In August 2018, I’m going to write all about side hustles. To start us off, we have a guest post by Millionaire Mob, a blog focused on ways to better your financial future. They have helped thousands of people with bettering their financial future through passive income, dividend investing and travel hacking.
The quest for financial freedom motivates different people to pursue different things. One sure way I’ve found which is speeding up the time to achieve financial freedom for me is to engage in a variety of side hustles.
What is a side hustle you ask?
A side hustle is an extra business that you run beside your full-time job to generate additional income. While your full-time job is your primary source of income, a side hustle is a secondary source of income. In order to achieve wealth, you must be able to increase your income over time. I love doing this with my day job income, my investments and my side hustles.
Creation of side hustles is rapidly gaining grip as a budding number of Americans discover the massive benefits of starting one. According to a recent Bankrate study, it’s estimated that around 37% of U.S. adults have a side hustle, but what’s even more outstanding is what those side hustles are paying. On average, a person earns approximately $686 per month from their side hustles. This proves that a side hustle is a key to achieving financial freedom.
I have pursued different types of side hustles to build financial stability. If you pick the right side hustle, invest sufficient time to it, you can generate huge profits from it.
To discover suitable sides hustle to pursue, you first need to find a niche that gets you excited. Then do a thorough research to find out what other people in such a niche are doing to earn additional income. Choose your target customers and provide solutions to different needs of people in that niche. For greater results, choose an activity that complements your full-time job.
The Benefits of Side Hustling to Achieve Financial Freedom
There are a number of incredible benefits I get from side hustling:
- Creation of an additional source of income
- Ability to pursue purpose and meaning
- Self and professional development
Let’s go through them in more detail.
Creates an Additional Source of Income
Benefit number 1 of side hustling is without a doubt that side hustle creates an extra source of income. Financial freedom may mean different thing to different people, but one common thing is it gets you to a level where you never have worry about money.
A side hustle puts extra coins into your pocket that can help you meet some of your financial obligations like bills, emergencies, and debts. If you have a debt, you can use your side hustle income to pay them off. You can also use a side hustle income to save or to cater for emergencies. Side hustle income can also help you increase your retirement savings.
The beauty of creating a side hustle is that the money you make often isn’t the cash you use to pay your basic bills. Rather, it is bonus money that comes from that extra effort you put in your side job. Thus, as long as you’re able to use and save enough from your primary income, your side hustle revenues could allow you to enjoy the luxuries you may have previously forgone or could not afford. You are able to enjoy your life and live free.
A side hustle can also help you accumulate wealth. If you use your extra income to make investments like when you purchase stocks, currencies, real estates and other alternative investments, you will obtain financial freedom faster. A side hustle can, therefore, help create a positive impact on your personal financial ratios.
I like to establish a habitual savings and budgeting methods with my ordinary day job income. After I have conquered a pattern of habitual savings and budgeting, I layer on an additional side hustle income that enables me to accelerate my savings and investing. This can be very powerful.
Ability to Pursue Purpose and Meaning
Another subtle meaning of financial freedom is the flexibility to pursue what you really want in life and to be who you really are. While a side hustle helps put extra bucks into your pocket, it also offers a higher flexibility because it gives you more money options and helps you pursue your other personal interests.
A secondary gig also helps you to pursue and fulfill your meaning and purpose in life. If you are able to turn your hobby into an income generating activity, you derive a lot of purpose from it. Even better, you can discover new interests and passion that you can pursue to boost your business and yourself.
Benefit number 3 is side hustles help you to diversify your financial situation. It is not wise to put all your eggs in one basket. Do not count on a single business or opportunity if you really want to become financially free. Rather, try to focus on numerous opportunities to avoid getting into financial crisis if one stream of income hit a snag.
A side hustle is an ideal way to hedge yourself against the risk of losing your primary source of income. It can also help you maintain your lifestyle even if you unexpectedly lose your full-time job.
A majority of people find themselves financially stressed when they lose their primary source of income especially during that period between getting laid off and finding new work. But having a side hustle might allow you to relax a bit and take your time before you find a new job as opposed to accepting any offer that comes your way because you are in a financial emergency.
A side hustle becomes the ideal employment insurance in the event you face a layoff.
A side hustle also boosts your confidence. It gives you the motivation to go beyond your comfort zone. A famous quote on financial freedom and side hustle creation goes, “If you are not willing to risk the usual, you will have to settle for the ordinary”. Jim Rohn. To fulfill your dreams, you need to hustle and invest a lot. An investment with low risk most of the time result in low returns. A general rule of the thumb in financial investments is, “the higher the risk, the lower the returns.” To get high returns, you have to be a risk taker.
Achieving meaningful goals in life requires sacrifice and risk-taking. James W. Frick once said, “Don’t tell me where your priorities are. Show me where you spend your money and I’ll tell you what they are”. Make your side hustle a priority and avoid spending money on things that you don’t need if you want to attain financial freedom. You certainly become financially free when you become money “grown up”.
Self and Professional development
Benefit number 4 of side hustling is if your side job involves an activity that complements your full-time job, it will certainly help you add value to it. A side hustle creates an outlet that allows you to further yourself personally and professionally. You can get much more than just an additional income from your side hustle when you create a job that develops your skills. For example, you can start a freelancing gig where you write or train about financial matters if you are employed in a bank or any other financial institution.
A survey by Bankrate shows that 44% of younger workers with side jobs state that the side hustles made them more valuable employees at their primary jobs. 45% said that it helped them become more organized. A side hustle gives you a chance to develop key skills and evolve career-wise and personally which results in lifelong impact.
Because you have the full-time job that helps you to settle your bills, you can use the extra income to advance your education, gain new experiences and search for the right opportunities. A side hustle can help you build relevant skills if you want to make a career change or transition into a new field or into entrepreneurship.
If you aren’t spending at least 5 hours per week learning, you are being irresponsible. What are you doing to learn something new today?
Why you should start earning side hustle income
Side hustle help you to not only earn extra income but also gives you a long-term business strategy if you want to transition from full-time employment by helping you find purpose as well as develop your professional and personal interests.
I hope this article has given you some valuable insights. Are you going to start earning a second source of income? Let us know in the comments below. We’d love to hear from you.
Author Bio: Millionaire Mob is where people come together to find the best travel deals and financial advice. We specialize in dividend growth investing, passive income and travel hacking. Our advice has helped thousands of people travel the world and achieve financial freedom. Millionaire Mob will provide you the best advice to help you learn and grow along the way. Follow us on Instagram, Twitter and/or Facebook for all the latest updates.
This month, July 2018, I’ve decided to embrace my recent non-traditional and alternative thoughts on the personal finance space and talk about a number of things that I’ve been battling with internally about money, the markets and investing. This is the second post in this series. Please go back and read the first post on Energy and The Earth is a Closed System before reading this one.
What is money?
This is a simple question, with a seemingly simple answer.
But, really, what is money?
