Budget and Invest turns 1 today. I know it is Thanksgiving and I want you all to enjoy your time with family so I’ll make this short and sweet.
I was inspired to start this blog a year ago by the passing of my father, a man for who I had much respect. Although my father taught me many things, finances were something we rarely discussed. The subject wasn’t taboo or anything, just not something that was ever brought up in conversation. After he passed away, I started to see why. My family’s finances weren’t as well of as I personally would have liked to have seen for my mother. She didn’t have much say when it came to the family finances. Dad would always tell her that he has everything handled.
The older I get, the more I realize just how open people need to be with their finances with loved ones. I have also come to realize that the more one educates himself or herself on personal finances, the better off they’ll be. Books like Rich Dad Poor Dad, The Millionaire Next Door, andSimple Wealth, Inevitable Wealthhave taught me more about personal finance than a lifetime of schooling ever has. That is why I share you with the knowledge I have gained and my personal stories. In hopes that all of my readers can achieve the same financial success that I hope to and will attain in the future.
As you might or might not be aware of, the US Stock Market has been declining and may continue to do so. The market fell over 5% last week and looks to possibly continue the negative trajectory today.
This is the first 10% + pullback we have seen in a while. 10% is what experts call the correction, or when they feel stocks have gone up so much that they need to be corrected to allow new buyers to enter the market. Markets will always continue to rise over a long-term horizon; however, these pullbacks that occur do cause fear and worry in the eyes of many investors. I am here to tell you that you should not worry.
In one of my favorite books, Simple Wealth, Inevitable Wealth, by Nick Murray, Nick talks about how a declining market is one of the best things for your portfolio. If you buy an index fund on a constant basis, then putting the same amount of money into that fund will yield a purchase of more shares of that fund. Reversely, the more the fund increases the fewer shares you can purchase with the same amount.
My 3 tips for a downturn in the market:
Continue buying stocks. Just because stocks are going down doesn’t mean you should get out of them. That is what everyone else is doing. Cover the purchase of a range of stocks through an all-stock index fund.
If you have extra funds, then put them to work. If you have any spare cash lying around and your financial life is in good health, then use this as an opportunity to enter extra funds into a down market. Investing in an all-stock index fund means that the price of that fund is decreasing right now, so investing extra amounts of money at a decreased price means you can take advantage of that discount.
DON’T PANIC. Don’t watch the news, don’t follow the markets, whatever it takes, don’t panic. That is what many do during a downturn, they sell. Can the market potentially drop an additional 10%? Absolutely, there is no way to tell how far it will drop, but if you sell when everyone else is you are giving in to the panic. Be a disciplined investor and continue buying while prices are falling.
There is a psychological battle that many of us go through when it comes to our finances. If you have debt, you might wonder whether it is best to pay it off or use the money and begin building a nest egg for retirement.
Every person’s situation is different, and the psychological role that debt can have on someone is unique to every situation. At times you might feel trapped and bogged down by your student loan debt, car payment or even a mortgage. The debt that is supposedly “good” seems to constantly weight on your mind. For those of us that face this predicament, it is important to find the right balance when determining what debt to pay off, how much to pay off and how much to save. I will provide some insight to help you decide the right balance for you.
Credit card debt/high-interest debt: You should always focus on paying off ANY high-interest debt you may have. This may include interest that is accruing from unpaid credit cards or any other loan. Credit cards can carry interest rates of 20 to upwards of 30%. You will be hard pressed to find investment returns better than the interest you will be paying on high-interest debt.
Do not feel rushed to pay off student loan debt: We are told constantly about the all-time highs of student loan debt and how the younger generation cannot buy houses or cars nor do much of anything until they get student debt paid off. This is true to an extent, but think about this… most student loan debt carries an interest rate of 6.8% or a little less. Now, compare that with returns of the S&P 500 that has returned at least 11% four of the past 5 years. Moreover, when it comes to tax time, you are only able to deduct up to $2500 of student loan interest.
