6 Simple Rules For Financial Success [2020] - IncomeNonstop

RULE #1: Save 10 to 20% of your Gross Income

Achieving this level of savings is not always easy at first but it is usually possible. If you use few strategies to get yourself started. The most important of these strategies may seem a little odd. Yes it is mathematically true that saving 5 or 10 dollars a day and investing it in an index fund. It could historically earned you a pretty substantial retirement fund and it's pretty awesome.Financial Success

As well but there's no getting around the fact. That if we can better control our major expenses. Such as housing transportation debt not overspending on food and so on. We wouldn't have to worry nearly as much about the occasional latte. So that's not a shot at David Bach or his ideas. They are true we just might do better to focus on the few big things. As opposed to all of the small stuff.Financial Success  

Let's put some numbers behind this idea Financial Success

According to apartment lists. The median rent in San Francisco is about twenty-five hundred dollars a month for a one-bedroom apartment. The median cost for a two-bedroom apartment will go a little worth of 3100 a month.  Utilities can run from 1 to 200 a month or more depending on the size of the place. And whether or not you're including Internet.

Those calculations and according to data from number. Oh calm the average cost of basic utilities in San Francisco is about 135 dollars a month. Internet runs an additional 65. So I'll call it 200 a month. If you rented that one-bedroom apartment. You'd be paying $2,500 a month in rent and close to $200. In utilities for a total cost of $2,700 a month. If you found yourself a roommate and rented the two-bedroom apartment instead. While splitting the rental and utility costs your portion of those housing expenses would drop to about sixteen hundred and fifty dollars a month. that equates to saving over $1000 a month. How many lattes would that buy you.

The same idea works on other major line items in the budget. Such as transportation carpooling public transport and walking or biking. To work on occasion or even regularly. May all be options for you depending on your situation. Debt also falls under this category and especially high interest debt. Like credit cards but I think you get the idea.Financial Success  

What If it’s not enough?Financial Success

If you've gone through all your major line items and optimized them. As much as you reasonably can and that's still not enough. Then you may need to turn to optimizing the rest of your budget. Because budgets can be very effective in helping you to save money. They help us monitor our spending and as the old saying goes. We manage what we monitor and it is entirely possible to spend five or ten dollars. A day on those random small purchases without realizing it.
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I said it's not going to make as big of a difference as optimizing the major line items in our budget will. But if you've already covered the major things and it hasn't quite gotten your head. Above water an extra five or ten dollars a day may be enough to bridge the rest of that gap in the meantime. You could also focus on raising your income either through picking up another job. Working more hours at your current one or starting a side hustle to get your head above water and start saving money. Any of those are great options but once you find a way to save the money. The first place is usually an emergency fund.

This is crucial because life happens to all of us and we never know when a disaster is going to strike.  A sudden misfortune could wipe out everything. We've managed to accomplish between now and then while sending us into more that will then have to work our way out of overtime. Which brings to debt because outside of an emergency fund. Debt is probably the other place that savings should be going.Financial Success

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RULE #2: Pay Credit Cards in full Each Month

If you're carrying debts with those high interest rates like credit cards. It recommend to paying off debts using some method because paying off something like a credit card may just be the best investment. You'll ever make although they do note that as many studies have found people who use the debt snowball method are actually more likely to succeed in getting rid of all their debt than those who use any method which is not to say that the snowball method is objectively better. It all depends on you. So it's important to know yourself and pick.Financial Success 

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Which strategy is most likely to get you fully out of debt. But whichever method you choose to go with think about all the benefits you get from paying off debts like a credit card. Once your debts are paid off. You can use the money that you were previously using to make minimum payments on those debts and put that towards your investments. Second assuming you haven't already maxed out all your tax advantaged accounts for this year this additional cash that you're putting towards your investments. As a result of no longer having any minimum payments on debts to make.Financial Success


Can have the added benefit of further lowering your tax bill and possibly third you may find yourself spending less particularly on impulse items if you aren't using your credit card as much. As before this one is of course not going to apply to everybody but there have been many studies that have shown that many of us will tend to spend moreover time using credit and debit cards than we will if we had paid in cold hard cash. So I say this is a possible benefit because it will depend on whether or not you use your credit card less during or after getting out of debt and whether or not you see much of an effect from this phenomenon personally.

