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12 Money Hacks You Must Learn Now To Avoid Regret In 20 Years

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12 Money Hacks You Must Learn Now To Avoid Regret In 20 Years

If you’re a young professional, the lifestyle of your 40s will be dictated by your choices in the coming years, and even in the coming months. They say 40 is the new 30, but for that to happen, you need to plan financially first.

Whether you want to build up passive income, get your dream job, or become immortal, you can’t miss the money hacks below.

1. Consider Moving While You’re Young

When you’re young, moving is much easier than once you’re older and have a family or elderly parents to take care of. If you limit yourself to jobs nearby, even if you’re in a big city, you’ll likely be missing out on your best career opportunities. Your first few jobs lay the groundwork for your long-term earning potential. When you are single, always remember that you have the power of flexibility. If you try out a high-paying job elsewhere, you can always move back if you can’t stand it.

2. If You Buy Stocks, Then Buy Ones That Pay A Dividend

According to The Motley Fool, stocks that pay dividends have historically outperformed other similar investments, with less instability. In addition, they pay out real cash. This makes them easier to keep during rough economic times. In addition, the dividend payouts of a good stock can increase as years go by.

If you put $3,000 into a stock with a 4% dividend yield, you’ll get $10 every month, in cash. That’s a free meal every month, by doing absolutely nothing! To encourage saving, try to go from earning 1 free meal a month to 2 meals per month, and keep going from there.

You can also look into preferred stock, which is more complex but can pay out much higher returns relatively safely.

Quick tips in regards to dividend paying stocks:

  1. Dividend payments can be cut, so look for big-name stocks that have a history of reliable dividend payments, and of increasing those payments as years go by. Ensure that they were paying dividends during the 2008 Financial Crisis.
  2. Do not look for high yields as a beginner. Between 2-4.5% is typical for major stocks. Because dividends pay “X cents per share,” if a company was mismanaged and it’s share price has dropped, the dividend “yield” or % return will look high. Avoid this rookie mistake.
  3. If love tech stocks, then 2 examples of companies that pay dividends include Intel (INTC) and Microsoft (MSFT). However, in my experience, investing in tech stocks is pretty risky.
  4. This recent article in MarketWatch showcases some interesting dividend stock ideas.
  5. Remember, I’m not a professional financial advisor. So, always do your research before you invest, and talk to a financial adviser first.

3. Wait For A Financial Downturn, Then Buy Stocks

We all know the mantra: “Buy low, sell high.” When Wall Street falls, it’s the perfect time to consider buying stocks. So, keep some cash ready for the next downturn. You can keep it in flexible investments like GICs, that can be taken out at any time.

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4. Do Not Rely On Stocks To Save For Emergencies

The most likely time for you to get laid off is when the economy is down. This will also be when your stocks are worth the least.

When the economy is down, family and friends may be in need. You may need extra cash, but there will be few side jobs available. Banks will be hesitant to loan people money. On top of this, your stocks will be worth much, much less at this time. If your emergency savings are in stocks, you will be forced to sell them at this low point.

In my opinion, this is one reason why the average person tends to make less money in the stock market than we are led to believe: they buy when they have savings and stocks are high. When the economy falls, they are forced to sell at a low point.

5. Buy The Place You Live In

Real estate is usually the best investment you can make. In my opinion, it’s a much better option than buying stock. While purchasing real estate for investment purposes is hard, buying your own home or condo is much safer, and often has tax advantages.

When paying off a mortgage, a significant amount of the monthly payment goes toward paying down your own loan each month (the “principle”). This increases your net worth by hundreds of dollars every month. (Rather than burning your money by paying rent.)

Keep this in mind: While there are fluctuations in the real estate market, the cost of rent goes up steadily.

When you buy a place for yourself, typically it will be a bit more expensive than renting, at first. However, over the next 3-15 years, the rent will go up, and if you don’t own a property, you’ll be finding it harder to make your rent payment. This is especially true in a big city like Toronto.

Home ownership has other benefits as well. For example, you can get a line of credit backed by the equity in your house, which has a very low rate. Be extremely careful with these since major banks love to offer new homeowners low-interest lines of credit in hopes that they accumulate debt that’s easy to collect because you have a hard asset. With such a low interest rate, it’s better to keep your line of credit as small as possible, since it’s tempting to dip in.

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Still have doubts about buying real estate versus stocks? A retired saleperson once told me, “All of my friends who invested in the stock market instead of buying real estate are in serious trouble.” I think that sums it up.

6. Stay In School Longer

After every graduation, there’s a temptation to finally enter the workforce. However, those who stay in school longer by taking a practical post-graduate degree end up with higher starting salaries. They are also more likely to be chosen for promotions in the long run. While they may be racking up student loans for a few more years, the long-term cumulative effect puts them ahead.

