Fact: Your monetary beliefs (not your paycheck) determine whether or not you will amass wealth. That’s because for some in the world there isn’t enough money to encourage them to save or invest.
What you think about money ultimately determines how you use it, or, if we’re being honest, how it uses you. Money management skills are learned. You either learn from your surroundings or you learn from a conscious money management plan.
If this sounds familiar, nod your head: you know you’re making good money, but you can’t seem to scrape together a few dollars to open an investment account or increase your emergency savings. If you aren’t but are taking the time to manage your finances, then you can nod your head.
Either way, your money isn’t working for you.
Here is some advice to help you take control of your life and better manage your money.
Tip 1: define money management
If the thought of money management conjures up the image of a banker in a suit, carrying an expensive leather briefcase and talking about financial jargon that makes you wonder if it’s even English, you’re right. Money management includes wealth creation principles such as savings and investments.
You are also right if you think money management involves budgets and you know where every dollar is going.
Both can be boring as dirt, but it doesn’t have to be.
For starters, on the wealth creation side, there are a number of fintech giants making investing and saving easier and cheaper. Some of them allow you to start investing as little as a dollar.
Your personal budget doesn’t have to be a mission either. Gone are the days of worshiping at the altar of the table. Instead, say hello to automated finance. And for that you need systems.
Tip 2: achieve your goals with a system
Dealing with a sandstorm of receipts and bills on a Saturday morning is not only a terrible way to pass the day, but it’s unnecessary.
Almost any type of payment can be automated, and almost any bank can make the transition to automation easier.
- Convert money into your savings
- Pay bills like utilities, rent, loans, education, etc.
- Settle your credit card debt every month (because you are averse to high interest rates)
- Invest (yes, this can be automated!)
- Take full advantage of retirement
- Allocate money for your debt free expenses
- The sooner you start the better. It is the long-term investment effect
Setting up automatic payments for the first time shouldn’t take more than an hour or two. Ramit spends less than an hour a month on his personal finances.
Tip 3: Say goodbye to the budget and embrace conscious spending
Ramit has a friend who is spending $ 21K just to go out. In a year. That seems crazy considering the hourly wage in Iowa is $ 31,000 a year. However, this friend discovered the cure for the budget. Shall we call it the anti-budget?
The anti-budget has a name and is called conscious spending. Here you finally understand that random expenses don’t serve you just because they’re cheap / popular / conventional.
Spending well means choosing exactly where to spend your money – going out, saving, investing, renting – and not feeling guilty about your spending. Not only can you be comfortable with your expenses with a plan, but rather than just stepping on water, you can keep growing towards your goals.
The simple fact is that most of us, as young people, are not consciously pretending to be. We spend on everything and then reactively feel good or bad.
Instead, you’ll start spending on the things you love. If you love going to the spa but can’t worry about streaming services, why should you? Just so you can say you do Or maybe FOMO?
Here’s the trick. Before you can spend without feeling guilty, it’s important to have your bills paid, retirement funded, emergency savings in place, and wealth building.
Tip 4: plan for retirement
You can’t talk about money management or put a reasonable effort into retirement. And no, this isn’t just a smart way to give in to social pressures and wait until you retire to live. Who even came up with this nonsense?
Planning your retirement is an important part of your best life because the goal is to work less the older we get, right?
How Much Do You Need to Retire? While retirement savings are different for everyone, a quick calculation can use the 4% rule. That means if you need $ 50,000 a year, you should keep $ 1.25 million in a retirement account somewhere. While you can still earn an income, you need to top up your retirement account. In fact, your ability to make an income is your best asset.
Check out ours Retirement Leader This guides you through the specifics of the various pension products. Some takeaways include:
- Retirement provision has tax advantages
- Matching on your 401 (k) is free (in other words, just do it!)
- Watch out for restrictions so you don’t pay the overfunding fine
- Know whether or not you qualify for a Roth IRA
While you can build your retirement fund on another investment account, it is better to maximize your retirement products first because … taxes. Compare quotes from financial advisors to find the product that will help you achieve your goals.
Tip 5: start investing, but keep it simple
You can’t talk about money management and you can’t talk about investing. Okay, that’s what we said about retirement planning, but it’s critical to your financial future.
If you’ve been a fan of Ramit for a while, you may remember his Head of Personal Finance Guide that outlines all of the money movements you need to make to get your money working for you.
Rung 1: 401 (k) – – Maximum match, save at least 5%
Rung 2: fault – – pay it off. The interest rates paid on debt will not serve you in the long run. It’s also great not to maximize your balance as it will affect your credit score
Rung 3: Roth IRA – – If you qualify for this product, use it. You just can’t miss out on the tax benefits
Rung 4: Max out of 401 (k) – – If you haven’t already, maximize this. Tax benefits once again
Rung 5: Non-retirement account – – After all, your streak deserves to dip your toes into other types of investments.
There are a few things to keep in mind when investing. For starters, just like your retirement provision, you are there for the long term. There are no short cuts and quick wins here. Okay there might be one or two, but don’t bet on it. Your financial future depends on your ability to keep your investments from investing for as long as possible.
It’s also important to know what your investment risk is and whether the time period you’re investing will cover the cost.
When you start out you start small and cheap. A robo-advisor is also a great way to automate your investments. It also helps to know that an investment isn’t a great resource for an emergency fund. You will want to deposit these funds into a capital preserving account such as a savings account at a bank.
Your financial goals and an optimized method for managing your personal finances will determine your long-term financial situation. It is important to know that every dollar that flows into your account is a potential germ and you have an opportunity to plant it well. Smart money management enables you to live a rich life now and in the future.
Do you know your earning potential?
Take my Earning Potential Quiz and receive a custom report based on your unique strengths. Learn How You Can Make Extra Cash In Just One Hour.
Start the quiz