Investing, Saving, and Budgeting

Hi I was just wanted to share a few things I've learned over the years about finance. There is a lot of young people on these forums and investing as early as you can is probably the best thing you can do for yourself. I'm serious. Start NOW. Your 50 year old self will thank you to death for what you did in your 20s. You have the power of time on your side which is money's greatest ally. Look at the chart below as to why you should start as early as possible:

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A lot of people think its hard or you need to a lot of money to start investing and that's not true. I will go over some simple ways where you can start saving and investing TODAY. But first:

Budgeting
First thing first, stop what your doing and sign up to mint.com I've been using mint for years now and it might one of the best finance tools out there. Enter in your bank accounts, assets and debts and start planning finance goals for yourself. Mint will keep all your transactions and help you budget and keep your finances in check.

Learn how to use mint and budget budget budget. Stop buying shit you don't need. And that includes $3 coffees at Starbucks. Need a new laptop? Search craigslist/ebay for used. Need clothes? Go to outlets and low-budget department stores. Every penny counts. Here is a quote from the book The Mind of a Millionaire:

“I want you to practice going crazy with excitement and gratitude anytime you find or receive any money. It’s funny, when I was broke and I saw a penny on the ground, I would never stoop so low as to pick up a lowly penny. Now that I’m rich, however, I pick up anything that even looks like money. Then I give it a kiss for good luck and declare out loud, ‘I am a money magnet. Thank you, thank you, thank you.’ I don’t stand there judging the denomination. Money is money, and finding money is a blessing from the universe. Now that I’m fully willing to receive anything and everything that comes my way, I do!“

Pay off your debts and create an emergency fund
Once you start budgeting, you need to figure out how much of your income you need to set aside to pay off debts and start an emergency fund. Stop using your credit card and start paying off any debts and loans. You are getting killed on the interest and the finance fees. I have friends that are still paying student loan interest 10 years after they graduated college! They haven't dug into the principle yet! They are still paying for the privilege of having money lent to them. I know debt, especially student loans, might seem like an lifetime to pay off but you can do it. Pick at it every month and slowly but surely you will see your debt slowly disappear.

Once your loans are paid off you need to start an high yield savings account. American Express has an account which offer 1.15% APY. You need to start saving at least 3 months worth of income. 3 months is a standard timeframe but this may be different for everyone.

Stop keeping your money in your checking account. Use only your checking account for paying off debts and to allocate it to other funds and accounts.

Investing
Ok, finally the fun part. Investing. What is investing actually? Well, there are a few types of investment, debt and equity. A debt investment is where you become the loaner and someone else is going to give you interest for lending them money. Think of student loans. Now YOU are the person lending the money to the student and he/she has to pay YOU back plus interest. A debt investment is usually in the form of something called a Bond. Companies and governments can issue bonds where you lend them money and they will pay it back to you plus interest.

An equity investment is simply where you become an owner of a company and get to either receive part of the profits (in the form of something called a dividend) or a chance to sell your investment if the value of the company goes up. Always wanted to own a company? Well you can! If you bought a share (stock) of Apple, you are now an owner of Apple! Congratulations. The problem with equity investments is that you are on their ship and if Apple goes out of business tomorrow, you will go down with the ship.

But with higher risk comes higher rewards. Stocks usually having a better return on investment than Bonds. This is typically why the older you get the more you want your portfolio to be invested in bonds and less in stocks.

But which company will you invest in? Imagine buying Blockbuster stock and the next day they go out of business and you lose your money. Luckily, there is something called funds which typically gathers a bunch of people's money and invests it for you. Money managers run the fund and will allocate where to put your money. You can enter in your goals and target dates to the money manager and they will manage your investments to fit your needs.

So how do I get started? Well the easiest and simple way to start investing is a website called Acorns. I suggest you sign up and start exploring the site. Acorns is a great tool because they will round up your debit card/credit card purchase to a cent or dollar of your choosing and invest it for your based on your age/goals.

