HOW TO MAKE YOUR MONEY WORK FOR YOU: 10 STEPS TO FINANCIAL FREEDOM
When it comes to earning, saving and investing money, most of us get a little flustered. But it doesn’t have to be confusing and stressful! Remember, a penny saved is a penny earned! Let’s face it – we all want to travel in style, dress the part and live comfortably. But how do some people create that “formula” to explore the world, wear fancy suits, fly first class and retire early?
Over the last decade, I’ve interviewed thousands of people including financial experts and CEOs. While there is no “perfect plan,” I have consolidated a few recurring themes into a “savings checklist” to help you save! This checklist should help you better understand, manage and improve your finances.
Here are 10 TIPS to make your money work for you! #archLISTS
THE SAVINGS CHECKLIST
(1) Save For Retirement – maximize your 401k contributions and take advantage of company matching because that is free money your employer is offering! Most employers offer 6% matching so you should at least contribute that much per pay check. Let’s say you made $50,000 a year and your company matching was 5%. If you put in that amount, you would get an additional $2500 a year (for just matching)! That money will continue to grow every year thanks to compound interest. But how much should you put away to your retirement funds? A good rule of thumb is 10-20% and ideally maximize the total the IRS allows you in a given year. You should ideally have 1x your current salary by the time you are 30, 3x your salary by age 40, 5x your salary by age 50 etc… The longer you money is invested, the more bang you’ll get for you buck!
- (2) Invest in the stock market – no one becomes wealthy overnight and let’s face it, not all of us are going to hit the lottery jackpot. Just like your body needs a variety of nutrition sources to stay healthy, so does your money. In addition to allocating money into your 401k (pre tax) or ROTH (post tax), make sure you also open up an individual brokerage account (think Fidelity, Robinhood, Vanguard, Charles Schwab). A lot of companies will even offer a free session with their financial adviser to help you understand your asset allocation. You may want to do a mix of stocks, mutual funds or ETFs to diversify your assets. The best benefit is your money will grow depending how you risk averse you are (thanks to compounding). My recommended ETF picks are QQQ, FDVV, EEM, IJH, ITOT and my recommended mutual fund picks are FNILX and FCNTX. Download stock apps like Robinhood and do your homework before you invest your money! There are plenty of great sites like MorningStar, NerdWallet and Motley Fool that can help you with your financial planning.
- (3) Buy real estate – renting vs. owning is a very personal decision but I’ve always been a fan of building equity. In your 20s, you may not have enough saved up for a huge down payment. You may have student loans or car payments so renting may make sense. But if you are diligent about your money, and can even put down 5%, you should look at owning and building wealth. When you own a property (whether it is for you to live in or an investment rental), you can write off the interest in taxes and show depreciation. Plus, you are “paying off” your own mortgage and building equity instead of paying of someone else’s mortgage (rent). Perhaps, you want to live in a high rise condo in your 20s and live the nightlife. Or, you want to buy smaller properties at a lower cost or foreclosures, pay them off and convert them into investment properties. That being said, you have to do what makes sense for you and your lifestyle.
- (4) Automate payments – most experts recommend paying off credit card debt. Some financial experts say pay off the smallest debt first. Trim your credit cards to two or three so you are able to manage your spending. Ideally, only buy if you really have to (your must vs. your wants). If you get your paycheck on the 15th and 30th of each month, schedule a common day like the first or 10th of each month (before they are due). Ideally, do it when you will still be above your minimum bank balance but won’t see the money sitting in your savings or checking account.
- (5) Budget your money – create a spreadsheet with your credits (money coming in) and debits (money going out) for a given month. Keep your columns in different colors so you know what are your “musts” and “wants” for each month. Your “credits” could be your monthly paycheck(s), your rental income, any freelance or side hustles. Your “debits” will be certainly be much longer. These will include rent/mortgage, insurance, bills (utilities, water, phone, internet), gas, food, classes, etc… You should create an “extra” columns and budget a $100-$200 on additional expenditure. You may have birthdays, weddings, showers, additional dinners/gift purchases, oil changes, car repairs, plumbing problems etc… so that you have a “variable” bucket which could be used for sudden expenses.
