The way to win a any game is to have a good combination of both offensive and defensive plays. If your quarterback can’t make a single successful pass then it doesn’t matter how good your linebackers are at intercepting passes or tackling running backs. Or if the quarterback is the best on the league but the defense gets trampled every time the ball changes over then you have only a slim chance of winning. The best teams out there have a really good balance of both offensive and defensive players.
When it comes to personal finances the same things apply, you need both good offense and defense plays. Offense in this case refers to your ability to earn money and defense is your ability to save the money you have by controlling your expenses.
I have actually known people who made $200,000 per year but were only able to save approx $6,00 year year which equates to 3%. Pretty damn sad if you ask me. This is even below the 5% average savings rate in the US even though this couple is making well above the average American. This couple who made a very reasonable salary (good offense) was horrible with keeping their spending in check (bad defense) and as a result they were way behind in their retirement savings goal. They didn’t know the saying about “it’s not about how much you make, it’s about how much you keep”. I have no idea what happened to them but I can’t imagine they are going to have a nice cushy life they are dreaming of in retirement because they didn’t have the resources to keep up with their current lifestyle.
Unless you budget and track your money it is very easy to spend more than you intend. It’s easy to think that you could afford this $20 gadget as you are making $60,000 per year, but add up dozens of $20 expenditures and before you know it you have spent hundreds of dollars throughout the month. Do this every month and before you know it you have spent thousands of dollars. And with credit being so easy to obtain, just a swipe of your credit card you can walk out of the store with anything you want.
I will openly admit that we are guilty of spending more than we anticipated as well. I track my own individual expenses but it was not until the first week in January when Mr. SFF and I sat down and reviewed our joint expenses that we realized we were spending more than we expected on food. But now that we know this spending weakness (defense) we are working out a plan to fix it.
I know that budgeting is not for everyone but I do believe that you need to know where your money is going in order for you to control your expenses. Once you know where your money is going you can set your game plan so that you can tackle and be in control of your money instead of letting it control you. A coach doesn’t just sit on the sidelines and watch things happen, hoping that the defensive line is going to stop the next play. They know the other team’s strengths and weaknesses and due to hours of training and preparation the players know how to stop the other team. Things don’t always go as planned in sports or in life but you should at least be in control of your money so that you can do your best controlling your expenses from the daily trip to the store to get milk to when the large unexpected car repair bill comes up.
Some of the biggest defense we can play when it comes to money are our daily expenditures, the ones we don’t think are a problem. For us, it is food. We agreed that we still want to eat healthy and this costs a little more but there is still plenty of room for improvement. Housing is a big cost for many people as houses get bigger and bigger over time. There is no need to have a McMansion unless your goal in life is to impress people that don’t matter so maybe downsizing is an option. Or maybe you should take a look at the daily costs associated with a home, such as cable. We haven’t had cable in many years and at this point have probably saved thousands of dollars but cutting this out of our lives. Cars are also a major drain on finances. Some people actually refer to their car as an “asset” but I view it as a tool. And this tool, although it does have some financial value, is going to depreciate over time as it ages. Driving a smaller fuel-efficient car not only saves money up front when you acquire it but it also saves money daily as you are using less gas. Even better is selling your car and committing to riding your bike which is what Mr. SFF does. After going through your budget and looking at where you have been spending money, look to see what areas of your life there is room for improvement and make a plan to fix it.
On the opposite end of the spectrum you have millions of people just scraping by on minimum wage. The income gap in the US has been increasing and there are more people living in poverty now than there have been for decades. The poverty level in the US for 2015 was $24,250 for a family of 4. I cannot imagine, especially living where I do, trying to meet even basic needs with the a total income below $25,000. I know there may be some PF bloggers out there who are able to live to this extreme but the average American doesn’t have the knowledge of how to even manage their money or the assets to help back them up for when anything out of the norm happens. (I really do wish that school taught basic money management.)
I have to imagine that the average American in poverty is not reading PF blogs but there are certainly every day people out there doing some reading to try to figure out how to improve their financial lives. By increasing the amount of money coming in (offense) you can start to make progress towards either paying down existing debts or savings for retirement. Maybe you can ask your boss for a raise or put in the extra hours to show your dedication and get the promotion you have been gunning for. Or you could just do some side hustles or take on additional part time job to bring in a little more money. Any extra dollar earned could help to cover daily living costs, pay down debt, or go to long term savings. Just last month we purchased an investment property which is now working for us to create extra income. Our plan is to save this additional income towards our financial independence goals but eventually this will be part of our retirement income. Just always remember that the extra income doesn’t do you want good unless you keep it so make sure you are playing defense as well.
Winning the Game
The best way to “win” with your finances is to have a good balance between both your offense and defense. Do what you can to earn as much money as possible without adding too much additional stress to your life while at the same time controlling how much of that money is staying in the bank or your investment accounts. These “plays” paired with your financial goals will lead to success and in our case, eventually financial freedom.