A lot can be learned from how the big names of NASCAR -- a $3.5 billion industry -- manage their money. Even rich NASCAR drivers struggle with keeping the outflow of cash balanced -- and below -- their income.
According to a recent report by economists at Princeton University and New York University, about one-third of American households -- 38 million of them -- are living paycheck to paycheck, with little liquid wealth. The bigger surprise is that two-thirds of those 38 million households might even be considered affluent. We hunted down the strategies used by the richest and most famous racers to help NASCAR fans learn how to better budget their paychecks.
Dale Earnhardt Jr.: Take Baby Steps and Build a Nest Egg
Dale Earnhardt Jr. earned $14.9 million from racing in the year spanning from June 2013 to June 2014, according to Forbes. The race car legend has grown his empire to include lucrative ventures like ownership of two Whisky River bars, and earnings of $11 million from endorsements in the last year. Earnhardt, the highest-paid driver in NASCAR, with total annual income of $25.9 million, and he was also voted NASCAR's Most Popular Driver in 2013 for the 11th straight year.
As Earnhardt built his career on the track, he also learned to manage the wealth that came with his success. "When you first start driving, you don't understand the value of a dollar," Earnhardt told ESPN. "You don't understand how far a dollar will get [you] when [you're] 50 years old. Five years into your career you're starting to understand it. ... I need to be smart here and put away a nest egg and build on that. You take baby steps. I did."
Like Earnhardt points out, starting small is key. Saving just a little bit from each paycheck will help you stretch them further today, have an emergency fund to fall back on if needed and secure your financial future. Even just saving a few dollars a week at first, like with the 52-week savings challenge, can lead to big changes in your spending habits.
Jeff Gordon: Ask for Deals and Keep Your Lifestyle in Check
At 14 years old, Jeff Gordon showed up at an Indianapolis Valvoline office and talked his way into a sponsorship that would get him free oil for his Sprint car, reports ESPN. The initial response was to ask Gordon how he got to the office, to which he replied, "My mom drove me. How about that oil?"
Gordon must have gotten over his fear of asking for a deal early on. It's surprising how often a simple request can lower a price on anything from debts owed to overdraft fees or monthly bills.
Another key is to keep spending low even as paychecks grow. Gordon, along with wife Ingrid Vandebosch, decided after the 2007 birth of their first child to scale back and provide a more normal lifestyle. Gordon cut his personal staff down, got rid of a yacht and full-time crew and leased his private jet out to other travelers through an airplane motor pool.
"People think I'm lying when I say that we're up changing diapers and feeding the baby," rather than hiring a nanny, Gordon told ESPN in 2007. "Anyone who doesn't believe me can stop by at 3 a.m. and see for themselves."
Danica Patrick: Listen to Experts and Check On Your Money Daily
Danica Patrick has earned lucrative endorsements like Go Daddy, for which she has appeared in a record 13 Super Bowl commercials. Last year was the first time Patrick raced full time in the Sprint Cup Series, which helped her rack up $15 million in earnings over the last year, securing her the fifth spot on Forbes' list of 2014's highest-paid female athletes.
Patrick's smart money move is listening to expert financial advice: ESPNW reports she employs two private certified public accountants to manage her wealth. A personal CPA might not be in your budget, but you can still get access to personal finance advice from experts through books, finance sites, podcasts and even Twitter (TWTR). Improving your financial literacy will give you the know-how to make your money work for you.
She knows that daily tender-loving care goes a long way in stretching dollars from one paycheck to the next. One of her CPAs is dedicated solely to monitoring her everyday finances. "She's sort of the comptroller of my money," Patrick said. "[S]he's the one who gets all the payments. She gets all the deposits."
You can apply the same principle to your bank account even without the help of a CPA -- check on your finances daily to make sure spending is on-budget and to avoid mishaps like late fees or overdrafts.
Jimmie Johnson: Use the Barter System
While Jimmie Johnson's earnings of $24.8 million in the last year made him the second-highest paid NASCAR driver in 2014, he definitely experienced some financial rough patches early in his career. When he was just starting out as a driver in his home state of California, Jimmie had no money to pay for rent, he told Bleacher Report. Instead he did chores around the house and prepared meals for roommates, like his signature barbecued shrimp tacos. Johnson's contributions kept his roommates happy and gave the rookie driver a chance to figure out his financial situation.
If you're short on cash, look for other ways to cover your costs. Is there a way to trade services or items, instead of money, to cover your monthly expenses? Maybe a neighbor will babysit for free if you'll keep his lawn mowed in return, or get some help covering gas costs by carpooling with a coworker.
