Help Me Retire Podcast - Episode 31

Your way to True Wealth

Show notes:

True Wealth... is when you never have to work for money again... when your money is working harder for you... than you did for it...

How do you get there?

Saving... investing... and getting out of debt...

And in today’s episode of The Help Me Retire Podcast... I’m going to show you how...

This is the Help Me Retire Podcast… with your host… Mike Brown… Senior Wealth Advisor with Raymond James Financial Services… and head of Brown Family Wealth Advisors…

Mike is the best-selling author of Your Way to True Wealth: How to Make It Happen, Make It Last, and Make It Matter…

He and his team have been helping clients pursue their dreams of financial independence for the past 30 years… and in the Help Me Retire Podcast… he’ll share his best ideas with you…

And now… here’s Mike…

Years ago... when I had just started working... and had barely a dollar to my name... somebody told me something that has stuck with me ever since...

He said when you’re just getting started... it takes 10 units of effort... to produce one unit of results... like rolling a boulder up a hill...

A lot of people get discouraged and quit... but if you stick with it, he said... you’ll eventually reach the point where just one unit of effort... will create 10 units of results... and that big boulder starts slowly rolling down the other side...

If you stick with it... life’s good lessons start compounding... wisdom starts compounding...

Wealth... compounds into more wealth... and eventually... your money is literally doing ALL the work...

But here’s what makes it a challenge for most people...

Building wealth involves a series of boring little habits... and if you don’t practice those habits... all the time... and FOR a long time... you’re going to have trouble building wealth... and reaching what I call... True Wealth...

What are those habits that will eventually make your money do all the work?

I’m going to give you the most important ones... right off the bat...

First... spend less than you earn...

As quickly as you can... start saving 15-percent of your gross income... and find a way to live on the other 85-percent...

If you’re in debt... especially if debt is keeping you from building wealth... use another 5-percent of your gross income to pay down non-mortgage debts... things like credit cards... car loans and other loans that charge interest... and find a way to live on 80-percent of your income...

And here’s the secret to sticking with your new habit: pay yourself first...

If this is something you haven’t heard a thousand times before... read a book called The Richest Man in Babylon... by George S. Clason... it’s a classic...

Pay yourself first... before the landlord... before the car payment... your credit cards... Amazon...

There may still be more month left at the end of the money for a while... until you adjust your lifestyle to this new habit... but at least you’ll be moving in the right direction...

Your savings will grow... and your debts will shrink... and before long you’ll start to see and feel a big difference in your financial outlook...

Next... we’re going to talk about where to put all this money that’s now flowing in your direction...

Once you master the habit of spending less than you earn... you’ll have some decisions to make...

Where should this money go every month?

Well... before you start thinking about investing... you need to create a safety net...

An emergency fund... that’s going to stand between you and your next financial emergency...

Having a safety net might mean you won’t have to pay for your next financial emergency setback with credit cards...

It could keep you going until you’re back on your feet...

How much in the emergency fund? Eventually... it’s good to have up to 30-percent of your annual income set aside...

I know... that’s a lot of money... and saving 15-percent... it could take you a couple of years to get it done...

But you can speed up the process by funneling extra money toward it... part-time income, for example... bonuses... overtime... tax refunds... gifts you receive...

Heck, start an online business to sell all the junk you don’t need anymore... and put that cash in your emergency reserve...

Keep this money safe and liquid... in a high-yield savings account or money market fund... and try to live it alone...

Next step... once you’ve started saving for emergencies... use that extra 5-percent you’re saving every month to start paying down your debt...

Remember... when you save and invest... money compounds FOR you... but when you borrow and pay interest... money is compounding AGAINST you...

So, make a list of all your debts... from the highest interest rate to the lowest... but don’t put your mortgage on this list... at least not yet...

You want to make sure you’re paying the minimum required each month on everything... and then use your extra 5-percent to attack each one of your debts... from the top of that list to the bottom...