Running the Numbers

Just as an example let's say that John and Jane are each carrying five thousand dollars in debt on credit cards. Which is charging them 18% interest and has minimum monthly payments of $100. They each have $400 a month left over after expenses and minimum payments to work with. They can either invest that $400 a month and try to earn a higher return. Than what the credit cards are charging them which is unlikely over the long term. But some years the markets do better than that or they can choose to pay off that debt.

And then start investing if John were to invest the money and just make the minimum payments on his credit card. It would take him about 90 months to get that thing paid off. Assuming his minimum payment stayed at $100 a month. If Jane put all four hundred dollars towards getting your credit card paid off. As fast as possible she would wipe it out in about eleven months. So that's what we'll have them do for the sake of this example. Let's look at the two hypothetical here in our first scenario. Let's assume that John and Jane's investments earn an average of 8% per year during the 90 months that John is taking to pay off his credit card then just for the sake of it.


Financial SuccessLet's throw in a second scenario. That shows John and Jane doing really well for themselves and earning 20% per year on their investments. During those 90 months just to see if there's any major differences. If they somehow do manage to earn more. Than they were paying an interest on the credit card. In the first scenario where John earned 8% and made only minimum payments on his credit card.

His investments would have been worth about 49,000 dollars at the end of 90 months. However you'll remember Jane paid off the credit card as quickly as possible and then invested the full $500 a month. Her original 400 plus the 100 she no longer has to pay on the credit card debt. After that towards her investments and she'll end with a net worth of about fifty one thousand nine hundred dollars. Or almost three thousand dollars more than John after 90 months.

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In our second scenario where John earns 20 percent on his investments. And just pays the minimum on his credit card. He would have a net worth of approximately seventy eight thousand one hundred dollars. Jane's net worth would be about seventy seven thousand seven hundred dollars. However over the course of those 79 months that Jane was investing five hundred dollars a month. After paying off her credit card she would have invested thirty nine thousand five hundred dollars of her own money. Compare that to the thirty six thousand dollars that John would have put away.

At four hundred dollars a month over the course of those 90 months. If he had only made minimum payments on his credit card. as we said assuming Jane hasn't already maxed out her tax advantage. Investments which assuming she only had four five hundred dollars a month to work. With depending on the time period she wouldn't have actually maxed out all her options. She could end up reaping additional savings through a lower tax bill. Assuming she was in a twenty two percent tax bracket her additional thirty five hundred dollars of out-of-pocket.

Investments would have saved her seven hundred and seventy dollars in taxes over and above what John would have already saved with his strategy. Assuming she invested this tax savings it would actually put Jane a head of John. In the end and that's without assuming any additional benefits for either of them in terms of not spending as much money by forgoing plastic or even not spending as much in medical bills possibly over the years because you're leading a less stressful life with the debt being paid off.

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RULE #3: Max Out Tax-Advantaged Savings

You can see why paying off debt especially high interest debt. Can be possibly the best investment you'll ever make. But as far as where you should be putting your investments beyond debt. Keep it pretty simple never trade individual stocks. Because study has shown that the vast majority of us are not really that good at picking stocks.

We're not the next Warren Buffet and we don't want to fall victim to the behavior gap. You can put your money into index funds that are housed within your tax advantaged accounts. If at all possible the reason for using tax advantaged accounts is simple they give you an additional savings on your tax bill either now or later. Depending on whether or not you're using a Roth account and both account types don't have to pay taxes on gains or dividends.

