Sadly I learned about financial literacy only a few years ago due to my ignorance along with being a student in the American educational system.
Where I really became focused with my family’s finances and starting to strategically learn how to plan was when my father passed away.
My mother and I relied on him to take care of the finances and my mother and I, as innocent females, we didn’t want to get into the ‘male’ dominated field.
Now I know I will never let that slip away for any other female.
That life lesson made a shift in my life and without that tragic event, I would be clueless like most Americans still.
First off,
The two most important things in life that we donât want to pay attention to until they come to haunt us:
1) Mental and physical health
2) Financial health
Both of these you cannot live without and the harder you try to avoid them, the less healthy, sane, wealthier, and controllable you are with your life.
Money is the most sensitive subject out there and we still donât know why.
Maybe its because we hide our money in non-taxable islands off the coast of Nigeria or Swizterland or are too embarrassed what side gigs we did to accumulate our wealth.
Regardless, we all think about it 24/7 and always want more of it.
Our relationship with money is thrown off because we believe unless we have more of it, we will be happy, and in fact, it is the opposite.
Only those who don’t have money and compare themselves believe more = better.
The media is partly to blame for this dilemma.
When you accumulate more wealth, you start to have more problems, taxes, higher bills, less privacy, and more responsibilities.
Do you think Trump or Ray Dalio are drinking martinis in front of the sunset all day long?
When you earn more, you tend to work harder not becuase you are desperate for more bling, but becuase you love what you are doing.
We assume when you preserve your wealth its only Lambos and rainbows.
Maybe for the first few hours but when you realize that you are ruining your reputation, mental state and destroying friendships by impressing others, you will in fact want less.
The way you become humble is by being grateful.
You must appreciate the money you earned and to spend it on showing off only to have it depreciate in value, doesnât serve a purpose to anyone, especially yourself.
I wanted to make this piece as concise as possible for the 24k of you all because I can guarantee, not because I think you are uneducated or dumb becuase none of you are, it’s the education system to blame for this lack of financial and digital literacy.
But if I had to guess, probably 3/4ths of you will learn something new today and that is nothing to be ashamed of.
Pat yourself on the back for utilizing this time effectively as opposed to spending time killing your mental and physical energy on what 95% of people do these days stuck at home on social media.
I want to start out with this basic principle that is extremely easily forgotten and rarely taken into account once we accrue expenses and make bank.
Regardless of how much you ever will make you must:
Spend less than you make.
I know crazy right?
Of course, you knew this but how often do you actually?
Let me ask you a question.
What was the last thing you bought?
Was it a necessity, something you desperately needed to survive?
Probably not.
But that is okay.
Iâm not here to shame you but rather educate you that living life below your means and spending moderately on discretionary (things that make you happy but not necessary) are okay.
But the easiest way to generate your wealth is to live below your means meaning you must budget and take into account all your expenses.
That is the most Millenial, GenZ thing to do because it doesnât take that much work especially since we can live off of Roman Noodles and walks in the park for exercise rather than $35 Soul Cycle and a $200 DryBar fix.
Until this day and before I started making an income, I followed two rules that I would highly recommend you start implementing requiring no time wasted but of course, a bit of effort to get anything done:
2 Rules:
30/40/40
Typically most commonly used by students and teens with side hustles, cyclical jobs
50/30/20
Graduates, adults or anyone making a substantial recurring full-time job income
Each percentage represents how much you should spend in each category.
Letâs take the 50/30/20 rule since it is the most widely used.
Recommended Spending Allocation:
50% on your needs
30% on your wants/discretionary
20% stashed into savings
What is crucial to point out is that after a certain income, this rule cannot be applicable so you would be on your own!
For example, letâs say you make $1 million per year.
First of all, it would be incredibly hard to spend half a million on necessities, and second of all, you should not follow that!
The more you have, the less you should spend because you already have everything you need but it tends to be the opposite, especially in borrowing territory.
We’ve all heard that the more risk = more reward, especially with your investments.
You never want to sell your investment, especially today, Mondy when the pre-market futures were in the negative bearish territory because you end up making less when you pull out during a risky time than if you keep your money for the long term.
But back to the rules, with student loans, in particular, the wealthier you are the most student loans you take out and that is a dangerous territory to get into especially since the more you have the more you spend.
