3 things you should do with your money right now

10 Critical Things to do With Your Money in Your 20s

3 things you should do with your money right now

If you’d told me four years ago I’d be working as a marketing director for a wealth management firm, I would’ve laughed. In my dreams, I was in a big advertising agency in New York, LA, or Chicago.

But, life has a funny way of working out – for the better, I believe.

Not only do I truly love my job, but it gave me an advantage most people my age don’t have – knowing the critical things to do with your money in your 20s.

A Generation Lost?

As an almost-27-year-old, I can confidently say I’m learning the right way to build the foundation for a successful financial future. But unfortunately, many in our generation aren’t. And while we’ve been dubbed the generation who thinks they “know it all,” there’s a lot we don’t know. Especially when it comes to money.

And it’s not because we aren’t smart. It’s because there’s a lot of bad advice out there. Thanks, in large part, to a media over-saturated with talking financial heads, and an internet where you can drown yourself in financial information overload.

Perhaps that why a lot of people our age struggle to find their footing when it comes to money. We don’t know where to find the right answers, let alone what the right answers even are, so financial matters fall to the bottom of the priority list.

Or we put them off altogether, because we’re under the misleading impression that there’s always plenty of time to catch up.

Pile on top of that skyrocketing student debt, crippling credit card debt, absorbing all the other costs associated with “adulting,” the early stages of your financial life going from simple to complex, and you have the perfect financial storm. A storm that can cause you to easily fall into the traps, and start your financial journey on the completely wrong foot.

When you hit your mid-20s, you start asking, “What do I do?” Do I save money, or pay off debt? When should I start investing? What kind of account should I invest in? How much money should I be saving? If I don’t start saving now, I can always catch up later, right? How do I organize and prioritize my goals? Heck, someone just tell me the first step to even take!

I did, and luckily, the right answers were just a short walk down the hall. And I want to share some of those answers with you, in the hopes they’ll help you on your way to building a solid financial foundation.

Here are 10 critical things to do with your money in your 20s:

1. Save your money. I can’t stress this enough – save your money people! Pay yourself first, every month, and you’ll be much further ahead than most.

If you fail to save your money, everything else in your financial life has to work that much harder to pick up the slack. An ideal savings rate to aim for is 10% – 15%. And that’s not an outrageous number that can’t be reached – I know, because I’ve done it.

I’ve saved as low as 10% to upwards of 19% of my income annually over the last few years.

2. Limit your credit card spending. There’s a good rule of thumb I’ve been told by the adivsors in our office – if you can’t pay for it in cash, you probably can’t afford it. We live in a right now society.

But, waiting to buy something until you have the cash to afford it will always pay off more than impulsively spending money you don’t have. And if you do have credit cards, pay them off in full every month.

I’ve limited myself to one credit card, and mentally set a monthly limit for myself that I don’t exceed. Anal? Maybe. But I have no credit card debt.

3. Don’t lock up your money. One of the biggest mistakes I see people our age make is dumping all their money into their 401k. You’re locking that money up, at a time in your life when you’re going to need as much liquid money as possible.

When I first wanted to start investing, my advisor I work with in our company wouldn’t let me. That’s because you have to build up your liquid savings first. Then you should start investing.

And in my case, I’m not investing in a qualified account – instead, my money is in a non-qualified account similar to the allocation of a 401k or IRA. So, if I need it, I can get it. 401ks aren’t bad – in fact, they’re an important tool for retirement.

But you need to make sure you fill your buckets in the right order. Otherwise, you can get into trouble down the road and be tempted to take out loans on your 401k.

4. Protect yourself. This is probably the last thing on anyone’s mind when you’re in your 20s. It was definitely the last thing on my mind. But, this is the most ideal time in your life to protect yourself. Chances are, you’re never going to be as healthy as you are right now. And you never know what’s going to happen if you wait.

For example, I put it off, and then was diagnosed with ulcerative colitis in 2014. As a result, I got a lower rating on my life insurance policy, which means increased premiums. But the point is I’ve protected myself, and when I have a family one day, they’ll be taken care of should something happen to me.

You can easily lock in your insurability when you’re young with an inexpensive term life insurance policy.

5. Fill up your short-term bucket. In the world of finance, your money is generally divided between three buckets – short-term, intermediate, and long-term. Your short-term bucket is your cold hard, liquid cash that sits in your savings account at the bank. Fill up this bucket first, before any other bucket.

You should always have 3-6 months of liquid cash reserves to get you through the hiccups when life happens – when I had to pay $600 to put all new tires on my car this past spring. Or had to spend $1,500 on new furniture when I moved.

And the great thing is since I have savings, I can pay for things this without using my credit card.

6. Eliminate bad debt. Bad debt is high interest, short-term debt – credit card debt. If you have it, make paying it off a top priority. Carrying debt directly affects your ability to save and invest.