If you’ve dreamed of a career that requires a graduate degree and you’ve tried all other options for low-cost loans and tuition subsidies, find a bank that will lend you a student loan. Also, make sure the college program offers a co-op or internship. Graduating with lots of debt and no industry experience is a recipe for disaster.

Loans are awful, but leading a life in a career that you don’t want is even worse.

7. Negotiate Your Initial Salary

Most young professionals who get an initial offer don’t negotiate because they are excited or scared. It’s important to do your research by checking with friends, recruiters, and PayScale.com to see what you should realistically get as a starting salary.

Here’s a more detailed guide from The Muse which has some good tips. In my experience, the best bet is to find the salary that you think is reasonable and stick to your guns. If you get a much lower offer, I’d recommend using a printout of PayScale.com to demonstrate the expected market rate. However, be prepared for the possibility that they may reject you.

If you get an acceptable offer, typically there’s still room to negotiate. Asking for a huge increase for your first job may be unwise, but asking for an additional $1,000-$3,000 is pretty reasonable. The accumulating effects of that small increase over 20 years adds up a lot. It could be a big part of your down payment on a family home.

More importantly, future raises, pension benefits, and bonuses are often based on a percentage of your current pay. Even a small difference at the start of your career can snowball over time into a big change in lifestyle.

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8. Get Insurance

Insurance is extremely cheap when you’re young, but extremely expensive once you get older. Young people feel invincible. However, the instant they get a bad diagnosis it becomes too late to lock in a good price for things like life insurance and health insurance. Life insurance for a young and healthy person is extremely cheap.

Want immortality? You can even use life insurance to cryogenically “freeze” yourself until they find a cure for your disease (and freezing).

9. Eliminate Or Reduce Expensive Habits

Your daily cup of java or a smoking habit can have a huge consequence on your long-term finances, as well as your health. Make a list of all the expensive habits you have and try to eliminate those that are unnecessary, one at time.

Think of the free money you’d get by putting it into a stock with a monthly dividend instead.

10. Be Careful With How Much You Spend On A Car

60 seconds after you buy a new car, it loses 9% of it’s value, according to Edmunds.com. After just one year, it loses 19% of it’s value. However, the value drops only 12% by the next year. Furthermore, the drop is 9% between years 4 and 5. In other words, used cars maintain their market value better.

Dealers try to tempt buyers with low monthly lease rates on new vehicles. Avoid this at all costs. Even after years of payments, you’ll need to return the leased car unless you pay the remaining balance, which will seem insane 4 years later. If you do not have the cash, it’s better to get a loan or lease for a lower-cost used car. Aim to pay it off in a year or two. Later in life, you’ll have no monthly payments at all and you can sell that car for a significant portion of its value.

Financial Samurai recommends that the purchase price of your car should be 10% of your salary. That could mean you’re buying a car that will require a lot of maintenance. I personally think that 10%-20% is more realistic. From what I’ve seen, used Toyotas and Hondas can last over ten years with little maintenance.

In terms of buying a luxury vehicle, the costs are often a lot higher than anticipated. Here are some unseen costs of luxury cars:

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  • The maintenance and repairs costs on a luxury vehicle are much higher.
  • They often require premium fuel rather than standard fuel.
  • The engines themselves are typically more powerful and may get less mileage.
  • Once the car is old and loses it’s appeal, you’ll still be paying these overhead costs.

It could be wiser to use that money for something else, like real estate, which may appreciate in value rather than lose value.

If you hold off from spending $10,000 on your car, and put it into an investment that generates 6% compounded per year, you’ll have $32,071.35 in 20 years, or a $22,071.35 profit. Still worse will be the extra costs for maintenance, gas and repairs, which will average out to hundreds of dollars per month.

11. Maximize “Matching” Programs

Read the details of your employer’s benefits package. Often, there are offers where an employer will match contributions to things such as a pension. Do your best to max these out, since you’re immediately doubling your money.

In many cases, you can get low-interest loans to maximize the contributions. Because you’re doubling your money, this is one case where taking a small loan can be beneficial.

12. Contribute To IRAs And RRSPs

IRAs and RRSPs (the Canadian version) are tax-deductible accounts. Here’s an example of how it works:

  • Suppose you make $40,000 per year.
  • Suppose taxes are 25%.
  • Therefore, your after-tax income would normally be $30,0000.
  • However, suppose you contribute $10,000 into your IRA or RRSP.
  • That $10,000 contribution is deducted from your taxable salary amount of $40,000.
  • Your new “taxable” salary is $30,000. At a 25% tax rate, $30,000 x 25% = $7,500 in taxes.
  • So, by contributing to your tax-deductible account, you get back $2,500 in taxes ($10,000-$7,500).

