Master Money
Updated: Jan 14
Foundational skills to get on the road to financial freedom.
*Not financial advice - your money, your choice*
What is 'Financial Independence' and why do I keep hearing about it??
Financial Independence is the amount of money you need to live off of the income that your investments generate. This could be rental income, dividends from stocks/bonds, ETFs, or income from another business that requires little/no time or energy on your part.
If you read that and thought 'What's a stock, bond or ETF?' like I did when I first started learning about investing, click here for an intro.
The first step to retiring a millionaire is SUPER exciting and it all starts with looking at how much you are spending on Rent, Food, Gas, and Insurance every month.
You may be asking ‘how does this help?’
By knowing how much you spend you can better figure out how much to save and invest AND how much you can afford to save and invest.
We’re gonna start with ‘Fixed Expenses’.
For me, these expenses are about $1,200 for rent and utilities, $500 for restaurants and groceries, $100 for car insurance, $100 for gas, and $11 for renters insurance. I think of these as 'Fixed Expenses' because, no matter what, I have to pay these every month in order to live in Seattle, WA.
Have you figured these out? Great! If not - do it now.
______________________
Okay, awesome you're back! Now you're probably wondering how you can keep track of these expenses over a long period of time. Good news! There is a ton of apps for that!
If you’re looking for some awesome budgeting tools you can use YNAB or MINT
I use MINT and find it fairly intuitive and easy to understand
YNAB is better if you’re more experienced with managing a budget
MINT is also FREEEEE while YNAB is $5 a month but offers some features that can help with adjusting your budget on the fly
MINT is owned by Intuit which also owns Turbo Tax and Quicken (recently acquired MailChimp) so it provides awesome integration with filing taxes
Both MINT and YNAB link to your accounts even if they are at different banks/institutions and provide an easy way to see balances in all of your accounts at all times
They also have bill reminders (I just have autopay set up - less work and I'm lazy)
Random reminder: always pay off your credit cards in full and before the statement date to avoid balances on your credit report
Some banks also have built-in budgeting tools so you may already have access to a great budgeting tool!
Once you find out what your fixed expenses are, you may or may not have any money left for saving or investing.
If you don’t, the first thing is to…
A. Reduce discretionary spending on things like eating out, clothing, etc.
B. Find a way to make more money (Ask for a raise/find a different job) - I realize saying 'Just make more money!' doesn't help so I'll provide resources on how to do this in another post
C. Lower your fixed expenses; housing is typically the easiest to move down so moving is a great way to cut expenses quickly (live at home for as long as you can if that’s a possibility)
Once you do have enough to invest there are quite a few choices as to what assets you can buy and what kinds of accounts to use. So... how do you know what fits your needs?
The first step is to use a tax-advantaged account like an IRA, Roth IRA, 401k, and/or a Roth 401k.
Taxed-advantaged accounts carry a lot of benefits and we will go into more detail in other posts.
How much to save and invest as a rule of thumb?
Save and Invest at least 20% of your Gross income
Invest at least 10% of your income
Save at least 10% of your income
While this is ideal, some money saved/invested is better than none
I always make sure I am investing at least this much as a proportion of my GROSS income - this means my income before taxes (your after-tax income is called your net income).
I am a bit more aggressive with investing at 20% and saving at 10% of my gross income; I like to make sure that I am not only enjoying my life right now but that I also have enough to continue to enjoy my life far into the future.
Given that the stock market typically returns at least 9% over 100 years (6-7% adjusting for inflation), I know this is enough for me to be putting away (Nerd Wallet).
If you can put away more, great!
In future posts I’ll provide info on getting raises, negotiating salaries, finding higher paying jobs, and getting the education needed for some of those higher paying jobs.
While saving, investing, and budgeting are great things to do for your financial future, it’s also important to have some money set aside to spend on yourself; I budget 10% of my income for this (again, not everyone has the same situation so another number may be right for you).
The way that I try to make decisions around spending is typically something like this. Ex: When I'm dying or on my death bed, what am I going to wish I had done/will I regret doing this/will this *thing* make my life better?
Another trick I got from a colleague, friend, and mentor is that when you're online shopping or shopping in person - first look at the item without seeing the price tag and assign a value to it (how much value it would add to your life/how much it is worth to you).
If the value that you assigned ends up being less than the price actually is, don't buy it. If the price is less than the value you assigned (and you have the money in your account for it) BUY IT. But before you do, learn about the potential value that money could have in the future here.
If you found this helpful, consider subscribing to my YouTube channel, or newsletter, or follow me on social! If you have any comments please leave them on this post - I love hearing what you have to say + if there’s anything you want to be covered next!
Click here to go back to the home page and check out different posts.
Comments