I love to talk to people about money! Yet I can’t help but notice how many times a conversation ends in “I could never do” or “why that will never work for me”.
These excuses are the lies we tell ourselves to make it seem better when we’re not where we want to be with our money.
It’s no secret why we do it. Excuses are easy! They’re a convenient place to run and hide when there’s real work to be done.
But as the expression goes, “time is money”. And the more time we waste, the further away we get from becoming financially independent.
That’s why I’d like to address a few of the most common money excuses for why we don’t save, and show you how we can overcome them!
You know them; maybe even used a few of them to squeak by. (I know I used to …)
But at some point, if we truly want to take control of our own financial situations, then we’ll need to see these excuses for what they are – nothing more than just excuses! Let’s get started.
1- But I’m already saving 10% of my income …
One of the most misguided pieces of advice you can find in popular financial media is this notion that saving 10% of your income is going to make everything okay.
Don’t get me wrong … It’s great to be saving! (Sadly, you’re technically doing better than half of the Americans who save nothing at all.)
But all comparisons aside, the real question you should be asking yourself: Is 10% going to accomplish my goals, or do I need to bump that number up?
To put this into context: Suppose you earn $60,000 per year and save 10% of your income. How long do you think it is going to take you to save up a large enough nest egg to generate $60,000 in passive income each year?
The answer: Over 43 years!
What if you were hoping to retire in 30 years? Or maybe even 20? 10?
Here are some other questions to consider:
- Would you be okay with working a little bit, or do you never want to have to work another day in your life?
- Do you hope to live in the Hamptons and travel the world in luxury? Or is your goal to simply enjoy the same comforts you do now?
- Are you okay with some financial risk, or do you want absolute certainty that you will never, ever run out of money in the future?
It’s these questions (and more) that will ultimately determine how much you need to save into your nest egg.
By all means: 10% might do the trick! But it’s also VERY possible that you could be completely under-shooting the number you need to hit if you want your dreams to become a reality.
My advice: Forget about the math for moment. The hard part is deciding what it is that you really want to do!
I can assure you: Once you know where it is where you want to go, getting there will become a whole easier.
Once you start to get an idea, play with the numbers using a simple retirement calculator like this one here. Or if you’d like to explore this topic even deeper, you can check out my book: How Much Money Do I Really Need to Retire & Achieve Financial Independence? There you’ll find all kinds of neat tricks you can use to truly determine how much you need and the best ways to get there.
2- But I can’t afford to save another penny …
Nonsense! Anyone can save more money if they really wanted. It’s just a question of priorities.
Allow me to put this into perspective: Pretend an important bill arrived in your mailbox. Would you pay it? Absolutely! Why? Because that’s what any responsible person does when they owe money. They pay it!
But no one ever thinks about their own financial independence in this way. We always treat it as “optional”; something we can put on the back-burner and take care of later (but rarely ever do). We forget that in reality saving for retirement is like paying a bill to our future selves.
This becomes even more important when you realize that (thanks to the power of compounding returns) that every dollar you save now has the power to be worth $7.61 in 30 years! And that has the power to generate $0.30 of passive income every year for potentially the rest of your life!
Kind of makes that dollar seem a lot more important, doesn’t it?
My advice: Take the savings amount you figured out in Tip #1 and subtract it from your budget just as if it was any other important bill. From here, we’ll want to explore what things are not “as important” as your own financial future.
A good place to start is to pull up the last 3-6 months worth of credit card statements. Ask yourself what those purchases accomplished and how important they were to you.
Remember that this doesn’t mean we need to cut out all things and have no fun at all. We’re just asking you to re-access your priorities against how badly you’d like to become financially independent.
3- But I don’t want to retire early …
Financial independence isn’t always about retiring early. In fact, most people who pursue it do so to achieve something even greater: Financial security!
Imagine having complete confidence in knowing that no matter what happens, your lifestyle will be fine! No fear of losing your home or not being able to pay your bills.
How many people do you know who can say that if they lost their job tomorrow, they would still be able make their mortgage payments or provide the same level of comfort to their families? I’m going to guess that the answer is probably “not very many”.
Or how many people do you know who are well pass the age of when they should have stopped working, but absolutely have to out of necessity?
When people live paycheck to paycheck, they hand over that financial control to their employers and handcuff themselves to their jobs. The problem with this is that no one can ever predict what’s going to happen next … Your employer could make some bad financial decisions and go bankrupt. They could get bought out by another company and eliminate your position. Or maybe one day your boss just decides they don’t like you anymore, and they start giving you a hard time.
Whatever the reason, one thing is for sure: You call the shots when you have financial control! You become your own insurance policy against the worst that could happen. It may be a parachute that you hope to never use, but leaves you feeling much better in knowing that you have it.
My advice: Imagine for a moment that you did lose your job. What would life be like for you? How long would your savings last before the money all ran out? It’s a scary thought, but its also been a stark reality that many people like yourself have had to unexpectedly deal with.