Time not timing is everything: Some people get in the mindset of “Well I must pay off all of my debt before I start investing”. As I stated previously, everyone has a different mentality when it comes to debt. Nevertheless, the longer you put off contributing to a Roth IRA or maxing out an employer-sponsored 401k, the less time your money has to grow with compound interest. Let us use a quick example, say you had $50,000 and you put it into an index fund that returns 8% a year, after 30 years that original amount would turn into $503,000. However, with just five more years, a total of 35, that same $50,000 would now be worth $739,000. Do not delay your retirement.
At the end of the day, tackling one’s debt and investing is all about having an actionable plan. Create a plan, with a budget and stick to it. It takes time to pay off debts similar to the many years required for your retirement portfolio to grow. Patience and diligence will allow you to reach your financial dreams and live the life you truly desire.
It is a phrase many of us have heard when it comes to managing our money and investing. I often post on Quora and see people ask, “What should I invest in?” or “What does it mean to invest in myself?” These are great questions, as many young people especially do not have the right answer.
Ways you can pay yourself first…
Contribute to an employer 401k and get the full company match. This has a two-fold purpose. Firstly, you are never seeing the money that is taken out so you will not miss it. Secondly, your employer match is FREE money and the easiest way to boost your return.
Establish a Roth IRA. Most individuals are eligible to contribute to a Roth IRA. If you are unsure, go to Roth IRA and see if you meet the criteria. Even a small amount of $100 a month automatically withdrawn from your checking account is a great way to add an additional retirement vehicle for the future.
Read Books. Lately I have been ordering books on Kindle like a mad man. Many of the books I read are financial related and leverage others’ experiences. The Millionaire Next Door by Thomas J. Stanley is one I highly recommend. Austin Netzley’s Make Money, Live Wealthyis another great book that offers wonderful insight into his personal journey of wealth creation. Austin does a great job of connecting with successful entrepreneurs and innovators throughout his book and illustrates their journey to success.
Your Health. Investing in yourself isn’t just about money; it is also about being able to enjoy the life you live so that one day you can reap the rewards of all the hard work you have put in. Start exercising if you don’t already. They key is starting small. Do the elliptical for 15 minutes 3 days a week. Then bump it up to four. Replace a candy bar with a piece of fruit. You get the picture. Investing in your health should be the first one listed in this post, but like many of us it often times is the last thing we think about.
There are many other ways that you can pay yourself first. Vacations, nice meals out, etc. When it comes to your finances and personal development, YOU are in control. Don’t just talk about these things, put them into action and set yourself up for greater success.
I recently finished reading George S. Clason’s The Richest Man in Babylon. I heard the recommendation of this book on a Podcast I had listened to. If you haven’t read the book then I suggest you buy it on Amazon. A Kindle edition can be purchased for $1.99 and used copies cost less than a dollar plus shipping and handling.
This book is a great example of how the importance of handling one’s finances has been around for thousands of years. I won’t give away too many details, but I will list and discuss briefly my 3 main takeaways.
1) Debt follows you wherever you go: If you get yourself into debt, it is your responsibility to get yourself out. Own your debt and create an actionable plan to attack it head-on.
2) Saving is important, but allowing your savings to grow is what truly matters: Saving 10, 20 or 50% of your income is important, but you need to have that money continually growing whether it’s with an index fund, a financial advisor or in rental property. Having your savings in accounts earning 1-2% will never make you financially independent.
3) Don’t let misfortune define you, let it build you: Some are born into poverty, others encounter tragic life events, no matter what difficulties you have faced or might be facing you have the potential to create the financial feedom you desire!
I hope these 3 takeaways I got from the book inspire you to go out and read it for yourself. Nobody cares more about your finances than you!
Many have heard of this savings challenge before, but if you haven’t or if your mind is a bit hazy let me remind you.
There are 52 weeks in a calendar year. At the end of each week, you put in an extra dollar into a glass jar then you did the week prior. You start with a dollar in the jar at the end of week 1.
For example, and we’ll put the money in on Sunday’s for simplicity reasons. On Sunday, January 4, 2015, you put your first dollar into the jar. The following Sunday, January 11, 2015, you put $2 in the jar, you know have a total of $3. You continue this process every Sunday throughout the year. If you were to complete the 52-week challenge, then at the end of the year you would have saved up $1,378 in the jar. Quite astonishing really!
