Financial planner mentoring has allowed me to discover these core facts about money young men and women generally miss, often until it is decades too late while helping my finance students (generally Millennials) here at the University of Puerto Rico as a researcher and financial educator. Hopefully this researched practitioner viewpoint will help you get the most out of every dollar you earn, inherit, and save.
Tip #1: Pay yourself (or the family you steward) first.
Don’t look at your income as all yours. Hide away as much of your income as you can before you pay anybody. This has two steps. The first is setting a percentage goal of your gross income from a minimum of 10% to 25% or more. The second step is to identify expenses that you don’t need. This is particularly important with regard to automatic payments. It is easiest to save $1,000 into a savings account for an emergency by reducing expenses that don’t give you any, or much benefit.
Resource: For more inspiration read the book “The Richest Man in Babylon” by turn of the last century financial planner George Clason. This priceless piece was commissioned by banks in the early part of the last century to guide Americans to save intelligently. It has become a personal finance classic. The niftiest way to do this is to set up your employer sponsored 401(k) plan to automatically contribute (only up to the matching).
Tip #2: Constantly increase your pay.
Is it time to ask for a raise? Is it time to look for a better paying job? Is there a side business that you could create that would bring in more income?
Resource: This important free course on Udemy by former Fortune 500 Human Resource Management CEO Dave Watkins entitled “Land a High Potential Fortune 500 Executive Fast Track Job!” shows you the right ways to ask for, and receive higher pay. Make sure you follow all the steps the course lays out.
Tip #3: Become a high potential employee or entrepreneur.
Let’s face it, not everybody is cut out to start a business. And not everybody is skilled at managing a business. In fact, the most highly paid employees in Fortune 500 corporations have highly focused skill sets. These men and women, often Ph.D. holding scientists, focused first on developing skills through the highest quality education they could find — in challenging majors they know are in high demand by employers. These skills are in the university classes that you hear the most complaints about being hard; engineering, finance, accounting, chemistry, physics, medicine, scientific research and so on. Get an education that employers need before you go onto the job market. If you have to work side jobs for years just do it. It will pay off. All of us at the top sacrificed in our youth. Do it young. You won’t have the energy or time in your fifties when you have too many family obligations. Your education is an investment in yourself that will make you a better provider for your tribe as you age.
Resource: Don’t disregard trade schools. You would be amazed at how many millionaires are successful mechanics, plumbers, technicians, and truck drivers. Read “The Millionaire Next Door: The Surprising Secrets of America’s Wealthy.”
Tip #4: Entrepreneurship happens in Fortune 500 careers most!
As a finance professor at an AACSB Accredited business school of a major state university, I have the honor and privilege of interacting with the most successful veterans of the Fortune 500 arena. The wealthiest started as employees and ended up founding their own company. You are far more likely to succeed as an entrepreneur if you first identify the company and industry that revs you up. This is exactly what happened with Clemson schooled engineer Mohnish Prabiah.
Resource: Read “The Dhando Investor” by financial planner Mohnish Prabiah
Tip #5: Plan your fun.
Many families spontaneously decide on a trip to Disney without prior consideration of cost. You are far better off to first allocate 30% of your after-tax income to ‘fun.’ Then save 20% for retirement. Use the remaining half for your base expenses. This is what Senator Elizabeth Warren recommends.
Resource: Read ‘The Two Income Trap‘ by Senator Elizabeth Warren and her financial planner daughter Amelia Warren Tyagi.
Tip #6: Watch what you waste.
Take the time to do your accounting. This is easiest if you have a family business formed as an LLC around side-jobs. The process of running all of your receipts through QuickBooks forces you to look at and think about every expenditure throughout the year. Pay yourself first by legally avoiding taxes.
Resource: Small Time Operator: ‘How to Start Your Own Business, Keep Your Books, Pay Your Taxes, and Stay Out of Trouble‘ by financial planner Bernard B. Kamoroff C.P.A..
Tip #7: Rent until you have roots.
A friend finished his Ph.D. in finance at MIT. He is now a professor at the University of South Carolina Darla Moore School of Business. He rented throughout his undergraduate studies at Cornell, tour of duty as a Naval officer, and doctoral studies at the Sloan School of Business. He finally bought a house when he and his wife had their first child. This was because he earned tenure and they recognized Columbia, South Carolina as a great place to raise children through the end of high school. Rent until you are sure you will be staying for at least a decade. Otherwise home-ownership is a waste. If you do buy a house, finance it with as long a mortgage as you can. A couple of hundred dollars can shorten the amortization from thirty years to just one decade or slightly more. Successful home ownership is a powerful form of forced savings that dramatically increases your net worth over time. Eliminating rent or mortgage payments are the most powerful way to increase the percentage you save. But this is only true once you have started to put down roots.
Resource: Read ‘The ABCs of Real Estate Investing: The Secrets of Finding Hidden Profits Most Investors Miss‘ by financial planner Ken McElroy.
Tip #8: Find free money.
The United States Federal government helped me along the way to my Ph.D. in finance with Pell grants. If you are part American Indian, you may be eligible for even more. Use anything you can, including your ethnicity, sex or any other demographic to find free money.
Resource: Read the rules from the U.S. Federal Grant website: https://www.usa.gov/grants
Tip #9: Be selective in extravagance, prudent in thrift
Warren Buffett lives well below his means. Scottish and Jewish families have cultures around this. Learn to live well below your means without depriving yourself of fun.
Resource: Read ‘The Jewish Phenomenon: Seven Keys to the Enduring Wealth of a People‘ by Steven Silbiger
Tip #10: Live debt free.
Living below your means implies that you should not have any form of debt. That includes credit cards which you should be paying off each month. At the end of the day the over-spenders who may temporarily make you feel jealous of their ostentatious belongings finish last.
Resource: Read ‘You’re Broke Because You Want to Be: How to Stop Getting By and Start Getting Ahead’ by Larry Winget.
Tip #11: Learn Warren Buffett’s simple rules of intelligent investing.
Warren Buffett as a financial planner himself, does not recommend that everybody invests in Berkshire Hathaway. He says that most people should be investing in index funds. Take the time to understand how the Oracle of Omaha interacts with the money he stewards.
Resource: Study the same MBA material I teach my students at the University of Puerto Rico in this course entitled ‘Value Investing Boot-camp: Columbia University Proven Method’ free here on Udemy.
Tip #12: Get mentoring to become your own financial planner.
If you take action and learn all of the resources above, you won’t need a financial planner. But you can avoid a lot of wasteful experimentation and cut your learning curve substantially with a good mentor. A weekly conversation with a proven mentor can make an enormous difference in the quality of your financial planning in your first year of implementation.
Resource: Go here for financial mentoring.
The most important quality of character you can build is to become fiercely independent in your financial analysis. If you blindly follow the advice of a financial planner you will not have satisfactory results.
The smart couples who really do finish last take the initiative to educate themselves first before they seek any form of financial advice.
-Doc Brown, Associate Professor of Finance of the AACSB Accredited Graduate School of Business of the University of Puerto Rico.
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