We’ve all had moments where we have firmly stated our resolve to do something different with our money. Usually the outburst follows a negative financial outcome. Perhaps we’ve overspent on our vacation. Maybe we have the starting realization that there is no money in the college fund for our high school senior. It could be that we’ve dipped into the overdraft account again. Whatever the case may be, it causes us to commit to better financial management.
Here are some common statements people make in these moments:
- “I’m going to start preparing a written budget each month.”
- “I’m increasing my contributions to the retirement plan.”
- “Let’s open a 529 college savings plan and begin making monthly contributions.”
- “I’m cutting up the credit cards.”
There is just one problem with each of these statements: saying it doesn’t make it true.
For every statement and moment where we commit to better financial decisions, one must actually do the work to follow through. And, my friends, we all know that it is truly hard work. Life is so busy. We’re exhausted. Plus, many of these decisions require information and knowledge we may not currently possess. This is a recipe for failure to follow through on really good financial decisions.
And we’ve all been there, haven’t we?
Let’s flip the script, and put in place some “best practices” that can really help us sustain these good financial decisions so that we can reap the benefits they can provide us: fully funded lives, dreams accomplished, and freedom to live generously.
Sustain Good Financial Decisions – Practice #1: AUTOMATE
Many good financial decisions can be followed through with automation! This is perhaps the easiest and best tip possible because it is literally a “set it and forget it” solution that ensures your financial decision is put into practice. If there is any possible way to automate your decision, do it.
Here are some great examples of using automation:
- Committed to save money every month for the annual family vacation? Set up automatic drafts from your bill paying account to your savings account.
- Want to help your child with college expenses? Open a 529 college savings account and establish automatic drafts.
- Ready to up your retirement investments? Log in to your 401k (or similar RSP) account and adjust the automatic contribution.
- Want to ensure your retirement money is put to work right away instead of sitting in a savings or money market account? Establish automatic investment selections.
- Want to ensure all of your bills are paid on time? Automate every single bill payment. As an added bonus, you will spend far less time paying bills!
- Want to ensure your retirement investments become more secure as you approach retirement? Choose a targeted retirement date investment fund that will automatically become less risky as you near retirement.
What good financial decisions have you been making that could leverage the power of automation to ensure they are sustained into the future?
If you want to build wealth, you must understand the two ways to produce income which I call Type 1 and Type 2.
Type 1 Income: “Work = Get Paid Money” & “Don’t Work = Don’t Get Paid Money”
- A job where you exchange your time, talent, and energy for a paycheck.
- Sometimes referred to as “aggressive streams of income”
Type 2 Income: “Get paid whether or not you are working.”
- Your money produces more money without requiring you to work for it
- Sometimes called “passive streams of income”
The wealthy are well aware of Type 2 Income. It’s why they have become wealthy.
Type 1 Income requires your physical presence and effort. It is how must of us learn to produce income from a very young age. We perform a task and receive compensation for it. In school we’re told time and again, “Study hard so you can get a great job.”
Each of us, however, is limited on the income we can produce using Type 1. Even if you are a doctor or highly compensated sales person, you are still limited by the hours of the day.
This is why it is important to move money generated from Type 1 Income activities into Type 2 Income producers.
You may already be doing this at some level without realizing it! For example, if you are contributing to your retirement savings plan, you have captured the power of Type 2 Income. The investments within your RSP (401k, 403b, 457, TSP, IRA) are working for you – producing growth and income – without requiring any additional work from you.
Joseph Sangl’s book: Oxen: The Key To An Abundant Harvest Written for the person who is keenly interested in building up their Type 2 Income, this book will help you identify potential “Oxen” – investments – that will grow your net worth and position you for a fully funded life at retirement – perhaps at a much younger age than you think!
One of the great gifts a parent can give their child is to teach and model life skills that will help them live a better life. Transferring excellent money management training and skills to your child will help them have financial confidence as they navigate life.
If you are wondering where to begin, start with the list below!
10 Money Lessons Every Parent Should Teach Their Child
- Monthly Budgeting The power of planning money before it is spent helps maximize each and every dollar.
- Consistent Saving Saved money prevents a lot of financial stress.
- The Power of Compound Interest Use compound interest calculator (like this simple one) to show them how time, rate of return, and amount invested will yield exponential results.
- Waiting Many terrible financial decisions are made impulsively. By learning this important lesson, your child can avoid many financial mistakes.
- Form Good Money Habits Good habits are just as difficult to break as bad ones. Help them “make it their habit” to budget, save, invest, and plan the rest.
- Generosity Generous living can help prevent greed and selfishness and positions your child to be a blessing to all who know them.
- Debt Discuss various types of debt: Installment debt (paying something off – a car, a home, etc) and Revolving debt (continuously accessible debt – a credit card or line of credit). Teach them how interest rates and payment terms affect their ability to pay off debt.
