Retiring with a million dollars may seem like a dream but by following a few easy steps, it might be easier than you think. Did you know that the U.S. stock market returned almost 12% per year over the past 40 years? The average American makes about $50,000 per year. Assuming a 3% wage increase each year, if you invested just 10% of your paychecks at this market rate, you could potentially have over $5 million dollars in 40 years! Your personal finance game plan sets up the foundation to achieve your financial freedom. Here are 10 easy steps to follow that can help you save money, invest more and retire richer.
Know what you make, what you spend, and how to make it work better.
You need at least a simple monthly budget like this:
A) Money you make, less
B) Money you spend, equals
C) Cash savings
If C) is negative; you are likely spending too much and might be accumulating debt. You should avoid this by simply looking at your monthly costs and cutting out the stuff that isn’t necessary. Examples include daily $5 lattes, premium cable television or eating out too much.
2. Avoid debt
Almost all debt is bad, and very expensive. Credit card debt is really bad. Get rid of any debt you already have. Ask yourself, did you need the stuff that created the credit card debt? Do you even remember? Read more in the Member Zone about how to improve your cash flow and cut your debt. How about mortgage debt? Many people say that is OK, if used to buy a condo or house, because it’s an alternative to paying rent, and mortgage debt is usually cheap and tax deductible, but even that must be limited. Control your condo dreams to get your total condo or housing costs under 40% of after tax income, leaving about 20% for other essentials, 20% for fun stuff and 20% for saving and investing. Ok, your numbers can be a bit different, but make sure you get the point of controlling housing costs, your biggest monthly cost. If not, think again.
3. Credit cards
You probably need two of these. What? Yes, cards can be OK, but must be controlled, and must be paid off every month. Why two? You want to limit risk of credit card fraud. So, have one with a very low limit for online purchases (buying essentials can be cheaper online). The second one you should never use online, and only for use for on items that fit your budget. If you have no self-control, don’t get the second card.
You can and must control your spending. Don’t buy what you can’t afford. Don’t buy what you don’t’ need. Look at what you spend, make a list, and make a plan to cut what you can, cut the crap, the fancy coffee, extra clothes, expensive dinners… keep cutting more until your budget works…. until your monthly cash savings is 20% of your monthly pay checks. Then live with your plan and enjoy “winning your war on debt”, as you get rid of the debt, and start investing, growing your wealth you will feel great, you will begin to experience real financial freedom.
Know what you make every pay check, every month, every year. Make sure you pay enough taxes from each paycheck to avoid a bad tax bill at year end. Better to get a tax refund each year and put that into your investments. If you’re not making enough to save 20%, then consider these solutions: 1) cut your spending: smaller condo or house, smaller car, no car, buy less stuff, 2) make more money: get a raise or start an income hobby, a gig, a side hustle. The Beanstox Member Zone has info on great ideas to make added monthly income of $1000 or $2000 or more. That can really help. Check the section on Income Hobbies.
This is the key to long term financial freedom. Why? Because you are putting money away for the future, allowing it to grow and letting it work for you for many years. You may say “it’s too hard to save, too hard just to pay the bills”, so when do you start? Suck it up and Start now! ASAP. Even if small amounts. Every paycheck. Why? Because you must get used to spending less and adopting good habits to build your assets and wealth. Begin the magic of making your money work for you, getting dividends on stocks. Many stocks even grow their dividends each year. Keep adding to your magic pile of wealth. Check the success stories in the Member Zone to learn how you could retire with millions, simply by investing 10% of each paycheck. See how money grows.
7. Healthy Lifestyle
Try the 8-8-8 formula. Sleep time 8 hours. Work time 8. Your time 8. If your job requires more hours, say 10-12, then be smart with the 4-6 hours of your time and your weekends. Step one is stop expensive habits that burn your cash during your time. Step two is to make sure you eat well, exercise, read/learn, and connect with family, friends and your community. Limit time spent watching TV and playing video games. Remove negative people from your life. Step three, if your budget shows that you need more money, maybe find an income hobby that is an enjoyable smart use of your time. Get ideas in the income hobby section of the Member Zone.
8. Read and Learn
Some of the most successful people in the world spend a lot of time reading. Warren Buffet, one of the wealthiest men in the world reportedly spends as much as 6 hours per day reading. Bill Gates, the CEO of Microsoft supposedly reads 50 books per year! Every day, week and month, you should try to learn something new. Trying reading the news or about health, wealth and culture. How much? Read an hour per day. Read real books. Limit your time online because it is so full of click bait, ads and distractions.
Give some time to your community and it will give back to you. The people you meet, contacts you make and ideas you get will be priceless. The positive feeling you get by giving back to your community will likely impact other aspects of your life. This sense of community may also provide you a greater sense of worth and accomplishment. It may open other doors for your career.
Turn personal finance into a game. Staying on top of your finances can be fun. Track your progress each week or month. Try to beat your savings targets. Track your investments. Find fun ways to spend your time that don’t burn up your cash. Go for a hike and enjoy the outdoors instead of paying for that gym membership you aren’t using. The impact of all these small money habits add up very quickly and you will be well on your way to financial freedom in no time.
U.S stock market return based on the average return of the S&P 500 Index from 01/31/1978 to 01/31/2018