Just like in Tip #2, where does this sense of “security” fall in line with your priorities? Again, decide for yourself how important it is to purchase “confidence” over whatever else you spend your money on today.
4- But I don’t know how to invest in stocks …
No problem. You don’t really need to.
The average person doesn’t have to (and probably shouldn’t) buy stocks directly. In order to master investing to become financially independent, all they have to understand are a few basic principles:
- Keep it simple. Only invest in what you can understand.
- Don’t chase after high returns. Go for average returns.
- Don’t pay any more fees or taxes than what’s necessary.
For any normal person, this task can be simply accomplished by investing in a simple stock market index fund from within their tax-advantaged 401(k) or IRA. Buying into one of these funds is like buying shares of the top performing 500 companies in the U.S all at once. That’s a group that has produced roughly 10% average annualized returns for over 50 years.
Compare that against roughly 90% of the other financial products on the market, and you’ll see that the index fund dominates in the long run. This is thanks to both performance and their super low cost. It’s no wonder they’ve receive so much praise from the likes of Jack Bogle and Warren Buffett.
My advice: Tell yourself you CAN invest in stocks and get to know index funds. There’s a whole website devoted to the topic called the Bogleheads where you can learn a lot about passive investing. Here’s a good page to get you started.
I can tell you from experience: Sticking to these funds keeps everything very simple. There’s no guess-work or fancy analysis to be made. I simply pick the amount of stocks and bonds I feel comfortable at, and adjust my savings to it. It’s as easy as that!
5- But I don’t have a high paying job …
That’s fine. You don’t necessarily need one.
Earning more money isn’t really the full picture when it comes to financial independence. The real goal is in creating the biggest difference between what you earn and what you spend.
Not a lot of people realize this, but spending less accomplishes two main objectives:
- It widens that gap between earning and spending leaving you with more left-over every month to put into your nest egg savings.
- It trains you to live more modestly. This creates a lifestyle pattern where you adjust to needing less, thereby reducing how much money you ultimately need to save up in the first place!
You might even call this a double-ended approach to guaranteeing your own financial security.
I’ve heard stories of high-paid executives making six figures who can’t figure out how they will ever afford to retire someday. Why? Because their lifestyle and expenses are completely unsustainable.
On the flip-side, there are countless blogs and threads of everyday people who earned humble salaries and were completely able to achieve financial freedom. It was all due to them creating this gap between earning and spending that helped them put away the maximum savings possible.
My advice: Rather than agonizing over why you can’t make more money, why not think about some ways you could introduce some simplicity in your life? Instead of spending money, could you take up a new hobby or learn a new skill to occupy your time? Find a new passion that you care about?
6- But I like my house and nice stuff …
There’s a horrible precedent in personal finance that the word “frugality” means “cheap”. I should know: I used to cringe at the word.
This is probably because a lot of the extreme early retirement stories you often hear involve people down-sizing their houses or spending $100 per month on groceries. But you’ve got to remember: Those stories only make the headlines because they are sensational, not because they are actually practical.
Instead, I offer a different approach. Why not just live within our means by striving to get the absolute best price you possibly can for the things you want? For example:
- You want a nice house? What’s the best possible deal you can get? When my wife and I bought our current house, we got it for nearly $70,000 less than the original asking price!
- You want a nice car? What’s the lowest you can talk a dealership salesman down to? I walked out on 5 different dealers before I found one that would reduce the price of our current SUV to what I wanted. All it took was a little persistence and finding the right guy!
- You want a luxury vacation? What combination of savings and credit card rewards could get you there for almost free? We took two vacations in 2017 for literally next to nothing saving almost $5,000 in the process!
Notice the difference?
You CAN have nice stuff! You CAN keep your house. As long as you stay within your given budget, and save what you need to, why not have some fun with whatever is leftover? Why not try to get the maximum return for the least amount of expense?
7- But I want to pay for my children’s college …
No problem. The path to financial independence isn’t just about planning for retirement. It can involve a great deal of financial aspects, including the future of your children.
My wife and I have saved for years for our children’s college right alongside with our retirement savings. Just like learning about the tax advantages of different retirement funds, we discovered long ago that there are also special savings programs for things like college, dependent care, and medical expenses. It goes hand in hand accomplishing the same net result: Saving you more money to do what you want with it.
My advice: Remember my first tip? Go back to your list of priorities and decide where paying for your children’s college lies. Depending on your timeline, you might be able to work on a parallel solution that accomplishes both things at once. But just like your own financial independence, it’s up to you to plan and decide how it will all fit together.
Readers – What are some of the biggest financial excuses that you’ve heard? What advice did you offer to overcome them?
Featured images courtesy of Flickr, Pexels
Great article! Thanks for sharing. I agree when you say people need to learn to prioritize and make choices in life. It’s a journey, that’s for sure.
Good list. I am looking forward to FIRE’ing in the future but know to be mindful to enjoy the journey and not just the end goal. I’m hoping to FI much sooner than RE, and will be very happy when we reach FI.