Also, what is debt? Are they the same thing?
Thinking about our first post of this series, how does energy play into these definitions?
At the end of the day, I want to let you know I’m pursuing TRUTH. I’m not an expert, but will not stop short of understanding the true nature of our world and financial system. In this series, I’m just looking to dive into a number of topics regarding the markets, the economy, and see what they actually represent and man.
In this post, we will explore the simple question of what is money and hopefully look to uncover some truths along the way. All I ask is you have an open mind while reading this post.
What is Money?
Most of what I looked at had similar definitions of “what money is”.
Money, simply put, is a medium of exchange.
Societies throughout history have used money to make it easier to exchange and trade goods.
Very early on in history, humans used bartering as the main way to exchange and trade goods. “I’ll give you 2 pounds of grain for 1 gallon of milk” was probably close to a common trade back in the day.
Unfortunately, milk and grain go bad after a certain point, and humans looked to other things they could use to facilitate these activities.
Silver, gold and other precious metals were used, and over time, paper and digital forms of money have been introduced to facilitate the exchange of goods, services, and capital.
The type of money (silver, goods, cash, etc.) is determined socially, be it by a governing body or by the people in a given market.
At this point, I could go into the functions of money, what are some of the properties of “good” money, and talk about “why fiat currency is the best form of money and why cryptocurrencies have no intrinsic value” (or is it the other way around?), but these are just distractions from the question we are trying to answer of “what is money?”
What I don’t like about the simple definition above is that is ignores the fundamental constraint of the world: energy.
Money is a Number for True Capital and a Claim on Energy
Let’s go back to the first post of this series and consider the conclusion from it: energy and the environment drives the economy and the world we live in.
With this in mind, our definition of money from above needs tweaking.
Here’s what I believe the true definition of money is: money is a claim on a certain amount of energy.
Think about it, with $25, you could pay someone to cut your lawn for you (which requires energy), or you could spend an hour of your valuable time and keep your $25 (but in this case, you personally have expended energy).
The more money you have, the more things you can do because you can afford to use a certain amount of energy.
Speaking a little more in general, the cost of buying something (monetarily), should be roughly equal to the amount of energy (be that actual energy, joules) put into producing that something.
Over time, as processes become more efficient, the cost of goods should decrease, because efficiency leads to lower uses of energy during production.
If money is energy, what are the results?
After establishing a definition, it’s good to look at some of the results and logical statements we can conclude from it.
First, if money is claim on a certain amount of energy, then we can say the following:
- Money in a closed system should be finite, as energy in a closed system is finite. (First law of thermodynamics)
- Having more money is good, as it allows you more options. (obvious)
- If money is a claim on a certain amount of energy, then debt is a future claim on a certain amount of energy.
Money, Debt and Energy
For the last point, I haven’t mentioned debt in this post or series yet, and plan to do a deeper dive later in the series. Right now though, since we are talking about money and energy, there are a few things that make sense to say here.
As stated above, debt is a future claim on a certain amount of energy (or resources). Debt is kicking the can down the road, so to speak, and if done appropriately and in a reasonable way, can be sustainable.
As time goes on, productivity and the costs of doing business should increase, and the entity should be able to pay back their debts responsibly.
That being said, if debt is added in an irresponsible manner, then because energy is finite, at some point, there will not be enough resources to continue at a large scale. Scarce energy will result in higher prices and the cost of doing business will increase. Businesses and governments fail in this situation and then look to build back up in a sustainable manner.
This is the economic cycle, and a digression from this post’s topic… but necessary to put here.
Searching for the Truth and Thinking Critically is All We Can Do
This is the second post of this month’s search for the truth in finance, economics, and understanding the world.
What is money? Money is a claim on a certain amount of energy.
This month, all I’m looking to do is provide food for thought. I’m not an expert, but one of my goals in life is to have an open mind, understand that as a human being, I’m biased but can overcome that bias, and at the end of the day, I can improve my worldview with new facts.
In the next post, I will be looking at banking: the traditional function of banks, how banks actually work, and how banks actually make money.
While I won’t be mentioning this explicitly in my upcoming posts, I want to keep in mind the fundamental concepts of money, debt and energy with regards to the economy and economic growth.
Thanks for reading,
There’s only a couple more days this Financial Literacy Month, and we’ve covered a lot so far in the month of April.
After touching on these subjects, we’ve covered quite a bit, and I’ve shared with you the very intimate financial details of my life:
- The #1 Financial Mindset for Wealth: Track Your Income and Expenses
- Become Debt Free Using the Debt Avalanche and Snowball Methods
- Place Asymmetric Bets to Build Extreme Wealth in Your Twenties and Thirties
- What a Relatively Frugal 25 Year Old Male Living in the Midwest spends his Money on
- $165k Net Worth at Age 25
Today, I’m going to flip the script.
Financial wealth DOES NOT MATTER in the grand scheme of the world.
Wealth is not just a number on a computer screen.
True wealth is so much more than that…
What is Wealth?
In this article, I want to talk about wealth in general.
As defined in the dictionary, wealth is “a great quantity or store of money, valuable possessions, property, or other riches.” Wealth is also, “an abundance or profusion of anything; a plentiful amount.”
The dictionary talks about wealth through a financial lens, but I have a little bit different definition.
“The real measure of your wealth is how much you’d be worth if you lost all your money.” ~ Author Unknown
Financial Wealth is just a Piece of the Puzzle
A single mother sent me an email the other week.
She is in her mid-50’s, has $0 in savings, a mortgage and some credit cards to pay off, and now, is looking to retire in her 60’s.
In her email, she told me how it’s unfortunate that she didn’t wake up financially until last year, but she is now on a solid path to building financial wealth.
What struck me (and left me feeling small and inspired) was her outlook going forward:
I’m happy where I am now, I’d like to think that I’m a good Mom: I raised my kids alone and they are now beautiful and bright, working their way through college.
I managed to keep them safe, healthy, and stable throughout their teens and that’s a hard task for a single Mom. But Hey! I did it and I’m very amazed at my Personal progress.
Erik, I’ve highlighted the word personal because everything in our world is personal, and it’s up to me to embrace the challenges, failure, obstacles, setbacks, etc..
Women at my age are retired already, or just about there, while I’m just starting and have 10 more years to go towards my Personal Financial goal… Other women in my situation would probably live on government welfare, or maybe they will do a little bit and then rely on their children when they are old. Personally, I’d prefer to not burden my kids and I will become financially independent.
First off, I’m very thankful she reached out to me, and second, I’m inspired because like she said, many other people in her situation might say, “I can’t save up for retirement. I’m at $0 now… I’ll just take welfare when that comes around.”
She is happy, and it has nothing to do with the money in her bank or investment account.
She has a wonderful family: multiple children who have grown up and are doing amazing things in the world, her health, and a solid paying job. Living with an abundance mindset, there’s nothing stopping her from achieving her goals!
She is a truly wealthy person.
