I love reading. I read a lot of everything, except maybe sci-fi. As I’ve been on this journey of becoming more financially secure and working towards a better future, it is natural that I would continue to read from as many sources as I find in regards to what other people suggest. I’m far from an expert, but rather a supporter. I see myself as a cheerleader from the sidelines, supporting everyone in their journey. Part of my cheerleader role means looking for opportunities that might work for you. I recently read a blog post from 2004 (see reference at the end of this blog post) about getting ahead without a budget, the writer simply started writing things down. In doing this, you realize what you are actually spending, not what you think you are spending. It sounded vaguely familiar, remember when you got your first checking account and received a register where you were supposed to write everything down? If you are more “mature” like me, there wasn’t access to online banking, so you had to know where your money went. Checks did not equal money. (A hard lesson for many!)
I’m crazy about checking my accounts every day – all of my open checking and investment accounts, along with my credit cards. I want to know where every dime is going and how much interest I’m gaining, but I started asking myself if I could be doing better… So, the past couple of weeks I’ve tried the experiment of writing down each time I spend money. From groceries, to gas, to giving my son’s daycare $3 so they can go to DQ on a sunny day… WOW. I can say that for as much as I feel that I have a handle on spending, it is eye opening. There is something about the process of writing something down that causes you to processes your spends differently. I’m not terribly crazy when it comes to spending, but I manage a budget where I see little amounts being spent nearly daily that happen with little to no thought. The stop at the convenience store for this, overspending by making impulse purchases while grocery shopping, and a run through the drive thru for lunch, it all starts adding up. Over a week it might be an extra $100 in spending, but over a year that means $1200, imagine over 20 years. In 20 years, that mindless spending would be $96,100, with interest (assuming an average of 7%) that becomes $210,100. So imagine doubling the money that is being mindlessly spent and putting in a place where it grows for your future. That drive-thru lunch that wasn’t all that great and I didn’t care about immediately after eating, suddenly becomes something I do care about!
Using easy math. Assume you spend 20 years in retirement… That small investment, using money you don’t even realize you are spending, would mean an extra $875/month in spending money. I don’t know about you, but I’d rather have more freedom tomorrow, than spend money on stuff I have no record of.
And through all of this, I found a neat app for recording the expenses. It is called “Daily Budget.” It can be found in the Apple and Android App Stores. There is a free version that can do most of what you need the app to do, but you can also connect to family members and set a daily budget. Every expense that is recorded lowers the available daily budget, anything that is not spent rolls forward to the next day. I’m challenged to keep that number growing, so at the end of the month it gets moved to savings.
I think as I work through this journey the biggest thing I’ve realized about money is that it is so rooted in psychology, and we are all effected differently by how we earn and spend money. The trick is figuring out something that resonates with you and that will help you build the future you want for you, for your family, and perhaps your legacy. <3 Bobbi
Great! I’m a big believer in having a typical savings account and also investing. I keep the savings account as my emergency fund, that I have access to when needed, or for saving for a larger purchase that will happen in the near future. Outside of that, I move my savings to investments. This does not include my automated 401k plan through my employer. This is supplemental savings that I’d like to grow quicker than my lack-luster savings account interest rate provides.
Currently, the trend is to invest in Index Funds. Nearly every blogger, investment site, major personality talking about investing is talking about them. Why? They are easy to understand, easy to invest in, and provide relatively low risk and expense. In short, when you invest in Index Funds you are getting a cross section of an investment sector, it can be the S&P 500, International Funds, Large Cap (largest companies,) Small Cap (smaller companies which pose more risk, but possibly greater potential in returns) and more. The reason these funds have become so popular is that instead of betting on one company or one industry (technology for example,) you are essentially betting on that cross section of the stock market. The fund that is referred to often is the Vanguard 500 Index Fund. Historically (the past 30+ years) it has averaged 12% growth annually. That number means that if you invested $1,000, 30 years ago, it would be worth nearly $30,000 today. If you added $1,000 each year, (so a total investment of $30,000) it would be worth $270k!
Please remember this amount is averaged, when the stock market falls as a whole, the value of the fund drops as well. Most recently was the recession in 2008, however December 2018 was a crummy month in the world of investing and it would have been easy to run when values drop. So, I’m warning you of two things 1.) I’m not an investment professional, but rather someone who has interest in sharing what I’ve learned over the years 2.) Investing is not for the weak, you must be willing to weather the highs and the lows to see long term growth.
You should not invest your emergency fund, as tempting as it may be to see faster growth. You never know when you will need your emergency fund and need access to it within hours, vs days. Any money that is invested in the stock market or mutual funds, should be money that is intended for long term growth, or growth with an end date in mind. One of the easiest ways to do this is to automate your savings. You likely do this with a 401k, where it is pulled out of your paycheck before it hits your checking account. It becomes something you don’t even think about. I’ve been using STASH and Ally. I’ve automated a certain amount each week to be deducted from my checking account. You can start with as low as $5. There are several other options out there, as well. I use STASH for my Roth IRA, and Ally for investing in the stock market and mutual funds. There are other, managed options out there, too. If you have a relationship with a broker, or even the person who manages your 401k at work, please do not hesitate to reach out to that person for advice that will pertain to your situation. Everyone is different.
