So I have to write here…. I AM DEFINITELY NOT A FINANCIAL ADVISOR. I am a recent graduate just like most of my readers so these are recommendations/guidelines. Also depending on the links you click I may or may not get some type of affiliate commissions. I promise to only promote tools that I genuinely use and I will post pictures proving this when possible.
Given the last volume of interest in my post about cryptocurrencies, a few of my close friends who also recently graduated have been asking me about how to make money (outside of work) so I wanted to write a little bit about this. I can say with confidence I am a little more knowledgeable about personal finance than most people, BUT I AM NOT AN EXPERT. If you want official advice go talk to an investment planner, or do your own research such as reading popular financial planning blogs (One blog that my coworker introduced to me is Mrmoneymustache.com.
SO HOW DO I GET RICH?
The biggest thing people need to realize when it comes to money is that there is only two ways to get rich.
- MAKE MORE $
- SPEND LESS $
That’s it, or as they teach in business school “Profit = Revenue – Costs”. If you increase revenue or decrease costs you make money.
*Side note this is a legitimate framework I use in consulting interviews that many people forget about*
So let’s break this down a little more starting with the second part of spending less money.
Spending Less: That coffee is $5 now, in the future that’s blah blah blah
Look, everyone knows we should stop spending money on useless things IE starbucks coffees, artisanal avocado toasts, etc. However as a proud bougie millennial wannabe I respect that some people really enjoy having these “useless” things.
Granted you should try to spend less whenever possible and there are easy fixes available. I am always shocked by the amount of money my coworkers blow on Starbucks coffee daily when there is a free coffee machine a few feet away from your desk. Yesss I know, the coffee is not that great but you get what you pay for … which in this case is $0.
Still if you are willing to spend the money and you have the money, drink all the starbucks you want. I think the bigger issue with spending less is that people never budget for these small expenses. If you are an avid coffee drinker, have some of your budget be allocated for coffee. Try to stick to the budget as best as possible and if you find yourself constantly over it, figure out what you need to change.
I won’t cover budgeting here as there is no “right” way to do it, but I follow the same formula as before.
I know how much each paycheck I get (post taxes, healthcare, 401k, stock purchase plan) so I allocate my budget to fit my costs (student loans, rent, savings/investments, food, etc). I have most things automated so as soon as I get my paycheck, my fixed costs (loans, rent, and savings) go into my savings account where they are then automatically used to pay bills.
I think the easier way to save money is to focus on the big picture items.
- Rent: I hate paying rent like everyone else. Ask around and see what your coworkers/friends in the area are paying. There’s a good chance you might not have the best deal so consider moving to a cheaper rent area.
- Food: Start cooking. I have been following the wild diet for the past month which encourages a lot of organic meats and vegetables. Despite eating the best quality /most expensive 🙁 food I can, when I cook dinner my actual cost is a few bucks per meal max $6-$8. If I go out to eat dinner with friends I am paying $15 minimum in the northern virginia area.
- Monthly Anything: Netflix, Spotify Premium, Hellofresh, etc make sure your monthly subscription services are worth the money you are putting in and try finding workarounds. IE as of now, Spotify Premium is 50% off if you have a Capital One quicksilver card (only till around April 2018, I would check yourself if I forget to update this).
Cutting expenses is great BUT there is only so much you can cut without it affecting your quality of life, so let’s discuss MAKING $$$.
Making More: Work Smarter and Harder
Obviously number one way to earn more is to simply earn more. Ideally you went to school for a high paying career like computer science, but if not (like me) consider teaching yourself marketable skills like coding, digital marketing, etc. Otherwise, use your free time side hustling whether it be uber driving, tutoring, babysitting, starting a blog, etc etc. Check out one of my favorite podcasts/blogs Side Hustle Nation for some other ideas.
But what about your current money?
Besides moving up in your career let’s talk about investments. The biggest mistake people make is just leaving their cash in a checkings/savings account making anywhere from .03% – 1% a year in interest….. when inflation is around 2%-4% per year. That’s right, you are literally losing money that’s stored in these accounts. So listed below is the order of priority I place in terms of where to invest my money.