The True Meaning of Wealth
To me, true wealth is happiness and freedom in all areas of life: relationships, health, family, work, knowledge, and money.
Earlier this week, I shared with you some of my financial success in my early twenties: growing my net worth by $170,000 in 3 years. While tracking your progress over time is something I preach, I didn’t really like writing that post. Again, true wealth isn’t financial wealth.
I’m writing this post on Tuesday night, and publishing it tomorrow morning.
Today, I walked home from work because it was a nice Spring day in Minnesota.
The sun was shining, I wasn’t particularly hungry or thirsty, and I was doing home to a house I own and call my shelter – all things that I should feel lucky to be able to experience.
Instead, I was feeling a little bit down on my life: my job has become less collaborative, as I’ve taken on a solo project, and I don’t talk to too many people at work anymore. I haven’t hung out with my family as much as I would have liked, and lately, I haven’t been exercising as much as I would have liked either.
I’m a bit worn out, and not feeling the best mentally or physically.
I could have $100,000,000,000 in the bank, but if I’m not happy with my life, then what’s the point?
The email from my amazing reader was a wake-up call.
I’m incredibly fortunate to be in the position I’m in, and I should be thankful and continue to help others.
How to Become One of the Wealthiest People in the World
You can do anything in this world if you put your mind to it.
Being wealthy is a mindset. How can you become one of the wealthiest people in the world?
- Help Others without Expecting Anything in Return
- Amazing things happen when you put yourself into the world – be it your time, your effort, your money, your personality, whatever it is!
- The energy you put out into the world will come back to you in unexpected ways – but it will come back to you!
- Practice Gratitude
- For me, I’m incredibly lucky to have been born in the United States. Just by being born in the United States, I’m already ahead of over 50%+ of the entire world in terms of quality of life.
- I’m also lucky and thankful to be born into a loving and supportive family, and thankful for the opportunity to work for a great company
- What are you thankful for?
- Appreciate Others and Congratulate them on Success
- If you win, that doesn’t mean that I’ve lost.
- If one of my friends or family members succeed in something, then it’s time to celebrate! 🙂
- Remember through education, reading, learning, and growth, you will become more valuable
- You know that feeling when you talk to your grandparents, or someone much older than you, and they tell you stories back when they were young? There’s always a fantastic message somewhere in that story, and it didn’t get there by accident.
- Giving your time or money is a piece of the giving puzzle: knowledge, wisdom, and a personal touch can go a very long way as well.
Concluding Thoughts on Building Wealth
Wealth is a mindset; wealth is the ability to experience the world in a happy, full and free way.
True wealth is success in your relationships, family, friends, work, knowledge, and money.
Putting yourself out into the world and doing so to provide value to others is key to living a wealthy life.
Give to others and you shall receive everything you’ve ever hoped for.
“Wealth is the ability to fully experience life.” ~ Henry David Thoreau
Readers: are you building wealth in all areas of your life? Are you living in abundance or scarcity? What is your definition of wealth?
What stocks should I invest in? Why do I need to have 30% of my assets in bonds? What is the optimal saving rate for retiring in 10 years? Why should I not invest in silver? Are Roth IRA’s better than Traditional IRAs? Should I draw down on my HELOC for investments? Why am I being shamed for spending my money on avocado toast??
When learning about personal finance, there are so many different questions to ask, thoughts to think, and concepts to learn.
It’s Financial Literacy Month and this post is a continuation of our Financial Literacy series here in April on The Mastermind Within. The last post talked about why financial literacy is important.
Today, I will sharing with you why it’s crucial to think critically about your finances, and realize personal finance is personal.
Personal finance is not about what your friends are doing with their money. It’s not about what your siblings are doing with their money. It’s not what I or some other blogger is doing with their money.
In this post, I will be discussing a mindset which you can apply to most things in life, but in particular, apply it to personal finance for your own financial journey.
Personal Finance is Personal
I’ve made a few mistakes in my life. One of the first financial mistake for me was when I got my first real paycheck.
I had just signed up for a 401(k) account.
I was Googling online, what should I invest in and how much should I put into my 401(k)?
“80% stocks, 20% bonds for a 23 year old? That’s a good one, right?”
After that first paycheck, I had $22 in bonds.
What was I doing???
I was 22 – did I need to protect my portfolio with some bonds? Better yet, should I have even been investing anything, and instead looked to pay down debt? Should I have put that $100 towards something else?
What did I want in life? What were my goals? I didn’t know the answers to any of these questions, and yet I was making a financial decision with my hard earned cash.
Start with Why
Financial experts give advice which should work for the majority of people: pay yourself first, pay down your debt, invest in stocks and bonds, work for 40 years, and retire a millionaire. That’s how the story usually goes.
Historically, this has worked and the majority of this will continue to work going forward.
However, once you start to look at your financial situation, a whole new set of questions come up: “should I pay down debt or invest? Which debt should I pay down first? What is the best investment? How should I spend my money?”
You are on the right path: thinking critically and not just going with the first thing you read probably is a good idea.
Before starting to think about the answers for these finance questions, it’s important to turn inwards and look to first figure out what is important to you and your life.
Do you enjoy eating out? Do you enjoy nights out on the town? What about sporting events or playing on different city teams? Do you enjoy traveling?
What would your ideal life look like?
These are all fairly difficult questions – I don’t even know what makes me happiest even after thinking about it for the last few months and honestly, it seems my answer changes each and every day.
One thing I do know is I want to be wealthy so that when I do figure out what makes me happiest, I can spend my time doing that, and not have to worry about money.
I also want to be able to fully support my family – both the family I came from and the family I plan to start in the future. I want to make my world so big that everyone can come along for the ride and enjoy life stress-free.
These are my “whys” for getting my financial house in order and it’s because I thought critically, and realized that wealth won’t make me happy on its’ own… I need to have a why.
Do What’s Best for You
Personal finance is personal – it’s your money after all.
What are your goals? Do you want to retire in 10 years? Are you fine working for 40 years? What kind of lifestyle do you want?
Part of my mission writing here on The Mastermind Within is to look to influence your mind and help you get to the next level in your life.
Start with your why, and start with your mindset. This is so key to success in anything.
When looking to figure out what to do with your money, remember, it’s YOUR money.
It’s your hard earned cash.
You put in the hours for it – spend it on what you want to spend it on.
Figure out what’s best for you, and put your plan into action.
Personal finance is just that, personal. Personal finance is not about what your friends are doing with their money, what your parents are doing their money, or what some celebrity is doing with their money.
Personal finance is the science and application of how you earn, spend, save, track, invest, and build your wealth over time. It’s personal – taking control of your finances is on you.
By starting with why, and figuring out what you want to do in life, you will be able to improve your financial situation.
It’s so simple, and yet so many people don’t actually put in the time to first ask themselves the right questions and then put their plan into action through tracking your financial progress each month – be that through budgeting, saving X% a month, or paying down debts for the future.
