STRAIGHT TALK ON SAVINGS
John Brennan, the CEO and Chairman of the Vanguard Group and one of SmartMoney’s most influential individuals in investing, wrote a book in 2002 that was meant to serve as a guideline for careful budgeting and successful investing. In this budgeting and investment guide, Straight Talk on Investing, Jack Brennan sums up his philosophy as “living below your means is the ultimate financial strategy.” What “living below your means” really amounts to in reality is focusing on saving any nonessential income you may have rather than making impulse purchases. This also means determining your financial goals and devising a plan to steadily address them within a predetermined budget.
A BUDGETING EXAMPLE
The fact of the matter is that individuals of all ages and backgrounds could benefit from adopting a living-below-your-means lifestyle. Even this millennial couple from Kansas, who posted the budget for their $500,000 income on Reddit seeking financial advice, claim to be unable to make ends meet. The example given is not an example of a struggling college student. This couple feels unable to adequately support themselves on an income that’s over nine times as large as the average income in Kansas. Common critiques of the couple’s budget included the lavish lifestyle that their food and clothing budget implied as well as the couple’s exorbitant mortgage payments. The part of this that may be surprising to some people is that the millennial couple doesn’t have outrageous expenses like “avocado toast” or “crippling student loan debt,” yet they are seemingly unable to save money without compromising their lifestyle.
This is not a rare concern among today’s American young adults. Many millennial investors worry that living a lifestyle that is frugal enough to save a significant amount of money will deter them from participating in some of life’s most-expensive yet most-rewarding experiences. “No, they don’t (miss out)” says Brennan, “they simply gain control.” Essentially, reaping the rewards of a long-term, diversified portfolio can never be achieved if you don’t start setting savings goals and keeping track of where your money is going. An adjustment as simple as determining and maintaining a household expense budget can make a large difference in regards to a couple’s financial health. Avoiding extemporaneous purchases and steering additional funds towards future investments can allow for more lavish purchases in the future. As Brennan declares in Straight Talk on Investing, “saving money doesn’t have to be painful.” One critic of the millennial couple on Reddit was that their “food budget alone is a livable salary in the Midwest.” This is an excellent example of a simple change to living below one’s means that could have a large financial impact on a young family.
WHERE TO START
One of the most essential financial planning tools for any young adult is determining savings goals and maintaining a realistic financial plan. According to Brennan, an important necessity for young adults beginning their financial journey is to “be sure to keep track of all the purchases you make, no matter how small.” This ensures that money is not spent or borrowed that falls out of alignment with your long-term financial goals. A wise strategy for beginning this process is to recognize what your savings goals are, how much you need to save to pursuethem, and what that means for your month-to-month budget. Get on track to living below your means by setting a savings goal and determining a budget plan below: