Pay Yourself First
Most people get a paycheck, spend their money on groceries, bills and bar tabs before ever actually saving anything. Once the money is gone they wait anxiously until the next paycheck only to repeat the process.
Setup a Lazy Portfolio
Use 0% Balance Transfers
Zero percent balance transfer offers can be a great choice instead of using a normal card and be paying the insane % of your normal card. Use this as a last resort and make sure to pay it off before the promotional period is over (usually 12 months) and never take out more than 30% of your overall credit card limit.
Solution: Only use your credit card to establish credit, not to use for purchase that you can’t afford. Look for credit cards with 0% balance transfer offers as an alternative for big purchases. Be aware of what you’re spending and make sure to not purchase more than you can afford.
Don’t be like everyone else, be aware of your financial situation and make a conscious effort to improve it. Set goals like being debt free, establishing an emergency fund, or save enough for a down payment on a house. Goals will give you something to work towards instead of making one of these mistakes.
Automate Your Bills
Who doesn’t use automated bill-pay? Service providers make it easy to set up automatic bill pay and ensures you will never miss a payment. Missing a payment can seriously hurt your credit score or put you in collections.
Here is a list of bills that are easy to automate:
- Credit Cards
- TV/Internet Provider
- Cell Phone
- Car Payment/Insurance
Once you have everything setup it will be automatic and stress-free on your end.
Buy a Used Car
Save For The Future
The only reason to not have a Roth IRA is if you make the contribution limits. As of this post, it is roughly $120K if you’re not married and $180K if you are married. Otherwise, there are too many benefits to not take advantage of opening a Roth IRA. Open one in under 15 minutes at Vanguard with three easy steps.
Try to Avoid a Credit Card Balance
If you have credit card debt you are not alone. According to Nerd Wallet, the average household has $15,762 of credit card debt! While there are some instances where a credit card is understandable I’m sure a lot of this debt could be avoided. The fees you pay in interest can make it tough to get out of debt if you rack up too high of a bill.
You have $5,000 in credit card debt. Your minimum payment is typically between 2% and 5% of the total balance. If we assume it is 4% it would be $200. Of that $200, $62 is going to interest and only $138 is actually going toward the $5,000 in debt. Calculation below:
APR typically runs between 12% and 17%. Let’s assume for the example, the APR is 15%.
- Divide the APR by the days in a year: 15% / 365 = .041%
- Multiply .041% by the average days in a month, 30 = 1.36 or .0136%
- Then, multiply .0136% by the original balance, $5,000 to find the total amount spent on interest per month = $62
If you pay minimum payments in this scenario, it would take 105 months to pay off $5,000. That is almost nine years!
Over that time, you would pay $2,118 in interest, and these numbers assume that you never purchase anything else with that credit card. This means the original $5,000 balance will cost you $7,118.
If you have a large purchase that you need but don’t have enough money look into 0% balance transfer offers. Whether your air conditioning breaks down, need help covering moving expenses, or a medical bill.
Create an Emergency Fund
According to MarketWatch “Approximately 62% of Americans have less than $1,000 in their savings accounts and 21% don’t even have a savings account.” Before you start investing in the stock market make sure you have an emergency fund for three-six months expenses in case something happens (i.e. job loss, medical bills, car accident, etc). Then start automating investments to reduce the willpower needed to save and invest. Start with a 401K and open a Roth IRA to be an overachiever.
If another recession came tomorrow I would accept it and would invest like crazy! Instead of viewing a market crash as a negative event choose to look at it as a buying opportunity. Remember the stock market has returned roughly 9% returns consistently over the past century. In 2008 – 2009 most people were selling stocks in a pure panic. By panicking some of these people delayed retirement by years.
If you had gone opposite route and chose to buy these stocks at a low price you would have earned incredible returns.
According to Investopedia here is a breakdown of a $10,000 investment:
Imagine you had invested $10,000 at the bottom in 2008. The results you find below might not blow you away on an actual basis, but the amount invested is all relative based on your financial situation. It’s the percentage gain that’s more important because that number is going to be the same for everyone – assuming investors poured money into the market at the exact same time for this hypothetical situation. In addition to looking at how much money you would have made, we’ll also take a brief look to see if the same kind of return is possible over the next eight years.1,883 – 676 = 1,207
1,207 x 15 shares = $18,105 (net)
Not bad for a $10,000 investment. And this doesn’t include the dividend yield, which is always changing, but currently, stands at 2.33% for the S&P 500.”
Don’t gamble with your hard earned money. Be boring. Hit singles and doubles, there is no need to gamble with your retirement money by trying to do too much. You still have 20-3o years before you will touch your retirement savings. By investing now you will be taking advantage of compound interest, your greatest asset. Don’t feel like you have to hit a home run to retire big. Be consistent and win big.
Don’t Listen To Others
It’s so easy to listen to other people about investing, everyone has an opinion. Whether it’s Jim Cramer screaming at you through the TV or coworkers in the company kitchen. Choose to block out the noise. Don’t listen to people because they are older, think they are wiser, or the next Wolf of Wall Street.
Following the herd is a TERRIBLE mentality when it comes to investing.
If you have a plan, as established previously, no one will influence your investing decisions!
Here’s an example from Business Insider on the impact of when you decide to start investing. Example:
- 5% compounded returns (over the past 100 years market has been closer to 8% returns)
- 25-year-old starts with $300 a month
- 35-year-old starts with $300 a month
- 40-year-old starts with $600 a month (i.e. we all know that guy/girl who is afraid of the future & still hitting up 20 something spots as the out of place 30 plus-year-old)
Just start saving & investing, make it a habit. I promise you’ll be able to adapt your life to your updated budget (i.e. cut cable, clean your own house, buy a one-year-old car instead of new, etc). Habits we start earlier in our life will greatly impact our future self. Make sure they are good ones that will be better your life whether physically (i.e. going to the gym, eating better) or financially (i.e. saving more for retirement.
Pay Down Debt Aggressively
It’s hard to grow your net worth when you’re swimming in debt. Most people will encounter some form of debt in your life. Whether it’s meaningful debt that was spent on gaining skills for a future career (i.e student-loan) or self-inflicted (credit card) don’t dwell on it. Understand how much you have, how much you can pay each month to eliminate it and any areas you can cut back on to save more to eliminate debt.
If you need more help eliminating debt check out Dave Ramsey’s “Snowball Method.” It focuses on taking out the smallest debt first, then progressing to the larger ones to create a “snowball effect.” Make sure to celebrate small wins to change your psychology towards paying off debts.
The only type of investing I would recommend while you’re in debt is matching your employer-sponsored 401K to make sure you get the match. Otherwise, the returns you’ll get in the market will pale in comparison compared to high-interest credit card debts. Once you have credit card debt paid off you can invest while paying your student loan debt.
Sign Up for Personal Capital
I’m still shocked this service is free, it’s the easiest way to track all your retirement accounts, credit cards, savings accounts & other loans in one area. All you need is your account info and you’ll be able to enter to see your entire financial picture. I use this FREE service with my Net Worth Tracker to review all my finances. I’ve also had at least ten different friends see similar success as well. Personal Capital – Join for Free
Never Ignore a Collection Item
Finally, the last example is ignoring a bill that eventually ends up in collection. If you get a bill, pay it off, no matter how small. Get your receipt and store it for your records. Even one bill, no matter what amount, can have a serious impact. It can hurt your ability to get a loan by hurting your credit. Bottom line — pay the bills!
Bottom line — pay the bills!
Hopefully, everyone can avoid these future regrets by sticking to a few simple, easy financial rules.
- Always do your research for big purchases.
- Listen to your gut, it’s rarely wrong.
- Start investing for your retirement now.
- Don’t spend money to impress people.
- Always pay your bills on time.
- According to the book The Millionaire Next Door, only 20% of millionaires inherited their wealth. The other 80% earned their cash on their own.
- Most modern American millionaires today (about 80%) are first-generation millionaires.
- The top 10 (and I’m sure more) richest people in the world founded or co-founded their business. Bill Gates, Jeff Bezos, and Mark Zuckerburg are doing ok paying the bills.
- On average, millionaires are 61 years old with $3.05 million in assets. (Let’s change this age!)
That moment made me feel so confident in my decision to move forward with my new life. The life I create, not one I simply live in. Not one I work on someone else’s dream. Is it harder? Yes, it will be exponentially harder but I know it will be worth it. It’s easier to work hard when you have a vision and know what make a plan to see it through.
Live Your Life
As passionate as I am about personal finance I’m not sitting here saving every penny. I’m traveling, buying what I want and traveling. I’m able to do this because I have money left over after paying a low monthly mortgage, car payment, and automated savings and investing. Once I pay all of those and other bills the rest of the money is fun money.
If you don’t enjoy your money it’ll be even harder to get off your ass on Mondays & get to work knowing you’re not going to reward yourself. It’s all about a balance between your current financial situation and how you want to live in the future.
How Can You Save & Spend?
If you don’t have a plan you’ll be screwed. Whether you’re planning your finances, fitness goals, or earning more money you need a plan. Otherwise, you’ll go along accomplishing very little of your potential. Instead, find out what your goal is. Whether it is to buy a car, a house, save for a vacation or pay off debt. The point to ensure you have a goal so you can create a plan to reach your goal.
To create guilt free spending (and not test your willpower) automate your finances, especially retirement accounts. Your retirement money will be primarily composed of your 401K and Roth IRA contributions. Your 401K is the EASIEST way to save as it’s automatically deducted each paycheck. Ensure you are signed up, contributing regularly, increasing contributions with raises, and choosing low-cost index funds to maximize your returns.
Contributing to a Roth IRA is more work (not much) and can also be deducted with each paycheck. Learn how to get started with Vanguard here.
Set Savings Goals
Saving to save is pointless, it’s like going to the gym with no workout planned. You need to have a vision of what your savings will go towards. Will it be for a down payment on a car or house? Will it be for a vacation you’ve always wanted to go on? Pay off student loan debt? Whatever your goals are to make sure to write them down and place them somewhere you can see regularly.
Keep Low Overhead
“The more you own the more owns you.” This may sound hypocritical as a homeowner and car owner but these are different than buying pointless crap like jet-skis, motorcycles, or an oversized house. Instead, my house payment is $1,125/month. Since I live with Ms. Super Millennial my payment is only $700. If we decided to rent instead of own it would be $400-$800/more a month for the same type of house (2 bed/2 baths).
The car payment is $225/month. By putting more down at signing, negotiating (a lot), trading in my old car I was able to keep my payment low. $925 is what I need to pay for my car payment and house payment. If something were to happen tomorrow I’d be able to work at Taco Bell and still able to make these payments since my overhead is low!
Too many people think it’s impossible to save for the future and enjoy life when you’re young. This attitude can lead to excessive spending in 20’s and 30’s without thinking about their retirement. People like buying new cars, renting expensive places and impress others. Stop trying to impress people that probably don’t care.
Get My FREE Success Cheat Sheet
After studying successful people extensively with books, videos, and seminars I've found their habits are what separates them. Check my FREE Success cheatsheet to start implementing these habits into your daily life.
Latest posts by Michael Leonard (see all)
- 6 Inspirational Entrepreneurs To Transform Your Life From Good to Great - April 19, 2018
- What Is Freelance Writing? How to Get Started in 5 Easy Steps - April 17, 2018
- A Goal Setting Worksheet That Will Change Your Life - April 12, 2018