Those of you who follow my show or my blog know that I love to help people out by helping them become better educated about sound financial planning. But today, I want to go beyond things like the basic principles of financial planning. Instead, I want to share with you six specific financial planning ideas that, if you put them to work for you, may help you make your financial dreams a reality in record time.
These six tips may supercharge your financial planning, help keep you focused on attaining your financial goals, and simplify your financial life—all at the same time!
1. Integrate What’s Important In Your Life Into Your Financial Planning
A lot of people fall down on the job of financial planning—budgeting, saving, and investing—because it just looks and feels like more work they have to do. They’re not really invested in the process, only the outcome, and that makes the process harder.
Want to make it easier? Then find ways to connect your financial planning and achieving your financial goals to the things that really matter to you in life. For example, if one of the charitable causes that you’ve chosen to support financially is a local women’s shelter, then maybe you can get personally involved by volunteering in some way at the shelter. One sure benefit of doing something like that is that you get the chance to see what your donations are actually accomplishing.
2. Find A Financial Mentor
Robert Kiyosaki, author of the well-known Rich Dad, Poor Dad book series, talks at length about the importance of surrounding yourself with and partnering with financially successful people. If you want to mirror Warren Buffett’s success in stock market investing, then you need to find someone who can give you Buffett-like advice, rather than trying to pick stocks with the help of someone whose investing expertise doesn’t extend past the fact that they own a few mutual fund shares.
The fastest way to get good at doing something is by modeling someone who’s already successfully done it. So, if you’re looking to build wealth through investing or by starting your own business, seek to connect with people who have already successfully done those things. Network locally through the Chamber of Commerce and professional organizations or clubs and online through sites such as LinkedIn. After you’ve developed some relationships and found someone you think is appropriate, before asking them outright if they’d be willing to be your financial mentor, just ask their advice on a thing or two. That way you can kind of test out how good a fit they might be for you. Ask your financial advisor if he or she can connect you with someone. Odds are they know someone who can be a good mentor for you.
Important characteristics to look for in a financial mentor include (A) being a good teacher (if they have expertise but can’t communicate it well, they won’t be much help) and (B) being a good listener. It’s important that they pay attention to what your personal financial goals are.
Finding a good financial mentor is one of the things that may jump you from first gear to fourth gear in your financial planning in no time flat.
3. Get A Better Savings Account
We all need to regularly put money into savings in a liquid account—that is, one where we can access our money quickly if need be. Finding ways to save is the whole purpose of budgeting, and saving is the foundation of investing, which is the key to help build financial security. However, we all know that regular bank savings accounts are not really an advantageous place to park your money because they don’t even pay enough interest to cover inflation.
How can you make the best of this bad situation of needing to keep money in a low-interest account in order to keep the money easily accessible? Go the extra mile and find the best “bad” savings account you can. As of 2019, Barclays Bank offers a savings account that has no minimum deposit or balance requirements and pays 2.2% interest. I know, I know—2.2% will never make you a millionaire, but it’s still more than twice the interest that most banks are currently offering on a regular passbook savings account. Taking your money out of “A” and putting it in “B”, which will pay you more than double what “A” was paying you, is never a bad idea. Search for other high-interest accounts as well.
4. Maybe Become A Bank
A savings account is where you keep your emergency fund of six to nine months’ worth of living expenses. It’s also where you keep money for things such as medical emergencies, unexpected vehicle repairs, or dealing with a family of beavers who moved into your living room during a recent flood. You keep that money in a readily-accessible account precisely because you might need it on an emergency basis.
But you’re not likely to need all of your emergency fund money at once, and so you can probably safely keep part of your savings in a slightly less liquid account. Why would you want to do that? So that you can earn a much better return on investment than the interest your bank pays on a savings account.
Now, what’s one of the smartest things you can consider diverting part of your savings into? How about becoming a bank yourself?
We all know the basic equation of how banks earn their money and why they have more money than we do. They get money from depositors to whom they pay a low rate of interest, and then they loan that money out at significantly higher rates of interest. Wow, wouldn’t it be great to be a bank? Well, guess what? You can be!
One of the financial innovations of the 21st century is what’s known as “peer to peer lending.” Websites such as Prosper.com connect people wanting to borrow money with people willing to lend money. They pool the money deposited by investors (you can start with a minimum investment of just $25) to provide loan funds for borrowers. As a peer-to-peer lender, you may earn up to 8-12% interest. There is a higher risk of default by borrowers, but P2P websites continue to strive to improve vetting borrowers. Also, you can specify the level of risk you’re comfortable with. Even if you specify that your money only be loaned to the lowest risk borrowers, you may still make a return higher than what banks pay you to put your money in a savings account. Since this is a newer phenomenon, it has its own unique risks, such as platform insolvency risk, technology risk, and higher risk of fraud. So. of course, with any investment, make sure you do your homework before investing.
