Hello my beautiful friend
Today I want to discuss something that has a huge presence in many of our lives. This topic happens to be money and hopefully by the end of this, (if you don’t already) you’ll have a positive relationship with it. The goal is to work hand in hand with your money to utilize it as a tool so you can fulfill your dreams of today and beyond.
My intention for this article is to provide for you some resources along with a sense of intrigue. Ideally, your curiosity gets sparked, and you further your research as a result.
It is beneficial to talk about money because to one degree or another, it’s something that the vast majority of us have in common (some people have removed money from their lives completely). For everyone else, if we work together, we can help improve our understanding of it and how we can best utilize this resource. I believe the reason why money is a difficult thing to grasp is because we view it from the wrong side of the coin (pun intended 😈). We, growing up, are taught to look up to money and make it our number one priority. The career or job that we consider is deemed valuable not entirely based on the satisfaction that it can bring, but more so, by the paycheck or benefits that we can attain from it.
I’m not saying that money doesn’t hold value. I instead would like you to consider the idea, that money is just that: an idea. The material value of today’s currency is very minimal. Consider the fact that a $100 bill and a $1 bill are made of identical materials, and in the same quantity. The only reason why one has more value is because society says it does.
That’s right – it’s about what is happening in your mind. A better relationship with money will improve your relationship with life.
Positive vibes go a long way.
But, for this example, I request that you view money as your business associate. Not someone that you answer to, not someone you worship, and definitely not someone who makes you do things that reduce who you are or, puts you in situations that jeopardize your health.
The reason why I say this is because there are many ways to attain money, as well as many places you can go to find it. If someone isn’t good to you, there are many others who would love to know you. No need to waste your time on those who don’t care for you as a person. I love the saying, “Don’t change so someone will like you. Be yourself and the right people will love you”. Same with money. Find the job that you participate in not for the sole purpose of monetary gain. Let’s find the one where you like/love it greatly, and then they pay you – We’ll call that a win-win.
Now that we are viewing money as our business associate, we need to lay out our plan, goals, and aspirations. Without these, your hypothetical business will fail. You and your money are a team, so in effect, you need to work together to make progress.
I use the term “business associate” because that’s exactly what it is: business. We need to do our best to keep emotions out of it. When it comes to money, emotions are bad. This is why so many people hope and pray whilst still losing money at the local casino. Obviously keeping emotions at bay is easier said than done – especially if money is the key factor on whether you have food on your table or a roof over your head.
Truth is, we need to keep things professional. Respect money, but don’t let it control you.
As shown above, Warren Buffet is stating what I’m trying to explain. No surprise why he is considered one of the best investors of all time.
To put simply, each dollar that you have is considered an employee. Now consider your relationship with your boss or your past bosses. Were those experiences positive or negative?
Now consider yourself as the boss of each dollar you own.
Using the golden rule, would it be better to give your dollars a job in a positive/productive work environment or a negative/depreciating one?
This is your responsibility.
Now let’s consider inflation. This is what I believe to be a baseline for comparison with your money. The U.S. Federal Government aims to achieve a 2% inflation rate yearly. Sometimes it’s higher or lower, but we’ll use 2% for this simple example. This means that if you have money hiding under your mattress, you’re losing 2% value yearly on average.
If you have it in a savings account which gives you under 2% interest yearly, then you’re still losing money.
With these two above examples, you’re not being a very kind and supportive boss for your dollars. Consider workplaces such as “under your mattress” or “low interest bearing savings accounts” as poor working conditions. If you don’t take care of your money/workers, they won’t take care of you.
That doesn’t mean you shouldn’t put any money aside in a non-inflation beating spot. These areas are typically the most accessible. For liquidation purposes, you can get that money pretty quick when there’s an emergency and as we all know, emergencies happen. Take care of yourself and set up an emergency fund. This amount is different for everyone but, try to consider $3000-$5000 to cover yourself. Anything over $5000 would probably be an inefficient use of your dollars. And remember, if you take money out of the emergency fund, you need to very promptly fill it back up again.
Now you need to do some research onto where is the best place to put these emergency dollars. Here is a place to start getting your wheels turning.
As you may notice, most of the options are just shy of 2% (the inflation beating benchmark), however, the closer you can get, the better. That’s pretty great in comparison to the national savings account interest rate being 0.09%.
