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Why is it So Hard to Get Ahead?

Broken piggy bank

It doesn’t take a genius to realize that if you spend every dollar you earn, you’ll never build up savings. Everyone knows that if you want to buy a car or house, or ever be able to retire, you need to save money. So why do so many people fall so far short of their goals?

It Takes a Long Time To Save That Much

Saving up a down payment for a house requires a lot of dedication for an extended period of time. When you first decide to start saving, you’re motivated and excited at the prospect of owning a house. But two years later when you only have $10,000 saved and you need $50,000 for a down payment, your motivation may start to wane. Skipping restaurant meals and shopping trips wasn’t so difficult when you were gung-ho about your goal, but after months and months of sacrifice, you may begin to feel like you’re never going to make it to the goal, so why bother trying? May as well enjoy your life now and worry about the future tomorrow, right?

They Think Only About Cash Flow

When it comes to car buying, the first question most people ask is, “what’s the monthly payment?” This is the wrong question to ask. Dealers are more than willing to accept a tiny down payment and stretch out a payment plan for 6 years or more to reduce the monthly payments. Paying $400/month for your car may not sound like such a bad deal right now,  but what happens if you lose your job two years from now and can’t make the payments any more? Are you really willing to bet on your job security for the next 6+ years just so you can have a shiny new car? On top of that, though your monthly payment may seem manageable, over the course of 6 years, you’ll be paying thousands of dollars in interest, which is just plain silly.

Retirement is So Very, Very Far Away

Even home ownership is a short term goal compared to retirement. Many people in their 20′s fool themselves into thinking that they have so much time until retirement that they don’t have to worry about it yet. Also, while you’re early in your career, you’re rapidly learning new skills, focusing on career advancement, exploring new possibilities, and are generally excited about work. The prospect of working into your 80′s doesn’t sound so bad — after all, your job is great! So why bother putting money into your 401(k) when you’re going to keep working forever?

Expensive Things Must Be Better

For many people, they just have an impossibly hard time accepting that pricing is not always based on value. “This shirt costs $50, so it must be higher quality than that one which only costs $20.” “I need granite counter tops because everything else is such poor quality.” “This apartment is too cheap, there must be a catch!” (Ok, there probably is a catch, but it may be something you’re perfectly happy living with, so don’t write it off until you dig deeper.)

If you’re reading this, you probably already know that saving needs to be a priority, but you may still fall into these traps. Just because you know you should be saving doesn’t mean you enjoy doing it. And there lies the problem: it’s really hard doing something you don’t enjoy for the rest of your life. So the trick is figuring out how to make saving more enjoyable.

Embrace Frugality

Rather than thinking of frugality as a sacrifice, approach it with an open mind and an eagerness to learn a new way of life. If you’re used to eating out every night, cooking dinner at home will likely be unenjoyable at first because you’re probably terrible at it. Read a book on cooking techniques, ask a friend to teach you, or take one or two cooking classes. There is nothing quite like the pride you feel when you’re eating a delicious meal that you made yourself. Once you stop thinking of cooking at home as a frugal sacrifice, but rather something you enjoy doing, it becomes easy.

Take the same approach with your clothes, furniture and electronics. Being frugal doesn’t mean you need to forgo high quality products, it just means you shouldn’t buy them new.  Shopping used may be intimidating for a while, but eventually the thrill of finding great items at a huge discount is quite a thrill. Learn how to use Craigslist, and find the local thrift shops that carry high quality merchandise.

Think About Total Cost, Not Cash Flow

That $400/month car payment doesn’t sound so great once you do the math and realize that it adds up to  $28,800 after 6 years. That’s quite a chunk of change. Now imagine you have two financed cars and a mortgage. With each purchase, you worked out that the cash flow was doable, but now you have 3 loans you’re paying off each month. Chances are, while you may technically be able to afford them, you can’t afford to do much else while you’re paying them off.  And since you don’t have extra cash to set aside for emergencies, vacations, home repair, etc., when you need money for something, you put it on your credit card to be paid off at some later date.

My advice is to have as few monthly payments as possible so your money isn’t tied up repaying loans. And the only way to reduce your number of monthly payments is to stop thinking about major purchases in terms of cash flow. Think about total cost instead, and while you’re busy having a heart attack at the thought of paying nearly $30,000 for a car, put your wallet away and look for something that doesn’t cause you physical pain.

Learn the Consequences of Waiting

Talk to your grandparents, parents, the guy in your department who has been at the company for 20 years. Ask them about their experience buying their first house and saving for retirement. Ask what they would have done differently if they could do it all over. Chances are they’ll all say they wished they had saved more money when they were younger.

You may love your job and think you’ll work until you die, but eventually your priorities will change and you’ll start thinking about retirement. If you think you’ll need, say, $1 million to retire, the difference between starting at 25 and starting at 35 is several hundred dollars each month. Remind yourself that these older folks may have had the same zeal for work that you do when they were your age, but now they’re thinking about retirement and wishing they had started saving earlier. And you will get to that point too.

Look for Value

I believe that the primary reason people think expensive is better is not because they have a burning desire to throw away as much of their money as possible, but because they have no other basis of determining value. If you don’t know how to identify a high quality piece of furniture based on its construction, all you can go by is price. So educate yourself for every purchase you make. There’s a wealth of information at our fingertips these days, so take a few minutes to research how to identify quality products. Or even better, if you know someone who’s very educated in whatever it is you’re shopping for, bring them along with you.

There you have it, follow these rules and you’ll begin to change the way you think about money and purchases. When you’re thinking in the right terms, saving money becomes much, much easier and your goals become attainable.

4 Responses to Why is it So Hard to Get Ahead?

  1. Saving a little now feels so much less painful then saving more later. I only wish I’d started saving for retirement earlier, but alas, that’s what having so much student loan debt does to you.

    • Gen Y Finance Journey

      I only got started saving a few years late, and still I feel like I completely wasted my first 3 years of earnings. There really is nothing like starting early.

  2. I actually have a post in the queue entitled, “Why Not Just Try Harder To Get Ahead?” where we’ll debate talent vs. effort. Given I think most of success is due to effort, we have the power through effort to get ahead no?

    Sam

    • Gen Y Finance Journey

      You bet we do! I just read your post and I agree wholeheartedly. Talent will give you a nice little push, but if you just sit back and assume because you’re smart/athletic/musical/etc, success will fall in your lap, you’re in for a rude awakening. Someone with average talent who tries very hard will almost always succeed over someone with great talent who doesn’t try at all.

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