The following is an expanded version of my answer to a question that was posted on my fan page. A guy asked, after reading one of my articles about growing up in the hood, “How did you learn to manage money, could you give me some recommendations?”
Most people suck with money because they never learned how to manage it. There are two extremes: very poor children, and very rich children. The rich have a better chance of learning fiscal responsibility via familial osmosis, but lack the necessity to adapt. Poor children have the necessity, but it runs counter to the “hive” mindset of other poor families that they grow up around.
I was on the poor end of the spectrum and developed terrible money habits. A particular instance comes to mind that reaffirms this. In May of 2003, my Father died suddenly from cardiac complications. I was only 18, and found myself in the possession of 55k in life insurance money overnight.
I had no debt, no bills to pay, and I had just started school on a partial scholarship. By August 2004, I was completely broke. Actually, I was worse than broke. I purposely overdrew my account by almost 300 dollars, just so I would have money to spend back at school. It was at this point that I truly learned the value of money.
55k Gone in One year and I had no bills and I didn’t even drink!
It’s easy to survive if you’re poor—I use the word survive exactly as it’s intended and not for poetic exaggeration. Not everyone gets the luxurious house or the flashy sports car, but in most developed nations it is difficult for an adult with no felony convictions to NOT survive.
Given the low price of alcohol and a Netflix subscription, it’s easy to be entertained as well. When you add 1 dollar lean cuisines, low quality (but low priced) processed food, and internet pornography (for those lonely nights) to the mix, your eyes are opened to how easy it is to just get by.
This brings me to the second reason people are very bad at managing money. They absolutely lack foresight. Living paycheck to paycheck is horrible, but anyone with functional intelligence and a drive to be better than what their surroundings suggest can free themselves from this nightmare in 3-6 months–assuming all of their effort is directed towards that goal.
Instead, a majority of people work just to make enough money to pay rent and drink away the weekends, or they put everything on a credit card. If you don’t have a vision of yourself in a better place, you’ll never do what’s necessary to get there.
I’m not a proponent of motivation in the sense of how it’s presented on every self-improvement website. However, if there is any definition that I would endorse, it would be any feeling that forces you to take action to change a circumstance in your life.
Self-discipline is important, but I find that it is more of a natural byproduct of having a worthwhile goal for yourself, coupled with a hint of disgust and fear
Real motivation comes from the fear that you’ll be in the exact same position 1 year from now
How did I find my motivation? What circumstances made me disgusted and angry enough to develop discipline to change my relationship with money? I got tired of the sting of surprise bills and emergencies.
Everything would seem to be going well, but then I would need to fix something on my car (which I needed to get to my boxing gym) or I’d get a boot on my car, or I needed to visit med express. The list goes on, but these surprise problems always came at the worst time. The only way to avoid them is to prepare.
For example, as long as I got my oil changed on time I wouldn’t have car issues. If I paid the parking meter fees, I didn’t get tickets or boots. If I spend a little extra money on a proper coat and hat, then I’m less likely to get sick.
At first this will seem counter-productive and you will feel like you’re spending more money. However, by strategically preparing for the future, you are spending a lot less over the same increment of time.
Spend smart money now to save dumb money later
Resolving issues where you are losing money is HUGE, but you cannot neglect the generation of more income. Every person’s situation is going to be different, but the correction will involve looking into the future and taking some calculated risks.
I needed my car to get to the boxing gym, as it’s in a part of town to not even remotely accessible by the bus. If I was operating on short tactical sight, I’d drop my car and its associated costs (I was driving a $400 deathtrap that couldn’t even pass inspection) and just go to a different boxing gym.
So why didn’t I? Because this would have been the wrong move in the long term. I chose the best coach for me that could develop my skill set the most effectively so that in the long term, my earning potential would rise.
This decision has probably made me about 200,000 dollars so far, completely changed my life, and continues to have excellent financial benefits. To implement a plan like this, it will often cost you money, but you have to remain considerate of the future.
Calculated Risk is king. Playing it safe AND being behind in the game is how you lose.
I continued to take every chance I could to increase my income, but always with a long-term mindset. When I volunteered for Americorps, I quit Starbucks ($7.25/hr) to make $500 a month. Although not a lot of money was at stake in either situation, it was still a loss; however, the connections and experience I acquired got me: a job making 35k, exposure to the right people, and a shit ton of vacation.
To draw a parallel, as an amateur boxer I fought for free for years, but I eventually got a sponsorship that paid me $100k a year plus a ridiculous travel and per diem. Hell, I traveled so much that I ended up on a first name basis with 2 TSA officers at LAX.
In summary, reduce your cost of living, have a plan for your future (that you believe in), spend money now to avoid spending more later, and make moves that take the long-term into consideration as much as possible, even if it involves a sizable amount of (calculated) short term risk.
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