Each of the options on here has it’s own requirements such as minimum balances or the length of time it takes for you to withdraw your money (some take 5 days after your withdraw request to get your funds). This is okay. They want to hold onto your money and that’s just what it takes to earn that higher interest percentage.
But what if I need my money NOW! Life happens and immediate capital is sometimes required. For this reason, I recommend using a credit card. Credit cards are difficult for those who can’t control impulsive spending, so if you’re one of these spenders, I’d shy away from this choice, and go with the classic bank account option or the under the mattress technique (although under the mattress isn’t insured against house fires or theft). For everyone else, credit cards provide a lot of benefits.
Some perks I enjoy are the fact that you get an interest-free loan (as long as you pay your full statement balance off each month – NOT just the minimum payment).
You build your credit, which is great for making yourself a good applicant for loans in your future.
Many have perks such as cash back, travel rewards, purchase insurance, no foreign transaction fees, etc.
Tips to consider: Never spend more money (if you can help it) each month than what you can afford to pay off at the end of the month. I charge only the amount that I currently have in my bank account. This way I don’t get into a bind. (Don’t confuse debit cards with credit cards. Debit cards don’t build your credit or have the perks mentioned).
Tip: Never (if you can help it) charge more than 50% of your credit limit because it is an indication that you are charging beyond your means (this will lower your credit score).
Aim for credit cards that don’t have an annual fee and if they do have one, make sure you’ll use the card enough to justify the fee. It takes some math but it’s worth it in the end. Myself for instance, I don’t spend enough to justify any annual fees.
Some have credit card opening bonuses so it’s advantageous to plan out your application submission time for when you’ll have some big purchases. For instance, some will give you $150 if you charge $500 in your first 3 months. Not a bad take.
Look through a lot of options! Our culture thrives on capitalistic competition. Therefore, there are plenty of credit cards with a diversity of perks out there. I’m sure you’ll find one that seems as if it was designed just for you (because it was).
Here is a link where you can get started.
Now let’s sit down and think about our current situation. It doesn’t matter if you are happy or sad with your financial status, because you can always start something new today. This present moment is the most important time of our lives. Nothing you can do will change the past. Furthermore, you are only a summation of your past actions. Your actions today can and will create a ripple effect in any way you choose your future to be. That’s the beautiful thing about energy… believe, love, spread the good vibes, and that is what will pave the path for your future. The same is true for negative energy..
For my brothers and sisters who are living paycheck to paycheck. Have no fear. Never forget that we are in this together. I love to remind myself that all we have to do is ask for help. If you ask enough people for help, it will come. And the best way to receive help, is to give it. Send the love – in any way possible – and it won’t go unnoticed. “No amount of kindness, no matter how small, is ever wasted”.
Your mind is an incredibly powerful tool my friend. Turn this challenge into a game. Play the game. Work hard at it and do your best. You’re not competing against others – just against yourself. But work with yourself to make things happen. I believe in you. We believe in you, and if you don’t already, soon enough you’ll believe in yourself. Just be persistent.
Now, do you have a hard time saving anything from your paycheck? Start with $1. Did you do it? No? Try harder next paycheck. Yes? Score. Now try for $5 or feeling extra ambitious? Try for $10.
Sometimes it’s difficult to accumulate considerable savings with your day job(s). Something that is easy to forget is the power of side gigs. Supplementing your income with a few dollars on the side really adds up. Same rules apply as above: don’t do things you hate to earn side cash. What you do may not be the most glamorous work but opportunities are endless. Love dogs? Be a dog walker. Have a lawn mower? Mow someone’s lawn. Own a shovel? Shovel some driveways. Notice how all these include exercise? There goes that gym membership which also adds to your savings. If you really want to get out of debt or build that emergency fund or investment account, you’ll get creative. Let your thoughts wander and you’ll be surprised on what they stumble across.
I mentioned that you should pay off your credit card statement off in full each month. This is because the interest rate for credit cards is quite high. But what I didn’t mention is the other forms of debt that you may carry. These can be loans for your home or car debt or student loans etc. The course of action here is to list out your debts in order based by the interest rate on the outstanding balance. Put the highest interest debts on top and then list them in descending order. Your priorities should be to put any extra savings towards paying each off. If you have debts that don’t charge interest or charge interest at a lower rate than what you could receive in investments, then no need to rush to pay them off.