- Investing Show them various types of investments: mutual funds, stocks, bonds, real estate, precious metals, small business, franchise, and intellectual property
- Passive Income Demonstrate ways to generate income without having to work for it (dividends from stock ownership, rental income from commercial property, and business ownership income
- Net Worth Share specific ways to increase assets in a tax-advantaged manner.
I’ve never heard a parent say, “I educated my child too much about money.” However, I’ve heard tens of thousands say, “I wish I had learned this stuff before I entered the real world.”
Joseph Sangl’s book: What Everyone Should Know About Money Before They Enter The Real World It is a perfect resource for young people – from high school students to those in their mid-20’s. It has been written with prevention in mind – to help young people become financially confident and avoid common financial mistakes.
It’s that time of year again where I review my current investments and take a moment to philosophize about the future of investing. I’m a fundamental believer in this statement: “There is no HARVEST if you do not INVEST.”
Without putting seed in the ground, a farmer cannot expect a harvest later. Even if you are not a farmer, the same is true for you! If you do not invest money, you have no hope of achieving a financial harvest later. In May, I will have been an active investor for 21 consecutive years. For the first six years of this journey, I invested exclusively into market-based investments. Since that time, I have diversified into real estate and small business along with a dabbling in precious metals. It has worked well for me.
Full Disclosure: I am not a certified financial planner, nor do I sell investments, insurance products, or other similar financial products. My goal in sharing this information is to shed light on a topic that very few people understand well. It is my hope that this information will help inspire more people to climb the I Was Broke. Now I’m Not. Ladder (download a free copy HERE) and become investors so they can live fully funded lives.
One of the most common questions we receive here at I Was Broke. Now I’m Not. is: “What investments do you recommend?”
My answer is always, “I don’t recommend specific investments. I can only tell you the investments I own, and they have worked well for me. The investments you choose are up to you.”
Below is a chart of my current investments – click on the chart itself to download a printable version.
Yet another year has passed, and you will see that I have continued to actively trade stocks. I have sold several individual stocks while deepening my investment into other stocks. Overall, my investment strategy has continued on a straight-forward path of maintaining a balanced portfolio with approximately 35% real estate, 30% small business, 25% stock market and 10% cash.
My views of the investing market place:
- Stock Market Strength There has been significant earnings growth which has supported a substantial increase in company valuations. One key measure to track is the “P/E Ratio” – Price-to-Earnings. This is the ratio between share price and the earnings per share. Currently the DJIA is priced at 21.12 times earnings, this is not sustainable. One of two things will happen: earnings will indeed grow or share prices will drop. My belief is that a combination of the two will happen. Earnings will indeed grow while share prices moderate to achieve a more reasonable P/E. (Side Note: My weighted balance P/E Ratio for my individual stock investments is a more acceptable 15.39)
- Speculation Mark Twain once famously stated: “OCTOBER: This is one of the peculiarly dangerous months to speculate in stocks in. The other are July, January, September, April, November, May, March, June, December, August, and February.” Rather humorous and spot on for short-term investors. This is why the majority of my investments are being held for the very long term. Notice that my individual stock investments only comprise 3.74% of my overall net worth.
- Deals will be found – but they will have to be looked for! A lot of the great and easy investment choices are gone from the market. Real estate prices have recovered. Businesses are doing well. Precious metals have stabilized. Finding a great investment opportunities will require diligence and focus.
- The wildcard: Tax Reform Who knows where potential tax reform will take us?! Some investments made attractive due to special tax advantages could fall out of favor with investors if they sense that those tax advantages are in jeopardy.
I welcome your thoughts on the investing market place as well. What do you think? What are your strategies?
Read previous installments of Joe Sangl’s “Current Investments” posts HERE.
A person who has participated in sports at any level understands the importance of having a coach.
The same is true for your finances. A financial coach will help you accomplish far more than you ever could on your own.
Let’s describe some characteristics of a great coach:
- Knowledge A great coach will bring deep knowledge to the person they are serving.
- Teacher Knowledge that cannot be transferred is worthless. Excellent coaches possess the ability to share their wisdom with players.
- Encouragement Players, even the greatest ones in all sports, routinely give credit to their coaches for their ability to encourage them and draw the very best effort out of them.
- Accountability Coaches hold players accountable for their performance, and provide discipline accordingly. Not to punish them, but to help them make progress toward the shared goal.
- Vision Leaders have vision. Proverbs 29:18 shares “Where there is no vision, the people perish …” A great coach will be able see potential in a person’s life and help them see it.
Proverbs 15:22 speaks to the importance of wise counsel (coaching): “Plans fail for lack of counsel, but with many advisers they succeed.”
Your financial journey will be helped greatly when assisted by counsel from a wise coach.
Do YOU have a financial coach?