Say I set a round-up to the nearest .50 cents and then go out and purchase a pack of gum for $1.30 on my debit card. Acorns will round up .20 cents and once my round ups hit $5 they will take the $5 out of my debit card and invest it into your portfolio. Its a great website that I wish I knew about earlier. It's a set it and forget it tool. Come back 10-20 years later and you will have a few extra grand sitting in there.

Mutual Funds and Retirement Funds
When your ready to dive deeper into investing I suggest you open up an Individual Retirement Account (IRA). I use Vanguard but there are others including your bank. Remember what I said earlier about the older you get, the less risk you should take. Well retirement funds are great because they do this automatically for you. The older you get the less your portfolio will be in stocks and the more they will allocate your money into bonds. It's safe, easy, and another set it and forget it tool.

Check out Vanguards Retirement Fund 2055. Look at the 4 funds at the bottom. If I put in $5,000 into my Vanguard IRA. 54% of it will be invested in the total U.S. stock market. 36% of it in the international stock market. 7% of it in the U.S. bond market. And 3% of it in the international bond market. These percentages will change the older you get and the closer you are to your target retirement date.

If you work for a company that offers a 401(k), it works the exact same way except your employee will usually match you. That's right, free money! If I take out 5% of my paycheck every month and invest it in my 401(k), my employer will also put in another 5%! I suggest if your company has a 401(k) plan to set an appointment with HR right away and learn about how you can maximize your 401(k).

Once you have your retirement account squared away its time to move on to something a little more advanced mutual funds. It works the same way as an retirement fund except its a little bit more risky and the money manager will start charging fees but if done right, it will pay off.

Advanced Options and Final Thoughts
I just listed a few investment options but there are many many more out there. Others include:

Real Estate - Buy property and become a landlord. You will receive rent every money and hopefully (knock on wood) the value of the property will increase over time.

Gold and Silver - Tired of just viewing numbers on the computer and want to hold your investment in your hand? Buy gold and stick it in your safe or bank vault.

Crypto-currencies - Bitcoin, Ethereum are the hot new investment now a days. Very very high risk but they say its the future of finance!

Derivatives and Options - At this point, its legalized gambling. Think the stock market is going to gown down in the next few days? Well, short the stock market and reap the rewards while others lose. Remember, in gambling, there are always winners and losers. Just don't be a loser.

Some final thoughts. Your not going to get rich tomorrow, or next week, or next year. Trading from one stock to the next every few months is a sure way to lose all your money. No one knows what the stock market is going to do. NO ONE. Short term investing is hard work and requires a lot of hours and research to get it right. Look at the graph below. You can't time the market but over the LONG RUN the waiting will pay off.


The best thing to do is set up an automatic and safe account/fund and let it sit there till your ready to retire. The Vanguard retirement fund I mentioned is a sure way to meet your financial goals when your older. Like I said, time is on your side. Let your money work for you.

Resources:
www.investopedia.com - The best site to learn about finances

www.bogleheads.org - The 4 fund retirement fund I mentioned is recommended by this site which has been one of the best investment communities on the internet for years. Named after Eric Bogle, founder of Vanguard.

www.robinhood.com - Commission free broker. Very easy to use. Except the problem is that its almost too easy. You can fall into a gambling habit constantly moving your money around to find the next big stock. I used RH for a few years and when I was finally down a couple grand I moved my money out and uninstalled. Use with extreme caution.

The finance section of your local newspaper - Start reading the finance section or subscribe to the Wall Street Journal. Or you can start reading Yahoo Finance. Learn what the Dow Jones, S&P500 is. Read about what Warren Buffet and Carl Ichan are doing. You'll be surprised how much about companies you use is being reported on (Whole Foods, Facebook, Snapchat...etc)


Have fun! The market is currently at an all time high and there is money to be made! Hope you enjoyed the read and let me know if you have any questions.