Being able to live the life of your dreams without needing to worry about money is something only a few of us will ever be able to experience and it starts with education.
Majority of the world works to live instead of lives to work. They believe any degree will bring them their perfect opportunity without needing to put in the extra effort or take the unbeaten path.
This is a disappointment because most of us can achieve what weâve always been deserving of but we roughly only use 60% of our brain and obsess over titles and junk that doesnât make anyone a better human.
Money is something everyone needs in order to live. Without it, we cannot feel supported, safe and happy but with too much, we can easily feel worse.
So how do we draw the fine line in attaining the right amount?
To The Books
Fresh out of school, majority of students have no clue what money even is. They go to a top tier business school and learn how to compile DCFs and LBO models, do accounting and know the exact intricate steps towards an IPO but are broke inside.
Before building a business, understand your own business: your life.
Regardless what you majored in at school and industry you work for in the professional world, money is something that needs to be on your mind. Break that taboo and pay attention to it.
As a sophomore, it is embarrassing to uncover what my colleagues donât know about money. They expect to brush up on it and take a crash course from their parents once they graduate, the time when they are ready to leave their parents, move cross country and have a job keeping them busy adopting the same bad habits of going out, wasting money and frivolously spending just like in college.
This isnât hard. No matter how much you hate finance, this isnât finance. Itâs personalized and money is a part of our daily lives whether you like numbers or not
A way to become comfortable with understanding your finances is to master these basic rules before you graduate:
-The difference between a debt vs credit card
-Bad vs good debt
-Renting vs Buying time frame + pros and cons
-Most precious assets: time + attention
-Power of networking
-Health is wealth
-Roth IRA compounding effects
-Proper way to pay down debt = budgeting and saving preferably through the 50/30/20 method
-Understanding how to make better decisions, wait at least 24+ hrs to make a decision, thereâs no scarcity, everything will be available for you to buy, less = more
-Not paying attention to what others use or like
Once youâve graduated and know this information, I guarantee you you will be better off than 95% of students, yes, even those business finance nerds. They donât know a single clue about personal finance since school never taught it.
Shifting your focus towards yourself is important. Being selfish and investing in your future is the best asset you can provide yourself.
Investing in yourself pays dividends for a lifetime because you never know when that nugget of advice will be handy but you must be patient since it doesnât come right away.
Now that weâve uncovered the surface level rules that all graduates should know before entering the real world, letâs get into the meat of what actions you should take
#1: Cut Out Unnecessary Expenses
You know that latte you refuse to make yourself but instead spend $5 at Starbucks per day? That results in roughly $500 per year of wasted time, money, energy, tips, etc.
Being rich isnât taking the lazy way out and paying for things you donât want to do.
It involves getting your hands dirty and taking the âuglyâ less convenient route most of the time.
You have to work to earn it and save diligently.
If you want something, it takes hard work. Although starting with cutting out the small expenses and making your way up to the large ones is most strategic, remember that everything takes time to see results.
If you want to save up for that trip or be able to pay down that debt faster, then switch your mindset and see whatâs taking up all the room on your monthly bill and go from there.
Part of being rich is being creative. It isnât lazy or not working. Thatâs the opposite.
#2: Fear Is Your Friend
More risk = more reward. If you want to stay comfortable, expect not to grow.
Calculate your risks. Obviously you donât want to invest in an unprofitable non-futuristic outlook stock just because some amateurs on Reddit are gossiping about it.
Follow your intuition and know when to block out the noise. Thereâs always new information out there but itâs up to you to filter through it and sense what is the best move.
Although we cannot predict the future, you can build a safety net, calculate your risk tolerance and have a backup plan to keep you in shape.
#3: Envision Your Path
The best way to envision the future is to create it. You are the change you want to see in the world.
Whatâs fascinating about the brain is that it cannot tell the difference between reality and fantasy. If you believe you can work full time on your passion project, then dive straight into that. Donât deviate off the path because you have more control than you think.
Working with someone for something you hate will make you miserable and lead you to a pointless life no matter how much dough you make.
No day is guaranteed so start envisioning where you want to be and take baby steps to get there.
#4: Diversify Assets
Professor Gallowayâs Algebra of Wealth Equation includes: stoicism, patience, diversification and calculated risk.
Diversification is the best thing a company can do to spur growth and innovation, the smartest tactic to stay healthy through a nutritional balanced diet and the most strategic way towards reaching your financial goals.
No one got rich by having a 100% active portfolio only in equities or even worse, bonds.
No matter how young you are, thatâs dangerous and gambling choosing only one asset class.
Calculate your appropriate split (reference here on how to do so) and make sure you have a balance of passive vs. active holdings to keep you afloat.
Investing is about the long term. You shouldnât have to monitor your trades daily and time the market.
Spend time in the market instead and let it go through low cost index funds.
#5 Stay Aligned With Your Goals + Have A Monthly Check-In
Having a weekly or monthly check-in, dependent on how motivated you are to increase your net worth is key to growth. Without evaluation, thereâs no point since you have no clue if you are far off track of getting closer to your goal.
Monitoring your investments in a brokerage account to monthly bill from your bank account shouldnât be tedious or take a lot of time. It just takes diligence and a purpose to remind yourself where you want to go.
Students should prioritize this especially since they tend to spend more out of the blue and not think about purchases beforehand. One way to save a few hundred per month is to never use a debit card since it doesnât increase your credit score nor offer refunds if you want them.
#6: Max It Out
As an employee, make it a priority to max out(dollar for dollar) your 401(k) or as an entrepreneur to your IRA. Contribute monthly through dollar cost averaging (DCA) rather than a yearly lump sum in order to take advantage of compounding effects.
If you are a student or arenât working full time yet, focus on your Roth IRA since it is your most helpful tool in reducing your tax burden as withdraws are pre-tax and invest in yourself, the best investment of all time to skyrocket future potential.
Students, this is your time to take calculated bets and risks. You have the most potential because you have the most time. It is your most precious asset and you must take advantage of it before it slips away.
-Prioritize checking in with your monthly expenses and paying off any student loan debt first
-Invest ASAP with only a few dollars in a low-cost index fund or ETF. I would avoid stock picking since it takes up a lot of time with no guarantees.
-Make sure you know your short/long term goals
-Have an understanding of what field you want to get into and the average pay per each
-Donât follow what other buy or like. Shape your personalized portfolio