Once money is in that retirement account, there’s no taxes on any investments you make. Any dividends inside that account, or capital gains from stocks going up, are completely tax free for decades, until you retire. Once you retire, you can withdraw the money from the retirement account. You’ll pay income tax on any money you use from those accounts.Because the money isn’t accessible until 65, it’s okay to start small (assuming there’s no employer matching program). Small monthly automated deposits are a great way to save.

However, assuming your employer’s contribution plan allows it, you can withdraw $10,000 of your IRA (or $25,000 of your RRSP) to buy your first home. For this reason, it actually makes a lot of sense to use these accounts to save for your first home. Canadians should also look into opening up a TFSA, which allows significant tax-free savings each year.

Final Thoughts

When you’re young, it’s hard to make decisions that you know will affect your life later on. It;s important to remember that this decision making process is a privilege of the society we live in. There’s no perfect answer or approach. The important thing is that you make a formal plan soon, based on the best facts you’ve got and with a little bit of gut instinct.

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Featured photo credit: Frankie Leon via flickr.com

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Published on November 8, 2021

How To Achieve Financial Freedom With the Right Mindset

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How To Achieve Financial Freedom With the Right Mindset

What would being financially free mean to you? Have you made the mistake of thinking that financial freedom requires millions of dollars and decades of hard work? When it comes to our relationship to money, the answers really lie in our mindset. Change your mindset around money and your entire financial outlook will change with it.

And no: we’re not talking about putting a check for a million dollars under your pillow at night. This is about you becoming a financially free person, in whatever capacity you choose. And that’s really the key: it needs to be defined by you. So many people outsource this responsibility to society/celebrities/the government etc… and as a result never achieve it.

What if you could identify what financial freedom looks like for you, realize that it is possible to get there in a matter of a few months and then build a road map to do just that?

Read on, because that’s what we’re going to open you up to. This isn’t about giving you specific strategies “guaranteed to work in five minutes or your money back…blah blah.” This is about awakening you to just how powerful you are, where your blocks lie and how to smash through them effectively.

Financial Freedom – What is it?

Well like I said: I’m not going to define this for you. That misses the whole point of this article, but let’s lay out some ideas to get you started.

Typically, when we talk about financial freedom in the west, we really mean: freedom from needing to work, in order to meet financial obligations. We know that there has been a rise in depression amongst nine-to-fivers, 62% as a matter of fact between 2019 and 2020 in the USA.[1] It’s therefore no wonder that there has been correlative uptick in the search for alternative solutions to finances.

This depression is largely as a result of feeling trapped, unable to realize potential and being denied opportunity. It is also likely that, thanks to a more global world and social media: we see just how abundant life can be for some; like a carrot dangled tantalisingly close, but just out of reach. We yearn for more meaning in our lives, more excitement and to be able to live on our terms.

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Finances are (as we see it) the stumbling block and the preserve of the chosen few…not us.

So to start building an accurate picture of what financial freedom would be for you, begin with what your life would look like if you didn’t have to worry about money. How would you feel if you didn’t have to consider your monthly budget, when putting your hand in your pocket to pay for lunch?

The point is that a lot of the stress and resulting depression that comes from feeling like a ‘wage-slave’ is down to our lack of clarity on what we actually want. We get caught, focussing on what we lack and that perpetuates a mindset of lack that very quickly is reflected in our reality. We are allowing our subconscious, emotional mind to be bombarded with imagery every day that reenforces a sense that we aren’t good enough. That we do not have what it takes.

That wouldn’t happen though if we had done the work of pinning down exactly what we wanted in the first place.

Does Financial Freedom Come at Extreme Levels of Net Worth?

There is a tendency, thanks again largely to how we are conditioned through media, to think that financial freedom only comes at extreme levels of net worth. What if I told you that is completely ill-founded and untrue?

Using the standard/assumed definition of financial freedom for a moment; this means that you need enough capital to generate a return that is greater than, or equal to your monthly expenditure. That doesn’t necessarily tell the full picture, but nevertheless; it’s is a good place to start.

If your monthly outgoings (mortgage, bills etc…) come to $3,000 for argument’s sake, you can achieve that with as little as $108,000 invested over three years.[2]

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Hardly the millions you had probably envisioned is it?

Remember: we’re not talking about you living a lavish lifestyle necessarily. If that is what you want; fantastic, it’s certainly achievable, but what we’re getting at here is your ability to meet all of your financial obligations without having to work.