Below is a list of Index funds, what their expense ratios are, and a small description of what they are. If you are interested, please don’t let my blog be the end of your research before diving in. I hope it piques interest in investing, and creates a desire to build your future. Best of luck! <3 Bobbi
Yes, its important to budget for fun. If you take your life and your budget too seriously, it will all fall apart. Think of it like the last diet that went miserably for you… Or, maybe it’s just me, I start these fantastic diets that I know will cause me to lose 20 lbs in two weeks. How often does it last? And if I make it through the miserable two weeks, how often have I lost the 20 lbs? Both scenarios are bleak and completely unmotivating. I think that’s how many of us have become lost when it comes to budgeting. Setting ourselves up with unrealistic expectations, with a diet that consists of taking away everything that brings joy, with the expectation of happiness in the end. It’s all a bit twisted.
I think of budgeting in buckets. There is the “Need to Have” bucket and the “Want to Have” bucket. The size of the buckets should be based on your priorities. Which, I think it is extremely important to remember, is based you YOUR priorities. If having an active social life is important to you, it is imperative that you budget for that. Otherwise, your budget will not align with your personality and you will be setting yourself up for failure. That being said, the buckets are give and take. If you choose to spend more money on entertainment, you will naturally have less money for other areas. The important thing to remember(I realize I’m taking about a lot of important things here, but hang with me) is that with a budget, you are telling your money (your tool) how it is going to be spent (no surprises at the end of the month.)
To get started… -Determine your total income for the month -Determine how much of your income goes to the “Need to Have” bucket. This includes housing, basic food needs, required bills, etc. -Determine how much of your income goes to the “Want to Have” bucket. This includes entertainment, shopping, dining out, etc. I always recommend having a “Want to Have” bucket. Even if you don’t spend it all, at the end of the month you can shift the money towards savings, but you don’t feel deprived and had the funds available to you. -Remember, your budget may look different each month. I’ve mentioned before that my spending shifts during the summer as I spend more on entertainment. That’s an example of a personal priority I have.
To conclude… Budgets do not need to be restrictive, they are meant to guide you so that you are able to reach your goals (or help you get your current spending in check, so you can reach those goals.) I’m trying to make this simple, so that you don’t give up before you start. It’s worth it in the end, to create personal wealth and freedom. It’s the bumpy path I’m on and I’m so thankful you are joining me.
The whole purpose of this blog is to help others and I welcome any and all questions, feedback, and all that good stuff. I just received my first DM question regarding why I’ve focused on investing less than $100 a month on this blog so far. The question asked if I really thought it was realistic to encourage people to think so small.
The question gave me pause, and reiterated my purpose with this blog. Yes, I am encouraging all my friends to start small because it’s a start. Maybe $20 a week all you will ever be able to save because of your circumstances, and I will NEVER (I don’t use that word often, so please know how serious I am) make you feel smaller or lesser because you can’t invest more than that. Twenty dollars today grows exponentially the same way that $100 or $1000 does. The fact that you are putting away towards your future is your superpower (by way of compound interest.)
So, starting small is more than OK. Another focus of my blog is figuring out what will work for you. I think looking at the math for what you will need to create financial freedom or as you plan into retirement sets you up for the reality of what you will have, not some sort of unknown territory that may leave you unprepared.
One last note – The most important part of starting small is that I’ve found that realizing your super power encourages you (or read that as, it’s found me) to look for other ways to grow that power. Carry on and feel free to reach out anytime!
(ps, it’s super exciting for me to receive a question from someone who isn’t a family member or friend, keep them coming!)
For real. Compound interest. It’s a tool to harness, understand and make yours. I love listening to podcasts and reading interesting articles about the crazy rich people in this world, the real people who have worked in a way the Kardashians don’t understand. The Warren Buffets, the Bill Gates, you know, the American Royalty who have worked hard, creating wealth for themselves and are working to create a better world for those around them.
It’s inspiring. I often think about (well, let’s be honest, it’s only when the jackpot is super high and I play, with the odds stacked against me) winning the lottery. I create lists of people I would share my wealth with, that never-ending wealth (hey, this is my dream.) My dreams always include figuring out ways to #1) Automate a continued stream of wealth through various methods of investing, and #2) Taking care of the world around me. When you are working with numbers like 500 million, the compound effect of saving and investing can be mind blowing. I imagine how many people I could help, how many I could inspire to grow their own wealth with the seeds I help them plant. Then, I snap back to reality and hope my $20 website can do the same.