Always live below your means because realistically, you really donât need much and if you think you do, you just do it for others.
Be a minimalist. You will appreciate more of those experiences rather than tangibles that are tools not appreciation for life.
Guess who buys lottery tickets the most?
The lowest income bracket want to escape the present and this is the riskiest move they can make.
Iâm sure youâve heard of lottery winners blowing it all because they didnât know the value of money in the first place.
Making money is not easy and even Ray Dalio believes so.
Donât think that you can easily make it because there is always an opportunity cost.
Side hustles are becoming more competitive and it is hard to be unique.
In order to still made some dough on the side, you need to explore what you enjoy, find a niche, and go from there.
You cannot force yourself to do something you like because that will soon fade.
If you can do something you enjoy for free and end up getting paid for it, that is golden.
Last but not least before we get really started:
Itâs not about how much you make or spend, its about how much you keep in the bank.
Also something we rarely keep in mind.
Renting VS. Buying
Depending on where you live, how long you will stay in that location and what your current circumstances are, this decision will come up.
Personally, I believe that renting is money down the drain.
If you want to be a homeowner or live solo, I would advise owning your own home, not the bank or someone else because they could easily take it away from you and then you are homeless.
Owning a home will almost always appreciate in value and it is a nice side income to your primary job.
If you debating between renting and buying as students, ask yourself if you will want to be in NYC or wherever you are for college for the next 4 years from today.
If so, go ahead.
Cities are the least expensive theyâve ever been so I would buy.
If you plan on moving after 4 years, I would rent.
Renting is definitely less work but purchasing a home requires double the amount of paperwork that Iâve never gone through myself but I know you need to establish and look for the best mortgage rates, district, price bid, broker, and all of those fees and charges and of course, renovation unless you want to pay above market price for a home that is move-in ready.
When my mother and I moved out of our townhouse 2 years ago, we knew that the best decision would be to rent it out.
Why sell it?
Sure we would make roughly 3 million from it right now if we sold it but if we stash that into the bank, inflation will occur and the value will deflate.
We wanted to have another side income of $9k per month for a renter.
But it isnât as easy as that.
Our agent who helped us look for a decent renter took 2 months of rent for herself roughy: $20k, we had to renovate the home which was roughly $5k and pay some maintenance for it as well.
Although these are common charges unless you find a renter out of the blue bypassing the lucrative broker deal and renovations, you still make a substantial amount of side money that you wonât get from $3 million upfront from a townhouse.
Itâs important to weight these types of options because it is very hard and a pain to go back!
Live Frugally
Iâm unsure who instilled in me the minimalist, maximizer lifestyle but Iâve always enjoyed living like I am penniless.
I find a sincere appreciation for what I have and truly enjoy everything about life much more when I have less.
That is very hard to instill in all of our minds as we believe bigger is better.
For a day, only a day, since this can be hard for most, try to live with the least amount of âstuffâ as possible and focus on 3 things:
1) Friendships
2) Learning
3) Growth
All of these come from the inside and you will soon realize that you can save way more than you ever imagined focusing on the true meaning of life.
Things I Never and Would Never Spend On (unless you want to follow the broke trends that seem to be getting more popular):
-Drinks or coffee, only water
-Eating out no more than 2x a week(vacations are exceptions)
-Exercise classes
-Ubers/Lyfts
-Premium plans you can deal with ads-Spotify or YouTube for example
-Luxury goods-cars, designer purchases-depreciate in value the moment you step off the lot, store, you get it
-Accessories-jewelry, so many bags and shoes
-Gadgets and their batteries will die next year
-Books-can get a lot for free online
Why do you buy expensive things and think they are priceless?
You see celebrities and acclaimed popstars wearing them because you deem once you blow your money on it, you will become popular as well?
Let me spoil a secret you are hiding from yourself:
You end up doing it for others, not for yourself.
Value friendships because no matter how much you flaunt and people gush over you, they wonât stay with you in the long run.
Downplay everything in life.
Trust me.
I do it every day and Iâve never had this many great, solid connections or happiness.
Now with investing.
Investing is all about asking yourself, what are your goals?
These are some thoughts that I would recommend thinking about when it comes to investing by age:
0-18: Time to learn the basics from mommy and daddy.
Unfortunately, the median age to start is 30.
Letâs break that!