I’m sure you’re unlikely to find $108,000 down the back of your couch, but it is a figure that is well within reach of most working adults. A $36,000 salary opens you up to borrowing that kind of money, and even if you have to continue working in the short term in order to service the debt and keep up with your bills; you’ll have a clear end goal in sight.

And you’ll have doubled your income in the meantime, for the same amount of work!

How To Achieve Financial Freedom With the Right Mindset

As we touched on earlier, coming at your life from a space of ‘lack’ simply perpetuates more of the same. As I always say: your environment doesn’t lie. Look around you, if you’re dissatisfied with any aspect of your life, you first need to accept responsibility for it. If you don’t, you’re abdicating your power to make new choices.

You may well have been the victim of circumstance in the past, but how you respond and what you do with that experience is up to you. If you choose to look for the positive, however minor it might be in any given situation – your experience of life will begin to change.

This is, in essence, what The Law of Attraction is all about. What lies behind it is your reticular activating system (RAS). The part of your brain designed to filter out the (as it sees it) unless information, highlight the important information and prioritize your safety. Thanks to it being part of your primeval/‘lizard’ brain however, it predates the conscious mind, intellect and reason.

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The issue for a lot of us is that we haven’t understood how to communicate in a way that our RAS understands. We can’t translate our conscious desires and are therefore caught in a loop between two incongruous forces.

Our subconscious wants us to be alive and it bases its criteria for this, largely on the principal of: same = safe. Meanwhile, your quality of life, passive income, work/life balance etc… are inconsequential. That part of your mind doesn’t give a hoot about the utility bill or being able to afford a holiday.

It is perfectly possible to show you subconscious/RAS the benefits of financial freedom though, or indeed any other outcome you’d like to see in your life. You just have to speak its language. Becoming debt free and financially free is actually one of the easiest things you can communicate to your subconscious, because you have so much ‘real-world’ experience with money.

Here’s how:

  1. Start by clearing your mind and being present – find a meditation, visualization or breathing exercise that calms your mind, allows you to focus on the present moment and become an observer of your surroundings. The point of this is to stop all of those thoughts buzzing around in your head that are pulling you back to the past, or projecting you into an imagined future.
  2. Then build a mental movie or slideshow of what your average day would look like, were you to achieve financial freedom. We’re not talking about big occasions, huge wins or events; just an average day.
  3. From your position of present observer – start to observe the feelings that arise as you go about this average day in your new life. Do you feel your shoulders relax and drop? Have you got excited ‘butterflies’ in your stomach? Are you smiling more?

Learn to recall these feelings at will – this will connect the dots for your RAS and you will soon start noticing a shift. Think of it as connecting with your desired future and pulling it into/towards your present.

Bonus Hack – Practice Gratitude

We’ve already discussed how you can start attracting/observing the opportunities that will enable you to achieve financial freedom. This involves a lot of work in order to finesse, but the principals are easy enough to understand. Something that we can all do, no matter what we’re trying to achieve, is practice gratitude.

Using the same principals that I’ve outlined above: something of a ‘catch-all’ that we can train our minds to produce more of, is gratitude. If we can shift our mindset so that the next time some negative, external and unforeseen event occurs, we are still able to be grateful for it; your entire experience will shift.

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Not only will you observe more to be grateful for all around you on a daily basis, but you will shift out of a mindset of ‘lack’. All of the barriers that stood in your way before (not enough capital, stuck in a job I hate etc…) they will shift to becoming things that support your desires and goals.

For example:

The job you hate, when reframed as the means to support a transitional stage of your life (i.e. enabling you to borrow money to invest) suddenly gives you a resource to be grateful for.

The added beauty of this is that your RAS doesn’t know the difference between a big win and a small win. You being truly, deeply grateful for your socks (for example) carries the same weight as being grateful for your health, or your spouse. This is why I say “practice” gratitude. You can start whenever you want!

Look around you right now and find something that you really are grateful for, no matter how small and seemingly inconsequential.

Practicing this will create a snowball effect. Much quicker than you might think: you’ll be overwhelmed with gratitude for your life and all that’s in it.

In Summary

Financial freedom is more within your reach than you probably think or feel. Understand that the limits you’re assuming to be there are largely a product of your subconscious mind, having been drip-fed evidence of that over the course of your lifetime. Changing that might take a lot of effort in the short-term, like cranking over an old car, but the effects will begin to build up quickly and self-perpetuate.

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Apply this mindset to your financial situation and you will find that it too will begin to ‘snowball’. Financial freedom is closer than you think, so start looking for it today!

Featured photo credit: Pepi Stojanovski via unsplash.com

Reference

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