If you are unhappy with your financial or career situation, read this post and start today. You can change your life in 5 years or less without working 100 hours a week and eating ramen noodles.
I remember sitting down my second week of full-time professional work listening to managers give speeches about how they advanced their careers. Most of them had been at the company around 5 years and each speech started the same:
“5 years ago I was sitting where you were, hearing a speech similar to this”
Being the young naive recent college grad I was, these stories were dismissed. There is no way I was going to take 5 years to be successful. I went to college, everything was going to be easy from here on out.
Not long after those speeches, my first Student Loan payment was due (as I took “advantage” of the 6 month deferment). Other bills started coming in and reality struck.
It didn’t take long for me to figure out I couldn’t party all weekend, afford my modest rent and insane student loan payments on my salary. My future wife was going to be moving down to the cities in 6 months and we were going to be stuck in a tiny bedroom in the basement of my buddies house.
We wanted to buy a house, but didn’t have any money saved up for a down payment. Our net worth was close to -$100,000 (without a mortgage) and our incomes were well below average for college graduates.
5 years later, our life looks a lot different. I would like to say that it has been the result of “hard work” but that wouldn’t be accurate. Over time, we figured out how to make money work for us, and more importantly how to stop shooting ourselves in the foot.
Read on if you want to see how you can change your life for the better, in 5 years or less.
Face your situation
Are you ignoring your situation hoping that it goes away? If you don’t organize your finances the compounding effect will be in the wrong direction. Debt doesn’t disappear, money doesn’t show up in your 401k account and your spending doesn’t slow if you leave it unchecked. This is a huge step, don’t hide from it.
The 3 questions you need to ask yourself in this stage are
- Where is your money going? Conduct a spending review every month, figure out what areas you are willing to cut out and get to work. If you are interested, you can see our spending review process in this post: Holding Ourselves Accountable: Credit Card Edition
- How much debt do you have? If you don’t know, figure it out now. Gather the balance, interest rate and monthly payment. Stack rank from highest interest rate to lowest.
- Is your money being deployed to the right spot? Make sure your investments are in line with your risk tolerance and age. There are a ton of recommendations out there. I will break this down further in another post, but our mix is 60% US Stocks, 10% bonds, 10% alternatives, 20% International. Thanks to Personal Capital for making it easy to monitor.
We were $95,000 in debt (mostly student loans), were making below average salaries and were only saving/investing around 3% of our income.
Take Corrective Action
Taking corrective action starts with a plan. The first decision you need to make is if you need to tackle your debt or increase your saving/investing amounts. Our investing to debt payoff ratio is 10:1, mostly because all of our debt is under 5% interest.
If you have credit card debt, I would start there. Credit cards are great tools when used correctly, but if you are carrying a balance the interest rates are sickening.
Setting weekly or monthly goals is key. They can be as simple as “spend $10 less every week for a month”
Other things to do in this stage:
- Refinancing – Student loans and Mortgages are a good place to start
- Credit Card – Make sure you have the right rewards card for you. We default to travel rewards, easy way to force travel on ourselves.
- Avoid Common Money Mistakes – Avoid unnecessary debt, low-interest rates on savings accounts, and overpaying for services
5% is my magic number for interest, you can read why in this post
Push your comfort zone
Investing is the cornerstone of changing your financial future. Without investment returns it is incredibly difficult to become Financially Independent or think about early retirement. This gains are small in the beginning, but don’t be discouraged. Use percentages to keep you motivated early on.
You can make the biggest strides in this area, increasing your income is the best way to expedite the results.
This area also requires the hardest work to get ahead. Work on delivering consistently, while expanding your skill set. Avoid short-term pushes with long spells of mediocrity.
Depending on your situation, free time or internal drive to speed this process up, you may want to start side hustling. There are 1000’s of posts about potential side hustles. This is the one area we need to expand on, as soon as this blog is established we will turn our attention here.
Don’t waste opportunities
This is a simple concept, every time you get a raise save at least half. When you payoff your debt, start investing the same amount. If you get a bonus, tax return or amazing financial gift – use at least half to improve your financial situation.
Consider time an opportunity, the longer you have to invest and let your money grow the better off you will be. Don’t waste time – take action today.
Most Importantly – Stick With It
The beginning is rough and deceiving. You will not feel like celebrating weekly or monthly wins, because they seem insignificant. Don’t get discouraged, it WILL work and even though you are expecting it – the results will surprise you.
The changes in our life have been amazing, but for the first 2 years we only focused on earning more. We didn’t push ourselves to save/invest or cut spending until about 3 years ago. It is exciting to watch us hit milestones that I didn’t think were possible.
The actual “change” can be done in a short period of time. Put in 5-10 hours in a week you can put most of this plan on auto-pilot.
There is rarely a “Big Bang” event that will fix all of your problems. Huge promotions don’t fall in your lap, most people don’t hit home runs buying individual stocks. Small changes done consistently over time that can turn your life around. The sooner you accept it, the sooner you can start.
Some products that can help you:
Sofi: I saved a ton of money using SoFI for a Student Loan Refinance. They were great to work with, the process was super easy (compared to my previous refi) and I got a great rate.
Personal Capital: Personal Capital has a ton of great Free features, you can track your spending, net worth and even analyze your portfolio. It has top notch security and I am able to connect all of my accounts. Saves a ton of time! (I may be compensated if you use this link)