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One of the big campaign promises in recent election years has been increasing minimum wage to $15/hour. I’m sure for most people who are earning less than $15/hour that sounds like a great promise. A step in the right direction, or even a quick fix to their financial problems. But if you’re looking for a quick fix to your financial issues, I’d keep looking.
About a month ago I read an article about T-Pain (a once prominent artist), how he went from having $40,000,000 in the bank to having to borrow money to buy Burger King for his family. It seems like an impossible scenario, but it’s more common than people think. Going from making millions of dollars to completely broke.
It happens a lot with professional athletes too. They get used to being in the spotlight and earning a lot of money. They get accustom to an expensive lifestyle, they make a lot of money but also spend a lot of money. But once they retire or the money stops, they still maintain those habits or had lived beyond their means (spending more than they had) and wind up in trouble.
Familiar names that have filed for bankruptcy include: Mike Tyson, Allen Iverson, John Daly, Nicolas Cage and even the current President of the United States Donald Trump. A quick Google search can bring up dozens of different lists.
So what goes wrong?
Let’s take a look at a simple, relatable scenario.
Let’s pretend you go into work tomorrow and you get a raise or a bonus. Congratulations! What are you now most likely to do? Go out and celebrate? Take a trip? Treat yourself? Upgrade an aspect of your lifestyle?
They are all common first thoughts when something good happens, you want to treat yourself. But at its basics, it’s counterintuitive, isn’t it? To celebrate your new increase in money, you spend an increase of money.
From doing a lot of reading and research, statistically when people start making more money they start spending more money. Essentially cancelling out their income increase (instead of having 1+1=2, it becomes 1-1=0). Make more money, spend more money, don’t save more money, don’t improve their financial situation.
Even though an income increase can help solve some problems regarding money, it’s not an automatic fix. More importantly, you have to have good financial habits already established, in order to take advantage of the income increase. Otherwise it’s so easy to get caught up in a never ending cycle of making money and spending money.
Go get that raise!
Work hard, and get that raise or bonus.Working hard to improve your job position, or work towards a new position is always a good thing. Challenge yourself to be the best that you can be.
But remember, getting an increase in income isn’t going to just solve everything. It’s going to definitely help if you have good habits already established so you can take advantage of that raise and improve your financial situation.
What habits should you develop?
Where does your money go?
The best thing to do is to have an idea of where your money actually goes. Let’s say you make $50,000 a year, after one year do you have all $50,000 in your bank account? Of course not. So where does it go?
You have taxes, bills, expenses, activities you like to do, family, vacations, etc. There’s a lot of things, the list can go on forever. But having an idea of where it goes will help you look objectively at your spending and really consider if each is worth it.
We all have different priorities for our spending, it depends on what we like to do and what responsibilities we have. It helps makes us who we are, unique. One isn’t more or less right than another, as long as we can comfortably afford it without sacrificing our future. I like to say ‘Do something your future self will thank you for’, or ‘Keep your future self in mind’.
Let’s automate saving!
Once you know where your money goes, it’s time to save. The easiest way to save is to save without doing anything. It sounds simple, but how do you do it?
It’ll take a few minutes to set up, but what I recommend is setting up automatic contributions from your checking account (or wherever your cheques are deposited) to a savings account. If everything is automated, you don’t have to put in any extra work or effort to maintain it. People are innovative, but we are also always looking for the easiest way to do something. We want things to provide us value, with little effort or attention on our part.
If paycheques go into your account, then a small portion automatically goes towards saving for your future, then you never have the urge or opportunity to spend it. It’s the idea of getting rich without realizing it. One day you’ll check your account balance and be shocked at what you’ve already saved. Let’s make it easy.
Now once you do get that raise or pay increase, you’ll have some fundamental habits to help you out. Making more money will only help with your financial situation if you know how to make the most of it.
Making the most of it would consist of looking objectively at your income/expenses and seeing what makes the most sense. The important thing is to ask yourself what your future self will thank you for. That doesn’t mean don’t spend anything ever, but find that ideal balance between present self and future self.
Disclaimer: The information in this article is not intended to encourage any lifestyle changes without careful consideration and consultation with a qualified professional. This article is for reference purposes only, is generic in nature, is not intended as individual advice and is not financial or legal advice.