Q: What is the single most important thing an individual or couple can do to ensure they will be financially successful?
A: Occasionally, this question does come up. It is an interesting one because it expects that using our knowledge and experience in the financial and retirement planning field, we can reduce all of that information down to one key aspect that makes all the difference. It would be the equivalent of asking what is the single most important thing you can do as a parent to assure raising a successful child? The complexity of the problem alone means there are a plethora of decisions and strategies, large and small, that determine a successful outcome. The topic is complex which makes a simple answer difficult.
That being said, after years of thought, I have an answer for this recurring question. The single most important thing you can do to ensure financial success is live below your means.
Paraphrasing Charles Dickens from David Copperfield: Annual income $50,000, annual expenses $49,999, result happiness. Annual income $50,000, annual expenses $50,001, result misery. In the case of Dickens’ lesson, $2 is the difference between success and failure.
Living below your means cuts through all other financial planning theory. If your expenses are higher than your income, no matter what that income is, you will be moving backwards financially, swimming against a crushing tide of debt and interest. However, spending less than you earn, even by just a little bit, allows you the flexibility to execute on all other financial planning tools and techniques, such as building an emergency reserve, saving for a comfortable retirement, and leaving a legacy nest egg to your heirs.
Through years of helping individuals and couples plan for their retirement, I have seen people earning $60,000 annually save over a million dollars towards this end while some making several hundred thousand dollars per year have little savings to show for their years of highly compensated toil.
Think about what you want your future to be. Spending more than you earn will create a financial treadmill, powered by high interest, that you will have trouble getting off. Practice the discipline of paying yourself first and spending only what is left and life will provide you with greater riches than you could have imagined.