Tools for Growing Wealth | FutureMillenniares

One Step At A Time

Posted on March 23, 2016 by Matthew

How many people sit down and become an expert the same day? Whether you want to learn to play an instrument, speak a foreign language, play a new sport, or develop a new skill, it’s impossible to become an expert without putting in the time…or else I’d be playing on the PGA Tour? Sadly, the PGA tour has not called for mere mortals like myself. But, in order to improve, it is not just one large change but a lot of little steps in the process of continuous improvement. Small changes can have large effects over a long period of time. The best is when these changes have such a minimal impact that you don’t even notice the lost time or change until that 15 minutes a day turns into competency in your area of focus. This same principle can be applied to your money. Through small changes, you can make a major impact in the money you spend throughout a week, month, or year.

A lot of us spend money throughout a week without even thinking. Whether it be buying groceries, grabbing a beer, paying the bills, or funding entertainment, we spend money in many different ways. We get in habits and continue to do so because that is what we know and have come to accept. Sometimes we don’t even know how much we are exactly spending and how a little here or there can add up to a lot of money when analyzed yearly. It is one of the important reasons to have a budget and to stop and think about what your habits cost annually. In some instances these habits can be altered or removed in order to save money.

I am not proposing you should cut out things that make you happy, bring joy to your life, or are necessities to live, but sometimes there are opportunities to reduce your spending in areas you don’t really care but are doing because that is what you are used to doing. What I am proposing is to prioritize the important expenses in your life and take a hard look at the areas in which you are less than enthusiastic. As an example in my life, I like being active, playing sports, and running races. I spend more on gym memberships, races, sports leagues, and active entertainment (golfing, hiking, swimming, etc.) than most others would be comfortable doing since I love to eat sweets and would weigh 400 pounds without working out. That is something I like to do and an area I have prioritized. On the flip side, I rarely buy clothes unless I need them and don’t like shopping for more than the time it takes me to walk to the article of clothing I am buying and grab the closest one that fits my need. That is what works for me and each person will be different with their own interests. Over time, I have found areas of saving in my own life and have also observed situations where people spend and do not fully understand the cost. I will share some cost savings that have worked for me and could work for you.

Packing a Lunch– I don’t like eating out every day and try to avoid the afternoon slump, so I pack a light lunch instead with the added benefit of less calories. I calculated $3 for my lunch vs. $10 if I ate out. Yearly Savings: $7×240 working days = $1680

Daily Coffee– I enjoy a nice cup of coffee and probably make one 4 times a week but use a Keurig/K-Cup instead of Starbucks or cafeteria coffee. I calculated $0.50 for my coffee vs. $2 for the cafeteria and $4 for Starbucks. Yearly Savings: $1.50×4 days per week x52weeks = $312. If you go to Starbucks every day it would be $3.50x4x52=$728

Cable TV– Our household does not have cable TV and instead uses an antennae along with Netflix and Amazon Prime. I thought this would be hard, but it is much easier than expected, and I have enjoyed the extra time I used to waste watching shows I didn’t care about. Amazon/Netflix costs roughly $20 a month vs. $90 for cable TV. Yearly Savings: $70×12=$840

Gym Membership– Why pay for a gym membership if you don’t use it? What if you had a free alternative at work or apartment complex? What type of workouts do you do? Anna and I use our gym membership quite frequently so this is not something applicable to us, but I see a lot of wasted members. Yearly Savings: $40x12months=$480

Internet– Here we use Internet but make a yearly call to the provider when our “initial offer” expires and they charge us double what it would cost to switch to a new provider. This saved $25 dollars for us. Yearly Savings: $25×12=$300

Dinner– Very similar to lunch, if you eat out instead of making dinner, it can add up quickly. Our strategy is a nice dinner/date night once a week and then try to eat at home the other days. Rough estimate of $5 vs. $15 for eating out. Yearly Savings: $10×7 days/week x52 weeks = $3640

Vending Machine Snacks – Instead of buying those delicious Grandma’s Vanilla Cream Cookies for $1.50 and 540 calories out of your work’s vending machine, pack your own snack. For me, it is a Nature Valley Bar for 40 cents. A little less delicious but my belly and wallet appreciate it. Yearly Savings: $1.10×240 working days = $264

These are just a few ideas that work for myself and my wife. Some of you might say “I have to have my Starbucks every day”, others might not be able to live without Keeping up with the Kardashians, and some might use lunches to network and build relationships. The point is to find what you value and see how you can save in other areas. Remember, every little bit counts, and a few dollars a day can make a big difference when saving for that house, car, vacation, or golden retriever puppy to give to your good friend, Matt.

What to Do with My Money? It Depends.