And here’s a tip from Captain Obvious... this’ll go a lot faster if you can slow down what you’re borrowing every month... and once you learn to live on less than you earn... your constant borrowing will slow down and stop...

Even while you’re working on your emergency fund and whittling down your debt... I want you to start saving for your retirement...

The younger you are... the more years your money has to compound... and time is your biggest asset... so use it to your advantage...

Let money and time... do more and more of the work of building your wealth...

Does your employer offer a 401-k plan? Will they match some or all of your contributions?

That’s free money... and you can’t afford to pass it up... so try to save at least enough of each paycheck to get the full match...

Most 401-k plans have a Roth option... meaning you’re saving after-tax money...

That’s not going to help you on your taxes today... but the Roth 401-k could turn into some serious wealth by the time you’re ready to retire... and if you follow the rules... you’ll be able to tap into that big pile of money... without paying taxes on it...

Okay... we’ve got the emergency reserve going... you’re paying down your debt... you’re saving for retirement...

But don’t neglect your intermediate-term goals... things like a down-payment on a house... grad school... money to start a side business...

To whatever extent those things are a priority for you... set aside a little something from your 15-percent each month... to apply to those intermediate goals...

In just a second... I’m going to give you a 30-day starter plan to put all these great ideas into practice... and share with you the one simple technique... that will make the whole thing work for you...

Are you ready to get started building wealth?

Here’s the tip I promised that will make all this easier...

The trick to saving and investing... oddly enough... is to get it started... and then get out of the way...

Make it... automatic...

Sign up for the 401-k at work... decide on a fixed percentage of every paycheck to fund it... diversify it among several growth-oriented fund options... then check the box that says... rebalance my account... once each year...

Then, just step away... forget about it for a while... don’t check your balance every day... just let time start working its magic... while you look for ways to live on less...

And if you’re a new investor... understand that market volatility will make your account go down in value once in a while...

But realize that’s the best thing that could ever happen to you! When you’re building wealth... big price swings in your investments will help you build wealth faster... because as long as you invest the same amount out of every paycheck... you’ll be acquiring more shares when prices are low... and fewer shares when prices are high...

In the end... dollar-cost averaging swings the odds into your favor...

So, invest for growth while time is on your side... let volatility work for you... and let time and compounding do the hard work...

Here’s your plan, now... in the next 30 days... do these six things...

One... if you’re not sure you’re spending less than you earn... find out... by tracking every dollar you spend for the next 30 days...

That’ll tell you how you’re spending money... and give you some ideas of where you can cut back if you need to...

Second... calculate what percentage of your gross income you’re paying to yourself... and make a plan for how you’ll get that number to 15-percent as soon as you can...

Third... if you have non-mortgage debt that you’re paying interest on... rank those debts in order... and use another 5-percent of your gross income to work on the top one while you make the minimum payments on all the rest...

Step Four... start figuring out how to spend the 80-percent of your income the most effectively... look for ways to get more out of every dollar you spend...

Five... if your company matches any of your 401-k contributions... make certain you’re getting all of it...

And six... if you want to build wealth... save part of every dollar you earn... and once you’ve built your base... invest that money for growth...

Remember... you don’t have to do all the work...

The more wealth you create... and the longer it has to work... the more time and compounding will multiply your efforts...

All you have to do is start... and never stop...

And one day you’ll discover that you don’t have to work anymore... at least not for money...

When that day comes... you’ll be able to enjoy True Wealth... for the rest of your life...

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Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC.

Investment advisory services are offered through Raymond James Financial Services Advisors, Inc.  Brown Family Wealth Advisors is not a registered broker/dealer and is independent of Raymond James Financial Services.

Any opinions are those of Mike Brown and Brown Family Wealth Advisors and not necessarily those of Raymond James. This material is being provided for informational purposes only and is not a recommendation. There is no guarantee that these statements or opinions will prove to be correct. Investing involves risk, and you may incur a profit or a loss regardless of the strategy selected. Past performance is not indicative of future results. Prior to making an investment decision, please consult with your financial advisor about your individual situation.