18-30: Start understanding your goals.
Do you want to retire early, what does your stable job look like, side hustles, and income on the side?
You should be more prone to risk earlier the better and as we get older, more risk-averse since we have less income to rely on.
30-50: Other passive income sources ex. Real estate, investments, etc. Think about wills, trusts the future gory stuff but is best to prepare now than never. Pension plans, 401k, Traditional IRA, etc.
50-80: Serious about pension plans, 401k, ROTH IRA, plan for medicare, retirement, your health plans, and future wishes.
It is best to prepare during the best times for the worst than during the worst.
Most Americans, 87% to be exact learned this the hard way back in March.
It is staggering to hear that over 50% of Americans cannot afford or would have a hard time paying an unexpected medical, insurance, or accident charge of $500.
This is all becuase of financial literacy.
We donât want to expect the worst but we need to because when the market hits an all-time high, you better expect it to hit a trough.
Thatâs how life works and the market is no different.
There are humans like us.
Every transaction, buy and sell we make is influenced by human emotion.
Perfect Example: Monday, the 21st, all the exchanges meaning NASDAQ, FANG, DOW Jones, and S&P 500 to name the most popular in the US, were all down at one point by 900 points.
The exchange was ready for a circuit breaker at any moment.
What caused this?
Human emotion propelled by:
-Replacing RBJâs palace in the Supreme Court
-Financial suspicious transactions-HSBCU
-New COVID surges in Europe and in the US
-Mixed contemplations about COVID vaccine and fall 2nd wave
-TikTok deal with Oracle and Walmart
There is nothing the markets are hiding from us.
It is all of us that are fearful and selling.
That is how the market goes into bear territory.
If we buy more stocks, bonds, assets (cash), equities, the market will go into bullish territory.
A bull is strong, positive.
A bear is apparently slow, negative.
IDK, just roll with it!
Investing Short VS. Long Term:
Since half of our readers are between the ages of 18-30, it is best to understand how you can invest for the long term since well, you have a long time to go.
Short Term
Here you will want to stash your money into savings (refer to the 30/40/40 or 50/30/20 rule above) because you will need the money temporarily and sooner than later.
Expect it not to grow that much because you are keeping it in a place that doesn’t appreciate in value a whole lot meaning only maybe 2% the most in interest.
If you want your money to grow a bit more, you can put your money in a CD (Cash Deposit) which accrues more interest on your money.
Very similar to a savings but not risky at all since no risk no return.
Reasons on why one would put your money into savings: If you know you need to make a big purchase or keep cash on hand for an emergency coming up even though emergencies are never expected unless a natural disaster.
Emergency savings should be separate from your savings.
Unfortunately, most Americans donât expect hurricanes or natural disasters to happen, especially Californians or Floridians when they foolishly know they happen every year.
In that case, you must, must, must always have at least 6 months, I repeat, 6 months, not 6 weeks or 6 days as most Americans stupidly do of emergency savings.
You cannot use this to purchase a car or for a birthday gift.
This is if you lose your job and let’s say it takes you 6 months to find a new one you will be okay because you are living off of your emergency savings.
I canât even tell you that staggering and frightening statistics out there.
No wonder unemployment, furloughs, and layoffs have never been this bad.
Donât let it happen to you.
When you make a payment on your credit card, you can choose if you want it to come from your savings or checking.
That reminds me, if you donât have to, donât use a debit card.
You learn bad habits about not looking over your expenses each month which only takes a few seconds depending on how much you spend and you can never file for refunds since the money is instantaneously drawn from your checking account when you use a debit card.
With a credit card, you pay at the end of each month, making sure no one overcharged you cough cough, Apple likes to do this with their free AirPods with a Mac promotion, and paying with a credit card isnât the same as with cash, but it helps you pay better attention to what you are paying for.
With online transactions, it is so easy to lose sight of what you are paying for.
Cash allows you to have a mental note before making that purchase and a credit card is not as close but better than those debit cards that will lead you into debt as I like to say.
Now for…
Long Term PlanningÂ
These are true investments.
If you want your money to grow and you donât need to have it in the next few months.
You can invest it in anything which we will get into right now.
Whenever I think of investing I think of growing my wealth and taking bets on blue-chip, cyclical defensive stocks.
