Alright, the last blog post got too long, so I decided to create another one so that I could add some more thoughts and to make it a manageable read.
A Bank Account
Banks make your money safer: The banks carry deposit insurance from the FDIC. All sorts of things can happen to money you store at your house: You could lose it, your house could burn down, someone could steal it, etc etc. If it is in an insured bank, you aren’t exposing yourself to those risks.
Banks pay you interest: Additionally, a bit of interest will be added to your account (rates very widely bank to bank, so shop around). I use an online bank bank in conjunction with a local Credit Union.
Banks also make your money a bit harder to get: Some people will argue that this makes no difference, but I’ve often had to pass up purchases that I later would of regretted simply due to not wanting to make a run to the bank. It might not work for you, but I know it has worked for me.
As a side note, bank accounts also are generally required to open an investment account, which is very important for your long term financial help.
Credit Cards
Credit cards. I am all for them. In fact, this year alone I’ve gotten $1100 in cash back & rewards from my credit cards. When you hit adulthood and you open a credit card, you need to make a rule for yourself that if you are ever forced to carry a balance from month to month, you will rip up that credit card and never reopen it. The benefits of having a credit card are nullified if it allows you to spend more than you otherwise would.
Don’t Spend Money On Things Bad For Your Body
Make it your rule to never buy something that you know is bad for you: Tobacco Products/drugs/alcohol obviously, but less obviously: soft drinks/candy/icecream.
Ask yourself…. Is it good for me? If the answer is yes, then it is a permissible expense. If the answer is no, then don’t buy it.
Financial wellness is a way of life. Just like physical wellness or mental health. These things don’t happen overnight, and they aren’t necessarily easy. But don’t be discouraged with temporary setbacks. Just keep taking steps in the right direction.
Subscriptions
Subscriptions are the devil. There is a reason that all the major software and media businesses are moving to a subscription model. Let me give you a hint, it isn’t so that they can charge you less money over time. Nothing kills your budget faster than guaranteed monthly expenses. The average American spends over $200 monthly on subscriptions. Your goal for subscriptions should be that you spend zero dollars on them. See my post on subscriptions.
Phone Plans
If you are spending more than $35 on a phone plan, you are being robbed. I spend less than $20 a month for 10gb of non-deprioritized data on the AT&T network with unlimited talk & text (Red Pocket for those of you wondering what plan I’m on)
Cheap Cars
I found that cars around the 130,000 mile mark, if they’ve been well maintained, will drive on into the mid-term future without issue. Usually these cars are around 15 years old, and while you might not look flashy, in a 15 year old Toyota or Honda, they are good cars with decent fuel economy, and you won’t regret buying them.
Don’t buy new, and don’t get a loan unless you must.
Renting vs Buying your House
Renting provides you with a zero maintenance arrangement with guaranteed expenditures (no surprises to wipe out your emergency funds) whereas a house provides you with a potential way to build your wealth, and usually (though not always) a better quality of life.
The single best way to save money is to live with someone else. If it is your parents and free, that is even better.
Insurance
Only carry it if you can’t stand the idea of not having it. Think: would it be catastrophic for my well-being or financial well-being if I didn’t have this and needed it?
i.e. If you have 4000 dollars in the bank, and a 6000 dollar car, then you should consider carrying comprehensive & collision coverage.
Life insurance only becomes crucial when you get to the having kids stage (then ONLY USE TERM INSURANCE not whole life) if that isn’t you, then don’t worry about it right now.
Rental insurance is often required by your landlord, and isn’t a bad idea if you are living in a high crime area, otherwise it’s probably not necessary.
Homeowner’s insurance: would it be catastrophic for your financial well-being if your house burned down? Yes. So buy insurance.
Pet insurance: This is would be a case by case scenario.
Health insurance: probably not crucial when you are single, young, and poor, but don’t go without for too long, since health issues can crop up (especially sports injuries or higher risk activities like skiing etc).
Picking Stocks
Is investing in individual stocks a good idea?
Let me change the question: can you make money on gambling?
Yes. But just because you can make money doing something doesn’t mean it is a good idea. The reward is always commensurate with risk. Big financial payoff = big financial risk.
Are you in a situation where you want to risk money that almost certainly you could get 9% annual returns on for the rest of your life in order to gamble? Maybe. Maybe. But don’t come crying to me if you don’t ever get your yacht.
Stock picking is horribly risky compared to dumping your money into a Vanguard investment fund like VTSAX and waiting for the returns to stack up. You are exposing yourself to massive downside risk, without diversification. (60+ stocks in various industries is where diversification benefits start to taper off).
There is no way to tell the future. Anyone who says differently is selling something. Every stock picking strategy that has ever been devised succeeded either based on luck, or failed in the long term compared to the buy and hold strategy.
I will state for the record that picking stocks can be fun. And it can be something that you talk about with your friends. If you must do it. Do it with a small percentage of your stocks.
Increase your earning Potential
This is the obvious but often overlooked way to increase your socioeconomic status. If you want to rise above your current status, you have to do it by increasing your earning potential. there are lots of ways to increase your earning potential: School, certificates, a willingness to stay late at work or a willingness to be the one to learn new things. Pick a strategy and knock it out, then pick the next one and knock it out.
Conclusion
I feel like I probably haven’t covered each of these in enough detail. In fact, I think each one of the headings above might deserve it’s own blog post. I’ll be back to cover them in the coming days, months, and years.