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The Single Most Important Piece of Financial Advice

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There is no shortage of advice on this topic. A quick google search on “ financial advice ” reveals roughly 65 million hits on the topic. I intend to share the one piece of financial advice that – if followed – will have the single largest impact on you becoming financially independent at some point down the road. This advice comes from my years of working with investors as they approached their own retirement.

Prior to blooom, I spent 20 years advising, planning, and managing investment portfolios primarily for baby boomers. Most of these clients were 55-65 years old and almost all of them had more than $1million in their portfolio. Often times I would meet these folks when they were within 5 years of the finish line and were looking for someone to help them plan out the financial transition from work-life to retirement. With just a few years (or months) left until retirement, there wasn’t a whole lot I could do to alter their ability to retire. Most of these folks had, for the most part, “won the race to financial independence.” Candidly, I was not their advisor when they were younger and working towards their retirement. Rather, I stepped in to help them make the transition into retirement and captain the management of their finances from that point forward.

But that begs the question…how did they amass this wealth? How did they arrive at the point in their life where they could stop earning an income and live on their accumulated savings? The answer is simple. They lived below their means during their working years. Translation – they spent less than they made. It wasn’t an inheritance, it wasn’t a big salary (as most of my millionaire clients NEVER made more than $100,000 per year) and it definitely wasn’t because they knew how to time the market. Rather, it was the simple in concept but hard to execute lifestyle of buying less “stuff” than their incomes allowed. These were the kind of people that would go to take out a mortgage in their early working years and buy a house that they could afford to buy, not the house that they could qualify to buy.

I used to marvel at the cars that rolled in and out of our office parking lot. I don’t think I can ever remember seeing many Mercedes or BMWs. Conversely, I saw a lot of Toyotas, Hondas, Ford F-150s, and very rarely were they brand new. If I had to guess, the average value of my clients’ homes were in the ballpark of $200,000 and almost ALWAYS were totally paid off by the time they retired.

Unfortunately, when I look around – I don’t see the majority of people living like this. And I don’t think it’s because they don’t know it’s the right thing to do. It’s just a hard thing to do. Delaying gratification is a hard thing to do. For many, the availability of credit has removed the need for a wait-till-you-can-afford-it mentality. For a majority of parents if their child came to them and asked to borrow money to buy a video game they mostly likely would tell their child they have to save up for it or do chores to earn the money. But that same parent then turns around and puts their own “big boy toys” on a credit card. Spending less than you make is the best financial advice anyone can receive.

Spend less than you make…Simple in concept, but hard in execution. But trust me, coming from someone who has looked behind the curtain, this is the single most important piece of financial advice you can do to put yourself in a position to never worry about money. Oh, and while you are at it – one more bonus piece of advice: only take out a 15-year home mortgage, instead of the traditional 30-year. It will force you to buy less house but I promise, your future self will thank you down the road!

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Published on April 1, 2016