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Three Easy Financial Foundations That Will Change Your Life

April 29, 2024

April marks the 21st annual Financial Literacy Month. While it is important to teach our youth about financial literacy annually, there are many opportunities for adults to learn best practices daily that can quickly help them achieve financial success. Below are three financial foundations to help you reach your goal of an international vacation you have always wished for, retire at the age you want to (not when you “think you can”), or anything else that you’ve desired but didn’t necessarily think possible.

 

BUDGETING WITHOUT MAKING A BUDGET

Budgeting is the bane of everyone’s financial existence. Here are three easy ways to “backdoor budget” without having to sit down and crunch numbers.


Pay Your Bills on Pay Days

Spreading bills across 2-3 pay days will ensure that you can afford your necessities before you spend your money elsewhere. You can also schedule bill payments to smooth out your income so that you do not have a “big check” and a “small check.” This can lead to less stress throughout each month. You have no idea how much this will alleviate financial anxiety. Additionally, this will allow you to add extra payments to loans, which pays them off earlier and saves you on interest.

Pay Yourself Next

I often hear the phrase “Pay Yourself First.” Unfortunately, you will need to pay your rent, student loans, and utilities first. So, once you have paid the bills, you then pay YOU. Approach this in the same way that you now pay bills. Schedule automatic savings transfers from your checking account on your pay days. For this, you’ll need to add up your monthly bills (include groceries—you need to eat, don’t you?) and subtract them from your net pay (the income you receive after taxes, insurance, and retirement contributions). This remaining amount is what you could theoretically spend until your next pay day. However, you—being the financially responsible adult that you are—will ensure that you save a minimum monthly amount into your savings account because of these automatic transfers. Great job!

Pay for Your Lifestyle

Now that you’ve automated your bill payments and monthly savings, you can spend the remaining amount you have on your lifestyle. Just remember that your savings account should only be for emergencies, or for items/experiences that you’ve consciously factored into your savings account. *Pro Tip*: you can create a separate savings account for specific goals so that you can see exactly what your emergency fund looks like separate from that new vacation fund you have.

 

EFFECTIVELY USING CREDIT CARDS

Credit cards can be scary. We’ve all heard horror stories or had negative experiences with them. However, this doesn’t mean that they can’t be used to your advantage. Follow these tips to (ethically) get one over on your credit lender.


Credit Card Rewards

There are a host of different rewards programs that I won’t detail here. Just know that this can be an easy way to earn money from the credit card company and not the other way around.

Use Your Credit Card Instead of Your Debit Card

In the 2010s, savings interest rates were at all-time lows. The best way to make money on your cash was to exchange the card you’re swiping anyway at the checkout counter or inputting into Door Dash.

Frequently Pay Your Balance

One of the benefits of using a credit card is that you can choose when you pay your balance. If you worry about needing to see debits from your checking account so that you don’t overspend, worry no more! For awhile I paid my credit card balance every day so that I could see consistent debits in my checking account. I’ve eased up a bit, but as you implement all the preceding elements of your new financial success action plan (detailed above), this can be an easy way to feel more secure about your daily spending in relation to your “backdoor budget”.

 

INVESTING FOR ANYONE, EVEN YOU!

Investing may be the sexiest topic in finance, and for good reason. It is one of the best ways to make money on your money. However, the Global Financial Crisis and 2022 Bear Market have created some wariness and fear about investing into stocks. Despite these fears, from 1990-2023 broad indexes such as the S&P 500 (large cap stocks) and Russell 2000 averaged total returns of 10.2%+ and 9.12%+, respectively (data from YCharts).


Diversify Your Investments

The typical investor has heard of index funds and ETFs (Exchange-Traded Funds). These types of investment vehicles facilitate the purchase of hundreds of stocks at a time, without requiring tens of thousands of dollars (you can buy into an index fund for a lone dollar depending on the investment app you use). The benefit of purchasing these types of funds is the high unlikelihood that all the stocks within these broad indexes would ever hit zero at the same time—in fact, this has never happened in market history. Coupled with long-term discipline, these indexes have led to long-term growth of investors’ money that have allowed investors to retire when and how they want, among other things such as affording vacation homes, traveling the world, etc.

Buy Long

Buying long is the financial way of saying “invest for the long-term”. Day trading is a terrible way for the average investor to grow their money. I have a tech friend who recently told me about how he built a trading app that outperformed the market by .5%-1% over the last ten years. He joked that—after accounting for all the time it took him to build and maintain the algorithms of the app—it probably would have been better for him to buy index funds for the long-term and let them do the work for him. It is difficult, if not impossible, to outsmart the market over long periods of time. So, follow Warren Buffet’s advice and buy index funds that you intend to hold for a very long time.

Invest Consistently

As with many things in life, consistency is paramount to success. For this, it allows investors (such as you) to buy across different price points. Over time, this often leads to better results because it smooths out purchase prices from occurring at temporary highs. It also gets more of your money to work because it reduces the likelihood of forgetting to invest as it becomes a habit. *Pro Tip*: If you have extra cash when the market has a big downturn, buy into the market. You can also achieve this same principle by shifting out of bonds and into stocks when a market correction or bear market occurs.

 

There is a lot of noise about personal finance, which can make it exhausting to understand how you can achieve financial success. However, it does not need to be that way. If you do not have consistently positive financial habits, following these steps will help you save and grow your money more than ever before. If you have any questions about your personal finances, never hesitate to reach out to me or the rest of the WealthPoint team. We are here to serve our community so that you can lead a happy, fulfilling life. April may be Financial Literacy Month, but practicing good financial habits daily is just as important!