- (6) Start saving monthly – If you don’t already, create a “miscellaneous” or “bonus” bucket to force yourself to save at least $100 a month and route that to a separate account. The more you can automate, the more you can save. As humans, we often get tempted when we save more money sitting in our bank account. When you “force” move your money, you actually won’t see it sitting idle and the less likely you will be to spend it. You can also earn more money by creating a side hustle (freelance writing, teaching an online course, selling/creating products). When you start to get into a “savings” mindset, you won’t waste your hard earned cash into useless expenses So, put away the money you do earn for delayed gratification.
- (7) Calculate your net worth – use your master budget spreadsheet to create a section or a tab on your overall assets. This should include any properties you own, your savings balance, your stock balance and your retirement amounts. Create a table and update this at the end of each month to see your progress. This should also be for time you spend on certain things or tasks (i.e. your hourly rate). Approximately, take your annual salary and divided it by 2000 (so if you earned $50,000 your hourly rate would be 50000/2000 = $25/hour). You are assuming 50 weeks and 40 hours in a week so that will give you a ball park. Now, before you decide to splurge on a fancy meal or buy a new outfit, think about how much “hours” you have to work to earn that, and if it justifies it. I always say do what makes you happy and life is short so spend on the things that really matter to you. But, create mental checklists to know if that is really worth it (a daily latte at $3 a pop can easily add up to $800 a year). Go back to the budget you created earlier to see if you need to allocate more/less to help you reach your financial goals.
- (8) Manage your credit cards – maximize your credit card and create a tracking spreadsheet if you have to dispute a charge (name, date, rep info, comments) and proactively follow up. Depending on how you spend, keep up to 5 cards and maximize the rewards. I love the Chase Sapphire Reserve card and also keep a bank visa card. Also, contact your credit card company once a year to increase your credit limit to improve your credit score (you get one free credit report a year)! Periodically, call your credit card company and ask for a fee waiver in case of a late fee charge (“I have been a loyal customer of yours and would appreciate this fee waived” — remember politely ask and don’t just do an open ended request)! I also set up a ‘transaction alert’ so that I get text alerts on my phone for any purchases and can flag potential fraudulent charges.
- (9) Maximize card rewards and travel upgrades – when you travel, sign up for loyalty rewards for your preferred airline, car rental company or hotel chain. Before you travel, call the customer service manager for your flight or hotel. You can ask about availability and upgrades with a manager. (“I would love to enjoy my experience with your company and am happy to write a review. I certainly hope you would be able to make my stay/travel memorable with a complimentary upgrade.”). When you want a travel upgrade to bump into business or first, call and find out if your flight is oversold. If you have status with an airline, the chances of being bumped are much higher for a sold-out flight. Also, ask the agent if you can bid to get on the next flight for a travel/reward voucher. It never hurts to dress the part especially if you want to fly in the premium cabins! And for hotel upgrades, always ask how they can make your travel experience a little smoother and ask for a late check-out! Except for one hotel (it was sold out), every hotel I stayed in offered generous upgrades include suites — and of course, I kept my end of the bargain and wrote a glorious review!
- (10) Stay organized to master your money – keep all your information handy by using the ‘notes’ feature on your phone. You can also download a secure app to store that information but keeping all your info handy and accessible will make your life easier! In fact, I also love adding other information to that like my license, credit card #’s, frequent reward program #’s! That way it is s all in one place. Create a separate tab in your budget spreadsheet for taxes. Organize your tax list so that when you have to file for taxes, all of your information is easily accessible. Be sure to include date, expense, category and what things could potentially be tax write-offs including mileage and charitable contributions.
Here are 10 TIPS to make your money work for you! #thearchway #archlistsTweet
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RECOMMENDED READINGS AND SITES
“I will teach you to be rich” (Ramit Sethi)