Think critically, realize personal finance is personal, and do what’s best for you. That’s all I can ask.
Readers: I’d like you to assess where you are at financially. What is your dream? Do you already know what you want? How far along on your path to financial success are you? What kind of lifestyle do you want to live each and every day? Are your financial habits and actions in alignment with your goals?
“Let’s go out to eat!!!”
I had just played in a college kickball tournament on a Sunday afternoon and the team was hungry.
“Sounds good, where are we going?”
“How about Potbelly’s? It’s close and a lot of us really enjoy it.”
“Okay, I’ll join – but I don’t think I’ll eat and get something at home.”
It was sophomore year, and I only had $50 in my bank account. After paying for my Spring tuition and making some dumb decisions, I was down to my last dollars.
There was no way I could justify spending $10 at dinner when I had a meal plan and other bills to pay.
I sat there in the booth at the restaurant while I saw all of my friends and fellow teammates eating their fun sandwiches and shakes.
I swore to myself that day I wasn’t going to ever put myself in that situation again. It was that day, 7 years ago, when I told myself, “Erik, you are going to become financially literate, and you are going to have savings and be able to afford fun if/when it comes up.”
Since that point, I’ve read many personal finance books and blogs, talked with many personal finance experts, and gotten my financial house in order.
Now, I’m here to share with you some finance tips this month to help you get out of debt, build wealth, and get your financial house in order.
Welcome to Financial Literacy Month!
April is Financial Literacy Month in the United States, and on this site, The Mastermind Within, I’m embracing this and bringing to you targeted information on personal finance, ALL MONTH.
Last week, I gave you a little preview into the type of content you will read this month in my article What Makes You Happiest and Why Money Matters.
In this post, I will be sharing with you why financial literacy matters and why you should care about getting your financial house in order.
The Current Financial Situation of the Average American
Back in 2015, a research team at Wharton published a paper called The Economic Important of Financial Literacy: Theory and Evidence.
In it, they propose and show that there are 3 main questions that can show a person’s level of financial literacy:
- Suppose you had $100 in a savings account and the interest rate was 2% per year. After five years, how much do you think you would have in the account if you left the money to grow?
- More than $102
- Exactly $102
- Less than $102
- Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After one year, how much would you be able to buy with the money in this account?
- More than today
- Exactly the same
- Less than today
- Is this statement True or False? Buying a single company’s stock usually provides a safer return than a stock mutual fund.
How did you do?
In the paper, only 34% of participants were able to answer all 3 correct. (The correct answers are more than $102, less than today, and false).
These questions are tricky, but with some financial literacy, these shouldn’t be too tough to answer correctly.
Diving into Some More Statistics
Here are a number of other statistics on personal finance:
- 59% of Americans could not cover an unexpected $500 bill.
- 69% of Americans have less than $1,000 in their savings account.
- The national savings rate at the end of February was 3.4%.
- The average American has around $250,000 in various debts.
- The government is $21 trillion (21,000,000,000,000) in debt. (I’m still baffled at this, and WHY THE HECK ISN’T EVERYONE INCREDIBLY UPSET AT THIS??? This is irresponsible… okay I’m done with this mini rant… leaving this here for another day)
- Could financial literacy have helped this out? I don’t know.
All of these numbers lead to the conclusion that on average, Americans don’t understand how to manage their money.
Are people spending more money because they are stressed? Is this the millennial mindset of spend today and push off tomorrow in play? Has depressed income growth and increased inflation crushed any opportunity to save?
I’m not smart enough to answer any of these questions, but I’m feeling inspired to improve my personal situation (and I hope you are too.)
In 2017, I saved nearly 50% of my income and this year, I’m saving at roughly about the same clip. I want you to be able to save money for the future as well.
Let’s change this – it’s time to get our financial houses in order!
Why Financial Literacy is Important
My money epiphany happened in college as I shared with you in the introduction of this article.
Maybe you’ve had a similar money epiphany, or maybe not.
Unfortunately, it’s a sad place to be.
With bills to pay, mouths to feed, and fun to have, not having the cash or means to do what you want when you want is painful and uncomfortable.
Financial literacy is important because without it, we can get into a lot of trouble with credit card debt, not having an emergency fund, or simply not being able to do what we want with our time!
With financial literacy, we can start to build wealth for the future, get ahead in life, and be able to do whatever we want with our time and money.
I live with an abundance mindset, and as a result, my take on financial literacy will not be so much on frugal tips and how to cut costs. While I believe these are important subjects, I’m naturally frugal and cheap, so I don’t have too much direct experience in this area.
Instead, I will be sharing with you how I’ve escaped my own financial prisons through simple living, increasing my income, tracking my income and expenses, and building wealth month by month.
There is so much money in this world – all you have to go do is just get a little bit of it and you can be wealthy.
Let’s get our financial houses in order together this month. There are certainly areas of improvement that I can work on, and I will be sharing with you what steps I’m taking to get better with my finances…
It will be raw and transparent – I’m a little bit uncomfortable just thinking about sharing with you my information.
But, because we all know that true results and learning comes from the raw details, it is necessary.
I’m very excited to join you on your journey, and I hope this Financial Literacy series this April helps inspire you to crush your debt, build wealth for the future, and become a financial expert!
Readers: have you ever had a money epiphany? Did you say to yourself something like, I’m never going to be in that situation again? What area of personal finance do you need help with?
Reading books about personal finance is a great way to learn more about how to improve your financial situation.
I love reading and furthering my understanding of the world.
In the first 6 months of 2017, I read 29 books. By the end of 2017, I had read over forty.
Today, I present to you 12 personal finance books to read to further your financial education.
12 Personal Finance Books to Read
There are so many great personal finance books to read out there. I’ve picked 12 which I believe are superb, very informative, and helpful:
1. The Simple Path to Wealth
2. Think and Grow Rich
3. The Millionaire Next Door
4. The Richest Man in Babylon
5. Rich Dad, Poor Dad
6. Your Money or Your Life
7. How to Think About Money
8. The Bogleheads’ Guide to Investing
9. The Automatic Millionaire
10. Money: Master the Game
11. How to Win Friends and Influence People
12. The Slight Edge
I’ve provided a brief summary of each of these below:
Personal Finance Books The Mastermind Within Community Members Are Reading
One of the great things about having readers is being able to ask them about their strategies for financial success. A number of people contributed to the question of which personal finance books they are reading to further their financial education.
Grant, a blogger and friend of mine likes The Millionaire Next Door!
Dom, a blogger from Gen Y Finance Guy, loves The Slight Edge:
The Slight Edge. It really covers personal finance and overall personal development all in one.
I completely agree with you Dom! ‘The Slight Edge’ had the biggest impact on me of any book I read this year. Thank you for contributing!
Learning personal finance early in life will alter your perspective forever. The book recommendations above will get you to your financial goals and beyond.
Whether you’re looking to learn about investing, or want to understand the philosophical properties of money, there’s a book in this list for you.
