I was reminded recently that sometimes when you are in a rabbit hole so deep, you sometimes forget what the start looks like. I have been diving down the rabbit hole of some form of financial independence for some time and after a while, the finish line becomes the focus but to someone starting up or standing on the sidelines, it may not be evident on what or why they should start in in the first place.
What is a financial citizen and why is it important? A financial citizen is a financially productive member of society who can earn income and distribute it in a way that benefits themselves and society at large. Just like in Civics class, there are some core principles for Financial Civic Duties that are at the base line of everything financially important. If you understand and master these basic principles, you will be better prepared to handle most life opportunities or setbacks that may come your way.
- Always Give
- Always Save
- Always Repay your debts
- Always Live on less than you earn.
Always Give
So why is giving important? I could go into depth about biblically why I give but to make it as simple as possible for everyone, giving keeps us all moving forward. At some point in your life, you have probably needed help or been asked for help from someone else. Just like weather changes every day, people’s life situations change, and they may not be fully prepared to be able to handle that change. Well, you may ask, why is it my responsibility to help someone who didn’t do what they were supposed to do? My response would be, there are different levels of need that require different levels of giving and you can’t focus on just the minor needs that you may be prepared for. Looking at the weather, there are frequent small needs like someone going outside and not being prepared for the weather like it rained and they didn’t have an umbrella. There are occasional medium needs like a snowstorm came and you were only partially prepared because your snow shovel broke, and you didn’t get a replacement yet because you thought you had more time. There are also extremes where no amount of preparation could leave you untouched like a natural disaster (tornado, fire, hurricane, flood, or earthquake) came and destroyed your home with all your belongings. While we may or may not know someone who lost everything, we may not know and have been the person caught outside without an umbrella or hit with snow just as your shovel breaks. Most people can get by without help when unprepared for the rain, some people can get without help when unprepared for the snow but very few people can get by without help if they were hit with a natural disaster.
Another question could be how can I give when I am struggling myself and trying to fix my own situation first? My response would be that you may have to learn to crawl before you walk, but the goal is still walking. You may think that you need to be at a certain level before you start giving but giving, like every habit, is learned. My Mom used to say, “If you can’t save $1 while making $10 you won’t be able save $1,000 while making $10,000”. The same goes for giving, if you can’t learn to give early on, then later when it matters, it will be much more difficult for you to change that habit and decrease your likelihood of ever being helped by anyone if you ever find yourself in need.
Always Save
So why is saving important? Saving is preparing you for future needs. We all have needs, short term, long term, planned and unplanned needs. You may not always know what you are saving for but when the time comes you want to be prepared. We just went though all the scenarios of how life can throw us stormy weather, some are more predictable and some much less predictable. If you have an appointment in the morning and your phone is at 10% battery life before you go to bed and you forget to plug it in to recharge overnight then the next day, you are going to be looking around for a rapid charger hoping it will charge fast enough or that someone will lend you a plug to charge wherever you go. When you are saving, you are decreasing your need for “get rich quick” solutions or from needing external help for your basic needs. Last mut not least, saving is also how you can start investing and investing is how you eventually get your money to pay your bills instead of just from your paycheck earnings.
Always repay your debts
So why is repaying your debts important? Debt is an anchor, a risk and a limiting factor when it comes to your life choices. You may have heard the term good debt vs bad debt and that may help you determine how urgently to pay off a debt but when it boils down to it, debt should not be a memorable keepsake. When you have debt, you are going to have an anchor where someone always has a hook on you. You are someone else’s investment where they are planning to earn from you with interest plus penalties for late payments. Debt is also a risk because if life throws you a stormy scenario, 9 times out of 10 you will still be obligated to pay that debt regardless of your situation change. Debt is limiting because you must factor it into your long-term plans and opportunities. There may be opportunities you won’t be able to capitalize on because your funds are tied up in debt repayments or you need a steady income to feed the debt meter. Even for low interest debt, the longer you have it, the more compounding works against you to make the debt amount even larger. Your goal should be to be debt free (or net debt free) and make sure any new debt you add on is paid off at the end of the month.
Always live on less than you earn.
If you follow the steps above, then by this point you will already automatically be living on less than you earn. Why is this important? Because the opposite is unstainable in the long term. When you are spending more than you earn, you will not be able to give or save and you will most likely be adding more debt, getting lots of overdraft penalties or getting a lot of assistance from someone to subsidize your lifestyle. This is sometimes needed when emergency storms arrive in your life but should not be an everyday thing. When you are living on less than you earn, it does two things. 1) It gives you some flexibility so that if emergencies do come up, you can adjust some of your giving, saving or repaying to make sure your emergency is taken care of quickly and you can keep moving forward. It is like always charging your phone battery at 50% instead of waiting for below 10%. If you ever forget or the power goes out, you will have a buffer before an emergency really becomes an emergency. 2) It often fosters creativity to meet your budget needs. Then you allocate all your funds for the essentials and must figure out how to live on less, you start to cut out the things you may feel are less important and find ways to increase/prolong the things that are more important to you. You may get more creative with the things you already have before tossing them out. You may find loyalty/rewards programs to utilize to save money or gain travel perks. Living on less does not have to mean giving up the things you enjoy.
As a Financial Citizen you don’t need to be at an expert level in all these areas but if you stick to the principals at all stages of your income & financial knowledge levels then you will be better equipped to make the most of your financial journey and help positively impact those around you.