Posted on February 23, 2016 by Matthew

After discussing the importance of investing to meet retirement expectations and the value of investing early and often to utilize compound interest, most people want to know how much to invest and what to do with their money. As my co-worker who occasionally asks me financial questions has quickly learned, it always depends. It really depends on your own unique situation, goals, and personal openness to risk. The most important financial step for someone to make is to define their short and long-term financial goals to give them motivation on why they are taking their specific course and what they need to do to get there. Who am I, or anyone else, to judge if your goal is to travel the world on the back of a dolphin (sign me up), buy an entire animal shelter and play with dogs all day (not sure my wife realizes this is a semi-realistic goal of mine), or save for a down-payment on a house. Each person has their own unique goals and paths to get there, but the important aspect is documenting those goals and creating a plan in order to meet those goals within your own personal framework.

So with each person having a unique financial plan, this blog post should be finished, right? Fortunately for you, I still have not reached my jokes quota for the day, and there are still some basic tenets recommended for every financial plan. So what are some of the main goals to consider in your life?

First, you should not be carrying a credit card balance paying 15% or more interest. It is great if you want to build credit, but pay it off every month. We’ve previously discussed the harm compound interest can do especially when buying items that do not increase in value (like clothes). Credit card debt and short term loans (the biggest legal robbery possible) should be one of your first priorities to address.

Next, the most basic step is to build an emergency fund. This fund should be 3-6 months of your expenses to cover any unexpected happenings. Only 60% of Americans can cover unexpected expenses¹ which is terrifying. These expenses could entail car trouble, medical expenses, house repairs, a loss of your job, or paying for that elopement to Vegas. In any case, you need extra money saved in order to meet these, potentially unexpected, needs. I feel like one of the last hurdles of becoming a full-fledged adult is being able to pay for your own car repair or job search and not having to rely on your family for money. I would recommend prioritizing a savings of 3 months’ salary and slowly increasing the savings to 6 months. Extra importance for all the single people (I know the hits just keep on coming) who rely solely on their own income to save up to 6 months.

Where to put your money? A place easily accessible (example: checking/savings accounts)

So you held off on buying that brand new Audi for a few months and have been able to save an emergency fund. Congrats, you are better off than 60% of the American population…way to go. The next step is retirement savings. The goal should be 15-20% (or higher depending on how late you start), but that percentage can be built up to overtime. If your employer offers a retirement match of say 4%, and you are not using it, then you might as well be lighting money on fire. That is part of your compensation and should be the minimum amount you contribute. Then after getting a raise, put half of it in your retirement until you reach the goal. It will be easier to manage since those raises are money in addition to the life you were already use to living. If you do not have an employee plan, then an IRA can be created in many different areas. This behaves just like a 401k but with lower contribution limits allowed per year. The beauty of both of these is you put in money pre-tax, lowering your current tax bill, and only pay taxes on your withdraws in retirement (at possibly a lower rate). The one caveat is this should be money that is never touched until retirement or else a severe penalty, along with taxes, will be delivered putting you back to lighting money on fire.

Where to put your money? Employee 401k plan or Roth IRA with a basic investment until you learn what you are doing (example: target year fund, index fund, etc.)

After you have an emergency fund and retirement taken care of, you can now focus on your own unique goals. It could be paying off debt, saving for a car, saving for a down payment, saving for a kid’s college, saving (do you see a pattern yet?) for a Europe vacation, saving for that future hovercraft, whatever, it depends on you. I will just highlight some different tools available for your goals. You want to try to avoid using a screwdriver to cut wood or Marvin Gaye to get you through an intense workout, so find the right tool for your need.

Health Savings Account (HSA) – Need a High Deductible Medical Plan ($1300 deductible for a single person) but you don’t pay taxes (Suck it Uncle Sam!) on the amount as long as it is used for medical expenses. The total amount carries over from year-year.

Flexible Spending Account (FSA) – Similar to HSA focusing on medical expenses without paying taxes, but you do not need a high deductible plan although you can only carry over $500 year-year.

529 Account – A state-specific savings account you don’t pay taxes on as long as it used for college expenses. Great for saving for a kid but also can be used for yourself in Graduate School.

Roth IRA – For retirement but you pay taxes now instead of during withdraw (opposite of 401k/IRA). Protects against your tax bracket in retirement being higher then current (government raising rates).

Money Market/Online Bank Savings – Great for saving for something like a down-payment, new car, or vacation where you can make much larger interest (currently ~1%) compared to regular bank savings.

Investment Account – You pay taxes on money going in, and on capital gains (different tax rate) but allows you to buy and sell stocks/funds without worrying about keeping the money in until retirement.

These are just a few of many tools available to assist in meeting different goals. Each one can have a role to play based on what you are trying to accomplish with your money and your current situation. Unfortunately, there is no magic financial fairy that looks over everyone’s money (or I haven’t found one), so hopefully everyone is thinking about where they want to be and how they can get there. It is important to plan for the life you want and take action to make it happen. I am excited to hear if there are any other useful tools people utilize that I did not highlight and how it can be used. Any feedback is welcomed.

http://www.cnbc.com/2015/01/07/60-percent-of-americans-cant-cover-unexpected-expenses.html