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How Much Money Should I Have Saved By 30 | 1 Minute Money Talk

 

Obviously, this number is different for everyone. If you want to retire by 40, your number is going to be different from someone who wants to retire at 60.

 

However, there are some big financial companies out there that have done studies on this. One says you should have 1 times your annual salary while the other says 0.5 times your annual salary by 30.

 

A study from 2017, says the average American salary for 25-34 year olds is $40,300. At thirty, you should try to have either $20K or $40K saved.

 

But, I think this is low. If you’re watching this video, then you probably care about your financial situation more than the average.

 

I would shoot for 3+ times your annual salary. And so if you’re making $40K, strive to have more than $120K saved at 30 years old.

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How to Save $1000+ a Month | 1 min money talk

 

American households spend an average of about $60K a year according to the 2017 study by the Bureau of Labor Statistics.

 

There are three things that Americans spend most of their money on.

 

  • Housing – $19,884 (33%)
  • Transportation – $9,576 (16%)
  • Food – $7,729 (11%)

 

Focus on reducing the big three expenses instead of minimizing your avocado toast or morning coffee.

 

In the past couple years, I’ve gone from $1,700 a month in housing to $1,350. I got out of my brand new leased car which was about $500 for car payment, insurance and gas to a 2006 used car for $5K cash and bike to work everyday. I also lowered food costs from $500+ to about $250 a month.

 

Through these changes I’ve been able to save about $1,000 a month.

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How to Become Wealthy | 1 min money talk

Becoming wealthy comes down to three things:

  1. Make more money
  2. Spend less money
  3. Invest the difference

 

Continually improve these three steps and you will become wealthy.

 

Step #1: Make more money

You need to get a raise at work, find a new job, take on a second job, start a business or side hustle. Get your hands on more money. You won’t get rich making minimum wage even if you crush the next two steps.

 

Step #2: Spend less money

If you become an income-machine but spend it all, you will never get rich. You have to not only make more money, but keep it so you can invest it. Eat ramen and beans for all I care, just don’t blow all your earnings.

 

Step #3: Invest the difference

Becoming wealthy is all about widening the gap between how much money you make and save, but then investing that extra money. You need to invest it and make a return on your money. This can be in the stock market, real estate, your business. Investing is about owning an asset that grows in value over time.

 

These are the three steps and they all work together. You have to improve all three if you want to become wealthy.

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Why I hate budgeting by categories: how to budget the right way

 

If you want to be wealthy, retire early or just get a better handle on your finances, you’re going to need a budget.

 

There are only 3 steps to becoming wealthy:
  1. Save more money.
  2. Make more money.
  3. Invest the difference between how much you make and save.

 

That’s it! It’s actually that simple.

 

So, in order to crush the game of money, we need to develop good habits around saving more money.

 

Later, as you get raises and have more money to spend, these habits will (hopefully) remain strong and instead of inflating your lifestyle (spending more as you make more), you’ll instead invest the extra money you make and be closer to financial freedom.

 

My budgeting philosophy:

Many people have an elaborate budget. They give money to each category or type of expense they want to spend each month. I used to do this, too.

 

But for me, I think it’s the wrong way to look at budgeting.

 

Budgeting by category means that I give each category a specific amount to spend each month. So rent gets $1,400, restaurants get $300, clothing gets $50, etc…

 

Main Problem #1: First off, there’s no flexibility.

Sometimes, gas will be $120 vs your budgeted $80 because you took a road trip.

 

Or, you will have an unexpected $300 car repair.

 

All of the sudden, your category budgets are all out of whack and the next thing you know, you’re saying, “well, this is a throwaway month, I should just spend whatever and try harder next month.”

 

Main Problem #2: You take small wins and spend the money elsewhere.

The month is coming to a close and I see that I have spent $10 on clothing when I set a budget of $50. Sweet! I have $40 to spend on iPhone games.

 

So, now I’ve just taken a budgeting win and then lost it because I spended money I otherwise would not have spent.

 

When I used to budget by category, I found myself doing this all the time. Ultimately, it didn’t get me any closer to financial freedom each month.

 

Here’s how I budget instead.