You could experience financial success beyond your wildest dreams! Being financially free is a great feeling, will you get there?
There’s a wealth of information that can be provided through video.To give us a little break on the reading, I scoured the internet for eight great, silly, informative, amazing, and cheery personal finance related videos for your enjoyment.
Grab some popcorn, a refreshing beverage and sit back and relax! Hopefully you learn something! 🙂
8 Great Personal Finance Videos
Below are 8 silly and fun personal finance videos for you to watch. I’ve included a short summary of each in addition to embedding the YouTube video into the page.
A Day in the Life of a Financial Advisor
I can only imagine being a financial advisor full time. People are irrational and don’t always think critically about their situation. I know I don’t always take a step back to think about what I’m saying some times.
The following video is pretty funny and is a meeting between a 45 year old person who wants to retire in five years, has $100,000 in savings, hates fees, wants to invest in gold, but doesn’t want to listen to the financial advisor.
I laughed quite a bit watching this one!
The 12 Days of FI Christmas
On the 1st day of FI Christmas, my true love gave to me! An awesome music video for you and me!
Combining Legos with anything is a great combination – but to then add personal finance, financial independence, and Christmas to the mix, and you definitely have a winner.
Santa Baby for Money Savers
“Santa Baby, please max out my four oh one K, all the way!”
Another great video that combines money and Christmas! My friends from Northern Expenditures have put a spin on Santa Baby.
If you’re a personal finance nerd like me, please give this a listen – I know you’ll love it.
As a bonus, this couple came out with another video this year! Here it is: Don’t Have to be Old to Retire
Everything You Need to Know About Finance – Presented by William Ackman
Do you want to be an investor in the stock market or in businesses? If so, it’s a requirement to understand the in’s and out’s of finance – particularly, the income statement and balance sheet.
In the following video, William Ackman, CEO of Perishing Square, breaks down everything you need to know about finance – going through an example of starting a lemonade stand business.
Regardless of what you think of hedge fund CEOs, this video has a ton of information, and helped me understand how businesses are valued and how finances are calculated and viewed to investors and business owners.
How the Economic Machine Works – Presented by Ray Dalio
Why does the economy experience booms and busts? Why do events like 2008 happen, when a credit bubble forms, and subsequently pops? What are the main inputs to the economic environment?
Ray Dalio, Chief Investment Officer of Bridgewater Associates, answers all of these questions and more in his video, How the Economic Machine Works. Combining this video with the previous video by William Ackman will instantly make you smarter than 90% of the population when it comes to personal finance, economics, and the world.
Personal Finance Basics – Presented by Ramit Sethi
Building a solid personal finance foundation is essential to financial success.
Getting the basics from a personal finance expert will only add to your knowledge of the space – and will make you that much more potent as a budgeter, saver, debt destroyer and investor.
7 Simple Steps to Financial Freedom – Presented by Tony Robbins
We previously featured Tony Robbins in our post on the seven steps to financial freedom.
I included this video because I love the way Tony Robbins inspires me to be a better person with his anecdotes and way with words.
Watch the following video for inspiration and motivation, but also for his message.
Calculating Numbers on a Rental Property – Presented by Brandon Turner
For all you real estate enthusiasts out there, here’s a great video from Brandon Turner over at Bigger Pockets that you can add to your personal finance toolbox.
Many people, including myself, are interested in rental properties. I think real estate is an amazing way to build wealth through the appreciation, cash flow and tax benefits the investment class provides.
However, when buying a new rental property, it’s important to run the numbers to make sure it’s a good investment. Without further ado, I’ll let an expert show you how to calculate the numbers on a new rental property:
I hope these eight personal finance videos have been helpful! After watching these videos, I know I feel a little happier, but also ready to tackle my finances.
There’s so much to learn in the world, and it’s great to combine the information with some jokes. I like to keep things light here at The Mastermind Within – pure information is boring. Spicing it up is the way to go!
I hope you enjoyed these eight personal finance videos – maybe you’ll learn something new! 🙂
Personal finance is just that, personal.
Personal finance is not about what your friends are doing with their money, what your parents are doing with their money, or what some celebrity is doing with their money.
Personal finance is the science and application of how you earn, spend, save, track, invest, and build your wealth over time. It’s personal – taking control of your finances is totally on you.
Personal Finance is Personal
When thinking about personal finance, thousands of questions can come up:
- How much should I save?
- How much should I invest?
- What should I be investing in?
- What companies or assets could give me the best return on my investments?
- What banks or credit cards should I be using?
- Who can I turn to for advice with my finances?
Before asking any of these questions, we should first turn inwards and realize it’s crucial to realize that personal finance is personal. We must first ask ourselves the right questions and figure out what our goals are.
Some questions to get started are below:
What kind of lifestyle do you want to live? What do you love to do? Do you want to travel around the world? What about spending more time with your family? Do you want to spend Minnesota winters in Florida? Do you want to go to the Super Bowl? Would you want to eat out every week? Do you want to start your own business? What about retiring at 45, 55, or 65? Do you want to pay for your children’s college?
The most crucial question you need to ask, and one that will have the greatest effect on your finances, is:
What is your relationship to money?
Once you’ve figured out where you want to go in life, and what lifestyle you want to live, then you can start crafting a plan, and finally start building the life of your dreams.
Crafting a Personal Finance Plan
It’s so simple, and yet, so many people don’t actually put in the time to first ask themselves the necessary questions and then put their plan into action through tracking your financial progress each month – be that through budgeting, saving X% a month, or paying down debts for the future. Again, it’s all up to you on how to put your plan into action.
Writing out your goal as a SMART goal can help in this situation:
SMART = Specific, Measurable, Attainable, Realistic, and Time Frame.
Specific: What dollar amount is attached to your goal?
Measurable: Can you measure your goal in some way?
Attainable: Is the goal possible, like, “I’m going to get one new client a month for my side hustle”?
Realistic: Is it realistic? For example, we know I’m not going to make 1 billion dollars next year.
Time Frame: Can you accomplish it in the next X months, years, etc.?
Write your goal down, work backwards from your goals, and create a plan.
Make a list: what is the smallest actionable item you can do today to get you going towards your financial goal?
By doing these 3 things, asking yourself the right questions, figuring out your wants and needs, and making a plan to reach your goal, you will be better off financially than before.
You will understand what your personal needs are financially, and can make adjustments over time to better align your actions with your goals.
My Money Story
When I was a young boy, I was exposed to personal finance through my parents and my grandparents. My mom showed me how to balance a checkbook, budget, and how making a list for the grocery store can save money.
During the summertime, I’d visit my grandparents, where my grandma would give me $12 for the week to spend on whatever I wanted. She would make sure I understood that the $12 was all I got – if I spent the $12, I wouldn’t get any more.
From a young age, I understood the value of saving and building wealth for the future. Going into high school and college, I realized the power of saving over time, but now I needed to focus on building my income.
