How to be financially ahead without feeling left out
Most important — #6 Get educated in managing money & #8 know your why
When I was 18, I first learned about managing my own money after I had my first earned income after graduating from secondary school. Where did I choose to work? McDonald's. Yeap! That’s what happens when you’re too bored to stay at home while waiting for your SPM results (it’s a national examination taken by all final year students). I remembered being told by my dad to ask the interviewer if a portion of my salary can be deducted for EPF (Employee’s Provident Fund). It’s like a 401k in the United States. The benefit was that my employer had to make additional contributions to my EPF, so double savings! That was when I first learned about the must-haves for retirement and the benefits of saving and investing. Oh! By the way, Mcdonald’s did have EPF deduction even as a part-time worker.
However, even if you’re not in your twenties, it’s never too late to get started! Most people tend to compare themselves to their contemporaries. The result? Feeling left out. Headline articles such as how much $$ you need to have by age X might cause you to give in to the fear of missing out. Or just aimlessly scrolling through your social media page only to be tempted to look like them, or you’ve been given a false impression that you’re supposed to have what others have at a certain age — a house, car, marriage, kids, etc. You get the idea.
If you think that you’re not up to expectations, most likely you’ll feel disappointed or demoralized (You’re not the only one — I get it) or worse, trying to “keep up with the Joneses” by spending more than one can afford.
However, to date, these are the top lessons I’ve learned to be financially ahead among my peers without having the fear of missing out.
1. Differentiate wants from needs
Regardless if you’re a shopaholic or a consumer, it’s just as important to differentiate wants from needs. How? Ask yourself if your purchase gives you short-term satisfaction or is it a necessary requirement for survival or function. Identify your priorities. Is it possible to afford it later on instead of indulging in instant gratification? To avoid guilty pleasures, ask if it’ll be worth it. (Here’s a tip on how to understand worth)
2. Avoid lifestyle inflation
Parkinson’s law states that “work expands so as to fill the time available for its completion”. Although it's relatable to productivity, a revised model in the context of economics would be “spending expands so as to consume the money available”. In other words, as income increases, spending increases as well. Most people get caught up in the mistake of having lifestyle inflation because they are dissatisfied with what they already have. Some get a bigger or fancier car just because they can afford it or purchase the latest gadgets just to be in trend — ultimately, upgrades in their lifestyle. A worst-case scenario? How much money is being left in the bank account is being fully spent and there are no savings. There could be people with all the upgrades they want but do not have any savings! They’re people living from paycheck to paycheck. So this is how you avoid living paycheck to paycheck.
3. Knowing how much is enough.
This brings it to the next point — knowing how much is enough. Identifying what really matters to you gives you much better satisfaction in the long run. Remember, less is more! If possible, have a minimalist lifestyle. You’re already halfway there if you know how much is enough. It eliminates greed and overindulgence that could cause one to spend what is not necessary in the first place. For example, understanding that the purchase of the latest iPhone is not necessary when the old one is still very much functional is one of the signs that indicate the person knows how much is enough.
4. Indulge in simple pleasures
Although some people reward themselves for working hard with a luxury good or a big purchase, it’s one of the reasons why they can’t be financially ahead. However, obviously, you don’t want to deprive yourself of living a happy life just because of the need to get ahead financially. Instead, there are many things in life that are free. For example, spending time with the family or enjoying nature, or picking up a simple hobby such as cooking or painting.
5. Budget with intentional spending
Having a budget is like having a plan for where each and every dollar is being put to use. Every dollar you earn is considered an army that can either be given away or retained as a “defense” or invested to build your wealth. If you’ve chosen the latter then you’ll be very much likely getting ahead financially. Having intentional spending is like having a purpose for each dollar that is being given away. Those purposes could be a necessity or help you to realize your goals. To have a clearer idea of how it works, here are tips on how to budget without feeling stressed!
6. Get educated in managing finances
However, it is not sufficient to just budget. Instead, getting educated in managing your finances helps you to optimize areas that could help you get ahead financially. For example, getting educated in filing your taxes and knowing what could be done to have the benefits of tax write-offs. Leaving one’s finances to a spouse could cause the other unthought half to squander away the money or make the mistake of losing money with an unthought decision. Learning not only to earn but also to protect and build wealth is essential to get ahead in your finances. It creates peace of mind as well without getting the fear of missing out.
7. Get started in investing ASAP!
Albert Einstein once said, “Compound interest is the eighth wonder of the world. He who understands it earns it. He who doesn’t pay it”. Getting started as early as possible in investing is the fastest way to get ahead financially. Part and parcel of getting educated in managing finances are learning how to invest. If you don’t want to put in the effort to learn about investing, no worries. Just dollar cost average on the index — S&P500 or a low-cost index fund.
8. Know your why
Above all else, it’s important to know why you want to get ahead financially. Is it to be able to fund your lifestyle? Or to travel the world without having to worry about finances? Or is it to fund your child’s education? Or is it to have a secure retirement? Your purpose will help to keep you focused and motivated to stay on track to be financially ahead.
At the end of the day, it’s the priority and reasons for that that counts. It’s normal to have the fear of missing out on what one might think is good. But it’s also just as important to stop and reflect on what’s really important. While some of our peers might look really good on social media, displaying their signs of wealth, happiness, or achievements, envy will not get you ahead in your finances but by focusing on your journey and celebrating your mini-milestones, you’ll be able to accelerate your financial journey towards your goals much faster than you think! Hope this helps you to accelerate your journey to get ahead financially!
If you’ve found my sharings to be helpful or insightful, do subscribe to my email newsletter here to know what my financial gameplan is and my progress towards achieving my goals.