Financial Planning, Millennials

5 Areas to Focus On Financially That Actually Move The Needle

I have to be honest, too many people focus on the wrong things when it comes to their finances.

They consider ways to save 0.05 cents on gas versus items that will actually move the needle and progress their financial situation forward. It’s like examining how one single bite of food impacts your weights versus looking at your entire diet and exercise plan.  It just makes no sense and adds such little value. 

Let’s examine some strategies that can have a real impact on your financial situation:

1. Reverse budgeting 

There’s an article that just came out that stated most millennials would rather talk with their ex than budget. This may sound surprising to you, but it definitely is not to me. No one wants to budget. It’s time consuming and it’s boring. Reverse budgeting is the solution for you! You still have to know your numbers to do this, but it is way easier and more efficient. 

To do this you first have to know what you make. Let’s say you make $10k a month. Then you have to estimate your spending, and it works best if you break it up between fixed and variable spending. 

Let’s say that is $7,000 total. We then know your surplus is $3,000 ($10,000-$7,000=$3,000)

Or at least it should be. Most people do not reverse budget and then they just end up overspending since the cash is sitting there in their account. With reverse budgeting, we automate out that $3,000 every month to different places based on your goals (Emergency fund, ROTH IRA, taxable account, vacation fund, etc). So you save first and spend what’s left. It’s simple. I guarantee this will help you save and invest way more per year which will make a huge impact. 

2. Increase Your Investing Rate

So many millennials focus on what they invest in, but that truly is less important than what percentage of your income you invest. If you are 30 & have $50k invested, going from 10% to 15% return on your investments is the difference of $2,500. But if you are making $150,000 and you go from a 10% investing rate to 20%, that is a difference of $15,000 in this year alone. 

If you keep that difference up every year, it will compound and make a massive difference. 

2a. Investing 50% of all bonuses and Income increases

This is a recipe for success. Too many people over inflate their lifestyle as they increase their income.  If you can limit this and invest 50% of all new money, your future will be great! Note: If you are investing well below 20% of your income, you may need to save more than 50% to catch up. 

3. Starting A Side Hustle/Investing In Yourself 

For many, what’s holding them back financially is how much they earn. Let’s face reality here, some jobs have very little income growth. Creating a side hustle or investing in yourself and growing your skillset is a surefire way to improve your financial life. Is there a way you could make an extra $500 a month? Doing this and then investing all of it can make a huge impact. Let’s look at the numbers. If you can earn that extra $6,000 a year and get it invested with an 8% return for 40 years, you would have just over $1.5 mil. That is a big difference. I promise you that making an extra $125 a week is doable. You could uber, tutor, become a virtual assistant, dog walk, etc to make some extra income. Growing your income is a great way to make a positive change financially, you can only cut out so many expenses. There is a limit to it. 

4. Build A Strong Financial Foundation

Everyone overlooks the basics. I get that. They are boring. But having the basics nailed down leads to success. So what are those basics? 

-Having a 3-6 months emergency fund

-Paying off and staying out of credit card debt or any other high interest debt

-Having the proper insurances

These 3 basics allow you to keep your investments compounding, not go into more debt, and not waste tons of your hard earned dollars paying interest costs. All are very important to your long term success. 

5. Form Good Habits 

Habits are everything. Your success in almost anything comes down to whether you have good habits or not. My best piece of advice is to start developing these as young as you can.  Your biggest obstacle financially is overcoming your own behavior. 

What are some habits to focus on?

– Spending less than you make (by far the most important)

-Not impulse buying random things you don’t want/need

-Staying invested

-Not falling for get rich quick schemes 

-Avoiding the want to buy every new status symbol

If you can do those 5 you are looking really good financially. 

The key to achieving financial success is concentrating on the areas that actually make a difference rather than those where you can save $5 a month. I hope this helps you focus on the right things moving forward!

Disclaimer: none of this is advice, it is just for informational purposes. Talk with your financial planner before implementing any of these strategies.