In high school, I was working as a lawn mower and trimmer for a local business, and refereeing basketball on the weekends. I was getting paid $9/hour cutting lawn, and $15 per basketball game.
I was using all of my earnings to go towards paying for college and not saving too much. Luckily for me, my parents had helped save up a little bit for my college education and I was able to get through my undergrad degree debt free.
Increasing my Income through Higher Education
During my senior year of college, my father’s company needed some help in the accounting department. For $12 an hour, I was offered to help out with bookkeeping, invoicing, and payroll. In the Fall, I would be pursuing a Master’s of Financial Math, and wouldn’t be looking for a job in the meantime, so I took the offer and started work.
In 2.5 years of working in the hotel management industry, I increased my pay to $16 an hour, and was able to leave my Master’s program with just $8,000 in student loans.
Before graduating with my Master’s degree, I took a job in the risk management department of a regional bank, which paid $63,000 a year, plus an 8% bonus.
In 5 years, I went from making $5,000 a year, to $20,000 a year, to $63,000 a year.
Building Wealth through Real Estate and Growing my Income
After graduation, I aggressively paid down my student debt, and started house hacking as a way to continue to build wealth.
In the summer of 2015, I bought a 3 bedroom house and had 3 roommates paying me $1,650 total a month. With a mortgage of $1,820, I effectively paid $170 in “rent” and banked the equity.
In the past 2.5 years, I’ve received more than $39,000 in rental income! This has helped me grow my income to nearly $100,000 a year.
While all of this was happening, I bought a used 2014 VW Jetta for $13,000, and promptly paid off the auto loan I took out.
In addition, I was proving my worth at work and in the past 3 years of working, I’ve increased my salary from $63,000 to $88,000.
Finally, I’ve been starting to hustle more on the side to increase my income. I’m blogging, performing statistical analysis and consulting for doctors, and doing various things as a small business owner.
Now, I’ve positioned myself in a great spot to pursue my goals.
My Goal and How I’m Applying the #1 Rule of Personal Finance
My goal is to build wealth for my future self, my future family, and to learn and grow over time in order to impact the lives of others.
For me, I’m looking to increase my income. I track my expenses each month, and identify where I’m succeeding and where I’m failing, but for me, increased income will help me save more and invest more. This will be much more impactful than reducing expenses each month.
I save about 35% of my income a month. I spend a little more than I should on housing, and eat out a little bit more than I should, but personal finance is personal. Yes, I could save 45-50% a month, but that would force me to adjust my lifestyle to move houses (potentially leaving a good commute situation), or start bulk cooking and packing lunches for work. In both cases, I’d only be saving a few hundred bucks more a month.
Through my hustle, I can add a couple hundred bucks a month in income much easier than cutting my expenses.
This is in line with my goals as well: increasing my income can help me increase my wealth. I’m adding many skills to my toolbox and learning a tremendous amount. These skills will translate into my ability to provide value to future employers and business partners. This value will be compensated for in a higher income in the future.
I know my goal, and I’m living it. I’ve identified my goals, and I hope this will inspire you to do the same.
My goal is to build wealth for my future self, my future family, and learn and grow over time to be able to impact the lives of others.
Other Potential #1 Rules of Personal Finance
When I was thinking about the number one rule for personal finance, there were a number of things that popped up in my head:
- Live within your means
- “Living within your means” means spending less than you make. If you never spend more than you make, you will never be in a situation where you are strapped for cash. Over time, your nest egg will increase, since you’ve had a net positive cash flow throughout your life.
- Save X% a Month
- Saving X% a month is similar to living within your means, but it puts a mathematical spin on the situation. If you are saving a certain percentage of your income a month, theoretically, you are living within your means. You aren’t spending more than you are making if you are saving.
- Track all of your income and expenses
- This is my #2 rule and a piece that is overlooked in many areas of life. What gets measured gets managed. The simple act of pulling in your transactions and categorizing them into an organized fashion to identify weaknesses and strengths of your spending habits can lead to improvement.
Here’s the thing though: all of these can be summed up with the statement, “personal finance is personal”. Really, if you want to be someone who travels the world, then you will start to adjust your budget, live within your means, and track your expenses to optimize your money situation to be able to do that.
Start with the why, and go from there!
The #1 Rule of Personal Finance According to The Mastermind Within Community Members
What’s great about having readers and being involved in the personal finance community is I can ask for help in gathering what others believe is right for their situation. I asked others what their #1 rule of personal finance is.
Grant, a blogger from Life Prep Couple, said the following:
Find an important reason why. Once you have a why, then you will figure out how.
A succinct and powerful thought in alignment with personal finance is personal. Thanks, Grant, for your contribution!
Diego, a regular reader of The Mastermind Within, says:
What gets measured gets managed. It brings self-awareness, which is quintessential in personal finance. But a few other rules I follow are: don’t share numbers with anyone, don’t brag, don’t envy, stay focused, and celebrate all milestones.
I love it – what gets measured gets managed is so important! Thanks Diego.
Automate your savings. For example, setting up your IRA contribution to be withdrawn from your bank account each month is great as it removes one more thing to worry about. It also keeps you from seeing extra cash in your bank account that you might be tempted to spend on stuff you don’t need.
I completely agree with this advice as well. If you never actually see the money, because it’s automated away from you, you can’t spend it! Thanks Trail to FI for your contribution.
These few contributions prove personal finance is personal. Everyone has a different spin on what’s important to their situation!
By starting with why, and figuring out what you want to do in life, you will be able to improve your financial situation.
It’s so simple, and yet, so many people don’t actually put in the time to first ask themselves the right questions, and then following up by putting their plan into action – whether that’s through budgeting, saving X% a month, or paying down debts for the future.
After reading this, I’d like you to assess where you are at financially. What is your dream? What kind of lifestyle do you want to live each and every day? Are your financial habits and actions in alignment with your goals?
Once you are done with this assessment, then you can make adjustments and changes to get you going towards your goals and dreams.
Today, I have a guest post from a special friend: The Grounded Engineer. The Grounded Engineer has been on the financial independence path for a few years now and has amassed a solid portfolio before 30 years old. In this post, he is going to share with us how furthering his education has affected his income, savings rate, and investment portfolio for the future.
Thanks, Erik for having me on to guest post today. I tailored my post based on the inspiration I get from reading your blog. I’m thoroughly impressed with what you’ve been able to accomplish at such a young age. Specifically, increasing your income close to 6 figures, purchasing a rental property right out of college and making a nice income from it, and watching how you set goals and tackle the goals you set are awesome feats.
As a fellow math/engineering nerd that has about 5 years on you, I want to discuss my journey for increasing my income and how a high savings rate coupled with a high income is an ideal recipe for achieving financial independence.
The role of education on income
I’ve experienced a strong correlation between my education and my income. Let me walk you through myjourney of how I ended up in my current position as a Technical Sales Engineer.
