Starting in my early teens, I mowed lawns, delivered newspapers, and worked in restaurants. When I had money, I quickly found ways to spend it. I was 22 years old when I became a full time entrepreneur. Saving and investing were the furthest things from my mind. For my 23rd birthday, I bought myself a Toyota MR2. A hot little mid-engine two seater with T-tops. My payments were $500 per month. It turned out to be terrible in the snow. So living in the northeast, naturally I "needed" to lease a Nissan Pathfinder SUV with payments of $350 per month. I had two cars and the monthly payments totaled more than my apartment rent.
Eventually I got bored with those vehicles, so I bought a $65,000 Hummer H2. I put ½ down and financed the rest. My payments were $1500 per month, but I paid it off in one year. Sounds awesome so far! But…I had little money saved. I wasn’t building wealth at the rate that I could. Most people put off saving and investing, so I felt like I was in good company with my slow start.
After a couple of solid sales years, I finally got smart. I started taking money and investing much more seriously. I devoured dozens of books, magazines, and audios on money and wealth building.
I started investing $100 at a time, funding IRAs, SEPs. A little here, a little there. It ads up fast. The same thing used to happen to me with spending... a little here, a little there and you’re like…oh my…did I really spend that much?
Since those days, I’ve learned that when it comes to your future the car that you drive is not the vehicle that will get you to the finish line.
Here's a quick run down of what I've learned from all those books on building wealth as well as my own experiences (mistakes and course corrections).
5 keys to building your financial future:
1) Be an owner. Owning shares of stocks means you are part owner (a share holder) of that company. What about the risk? For millennials, at your age, there is virtually no risk in stocks or mutual funds. If you are older, a fiduciary can help you navigate the stock market based on your risk tolerance. Ask your bank if they have a licensed fiduciary you can talk to. In my book Deciding to Thrive there are two chapters on money and investing to guide you through it all.
2) Pay yourself first. Your future retired self that is. At least 10% of your gross pay each week (15% if you are starting later in life). If you invest it into a tax deferred retirement account like a Traditional IRA you won’t feel the pay cut as much since you will be able to write off the investment (at the time of this writing up to $5500 per year, $6500 per year if you are over 50 years old). You may choose a Roth IRA instead. You won’t be able to write off the investment now, but your money will grow tax-free, so you won’t have to pay taxes on the gains. Check with your accountant, fiduciary, or a trusted advisor.
If you are worried about making ends meet, you can start with a smaller % and work your way up to 10% by adding 1-2% every 4 months. This will buy you time as you either look for ways to cut expenses or use that next pay raise to get you to 10%.
Why pay yourself first? Compounding interest is our hero. Earning interest on interest on interest and so on.
Check this out:
$150 invested monthly at a modest 5% return, will grow into over $225,000 in 40 years.
$150 invested each month for 40 years at 10% annual rate of return will grow into over $900,000.
$150 per month for 50 years at a 10% annual rate of return and you're looking on over $2,500,000!
$300 invested each month for 50 years at a 10% annual rate of return = over $5,000,000!!!
Where can you cut expenses to save $150-300 per month? Phone bill, cable bill, eat out less? Find a way!
Even better: $1500 per month ($18,000 per year) at 10% annual rate of return will grow into over $9mil in 40 years, and over $25mil in 50 years!!! So you can see how those extra 10 years at the end make a huge difference. That's compound interest baby! And hey, if you only get a 5% annual rate of return, you’ll still be pretty stinking rich by retirement. So save those bonuses. Let's get this done!
Wondering how to get it all going? Where to invest? A fiduciary can help set you up for retirement.
3) Buy a Home – because they say you can’t get rich renting. Who are "they" you ask? Well, I'm not sure, but they own a home and they have a much greater net worth than the average renter. Aside from the real estate bubble that burst a few years ago, home values typically increase by an average of 6% per year. Now is a great time to buy with interest rates at historic lows. Personally, I would look for a pre-foreclosure or something in need of a little TLC. You can add a lot of value to a property in a short period of time. This is my personal opinion (and experience). Do your homework. I also recommend a 15 year fixed rate mortgage. More on this below. For now, check out Zillow's Rent vs. Buy Calculator. It will show you how many years it will take before the cost of buying equals the cost of renting - the breakeven horizon.