I used to budget by categories. But I discovered these mistakes and ultimately lost sight of the main objective. Which is…”saving as much money as you can each month.”

 

Budgeting should not be like dieting, instead, it should become your lifestyle. When spending as little as possible each month becomes your habit, you no longer need to budget by categories because you try to keep all spending to a minimum.

 

For me, Instead of budgeting by categories, I budget by month. Each month, I give myself a target number to hit. The general rule that I’ve been using is “rent + $1,200.” Then I set a stretch goal of “rent + $1,000.”

 

So, because my rent and utilities comes out around $1,400 a month, my monthly budget goal is $2,600 and stretch goal is $2,400.

 

Why this is better for me:

When you are trying to create a habit or lifestyle, making the task as easy as possible is really important. I budget for the whole month because it’s easy to keep track of. I log onto Personal Capital a couple times a week and check one number – how much I’ve spent this month.

 

Let’s say it’s the middle of the month and I’ve already spent $2,200. Yikes, I need to slow down and not go out to eat too much for the remainder of the month. Yes, I do check my spending many times throughout the month, but that is another habit I’ve created for myself because I check all my finance info multiple times per month (spending, income, net worth, investments)..

 

I still look at each expense and category. But I don’t assign a target number to each category. I know I usually spend $200-250 on restaurants each month. If I want to spend $350, that’s fine, but I know I have to sacrifice somewhere else, because there’s only one number that matters, the total amount spent at the end of the month.

 

The potential downside:

All budgeting takes discipline. With more flexibility and less structure, this type of budgeting may require even more discipline. That said, I think a person is more likely to stick with it because it is less restrictive.

 

Ultimately, it takes the understanding that you are trying maximize your savings each month.

 

There is never the thought, “Oh, I’m $300 under budget this month, let’s go shopping!” You must approach spending consistently across the board. Splurge and treat yourself every once in awhile and on stuff that brings you happiness. But don’t go too crazy.

 

Start small and try to reduce your monthly budget by $100 every couple of months until you’ve really minimized your spending.

Charlie Munger: Why the First $100K is the Toughest

The Wise Charlie Munger:

 

At a Berkshire Hathaway shareholder meeting in the 90’s, a young guy asked Charlie Munger his advice on creating wealth. He said his net worth was not increasing as fast as he’d like.

Charlie Munger responded, “The first 100,000 is tough, but you gotta do it.”

Then he goes on to say, “I don’t care what you have to do—if it means walking everywhere and not eating anything that wasn’t purchased with a coupon, find a way to get your hands on $100,000. After that, you can ease off the gas a little bit.”

 

Chasing Your First $100K:

 

I’m also chasing my first $100K and can definitely say it’s tough. I say it’s tough, but in reality it’s probably tougher because of my lack of patience rather than the actual difficulty. Especially after developing good habits around saving, earning and investing.

So why does $100K feel so far away? Why does it feel like it’ll take forever?

Because when you don’t have much money, the majority of increases in your net worth come from your savings rate, not investment returns, so your money isn’t working for you as much.

 

Here’s an example to help explain the numbers:

 

Let’s say your net worth is $10,000, and it’s all invested in the stock market. If you have a healthy return of 10% that year,  you’ve gained $1,000 increase in net worth.

Ultimately, $1,000 gain is not much.

However, if you get a roommate and your rent lowers by $300 a month, you’ll save $3,600 a year.

$3,600 savings is a 36% increase in your net worth.

And if you can get a $5K raise, that’s a 50% increase in net worth.

 

Savings Rate > Investment Returns (In the Beginning):

 

In the beginning, when you’re trying to reach $100K quickly, you need to do whatever you can to spend less and earn more, because your savings rate is much more important than investment returns.

While a lot of people focus on their investment returns, this effort usually doesn’t pay off until you’ve accumulated a good amount of wealth.

In the meantime, saving a few hundred a month on rent or buying a used car with cash, can mean huge relative increases to your net worth that will beat the market every time.

While reaching $100K seems difficult, the journey will teach you good saving habits that will propel you through the next tough challenge – taking $100K to $1M.

