I was talking to a younger friend at Church this morning about investments and it dawned on me that I hadn’t posted anything in sometime about personal finance, which is likely the most read about subject of late for me.
Disclaimer: Anything shared here is strictly my opinion for entertainment purposes and should not be taken as financial advice or direction .…
Some best practices for me personally the past few years (in order) include the following:
· Budget/Track Net Worth: Before you do anything else, gain an understanding of what your spending habits are and where you are at to begin with. You can’t have a plan until you take stock of where you are currently at. Every Dollar is the tool I have used.
· Set Short, Mid-term and Long-term Goals: Once you have an idea of what you are spending money on, determine whether expenses align with your values. For me, this automatically led to cutting costs in several areas. Then, set some goals for where you want to be in 1, 5 and 10 years.
· Eliminate Debt: Before you can build wealth, eliminate the biggest hindrance to being able to do so: debt. Think about investments you can make if you don’t have $100 a month going towards credit cards, $600 a month going towards vehicles or, better yet, $1,600 towards a house payment (my own personal hindrances a few years ago) …
· Build an Emergency Fund: 3-6 months of basic expenses should be in an account that is easy to get to in the event of a crisis.
· Live Below Your Means and Invest the Rest: Strive to save/invest 50% of your bring-home pay. Additionally, take advantage of low-cost investment opportunities through online brokerages like Vanguard and Fidelity versus paying someone to manage your money (unless you have a trusted adviser like I do). Compound interest is the one area you cannot make up ground, so I differ with a lot of folks out there who say you have to eliminate debt before starting to invest. Find a happy ground and start the process of creating your future.
· Minimize Taxes/Fees: Maximize 401ks, IRAs and other vehicles to reduce your taxable income.
· Maximize Free Money: This includes maxing out employer matches for retirement, high yield savings accounts (look at Synchrony for a 2.25% rate), cash-back credit cards (Fidelity is offering 2% right now), dividend-paying stocks/mutual funds, etc.
· Increase Knowledge: To paraphrase Warren Buffet: “The best investment you can make is in yourself.” I’ve read more than 25 books the past few years on personal finance and investing, along with being currently enrolled in the U.G.A. Terry College of Business Certified Financial Planner Course to increase my understanding of how to manage my wealth. Do what you can to understand our economy and how to profit from it. This has led to a 37% increase in net worth for me the past 2 years.
· Protect Assets: Use insurance and safe investments (CDs, bonds, high yield saving accounts, etc.) to hedge against major market downturns while also dollar-cost averaging with your primary accounts.
· Have Skin in the Game: Once you acquire knowledge, test your own investment philosophy. I currently use Robinhood for my low P/E, low debt, high-dividend, -20% from 52 week high approach to picking stocks.
There are other methodologies for improving your financial standing, but these are the ones that have worked best for me the past few years…