5. Trick Yourself Into Saving Money
A lot of people find it difficult to get in the habit—and to stay in the habit—of regularly saving money. Since saving money is the first and, therefore, crucial step in becoming financially secure and attaining your financial goals, this is an important problem to address. Well, here are a couple of “tricks” you can use to make yourself a better saver.
Reward Yourself For Saving
One of the reasons people have problems saving is that the reward for saving is on down the road a bit. In other words, you don’t see any immediate benefit from saving money; you don’t get any instant, positive feedback. Well, one savings trick you can use is to change that: give yourself a reward for saving that’s a bit closer to the act than “40 years from now when I retire.” Try something like this: For every $100 you put into savings, give yourself $10 to spend on whatever you want. If you’re putting $100 a week into savings, that should at least give you one nice dinner out every month. Plus, it builds a positive connection in your mind to savings when you think about the fact that you’re enjoying this nice dinner out as a reward for being a good saver. Instead of having the thought, “Saving money means I have less money to spend every month on stuff I want”, you can implant the much more financially beneficial thought in your mind, “Saving money lets me treat myself to doing things I want to do every month”.
Consider Taking Advantage Of Automated Savings Apps
Making saving automatic makes saving painless. It also turns you into a more efficient saver, i.e., you will build up your savings more quickly. Take advantage of the opportunity to save more easily by using automated savings/investment apps. Most of these programs are designed to help you automatically save and invest. These accounts, which you can start with just five dollars, gives you access to over 100 stock and ETF investment choices, along with professional investing tips to help you pick your investments. You tell the app how much you want to invest. Again, it can be as little as $5 at a time which is possible because you can buy fractional shares. You also determine how often you want to siphon money from whatever checking account you link to the app and what you want to invest in. That’s it! You’re all set. These apps will then automatically transfer and invest money according to your instructions.
Another popular savings and investing app rounds up every purchase you make with your linked debit card or credit card to the nearest dollar and puts that spare change into your investing account. It helps you save money in the same way you would if you saved all your spare change in a jar. The two key differences are (A) that it’s automatic, you don’t have to think about doing it, and (B) the money is immediately invested. These apps enable you to buy partial shares so that you can invest even the smallest amount of money. Also, these apps help you select investments by asking you basic questions about your current financial situation and your risk tolerance. Based on that information, the app then suggests appropriate ETF investments for you to choose from.
6. Save Money And Make Money With Consignment Shops
Using consignment shops is a great way to both reduce your expenses and increase your income. First of all, you can “dress for success” a lot less expensively by shopping at consignment stores. You can find designer clothes and accessories for up to 80% off their original retail price. You may well be able to clothe yourself in designer fashions for less than what you’d pay just to buy the “store brands” at major department stores. And don’t worry about not being able to find anything other than an old, threadbare coat. Most consignment shops, particularly those that specialize in high-end designer threads, only take items that are in excellent condition and not more than a couple of years old.
The flip-side of using consignment shops is that, in addition to using them to save money, you can use them to make money, too. Just go through your closet periodically and pull out the things that you (A) haven’t worn anytime in the last year and/or (B) figure that you’re probably never going to wear again. Your consignment shop sale items might be fashions you’re no longer crazy about or just things that don’t fit anymore. A friend of mine who’d lost a lot of weight, thanks to a dedicated diet and exercise program, made enough money from selling on consignment all the clothes she had that were much too big for her new figure to pay for most of the furniture in her new apartment!
Selling on consignment, you usually more or less split the sales price with the store—in other words, you get about half of what the item sells for. Some consignment shops will pay you a flat amount upfront, essentially buying the items from you. That upfront price is, of course, significantly less than what you’d make on a standard consignment sale, but it’s a guaranteed sale, whereas you might put things on consignment that take months to sell or even never sell at all.
You can check out local consignment shops, which may include chain stores like Pandora’s Closet. There are also a number of successful online consignment shops, such as thredup.com, Poshmark, and the RealReal.
There are several simple steps you can take to improve your financial planning and fast-track achieving your financial goals. Here’s a quick recap:
- Make the things that are most important to you a tangible part of your financial planning
- Get a financial mentor to help guide you in making your financial dreams a reality
- Get a better savings account, and then explore lending yourself
- Consider using financial apps to automate your saving and investing
- Profit from both buying and selling at consignment shops
These are just a few of the “tricks” you can use to take your financial planning up a notch. Pick out at least one or two that you think will work best for you in your current situation and then write out a plan to get started with them.
These concepts are just the tip of the iceberg, so hiring an professional in these complicated areas is a very good start.
Opinions expressed are those of the author’s and not necessarily United Capital. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. There are no investment strategies that guarantee a profit or protect against loss. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however, their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital.
Equity investing involves market risk, including possible loss of principal. ETFs will fluctuate with changes in market conditions and are not suitable for all investors. ETFs trade like stocks and are subject to brokerage fees and trading spreads. Any strategy using ETFs must account for these additional costs. ETFs do not necessarily trade at the net asset values of their underlying holdings, meaning an ETF could potentially trade above or below the value of the underlying portfolio.