The whole point of this is not only to save up the money but to get your mind wrapped around living off one less dollar per week. If I said to you, “Hey Mike, you have to spend one less dollar this week. You think you can do it?” Mike, or you, would probably respond with a resounding “DUH”. Each week of the year you basically have to find out how to live on one less dollar than you did the previous week. When you break it down like that it seems mighty simple.
So give it a shot. Save up for a vacation at the end of the year, or maybe open a trading account. This challenge has a two-fold purpose. It helps you save money, and it also allows you to think about how to live on less.
Here is the chart for you to paste on the jar. Good Luck!
You might say it’s your financial advisor, your parent, a relative or maybe even a mentor who has had great financial success.
Your best friend when it comes to investing is: Compound Interest
People who are new to investing often wonder what is compound interest, or why is compound interest important. I’ve touched briefly on the subject of compound interest in a past post but I feel it is so vital to creating long term wealth that I am circling back to it again.
Money can be made and lost. However, time cannot. Each of us has only a finite amount of time here on Earth to build up a financial wealth. Mr. Time is your next best friend.
Check out the following article which shows a visual representation of how Compound Interest and Mr. Time can work together to create a substantial amount of financial wealth for oneself.
This post is occurring on the 15th of the month. For those who are employed and get paid on a bi-monthly basis, today is most likely a payday for you. Congrats! Your first half of the month has been rewarded with a monetary settlement.
For me, today isn’t payday… It’s “Cash flow” day!
Many people look at payday as an opportunity to “go out for drinks with friends” or “buy that new sweater you have been wanting”. They made money, so now they spend it. Since I monitor my spending using a budgeting worksheet, I already know how much I can spend on things such as a new sweater, or drinks with friends in a given month.
Instead, view today as a day of positive cash flow. You got paid, probably in a bank account, so it is in essence liquid cash. This positive cash should first be used to pay expenses. It’s the middle of the month, so maybe you have a cable bill or a car payment. Focus on paying your necessary debts first before splurging on other activities.
Additionally, with my job, pre-taxed money is automatically put into my 401k, so I never even put this into the budget equation. My philosophy is, “If you don’t see it, you can’t spend it.”
Budgeting after college is essential to get on the right financial track for life. I have attached a free budget spreadsheet at the bottom of this post. Use it, make changes to it to fit your needs.
Today might be a literal payday for you, but it is both literally and figuratively a “Cash flow” day as well.
With the end of the 2014 calendar year upon us, it is time for many of us to make our New Year’s Resolutions. A New Year’s Resolution for one’s financial life is a critical one to consider.
As the new year draws close, I have already begun preparing my 2015 Financial Spreadsheet, aka budget. You can get an example budget, one similar to what I use on one of my previous posts (Budget Spreadsheet for Starters). Two critical things I considered when making my financial goals for the 2015 year were as follows:
1) Pay off the remainder of my student loans.
2) Continue to contribute to a Roth IRA on a monthly basis reaching the max $5,500 contribution level for the year.
I view these two goals as a MUST for the 2015 year. Setting a clear picture of how I can tackle both of these from financial achievements while also enjoying travel, entertainment among other things is the foundation of my budget.
So as 2015 draws near, create a budget and PAY YOURSELF FIRST (To me this means paying down debt and saving for the future). Nobody can be entirely certain of what the stock market does in the upcoming year, but you and only you can control the budgeting aspects of your finances.
1) The low cost allows me to gain broad access to the entire stock market (I’m young so my investments are strictly in domestic stock and I have the mental capacity to accept volatility).
2) I can seamlessly add money to my accounts (yes accounts plural… Brokerage, Roth IRA, and 401k) on a monthly or bi-weekly basis without even seeing it in some cases.
3) MOST IMPORTANTLY I let the dividends I make on my investments reinvest in the funds which ultimately takes advantage of the Magic of Compound Interest.
The point of this post is to help you realize the benefits and exponential growth one’s portfolio can have if you take advantage of compound interest. Mutual funds make it super easy to reinvest the returns you make and by contributing on a regular cycle you take advantage of market highs and lows.
The following link is to an article which emphasizes how compound interest can impact your retirement. The more you save and the earlier you save, the more time you have for the interest to continually compound. Please leave a comment if you have any further questions.