Back to compound interest. It’s the littlest thing, but it’s also the biggest thing of importance when saving. It’s what turns the money you save today into an amount 3x . For example, I’m 40 and I start saving today, putting $100/month into an Index Fund mutual fund (if you are starting out, this is a great way to harness the entire stock market and see positive results over time, more to come on that.) By the time I retire, in 27 years, I will have invested $32,400 BUT the total amount of my savings becomes $95,637 through the phenomenon of compound interest.
When “experts” talk about retirement, they often refer to the $1 million or $2 million you MUST have in order to retire. I don’t know about you, but that number is pretty daunting. Let’s break it down to see what makes sense to you… So, lets say that $100 a month is all I can afford, and I start today. At retirement I have the $95,637. I expect to live an average number of years (81.) Let’s say I know my average Social Security benefit is expected to be $2200 per month. The $100 a month I started to save at 40 would afford me and extra $567/month. I used an average rate of return of 7% (index funds have historically returned 12% over the last 40 years.) So, looking at the $100/month, what makes sense to you? What do you need to live a comfortable life that actually works for you? That’s the biggest question mark for all of us, and the number doesn’t need to be something that feels impossible. Baby steps for the win! Let compound interest do the heavy lifting 🙂
OK. 100% honesty here. I haven’t always taken advantage of the benefits that my roles have provided. There was a time earlier in my career when the HR Manager and financial institution rep brought the workforce into a conference room and went over the ins and outs of the company sponsored 401K. Basically, the message was “if you haven’t started saving and you are over the age of 25, you will never be able to retire unless you dedicate at least 20% of your income to investing.” I have NO idea who this person was trying to motivate into saving, because his message fell to the floor quickly. It felt like a collective eye-roll. This was a retail environment and many of us didn’t feel that there was any “extra” left after bills were paid, or were completely embarrassed that we hadn’t started saving, and really didn’t think there was any way possible to “catch up” by allocating 20% to a 401K.
Through some random water cooler conversations my supervisor overheard, he asked the department to connect up after coffee one night after the store closed. He was shocked at the number of coworkers who didn’t (at the very least) take advantage of the “free” investment money that the company gave away with some level of investing. He explained about how this type of savings actually lowers the income that you are taxed on so, when you are putting money away, yes you notice it, but if you are contributing 6% or 3%, it didn’t feel like you were losing that much out of your paycheck. That particular company matched 1/2 of a % up to 6%. So essentially, you could allocate 6%, but end up with 9% going to your 401K. For once, someone had put all of the investment jargon into words that made sense. I hope to share some of the common sense things that he shared, along with research I’ve done since then, throughout the blog.
I was always thankful for this conversation, it piqued my interest. Our brains aren’t wired for the future. Our brains are wired for today, the impulses and positive responses we receive today. How can we make investing feel like we aren’t getting something today, in favor of tomorrow, which could be something we may not ever know?
I don’t have a fantastically clear answer for that, but my best advice is to start small, no matter if you are 20, 35, 40, or 50 and beyond. If you have $0 in your savings account or 401K, go for the free money. If, after you do the math, you realize you can’t give up 6% of your salary (as in this example) to get all the free money. Go for as much as you can and slowly add a percent when and where you can. There are a lot of great calculators out there that can help you see how the tiny $20 investment today can add up to something bigger in the future.
OK, so what if you are self-employed? Unfortunately the “free” money doesn’t exist, but you can still invest in your future in ways that are friendly to taxes. The easiest way to start saving is to automate. There are a lot of tools out there to help you do this and figure out what you want your goals to be. I personally use STASH and Ally. I started STASH with $10/week going into a Roth IRA and Ally with $10/week going to a money market fund where I can choose mutual funds or individual stocks to invest in. I’m telling you how I started supplementing my savings because I want to emphasize that saving doesn’t have to be painful. Many people I know don’t think twice about going out for lunch ($10) or purchasing coffee at Starbucks a couple times a week ($10.) Changing a couple small habits today can have a huge impact on the future.
Now, what does $20/week even mean? It’s small, doesn’t seem to really matter, right? Well, maybe, but also maybe not. Every little bit that you put away can help you towards a better retirement and towards financial freedom. So, I used the investment calculator on DaveRamsey.com. Below are the results by age and what it can mean by the time you retire:
As I mentioned before, a little bit adds up, no matter what your age. Compound interest is an amazing tool that everyone can use to their advantage. This example is $20/week, imagine if you are putting more than that away, or this is simply supplemental to a typical 401K that you currently have in place. I find it exciting, to watch what seems like something small grow into security for my family. It doesn’t matter if you are rich or poor, or somewhere in between. The sooner you take advantage, the more it will compound over time.
I’ll be digging into compound interest, how the little things can add up, and more as we progress. Thank you so much for being on this journey with me, <3 Bobbi