 

3 Huge Money Mistakes to Avoid

When I got my first job out of college, making more money in one year than I had my whole life (~$55K), I felt like I had money to burn.

This is called lifestyle inflation, or lifestyle creep. When you make more money, you naturally spend more because you feel like you can (or should). In this article, I discuss three money mistakes I made after landing my first job and what I should’ve done instead.

Accompanying video at the bottom.

 

Credit Card Debt:

Before we dive into the three huge money mistakes, I’d like to take a second to call out one of the most foundational rules in personal finance: no credit card debt!

Credit card debt is a killer. If you have credit card debt, you need to get rid of it as quickly as possible and either pay off your credit card debt each month or chop up those credit cards.

I personally didn’t make this money mistake, but if I had, you bet this would’ve been #1 for worst money mistakes to make.

 

Money Mistake #1: Leasing a New Car

What I did:

Growing up, my family leased cars every three years. That was normal to me. So, I leased an entry level car throughout college.

After a month or two of working in my new job, my leased car from college had to be returned. Since I was making more money, I ended up leasing a $25K Subaru Crosstrek.

Truth is: I really loved that car. But, it was too expensive.

Now, I negotiated hard and got a decent deal, but the payment was still $230 a month. The insurance was also pricey being in Los Angeles – that was another $150 (went up to $160 later). Gas was usually around $100 per month.

On a $55K salary, after taxes, and all other expenses, paying nearly $500 per month for a car is just too much.

What I should’ve done:

I had the Crosstrek for about six months before I started really becoming serious about financial freedom. I was reading Scott Trench’s book, Set For Life, when it became clear that I needed to get out of my lease and buy an older, used car with cash.

And that’s what I did.

I look back on that moment as the true starting point in my financial independence journey. I sacrificed something I really enjoyed for a better future. #corny…

But yeah, I was able to sell the Crosstrek to CarMax for more than I owed on it because it was in such high demand. I banked $400 or so, and uber-ed back to my apartment.

I went carless for two months before finding a 2006 Toyota Corolla for $5,500 that had only 63,000 miles on it.

It wasn’t sexy, but it was cheap, reliable and had low miles.

That’s my advice: buy an older (5-10 years) car with low miles and a history of being very reliable. Buy with cash and be done with a car payment.

Not only did I get rid of a car payment, my insurance dropped dramatically because I didn’t need as much coverage. I now pay around $35 a month.

 

Money Mistake #2: Getting my Own Apartment

What I did:

Well, I went out a got a one-bedroom apartment. In the first couple months at the new job, I was living with a friend but the commute sucked and I thought I deserved my own place now that I had a career (lol).

Rent was $1525 (then raised to $1570), and after utilities and wifi, I was probably spending around $1700 for the place. That was just way too much.

On $55K salary a year, after taxes, insurance, etc., I was taking home around $3,200 a month. $1700 is more than half my take home pay!

Between just the apartment and car, I had $1K to spend on food and fun, which went quick in Los Angeles.

What I should’ve done:

The one mistake I didn’t make, was my apartment was close to work. I did this because I hate a long commute. I was only two miles from work and rode my bike most of the time.

Instead of getting my own place, I should’ve rented a room from a friend, co-worker or on Craigslist in a similar location. I would’ve paid around $1,100 and saved $600 a month ($7,200 a year). I could’ve kept riding my bike to work and enjoyed a minimal commute while also saving more money.

 

Money Mistake #3: Eating Out Too Much

What I did:

Getting my first job I thought, “I’m adulting, I can afford some fancy restaurants; and I can go out for work lunches.”

That was dumb.

I wasted so much money on fancy dinners in the beginning. In LA, $150 for a dinner is not even top-tier, especially if you’re drinking. It’s a waste.

And another waste, where you don’t even get an experience, is eating cheap work lunches for $10-15 each day. Nothing to remember, but when you look back at your expenses, work lunches might be a couple hundred alone.

What I should’ve done:

Eventually, I came to my senses and started meal prepping for the week. I brought my lunch to work almost every day and ate dinner at home much more.

I still went out with friends and enjoyed a nice dinner here and there, but lowered the frequency. Eating dinners out with friends also became more special and felt more like a treat than before.