One of my goals for 2021 is to continue to educate young professionals on topics related to personal finance. It’s actually the most important goal for me this year. When I took the job as a financial advisor, I did not realize how little we as a society know about money and how to manage it. We spent years and years in school learning how to make money and almost no time on how to actually manage it. According to businessinsider only 24% of millennials are considered financially literate. 24% 🤯! Out of all the websites I checked, that was the highest number that came up. Others had it as low as 14%. Regardless of which number is more accurate, financial literacy is a huge problem and I believe it is my mission to try and change this number as much as I possibly can. If you want to learn more about money and become more financially literate then subscribe to my newsletter as I share a ton exclusively through it.
Anyways, in order to make progress on this goal, I am going to try and be more transparent and share exactly how I personally manage my money. I also think it’s important to note that I handle my money in the same way I help my clients manage their money. I would never recommend something to a client that I would never do myself. Sure, we may do some things differently as our lives are very different, but we abide by the same core principles and ideas.
Leading With Automation
I believe automation is key to financial success even though I trust myself to make good financial decisions. Personally, I live and breathe finance everyday. I know I am a good spender. I know the important financial principles to live by: spend less than you make, continue to invest in the market, do not sell when the market is down, avoid bad debt, etc. But just because I know these things does not mean I can actually do them when the time comes and it’s my money at stake. This is why I choose to lead with automation. I want to take away as much power as I can from human behavior so I can continue to make good choices for myself.
So how exactly do I lead with automation? Good question! Once my paycheck hits my checking account I have a system in place to move it to all the right places based on my goals.
- Last year the first thing I did was set up an automatic transfer from my checking account to my high yield savings account so I didn’t even have to think about it. This year will be a little different because I have hit my 12 month emergency fund goal (This is a high number for me, but it makes me feel safe so that is why I picked it) and no longer need to save into this account. Also, it is important for me to clarify that my checking account is only used to pay off my credit card, pay for living expenses, wants, needs, etc. It is not where I choose to hold extra money.
- I automatically contribute up to the requirement needed to get the employer match for my 401(k). I believe it is best to take these free dollars, but I would rather invest somewhere else after that. (options are: ROTH IRA, Traditional IRA, Taxable account) With my retirement account I invest 100% in equity ETFs since I have a long time horizon until I retire so I am able to take some risk.
- I have no debt and no expenses I am saving for in the short term (down payment of house, car, etc.), so the rest of my monthly surplus now goes to my investments. How you split this up really depends on your goals. For me, I have a somewhat large sum of money already saved for retirement and long term expenses, so I am choosing to invest through a taxable account that could be used for mid term goals. This gives me the most options in the long run even though it does not carry some of the tax benefits of other accounts. Personally, I like options and the ability to use that money whenever I need to. However, my goal is to not touch these for a very long time as I do not want to stop or hinder the power of compound interest.
- With the additional surplus I have per month I invest in low cost ETF’s. My goal is to continue to invest and take part of the growth in the stock market as a whole. Yes, I have multiple funds I invest in (the same as our clients) that follow my risk tolerance, but I do not try to get too pretty with it and day trade or anything like that. I continue to buy on a monthly basis to dollar cost average into this account . I learned the last couple years how easy it is to paralyze yourself with too many decisions. It is so easy to say once the fund drops to this price, then I will buy, but that never ends up happening. We over analyze and end up just keeping our money on the sidelines, which I think is one of the biggest mistakes you can make.
- With the remaining dollars I have, I dollar cost average into Bitcoin on a weekly basis. Again, Bitcoin’s price is all over the place which makes it really hard to convince myself to buy, so I let it happen on a weekly basis and do not even think about it. With Bitcoin, I have done my research to decide how I feel about it. My goal is to continue to invest in Bitcoin and not sell for a very long period of time.
Note: Just because I buy Bitcoin, does not mean you should. It is a very volatile asset. Consult your advisor before making any decisions on it.
- Because I take care of all my investments, savings, etc. I spend what I have in my checking account on my wants and needs. Or at least I say I do. Honestly, this is something I am working on this year. I have a really hard time spending money on things for myself. It is not hard for me to buy things for my girlfriend, family, nieces/nephews, but everytime I go to purchase something for myself, I decide it is not worth it. I think about how I could use those dollars to invest for my future which stops me in my tracks. It’s one of my weaknesses. I know it may not sound bad to you, but I only have one life. Saving all your money is not the answer. I am working on spending guilt free with my remaining dollars this year, and I have an accountability partner to help me do that.
As you can see, the system I use to manage my money is pretty simple, but it works for me. I’ve spent the last few years learning about my views on money so I could create a system that works best for me. Remember, this does not mean this is the system you should use. I am sure you have different goals than me as well as a different risk tolerance. That is why having a financial advisor who gets to know you really well is important. They can help you create the best system for yourself. If you are interested in meeting with RLS and having an advisor help you, please do not hesitate to reach out and join our waitlist.
The most important lessons I think you should take from this is:
- Do not invest in things just because someone else is. Your life and circumstances are so different from the people you talk to.
- Take the human behavior out of finance. Automate as much as you can so you do not have to worry about the price fluctuations and over analysis that can lead you to sit on the sidelines
- Continue to invest every month and do not think about it
- Once you have this system in place, spend the remaining dollars you have on things that you value.
Disclaimer: Nothing on this blog should be considered advice, or recommendations. If you have questions pertaining to your individual situation you should consult your financial advisor. For all of the disclaimers, please see my disclaimers page.