This may take awhile. It’s something that you need to be committed to. Consider how much extra money you’d need to be forking over just in interest when it’s all said and done. Your goal is to not give away free money. After all, you worked hard for that.
For student loans, take a look here.
“It’s not entirely about how much you make, it’s about how much you can keep/save.”
I love this quote. But that doesn’t mean you should cut out everything you love. Frugality is a great trait to have. It’s cutting spending on things that aren’t important to you so you can spend more on the things that really matter. I really love how Ramit Sethi (author of the book: I Will Teach You To Be Rich) puts it in his article on money dials here.
Take his challenge. Determine what you are passionate about and cut costs mercilessly on the other things. I started doing this, and as someone who would participate in things that I didn’t want to, I learned I was spending money that should have been allocated for things that I really care about! Don’t forget your greatest asset is time.
So you’re not living paycheck to paycheck anymore and things seem to be coming together. You have your emergency account set up which provides an interest rate that doesn’t get blown away by inflation. You prioritized your spending towards high interest loans to get them paid off. Your credit card gives you cash back or rewards, and you aren’t skimping out on things that you’re passionate about. AND, you still have money left over! What to do with it?
Remember when I mentioned giving your dollars jobs? Like, good jobs? Well, this is where we’ll do that. If you have a job that offers a 401K, you should invest into that, especially if they match it. For myself, I don’t have that option so I take the individual retirement account approach. And, let me tell you, it’s fun!! Knowing that your money is working for you while you sleep is so relieving. Once it’s set up, it works to provide you with a financially set future. That is why I highly recommend this approach for the tax advantages. If you max your IRA out, then you can open up a regular brokerage account and invest into that even though it’s not tax advantaged. Invested is better than not invested.
Wait.. hold up.. what are these individual retirement accounts you speak of? Well, honestly, I’m not going to reinvent the wheel so here is a comparison between the Traditional IRA and the ROTH IRA by Ramit.
Furthermore, you may be wondering what to invest in. If you don’t know what stocks to “pick” or “do I invest in gold?” or “where do I start?”.. You needn’t worry. Mr. Money Mustache explains it clearly here.
This is a super simple passive approach, which requires no stress. He suggests the Vanguard Total Stock Market Index Exchange Traded Fund (VTI) which is an ETF. I personally prefer the mutual fund approach VTSAX but in the end, it’s 6 of one and a half dozen of another. The most important thing is to get started and let compound interest take over. If you’re hesitant, just take a look at the history of the United States Stock Market and you’ll notice that if it drops, it quickly recovers.
When the overall stock market drops (like now with the Coronavirus), it’s not a time to run away. Think of it as everything being on sale. Buy more.
After maxing out these tax advantaged accounts described by Ramit, I mentioned you can either put more into a non tax advantaged account or if you’re feeling ambitious, you can invest in a side hustle or pursue a long awaited hobby. Get creative.
The world is our oyster my friend. I hope you can learn something from the aforementioned. I highly recommend you look into the other resources by Ramit Sethi and Mr. Money Mustache. Another resource you can look into which wasn’t mentioned is the Mad Fientist. Google these folks and study up. Personal growth in any aspect of your life creates this sense of invigoration to be the best you can be. This is a great goal/journey to pursue and I guarantee that your present and future self and family will appreciate your dedication. Remember, as is true with any journey, you need to start now.
A quick, and very important lesson: You need to pay yourself first. Pay off those debts and invest money into your emergency fund and retirement accounts at a slightly greater rate than you can afford. What I mean is do it so that afterwards you don’t have quite enough money for rent or food or your utility bills. This may sound crazy, but the power behind it comes from the fact that you need to get creative. You’re least creative when life is all sunshine and rainbows. If you pay these bills off first and don’t have money left over for your investment towards your future, then oh well. You’ll get to it next time and next time never comes – or it happens later than it should. Pay yourself first and you’ll be surprised by all the extra money that shows up because you picked up a side gig or you cut that magazine subscription that you never read but drains your bank account regardless. Try paying yourself first my friend and let me know how it goes. I’d love to hear where your problem solving brain takes you 💚
Remember, this post is only supposed to get you started. Everyone’s situation is different so it’s up to you to put forth your own due diligence. Only you can configure a plan that best suits your needs. I believe in you.
If you have any questions or would like to talk about your journey or predicament, leave a comment below and I’d be happy to discuss! At the very least, I’ll do my best to point you into the right direction.
As always, all the best.