All of these terms just mean high growth, sustainable and reliable companies that have shown consistent returns over a long period of time such as Coke or Amazon, although Amazon is rarely new.
Rarely new in Wall Street terms means 2 decades.
Investing Does Not Mean:
-Being a day trader on Robinhood. It is becoming the new social media but worse because 10-year-olds are betting money just like on sports but with stocks. Sure it exposes them to the markets but this really is not investing at all!
Investing is keeping your money long term.
Not a day trader.
No wonder day traders are disappearing.
They are automated by AI, tech, 5-year-olds and they cause migraines!
-Donât try to time the market, guess or suspect something will happen.
What is worrisome but exciting is that the market is new every day.
Yes, every day so donât assume you are so smart until 9:30 am (market in EST opens).
Now as we mentioned earlier about passive income, it is important to note that investing is a form of passive income.
It is not your main income (hopefully) unless you are committing millions of dollars into betting and in that case, might as well work in Las Vegas.
Other Passive Income Options:
-Buy real estate like my mom and I did to rent out our townhouse or REITs(Real Estate Investment Trusts) that follow the market invested in real estate funds
-Side hustles: Create something but be wary there are over 200k YouTube channels already in existence
-Royalties: If you published a blog, journal, article, or course and you sold it.
Every time there is a purchase, you get a royalty (an infinite sum of money paid out to you every time there is a purchase made for your product)
-Dividends-When companies have extra income on the side that they pay to their shareholders along with your investment in their stock becuase they are just too __ profitable. Only well-estbalished companies do this becuase they don’t need that extra profit to invest back into the company.
Most Popular Investments and Proportions:
-Cash: It is up to you to decide how much you want.
Remember as mentioned above, unless you invest in CDs (cash deposits), cash is just cash.
It is used for the short term, not long term so it wonât grow in value.
-Stocks: Much more volatile.
I would invest in mutual funds that are bundles of the best stocks that follow the market instead of individual ones that you have constantly pay attention to that will make you crazy
-Bonds/loans: less volatile, typically issued by the government or state at a fixed interest rate.
Good for the long term never depreciates but does follow inflation.
-ETF: Exchange-traded funds produce after daily closing bell results and are more volatile than mutual funds.
-Mutual Funds: Mimic a group of stocks such as the S&P or NASDAQ.
Less volatile than ETFs but more expensive upfront.
Now we can go on but I would certainly start with these and once you become comfortable you can start diversifying your portfolio even more.
If you include all of these at percentages of your choosing based on your risk tolerance or appetite as the analysts call it or established by your personalized broker (its not that fancy trust me most of us have one), they can evaluate that for you depending on your needs.
If you donât want to do this work and manage your portfolio on your own, you can hire a personal finance consultant, advisor or broker.
They will watch the markets for you but they do come at some hefty charges since they take a percentage of your portfolio profits.
Last thing.
Make sure they are always fiduciaries-they work in your best interest because otherwise, they will be trading skeptical deals and issuing large transactions.
But even if they do have that title.
How do you really know their psychology?
Top Financial Advisory Firms:
TIAA
J.P. Morgan Chase
Fidelity
Charles Swab
As You Are Gettinâ Older:
When you head off to college if your parents were diligent or had the education and donât blame them if they didnât because most families donât have this, they would’ve established the 529C plan since it is an educational savings plan.
It is a tax-deductible account to help allocate money soley for college expenses.
There are certain rules that can get annoying such as:
-You can only use it on academic material, tuition, room, and board
-No commuting fees or food-the only things I need it for!!
It is best to establish this when you are born and your parents cannot use this money becuase it is stored away.
If they do need it, they will be charged a pretty hefty fee (penalty)but what is great about the 529C is that your money doesn’t just sit there, it will grow over time and you donât have to worry about taking out student loans or go into debt since the more money you allocate into funds, the more frugal you will live and it helps you save at the moment.
It is promoting the cycle of saving!
My favorite.
Since we are on the topic of college, we have to address the scary and dreadful situation of student loans in America.
At the moment, the US owns roughly 31 trillion in student debt and it is surely discriminative.
The richer you are the more likely you are to borrow and African Americans are the largest borrowers especially for student loans.
One way you can never accumulate debt is to always pay your credit card, car payments, student loans in full.
Loans are dreadful and once you can get them off your shoulders you can finally feel free.