4) Stay Out of Debt. Debt = compound interest in reverse. The bank gets rich while we live paycheck to paycheck. I’ve tried that style of living. Gets old after awhile. Not cool.
If you can’t pay for it, in full, without negotiating in your brain whether or not you can afford it, you can’t afford it.
As I said in Deciding to Thrive, “Spending more than you earn and making up the difference on credit cards gives you a negative inner voice that makes it tougher to focus on business or family.”
(Chapters 8 and 9 are your user manual for money)
Debt happens. But why? Think about how our society views money. The national debt has increased by about $500,000 since you started reading this blog. What message does that send to our society?
Student debt happens too. Some studies state that the average college student has over $2500 in credit card debt while 10% have more than $7000 in credit card debt.
Trying to pay off $7000 in credit card debt at a typical 20% rate by making the minimum payment will take over 30 years and cost more than $20,000!
And, unfortunately, I’m speaking from experience. At one point, in my twenties, I had six different credit cards to keep track of, so six different payments had to be made on time. Had I continued I would have been destined to work for Visa, Discover, MasterCard, and American Express forever.
The other thing about being debt free is that it allows you to be a giver. If you are worried about paying off the mortgage in 15 years because you’ll lose the benefit of writing off the interest on your debt, I’d advise you to pay it off and then donate the same amount you were paying in interest to charity. Which, by the way, is also tax deductible. Look for 501 (c) 3 charities like the Children’s Dyslexia Centers (which is where my wife and I have decided to donate 100% of the money from our book sales).
Tips on crushing your debt:
- Create a spreadsheet of your debts. Include your monthly payments, the payoff, and goals to pay off your debt. Meaning, what day will you completely payoff that first card/debt? How about the second? How about all of it?
- Start with the smallest debt first. Each card you get rid of constitutes a victory.
- Stop with the instant gratification. While you are paying down debt, if you can’t pay cash, don’t buy it.
- Look at your statements weekly, not once per month. This way there will be no surprises.
- Keep attacking the debt until it’s gone. You can do this!
5) Dream Big. Victor Hugo said, “There is nothing like a dream to create the future.” Money is a vehicle to achieve what we want in life. Every single person reading this has the opportunity to launch their life by the actions they take from this point forward. I want you to be rich. You can get motivation from this blog if you can see how your actions get you closer to your dreams. The Decision happens in a moment. Every moment we are deciding. Deciding between weak thoughts and strong thoughts. Deciding to Thrive reminds me to shove the weak thoughts out and to fill my brain with strong thoughts. We attract what we focus on. If you choose to Decide to Thrive in the moment, how powerful is your life going to be? How powerful will you become as Deciding to Thrive becomes a habit?
"After reading over 200 books on leadership, self help, coaching, and mentoring I finally put it all together in one book. Deciding To Thrive is the distillation of what I learned about the nature of happiness, the meaning of success, the purpose of money, and the all-essential 'why' that helps great entrepreneurs create companies." - John Wasserman
Author John Wasserman is an executive with a $200-million-a-year international consumer-products marketing company. He has worked with thousands of 18- to 25-year-olds teaching them the basics of business: how to prepare, look for, find, and make the most of their first "real" jobs - the ones that don't require hair nets or rubber gloves.
John began his career in 1991 as a sales representative for Vector Marketing, selling CUTCO Cutlery in Philadelphia, Pennsylvania. He is CEO of Fast Start, LLC, a frequent public speaker and, as a Division Manager for Vector Marketing, responsible for more than twenty field office locations throughout the Philadelphia–New York metro region.
by John Wasserman
Proceeds benefit Children's Dyslexia Centers