Financial SuccessWhile you're working what's more some employers match part of your investment into your 401 k. Which is another added perk that ordinary investments and taxable accounts don't have to show. How important this is let's say you invested five hundred dollars a month in an index fund. That paid a two percent dividend each year and saw its share price appreciate by about eight percent per year. That would be a total return of about ten percent per year and is roughly in line with. What vanguard’s index funds have done historically. Dividends are usually taxed at your ordinary income tax rate.

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Which for this example we'll say is twenty two percent. Assuming you didn't use tax-advantaged accounts over the course of a 40-year working career. You would have paid over a hundred and thirty thousand dollars in taxes on your dividends alone. If you sold any shares of your investment at any point for any reason. That number would be even higher but if you had those same investments held in a tax-advantaged account. You wouldn't have paid taxes on any of those dividends.

RULE #4: Have a Fiduciary Advisor

Saving money managing debt and investing. What's next well they do spend a good amount of time. Discussing how to find the right financial adviser. They discussed the fiduciary standard and the suitability standard that financial advisors. Have to follow the fiduciary standard for those who don't know requires advisers. To put clients interests above their own among other things this prohibits advisers from making trades. That may result in higher commissions for themselves or their investment firms.

If it isn't truly in the best interest of the client. Or in other words you and me the suitability standard requires that a broker makes recommendations that are suitable based on the client's personal situation. But the standard does not require the advice to be in the clients best interest. And that is a huge difference obviously having an advisor who commits possibly even in writing to the fiduciary standard for all dealings with you is the best option. But believe it or not many advisers aren't legally required to follow the fiduciary standard. This is why articles on questions to ask your advisor exist.

RULE #5: Buy a Home only when you are ready

Buying a home for the right reasons and as the crash of 2008 taught us. A home is not always the best investment. only buying when you're financially ready this means. That you should have saved up as close to a 20% down payment as you can only go for 15 and 30-year fixed-rate mortgages. And ensure that your emergency fund is fully funded and that your debt situation is under control before buying a home.

RULE #6: Always carry proper Insurance financial success

Financial SuccessIf we're able to get our financial life in order. Start saving money for a rainy day pay off our debts and start building our retirement portfolio. But it'll all be for not enough. If we don't have insurance for some gigantic expense that we incur like a major surgery or hospital stay. A disability a home fire or even our untimely deaths. The main types of insurance are term life insurance disability insurance home and auto insurance.

Obviously and of course health insurance the reason for each of these are simple. If you have someone depending on your income to put food on the table and keep a roof over your head. You need life insurance and term life insurance is usually more affordable than whole life policies. Sure as well disability insurance will help protect at least some of your standard of living. If something were to happen to you that causes you to be unable to work and earn a living.

Anymore they usually don't cover your entire income. But if you should find yourself in that situation any help from an insurance policy will be better than no help at all. Home inaudible policies are there to protect us in case we get into an accident or lose our home and have to find somewhere else to live and since our homes are often a significant chunk of our net worth. I mean the median price of a home in the United States is over 230,000 dollars.Financial Success

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At the time of this writing it's definitely important to make sure. We're protected if we should suddenly lose it and I don't think. I even need to go into why health insurance is important. Yes it is expensive but I think we all know how expensive major medical procedures can be as well. It's not uncommon for major operations or hospital stays to run into the tens of thousands of dollars and even. If you've done really well with your budgeting saving and investing one major operation can easily wipe out most or all of that work.

If you don't have any insurance so those are the main types of insurance recommend they're there to protect your dependents your income your major possessions and of course yourself and they are not to be overlooked so those were some major ideas that I got from the index card. It is very effective save 10 to 20% of your gross income payoff your high interest debts before they cripple you take advantage of tax and accounts as much as you can make sure your adviser commits to the fiduciary standard in all their dealings with you only buy a home when you're financially ready and always carry proper insurance.

What did you think of these ideas?
Let me know in the comments section below…

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