10 Financial Land Mines That Can Decimate Your Net Worth
Get Your Finances in Gear with Tips from Top NASCAR Drivers
Managed to get that raise or promotion? Fantastic -- now don't go out there and spend it all immediately. In classic "keeping up with the Joneses" fashion, too many of us see an increase in salary or a sudden windfall (like an inheritance) as an excuse to take our lifestyle up a notch. We buy bigger houses than we need, get the latest gadgets even though ours work just fine,and spring for fancy steak dinners just because we can.
Instead, whenever your financial situation gets a boost, consider the best ways to put that money to work for you. The truly wealthy are those whose money continues to grow and earn them more, even when they're not actively doing anything with it.
The average American household that carries credit card debt holds a balance of around $15,000. If you're among those who have a credit card balance, you've probably seen the little chart on your monthly statement telling you how much you'll pay in interest over the next several years if you make only the minimum payment. (If you haven't, look at it.) The same chart will also compare that to a "suggested" payment that's slightly higher.
Our recommendation? Throw everything you can at paying your balances off as fast as possible. And make sure not to take on any additional debt in the future; if you can't pay for a consumer good out of pocket, don't finance it.
We don't demonize student loan debt the way we do credit card debt because we see an education as an investment -- and higher education often is the difference between one income bracket and another. Similarly, many people justify taking out a car loan by stating that they need a car to get to work.
That said, debt is still debt, and the longer you take to pay it off, the more interest you'll pay. Once you've freed yourself of credit card debt, paying down your car and student loan balances should be next on your list.
Whether it's to handle an unexpected car repair, a sudden illness or a major plumbing problem, you should always have some money set aside to cover unforeseen expenses. Set up a regular monthly transfer from your checking to your savings account to earmark this money before you're tempted to touch it. If necessary, cut back in another budget category (like eating out or entertainment) to free up the funds to save more.
Putting aside a little each month could prevent you from getting socked with a hefty bill you can't afford and then need to finance.
No matter your age, you should be adding to your retirement funds -- such as your 401(k) or individual retirement account -- each month. Just setting aside money sporadically won't cut it; you need to identify how much you'll need to live on once you stop working and monitor whether you're on track to reach that amount.
Here's a quick-and-dirty rule of thumb: multiply your annual spending by 25. This is the amount you'll need in your retirement portfolio, if you assume that you'll withdraw 4 percent per year to live on during your retirement. In other words, you'd need $1 million in your portfolio to live on $40,000 annually. Creating a plan will help you make sure you're able to retire the way you envision.
A home is a big investment, and sometimes that investment doesn't wind up netting you the return you thought it would.
The biggest culprit is having too large a balance on your mortgage, which detracts from your own personal stake in the current market value for your home. The sooner you pay this amount down, the better your home equity will be.
You also want to be careful when purchasing a new home. Buying in a neighborhood that's on the downward spiral or buying the most expensive home on the block, likely won't net you a good return when it's time to sell. Also take care to stay away from custom renovations (like turning the garage into a recreation room), which could negatively affect your resale value.
Paying high investment fees eats away at your gains. And since your gains compound over time, this creates a domino effect that can really chip away at your wealth. Take a close look at your investment companies' fees and shop around to make sure they're not taking more of your money than they need to be.
If you don't have a long-term investment vision and are simply playing the market, you could seriously undermine your wealth-building potential. Stop paying attention to market fluctuations, media pundits and the stories of your friends and family. Instead, create your own long-term investment strategy that will maximize your overall returns. Resist the urge it play it ultra-conservative (or fall for get-rich-quick schemes) and educate yourself on the best way to make your dollars work for you.
If you're having trouble making sense of your options or want a second opinion, seek the help of a trusted financial adviser.
Based on your experience and seniority level, education and industry, you should have a fairly good idea how much you ought to be making at your job. If you don't, check out a site like PayScale to get a ballpark figure.
If you're not making what you're worth, you're doing more than leaving money on the table; you're also losing all the compound growth and investment returns that money could be generating for you. Invest in yourself with professional development and continuing education, make the case for that raise or promotion, or seek out a company who will value you higher.
If you don't have proper insurance coverage, you're taking a very big risk that could come back to bite you. Too many people think the worst can't happen to them, but the hard truth is you can't predict the future, and scrimping on sufficient insurance is never a good idea.
Of all the things we're hesitate to part with our money for, adequate insurance coverage should not be one of them. No matter your age, everyone should be properly covered with:
Homeowner's or renter's insurance.
Flood insurance (if you live in a flood-prone area).
Umbrella liability insurance (especially if you own a small business).
If a spouse or children relies on you for support, make sure you have a decent term life insurance policy, as well.