What now with my budget?
In the last post, we talked about the budget being an essential aspect of your journey to a good financial future. Once you have a written budget and you realize there is extra money at the end of the month. You could do a few things:
- Goals and Treating yourself
- Debt Reduction
- Saving
- Invest
In this post we are going to discuss the various options you can do with your money.
Goals and Treating yourself:
The budget helps you find ways to reduce unnecessary expenses. When you have that extra money at the end of the month you may ask, “so what should I do with this extra money?”. I would say you should prioritize, based on what goals you have in mind. Maybe you want to be debt free and pay off those student loans or the new vehicle you purchased. Or possibly you want to begin saving for retirement. Whatever your goal may be, you need to keep track and give yourself those little victories in achieving your goals.
Treat yourself is an important aspect in life. Treating yourself does not mean you have to buy some expensive pair of shoes or a new car. I am talking about celebrating the little victories. Maybe every $1,000 paid off your debt, you take yourself out to get some ice cream (YUM!). Or maybe you save up a little every month and go on that vacation you have been dreaming about your whole life! You need to realize and celebrate the little victories in your financial journey.
Debt Reduction:
How can you save money? By keeping more. How do you keep more? By paying less to interest!
Have you ever looked at the amortization schedule of your car or house? Look at the total interest you will end up paying at the end of the loan. You might be surprised. These low interest rates appear very attractive to purchase a more expensive house or car, because the bank says “you can afford it!”. Well they also said that in 2008 and we all know the housing collapse and subsequent global recession that occurred.
Did you know that by paying just an additional $1,000 when you purchase a car, it reduces your monthly payments by over $30?!
The less money you are paying towards the interest, the more you can keep and earn interest on your money!
Start small. I like the debt snowball method as it shows real traction in your debt reduction. The highest to lowest interest payment is another form. While I like the snowball method more, it comes down to personal preference and figuring which will get you most FIRED UP!!!
Paying down debt helps you in more ways than you realize. Did you know the leading cause of divorce is money troubles? I have seen too many of my friends with a pile of student loans and the realization that “I will have this until I die”.
I value education and the opportunities it presents. Short term sacrificing can get rid of those student loans and other debt. If you prioritize paying down debt, you end up saving money. Why? You get to keep extra money, rather than paying interest.
I remember the day my parents paid off their house. Talk about a stress relief. The emotional weight that was lifted off, once they went to the bank to pay it off… it was unfathomable. I remember running the calculations and realized if they paid it off a few years early, they would save over $25,000 in interest!! Even in this low interest rate environment, paying off your debt can result in huge savings, let alone stress reduction.
Saving:
Saving for a goal can be saving for a nice vacation with the family, buying a car, or saving for a house. No matter what the goal, you need to write down these financial goals in your life. I keep a list on my phone of all the goals and financial achievements I want to accomplish in my life. Reviewing daily to track my progress. I set high goals for myself because I know in time, I can accomplish any goal I set.
My favorite application/website to get started saving with higher yields than your bank:
Marcus by Goldman Sachs:
This is a high yield money market savings account, that I personally use. The advantage of a high yield savings account is easy to access and transfer money back and forth to your bank account. Easy to utilize website and app, and you are getting a MUCH higher yield than any bank offers. Interest is paid monthly, and it is FDIC insured, just like a normal bank checking/savings account. Check out their site, I remember it took only a few minutes to open an account and start earning higher interest on my savings! Last I checked, you will get 0.50% APY interest on your money. When you compare that to like Robinhood Cash Management at 0.30% APY interest, you can see why Marcus is the better choice over traditional bank savings accounts.
https://www.marcus.com/us/en/savings/high-yield-savings
Invest:
I have learned over my years in finance and studying the financial markets that the greatest wealth opportunity is through investing. Gradually investing into the stock market offers a wealth generation opportunity.
Did you know that only 55% of American’s invest in the stock market? (https://www.statista.com/statistics/270034/percentage-of-us-adults-to-have-money-invested-in-the-stock-market/). I think this is because there is a knowledge gap in addition to the money gap. Once you have started to save money and are ready to invest in the stock market, you might be asking, “uh where do I even start? What is a stock? Do I need much money to start?”. Luckily for you, I can help with providing some basic knowledge and next steps in your financial journey.
You might say “stocks are risky” and I would say it all depends. Single stocks can be very risky but buying a bucket of the greatest companies in the United States has less overall risk.
Another question I have heard, “well what if my money goes down to zero?”. If this occurred, you either bought one company and they went bankrupt or the whole world is coming to an end! As the great American investor Warren Buffett has said, “a low-cost index fund is the most sensible equity investment for the great majority of investors.” Buying a large bucket of companies in the United States offers diversification and upside potential, when investing for the long term time horizon.
As an investor, if you periodically contribute money in a low cost index fund, like SPY or VOO, an everyday investor like YOU can outperform even the professionals over a long period of time. Rather than buy and sell based on the market being up and down, if you consistently buy and hold over a long period of time, you too will win.
Top applications/websites to get started investing:
I remember downloading Acorns and loved how easy it was as a new investor. Acorns makes it easy to set up automatic and reoccurring investing. Additionally, as a new investor, Acorns has a great knowledge base of articles and videos. Acorns has three main silos: Invest your spare change, Save for later and Grow your knowledge. This has been one of my favorite passive investing apps where you can invest spare change and even have monthly or weekly deposits. You simply choose your time horizon, risk tolerance and a few other factors. Invest automatically and you will be surprised on how much money you are able to save and invest passively with Acorns!
Robinhood:
Robinhood was the pioneer of commission-free investing. I remember being on the waitlist when my friend told me about this concept. Robinhood is a sleek design and simple to use. Robinhood continues to expand in product offerings and I have always been a fan! From Cash Management, where you can earn higher interest on cash to even Cryptocurrency. The most recent addition to Robinhood is Fractional Shares. Robinhood has always been a pioneer since its inception and they are at it again with Fractional Shares. You now can invest in thousands of stocks with as little as $1. You simply choose how much you want to invest and at $1 minimum, this is a great opportunity to become a small owner of companies!
Schwab:
For years there has been a race to the zero commission for brokerage accounts. I remember when I opened an account on Robinhood and I loved how it was free trading to buy small ownership in companies. Not only is Schwab commission-free online, they recently have introduced Schwab Stock Slices. Stock slices allows you, an investor to purchase as little as $5 worth of a stock within the S&P 500. Rather than having to invest a few hundred or even thousands for one share of company, you can invest as little as $5! If you were to invest monthly $20, you could buy fractional shares of one company, or put $5 in four different companies! I think this is a great way to begin your investing journey and become real owners of companies.
https://www.schwab.com/fractional-shares-stock-slices
The decisions you make today will have a last impact on your future. I would rather gift money to family and various charities, than to leave a burden of unpaid debt when I am gone. Your financial future is up to you and only you. What are you going to do about yours?
Until next time!
Zach