I started working at age 12 or 13 picking strawberries. I got paid by the pound of strawberries picked and because I’m a naturally competitive person, I did quite well.
Also, getting paid was great.
Picking strawberries in Wisconsin is a seasonal job. After strawberry season, I had to go out and find a full-time job. I landed a job at a catering company as a jack of all trades. I washed dishes, served food, and mowed lawn – I did pretty much anything that was asked of me. My starting pay was a whopping $5.15/hour until I turned 18, when I got a raise up to $6/hour.
Now, at the time, I worked hard because that was how I was raised. I wasn’t trying to increase my income; honestly, I worked hard because I wanted to get more hours and with more hours, I would make more money. The thought of asking for a raise never crossed my mind. I held this job for about five years and eventually left after going off to college.
As I finished up my senior year of high school, I contemplated becoming a math teacher or electrical engineer. I took an electronics class my last semester of high school and I really enjoyed it. Additionally, I found out that I was accepted into the Technology Institute (engineering school) at the University of Minnesota. This meant that I didn’t have to start in the College of Liberal Arts and apply for the Institute of Technology after my freshman year. This made the decision to pursue electrical engineering easy.
During college, I worked as an audio-visual technician during the school year because the job had a flexible schedule. There was also a lot of downtime, so I was able to work on my school work (or watch Lost). I made a little over $8/hour at this job. In the summers, I had a few different internships I worked while also working as an audio-visual technician.
For my first internship, I worked for a manufacturing company and increased my hourly rate by almost 30%. The following summer I only increased my hourly rate by a dollar, but I followed that up with another 30% increase at my last internship (making $16/hour). My last internship was technically a COOP position through the University of Minnesota. It was great because I not only was making money, but I received a total of 5 upper-class credits.
My first job
I graduated in 2010 and the job market was still pretty soft. I could have stayed on as an intern at the COOP position I had. But, I also received two job offers. One job was for an Electrical Engineering position at a company that makes hearing test equipment. The second job offer was a Sales Engineer position with a small manufacturer’s rep.
A manufacturer’s rep is a sales company that companies hire as their sales force in a given territory.
I really had no idea if I would be good at sales, but the job sounded exciting and the people were more upbeat than the hearing test equipment company. Also, the offer at the manufacturer’s rep was about $2k more in salary per year.
So, I took the Sales Engineer job! The salary was in the range as a normal engineering position, which at the time was in the $55k – $65k range.
In addition to a nice starting salary, the sales position had the upside for quarterly bonuses. Interestingly enough, a friend of my wife’s minored in Engineering Sales – a minor I never knew existed. Check out Iowa State’s program here.
The college education definitely paid off. I increased my salary almost 40% with my first post-college job.
Leaving my job in less than a year and then coming back!
I really enjoyed the Sales Engineer position. But I also enjoyed the company where I had my COOP position (even though they were not able to offer me a full-time job). After about 10 months working as a Sales Engineer, I received a call from my old boss at the COOP informing me they had a full-time engineer spot open and they wanted to know if I had interest.
This was a very difficult decision for me…
I decided to switch jobs because I wanted to try my hand as a real life, full-time Electrical Engineer. Now, I’m sure you’re thinking: typical Millennial. Switching jobs to increase your salary.
Well, I actually took a little bit of a pay cut switching jobs, which is not common.
I enjoyed my Electrical Engineering job, but I didn’t like the miniscule raise I received at my yearly review, even with high remarks in every area I was scored in. Right around the same time I had my yearly review, the manufacturer’s rep company had come back asking if I was happy and if I wanted to return to sales…
Those pesky student loans
One thing that I should mention is the significant amount of student debt I had after graduating college. I finished undergrad with my electrical engineering degree, very little money saved up, and roughly $65k in student debt.
I am proud to say that I did have a plan to pay down my student loans. Many of my friends strung out their payments over 30 years, meanwhile, I had a plan to pay off my debt in 10 years or less.
Getting back to the job decision – stay in a design engineering role or switching back into technical sales. It was almost two years that I had been out of college and aggressively paying down my student loans. By now, I realized that the more money I could make the more I could put toward my student debt.
I vividly remember going to a local coffee shop to meet my old boss from the manufacturer’s rep company and discussing pay. I recall fighting for a high salary because I knew if I worked hard the bonus part of the package could have significant upside.
By the end of the discussion, I was able to negotiate a sizeable salary increase and within a year and a half, I had increased my total income by almost 40%… for the second time in my career!
After being back at the manufacturer’s rep company for two years, I decided I wanted a more formal training on the business side of things. The typical path that most people in my shoes would take is to pursue an MBA.
Instead, I found a more technical program called Management of Technology. Basically, this is a fancy name for an MBA that is tailored for folks with an engineering background and are looking to couple the technical and business side of things together. This program was great and it positioned me to move into Sales Management in the last year and a half.
Additionally, I’ve been included in more strategic discussions about how to position my company for the future. And I’ve been included in the discussions for the future leadership of my company.
I started school about three years ago and I graduated last May (2016). During this time, my income has increased almost 30%. I’ll let you run the numbers to get a rough estimate of where that puts me 🙂
How I eclipsed $100k in my 401(k) before age 30
If you are pursuing financial independence, you know that you need to save your money. The best way to save you money is to not spend it on useless things. You can really crush your pursuit of FI if you combine saving money with a high income.
Don’t follow the norm of saving 10% of your income. Break out of what is considered normal and start saving a significant amount of your income. If you are in debt, develop a plan to eliminate your debt so that you can start to save more. Create a debt snowball or avalanche plan. Once you eliminate your debt, take what you were paying each month for debt and start to save.
Trust me, your nest egg will start to grow and it will grow quickly.
In December of 2015, I was introduced to the FI community by Scott Alan Turner. I followed the debt snowball method and I paid off $97k of debt (student and car loans). Once the debt was paid off, my family took that debt snowball payment and applied it to savings/investments each month.
- I was able to eclipse the $100,000 mark in my 401(k) shortly after I turned 29, and I didn’t really start saving until I was 24…
- My family’s only debt is our mortgage
- Once our debt was eliminated in 2016, we increased our savings rate to over 40% in 2017.
- In December of 2015, my net worth was around $34k. Today, it is over $250k in investable assets, not including $90k in home equity. That is over $200k upside in less than 2 years.
I turn 30 in a couple weeks. My family is on track to achieve FI in our late thirties and we are still discussing what our plans will be when that day comes. I really like the idea of giving back and going into teaching. Teaching allows me to continue to earn an income, save, let my investments keep growing, and taking the summers off to spend with my family.
So readers, did pursuing a higher education degree help increase your income?
Ahh, to win the lottery – what an experience that must be.
Not everyone is able to win the lottery, but at some point in our life, we will probably come into a large sum of money: a stock you picked goes wild, a family member who was smart with their money passes away unexpectedly, or maybe you just found $20 on the ground!