The bank isnât in control of you but you must be diligent and it starts with savings, frugally living, and appreciating life’s little moments and people, not tangibles.
That sounds philosophical but it boils down to that.
Finally, the perfect time to say boil!
My family has thankfully never had a single penny of debt because weâve always followed these basic principles:
-Donât do anything that you know you will regret tomorrow
-Wait 72 hours before an unsure purchase
-Live below your means
-Cook as much as possible
-Plan for the worst
-Don’t follow others or look at what they have becuase as much as you don’t believe this, you can easily own and keep Lambos and still be in debt.
It happens much more than you would suspect.
Itâs a terrific feeling to not be in debt.
I can’t speak upon how it feels to get out of it but according to those who did, it apparently feels alive.
Donât make stupid decisions.
It is easier to be strict with yourself now so you can live freely later.
Pay off highest interest debt first:
Ex: Credit cards and Car Payments
Low interest:
Ex: Student loans and Mortgage
Retirement:
401K
A 401K is similar to a traditional IRA except that it is a pre-tax savings account.
Your parents or those who are start working full time will start contributing to this account because your money will compound just like with a ROTH IRA and you can use it for retirement.
The difference from a Traditional IRA:
-Employers offer it and will take part of your salary and put it towards your retirement to help you save
-Allow higher annual contributions
When you invest your money here, your contributions go in before theyâre taxed which makes your taxable income lower when you pull it out.
Traditional IRA
This is an individual account, not tied to an employer.
This works the same way as a 401K but it is a pretax savings account so you pay taxes on the money you will put into the account now.
The advantage of paying taxes now than when you withdraw it when you retire:
-Taxes will increase with the more money you have
ROTH IRA
My family started a ROTH for me as soon as I was making some money back in Middle School.
This is a great plan to have your wealth compound (grow on top of interest).
Requirements:
-Contribute only $5k per year
-Cannot take out until 65 + unless you donât mind a 10%+ penalty(no one wants that)
-It is tax-deductible! The more money you have = the more taxes you pay. You avoid that here!
-After-tax income not pretax meaning you pay taxes on it afterward
Pension
Lastly, a pension plan is a fund, similarly to these 3 accounts where a fixed sum of money is added during an employeeâs employment.
401K VS. Pension
You can go with either but many companies chose to replace pensions with 401K becuase:
-Cheaper
-More predictable to fund than pensions
The Dreaded Future
How does a will relate to our finances?
Everyone has to write a will.
It is up to you when you want to because we obviously never know when we will pass unless we have a terminal illness.
When we pass, we need to know who will take our assets, income, and property.
Much of the time, people donât consider this because they are too distraught and once, again, refuse to think about the future and worst-case scenarios.
My family of course doesn’t want to think about the worst case, but since we hypothetically need to, we are more secure, stabilized, and will be better off, in the long run, doing so.
A trust is for families who have a lot of assets under management such as several properties, a large portfolio of investments, and generated a lot of wealth over their lifetime.
Iâm not here to brag Iâm here to educate.
My family established trust and I got to go through this 6 or so month extensive process signing papers of who will take our properties if something happens with our lawyer.
This is a huge benefit because:
-No court time when a family member passes. This way you donât have to argue with your spouse, mother in law, or sister who gets what from the deceased person.
It is always decided.
You get to make your own health decisions if you have to deal with difficult life or death decisions such as if you want to be fed by a tube or put in a coma, etc.
You can read more about this.
It is a difficult subject for everyone but this is a general overview and all you need to know here.
This is boiled not fried after all.
Last thing.
This was a question I always had in Middle School and even pre-COVID when we could go to the bank and touch dirty cash.
How do banks make money?
-Late payments: hefty percentage
-The loan money to you and expect interest rate return at a fixed APR/APY
-When you trust them with your money and set aside your money in a Chase or Citi Savings account lets say, they are actually using a bit of your money to trade on their behalf. You don’t know becuase it is always staying the same but they are generating growth from it by trading it on the public stock exchange.
Fewf.
I get it that was a lot but I have a secret to tell you.
If you read this, you are ahead of 94% of Americans because most of us only know what savings and credit cards are.
Not very helpful to know only that as you can tell.
As always, please try not to flood the inbox but if you do have questions, make sure they cannot be found online since it is best to teach yourself as well!