And paying out interest rates of 15% and higher is crazy! Think if the money you invested made 15% – we’d all be a lot happier. You also shouldn’t be investing when you have high amounts of short-term debt. Chances are, the interest you’re making isn’t more than the interest you’re paying out.

Note – if your short-term bucket is full, you shouldn’t have to rack up credit card debt.

7. Prioritize your financial goals. Nothing with money happens overnight. You have to understand it’s a journey, and it always will be. Write down your top financial goals at this moment in time.

Then determine which bucket they belong in – short-term, intermediate, or long-term. Once you do this, then you can start formulating an action plan to achieve that goal, and start deploying your money appropriately.

It’s helpful to talk through your goals with someone who’s already achieved them, your parents.

8. Start investing. The earlier you can start investing, the better. The longer you wait, the less time your money has to grow. But remember, do it the right way. Eliminate short-term debt, build up your liquid savings, and then start exploring the idea of investing. You may want to think twice about putting your money in a qualified account right now.

Keeping it in a non-qualified account gives you access to that near-liquid money, should you need it. Then, you can always put it into a qualified account down the road once you’re more settled. You should also consider talking to a professional investment advisor before you invest. Not just going out there and trying to figure it out for yourself.

Robo-platforms have made investing easy and convenient as well.

9. Sign-up for a software that helps you manage your financial life. I’m talking about a one-stop software that shows you every piece of your financial puzzle. Not a robo-investing platform that only focuses on one area of your financial life.

Finances are complex, it can be hard to understand what you have and how it all works together. That’s why aggregating everything into an organized, easy to understand format is crucial in helping you make smarter decisions.

We offer JB Wealth Builder to our clients, which shows them their current financial position in real-time. Another example of a software this would be Hello Wallet.

10. Consider hiring a financial advisor. I would’ve never known the right way to build my financial foundation if I didn’t work at Jarred Bunch. Sure, I could’ve asked my parents for help, but even they would be limited in the advice they could give.

To navigate the complex world of finance and investing, and to ensure you build a solid foundation, you’ll probably need the help of a professional advisor. Talk to your parents and friends about who they work with – you want to make sure this is someone you trust.

Also, make sure they are truly an advisor, not a broker. You can learn more about the difference here.

Why Does it Matter to You?

Your 20s are an important time in your financial life. It’s the stage that sparks your financial growth, and sets the pace for the rest of your life. Getting it wrong now can have detrimental effects down the road. The tips discussed here are a good way to help you start your journey in the right direction.

Источник: https://invst.com/10-critical-things-to-do-with-your-money-in-your-20s/

The Five Things You Can Do With Your Money (And What The Wealthy Do)

3 things you should do with your money right now

Every day, you wake up and are faced with choices. The decisions you make for each of these choices have an impact on your life. They dictate where you will go in the future, the person you will be, and the type of lifestyle you’ll be living.

One of the more difficult questions you are faced with is, “What should I do with my money?” Every time you look at your phone, turn on the TV, or read an article, there seems to be an overwhelming number of options to choose from. “Buy this, buy that, put your money here, do this NEXT BIG THING!” And on and on and on…

So, what should you do with your money?

I to think about this question in the most basic way I can. I also to think about the differences between those who have amassed wealth and those who haven’t.

By thinking this way, it helps me simplify each decision and also provides insight into what I can do to improve my financial wealth.

YOUR OPTIONS

So, what are the options for your money?

When you get rid of all the noise, you can break it down into 5 categories.

  1. Spend
  2. Save
  3. Invest
  4. Give Away
  5. Pay Taxes

Let’s dive into each of these areas and see what actions you can take to implement them in your daily life.

SPEND

This is straightforward. We live in a consumer-driven society, so I’m sure you are all familiar with how spending your money works. What you might not be familiar with is the hidden costs of spending your money.

Not only are you losing out on the money you are spending every time you swipe your credit card or hand over a wad of cash, you also have to deal with sales tax and the missed opportunity of growing that money.

Because of a little thing called sales tax, the penalty for spending your money can be high. I’ll give an example of this further down in this post.

Actions To Take: Go crazy! Buy everything you see. Any extra money you have left over after paying for your basic needs, get out there and spend, baby! Someone has to fuel our economy, so why not make it you? [In case you weren’t clear, this is incredibly sarcastic and I do not recommend this at all! ?]

SAVE

Saving your money is definitely better than spending it. It’s the early stages in the turning point from being a pure consumer to being a wealth builder. The problem is, by simply saving your money you aren’t leveraging the power of investing, nor are you utilizing tax strategies that can help you minimize your tax-burden and help accelerate your wealth building.

Actions To Take: Put your money into a checking account, savings account, or other form of low- to no-risk account. Your money will be safe, but it is just sitting idle, not working for you.