What would you do with that money? Would you save it? Invest it? Spend it? In this post, I want to present you with a windfall experiment: what would you do with $5,000,000?
First, I want to talk a little bit about windfalls in general, and second, I want to work our way up to $5,000,000 by first answering the questions: what would you do with $5, $20, $500, $2,000, $50,000, $200,000, and finally, $5,000,000.
What is a Windfall?
As defined in the Merriam-Webster dictionary:
Windfall: an unexpected, unearned, or sudden gain or advantage
For me, I define a windfall as any sum of money that I come into where I didn’t work for it and is unexpected. A windfall is something that I did not budget for and now am reaping the benefits of. Some examples include: finding a $20 bill on the ground, receiving a bonus at work, getting unexpected consulting work, etc.
What Most People Will Do with a Windfall
We have all heard the stories of how professional athletes have gone broke (see here) and how lottery winners aren’t much happier than before they won, and also go broke (see here and here). Most people’s natural tendency is to spend! You just got multiple thousands and millions of dollars? Why not spend it all:
BOTTLE SERVICE AT THE CLUB, LET’S GO!
A new car? Why not 3 new cars and a boat??
Sure, that house on the hill looks really nice!
If a person wants to keep up with the Jones’, then by all means, spend your money, but as someone focused on financial freedom, I’m going to take a different approach.
The Windfall Experiment: What Would You Do with $5,000,000?
The moment we have all been waiting for… The Windfall Experiment!!
Please follow along with me and answer the following questions. First, a few warm-ups:
What Would I Do with $5?
I find $5 on the ground. I put it in my wallet and save it for coffee or a drink later in the week. It’s not going to burn a hole in my pocket, but I will use it for a small expense later in the week that I already would have purchased. The key point here, is that I would use it on something that I already was planning on buying, not something that I didn’t plan to buy.
What Would I Do with $20?
I find $20 on the ground. I put it in my wallet and save it for lunch or coffee later in the week. It’s not going to burn a hole in my pocket. Similar to the $5 windfall, I’m not going to go and spend it right away.
Enough with the warm-ups, now let’s take a step up:
What Would I Do with $500?
Just this July, one of my friends from college stayed in the extra room in my house for $500. It didn’t change my spending or saving habits. I just kept on with normal life and put the $500 into my checking account for the mortgage payment.
What Would I Do with $2,000?
Now, we are getting a little higher..
With $2,000, I’d look at my debt situation and assess whether or not I should pay off some of my mortgage or any outstanding credit card balance. This August, I received a property tax refund for $1,417… again, I just put it into my checking account and used it for everyday expenses and my mortgage payment at the end of the month.
What Would I Do with $50,000?
$50k? Now I can actually do some damage!
With $5,000, I’d max out my Roth IRA. With $10,000, I’d prepay my mortgage to get rid of PMI. With the remaining $35,000, I’d have to figure out where I’m living, because I could do some serious home improvements with that money. Otherwise, I’d keep it in savings and look to wisely allocate some of it to taxable accounts or keep it for a future down payment.
What Would I Do with $200,000?
With $200,000, I’d do similar things with the $50,000 but could make a serious dent on debt and retirement accounts. $200,000 isn’t quite enough to retire on, but it would be a good start.
With $5,000, I’d still max out my Roth IRA. With $10,000, I’d prepay my mortgage to get rid of PMI. With the remaining $185,000, I’d still want to assess where I’m living. If I want to stay in my current house OR believe that it is a valuable use of my capital for a rental property, then I’d use some of the money for debt paydown and some of it for home improvements. My mortgage balance is roughly $250,000, so with $185,000, I could definitely make a dent and get close to becoming debt free.
At the same time, $185,000 is a lot of money for some parts of the United States. In some areas in the Midwest, I could buy 3-5 properties with 20-25% down and have positive cash flow. This is something I would have to consider.
Now… the moment you’ve all been waiting for:
What Would I Do with $5,000,000?
This is an interesting one. Enough with the small stuff – 401ks and IRAs? I don’t even qualify for you – I’m BIG TIME NOW BABY!!
With $5,000,000, I’d definitely leave my day job and probably stop any small scale entrepreneurial endeavors (except The Mastermind Within, because I love writing 🙂 )
With $2,000,000, I would look to buy Commercial Real Estate in vibrant communities, specifically, multi purpose buildings (think business space on the bottom floor, and apartments up top). Commercial real estate has all the tax benefits of residential real estate, but also can charge much higher rents, and is a benefactor of economies of scale since multiple units are under 1 roof.
I would put $500,000 into broad stock market index funds, $750,000 into dividend paying stocks for dividend income, and another $1,000,000 into various fixed income instruments for increased interest income.
With the remaining $750,000, I’d use $500,000 to buy precious metals (silver and gold) and then use the rest of the money to move to an energy efficient house that is to my liking. I don’t know if I want to live in my current house forever… with $250,000+, I definitely could find a great place to live!
Takeaways from the Windfall Experiment
I’m a natural saver and would hope that if I received $5,000,000, I would take steps to secure my financial future. Commercial real estate, done right, is a fantastic investment – buying apartment or multi purpose buildings in vibrant areas would help me grow my cash through income and appreciation (not to mention the tax benefits!)
Another thought is diversifying your investments is a lot easier when you have millions (vs. thousands). Throw a couple hundred thousand in a few buckets and you will probably be able to stay wealthy!
Some spending would be necessary as well. Traveling is something I want to continue to do more of. Lately, I’ve been driving all over the Midwest to see friends and family, and I even went to Las Vegas for the first time earlier this summer! As mentioned, I’m going to FinCon this October, and also going to California with my parents and sisters. Exciting times!
5 Steps for Managing A Windfall
Here are 5 steps for managing a Windfall:
- Take a Step Back and Assess the Situation
- What are your goals? Do you have debt that could be paid off? Do you want to make some investment contributions first?
- Make a Plan
- Figure out your financial needs.
- Assign priorities to your needs and devise a detailed plan to allocating your new cash
- Take Action on Your Plan
- Ideas and plans are only worthwhile if you take action.
- Track your Expenses and Distributions
- My number 1 tip for personal finance is to track your income and expenses – it’s even more crucial to do so when you haven’t budgeted for unexpected income.
- Go Back to Living a Normal Life
- A windfall is just that, a windfall. Yes, it’s possible with enough money and planning, you could retire early or make massive lifestyle changes, but for most windfalls, they aren’t going to tip the scales. Go back to living within your means and be thankful for the fortunate event.
When getting a bunch of cash, so quickly, the best thing to do is take a deep breathe and assess your current situation. What are your financial and non-financial goals? What are your needs, not wants that should be addressed first? After addressing your goals, then take action to save, invest, and if you must, save a little bit on yourself 🙂
Readers: what are your results from the windfall experiment? What would you do with $5, $20, $500, $2,000, $50,000, $2,000,000 and $5,000,000? Have you ever received a windfall before and what did you do with it?