of debt and towards financial freedom. It will take you some time, especially since some of these ideas are new to you. But I've seen that these ideas create massive results for people, and they will work for you, too!