INVEST

This is where the good stuff begins, where real wealth-building is accelerated.

If you haven’t heard of it before, compound interest is one of the driving forces for creating wealth. It’s the concept that your money can keep growing, earning interest, and building upon itself.

In my example below you’ll see how this works. I’ll also be writing about this more in the future.

Actions To Take: There are a lot of options. The easy ones are investing in stocks, bonds, ETFs, Index Funds, and more. Others that I really : investing in real estate and/or starting your own business.

GIVE AWAY

Charity is a great way to give back to those who are less fortunate. I to think that you can always do something, no matter what stage of your wealth building you are in. You don’t have to be a billionaire to donate to charity.

One thing the wealthy know is that charitable donations are tax write-offs. So it can actually benefit you to do good!

Actions To Take: Find a charity that is close to your heart and make it a point to donate each year. It doesn’t have to be a lot, but it’s good to get in the habit.

A close friend and I founded a charity golf event that we host each year. The purpose is to help raise awareness and support the fight against cancer and muscular dystrophy.

PAY TAXES

To a certain extent, you do have a choice in this matter. You obviously can’t choose to not pay taxes, but you do have the ability to leverage the rules in the tax code to minimize the amount you pay. Burying your head in the sand and not paying attention to this is a great way to ensure you pay more taxes than necessary.

It’s not what you earn; it’s what you keep at the end of the day that matters.

Actions To Take: You can either familiarize yourself with some tax strategies or hire a qualified tax professional for help in minimizing your tax burden.

WHAT THE WEALTHY DO WITH THEIR MONEY

If you read books about the most successful people, you’ll hear them mention some of the things that helped them become successful. One of the pieces of advice I often hear is to look at those doing better than you and emulate them.

If someone is better than you at something, you should find out how and why, and you should probably consider implementing the things they are doing into your own habits.

This is one of the big reasons I recommend looking to what the wealthy are doing with their money.

In a piece titled “Wealth, Income, and Power” by G. William Domhoff, they show a breakdown of wealth by asset classes.

If we look at the following chart from the piece, we start to see the differences.

Original Study

The above chart shows how much of each category is owned by the top 1% of wealthy individuals, the next 9%, and then the bottom 90%.

The main things I see is that the wealthy hold a lot of their assets in investments in the form of businesses, financial securities, trusts, non-home real estate (investment properties), and then some in deposits (cash savings, i.e. – an emergency fund or just some safety cash).

If we look at the bottom 90%, you can see that they own a large portion of the debt and principal residences (their primary home). What they don’t own a large portion of is the different categories of investments.

What isn’t shown in this chart is the focus the wealthy put on tax savings. In short, they put a lot of effort into minimizing their tax burden so they can use those tax savings to propel their wealth creation.

Those who are wealthy also give away a chunk of their money in philanthropic endeavors. (Power tip – As I mentioned before, charitable donations are a tax write-off. So you can be rewarded financially for doing good).

THE EFFECTS OF YOUR CHOICES – A CASE STUDY

I live in New York. In a lot of circumstances, you will pay sales tax of 8.875%. (I’m going to spare you the headache of getting technical with the tax code.) This means that every time someone living in New York buys something, they are being hit with an 8.875% penalty.

Buying a $100 pair of shoes? Boom! $8.88 penalty tacked on.

Buying a new TV for $500? Boom! $44.34 penalty tacked on.

We have become so accustomed to paying sales tax that we don’t realize the negative effect it’s having on our wealth.

That’s A Double Whammy!

What makes this even worse is when you start to factor in the lost opportunity of investing.

Let’s assume you had invested that money. If we use an investment return of 10% over the next year, we start to see the difference our decisions make. (Some will say you should expect more, some will say less. I’m just going to use a round number to make things simple.)

By buying that $500 TV, not only are you being penalized the $44.34 in the form of a tax, you are also missing out on the potential $50 investment return you could have received. That’s a $94.34 difference your decision makes.

Wait, that’s right, you also SPENT $500!

So your total change in wealth isn’t between spending or saving the $500, it’s a total difference of having $550 at the end of a year, and having spent $544.34. The total difference: $594.34.

What if you make similar decisions each year for a 10-year period?

Over the course of the 10 years you will have put $500 per year into your investment account, totaling $5,000. If you earned an average return of 10%, at the end of the 10 years it will be worth $9,265.58.

That’s in contrast to spending $544.34 (Cost of TV plus tax) each year for a total spending of $5,443.40.

I know what you are going to say. “Jared, I’m not going to buy a new TV every year.” The example is just showing how all of your spending adds up.

What is the net difference in the end result?

The difference between where you would be versus where you could be ends up being a whopping $9,708.98!

So, now that you know what you CAN do with your money, the question becomes what WILL you do with your money?

Capably Yours,

Источник: https://www.capablewealth.com/five-things-can-money-wealthy/

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