1. Company Match 401k:
Hopefully your company has some sort of basic 401k match which are usually around 3% (higher the better obvs). What this means is that if you put 3% of your salary into a 401k, your company will match that much money and after a designated time period they will add to your 401k the matched amount. Once again if you are not putting the minimum contribution amount (IE 3% in this case) you are leaving free company money on the table. The company is trying to incentivize you to save for retirement BY GIVING YOU FREE MONEY. If you only put 2% of your salary into a 401k, the company will only put in 2%. Don’t be a fool and leave this money hanging.
2. Roth/Traditional IRA:
These IRA accounts are very similar to your traditional stock market accounts, but they have a caveat in that there is an annual max you can contribute and there are rules on how much you can withdraw before you retire. I currently have a Roth IRA which means I can deposit upto $5,500 per year and I pay taxes now when I deposit money into the Roth IRA and so in the future I can pull out this money without paying taxes. There are many caveats so please do your own research on which IRA is best for you. Once again this is FREE MONEY. Think about it if you just recently graduated (or still in school), chances are this is going to be one of the lowest tax brackets of your life. If you pay taxes on this money now, you can avoid paying taxes when you are older.
I personally use a robo advisor wealthfront to manage my Roth IRA for me. Attending business school, I was surrounded by finance majors who were all convinced that they were smart enough to beat the stock market with their stock picks. Funny enough, I attended an MBA lecture for bonus points that discussed how barely any fund managers beat the market. What this means is that if you had only invested in a big index fund like the S&P 500, you probably would’ve made more money than picking and choosing stocks. If that’s the case I would much rather trust an automated solution based on algorithms that charge me tiny fees rather than a human that charges high fees and probably won’t beat the market.
3. Traditional Investments (IE Stocks):
So everyone knows that you should invest in stocks and like I mentioned above if you want to play it safe just invest in the market. Pick broad index funds/ etfs like the S&P 500 and in the LONG RUN (10+ years), historically speaking you won’t lose. I have some money in a traditional stock investment fund with Wealthfront, but I do like to play it risky and pick my own stocks every now and then.If this interests you I would definitely recommend checking out Robinhood. Robinhood is a simple mobile app that lets you invest in stocks with 0 Fees! Traditional stock brokers like Fidelty, Etrade, etc have massive fees whenever you sell or buy. For example, for me to sell my company stocks, I have to pay $15. Sure $15 is chump change when your selling thousands of dollars of stocks, but for new investors like us $15 is a lot. Let’s say you are just starting to invest and only put in a $100 in buying a stock. You need to wait till the stock jumps 15% to sell to BREAK EVEN.
After stock markets you might want to look into other big investments like real estate. TBH I don’t know much in that area so I would recommend doing your own research!
4. Riskier Investments:
Assuming you have been saving alot in Roth IRA, 401k, stocks, etc I would start looking into more riskier investments. Right now the biggest buzz is in crypto currencies which you can learn more about here. These are the type of investments that I know are high risk and high reward. IE The past 3 months investing in cryptocurrencies has been a wild ride. I’ve been up a few thousand dollars to suddenly losing money in the span of a few days.
If that’s above your risk level, consider a hobby like starting a blog! Even this blog is a riskier investment for me. I’m putting in hours and some capital to get this blog rolling with no idea if this will break even in a year or two. *Fingers Crossed* Still the hours and money I invest here might lead to career opportunities I never would have imagined, so I’m ok with this risk. One last shoutout to my previous post on how to start a blog if you are interested.
“The best time to invest was yesterday”
I hate cheesy sayings as much as the next guy, but when it comes to money I take them seriously. Ofcourse do your own research as there is no right way to invest as long as you start while you are young and have years of compound interest ahead of you. Even if you take one small step tomorrow like opening up a roth IRA and putting in $100, or buying a stock on robinhood for $5, it will help you in the future.
If you like this content let me know what other personal finance topics you want to hear about! This is a topic that I’m interested in so I will keep updating this blog with my tips and tricks :).