Recently, Michael and I did a semi-solo episode Skinny confidential HER AND HER podcast all about finances. I say gender because my sister Mimi was there too. It was perfect because she had questions that matched many of the questions you asked, which is so important for younger listeners and readers.
Michael is someone I really respect when it comes to finances. He has read so many books, he is so organized and he just understands it. I will not pretend to like the topic of finance and investment. To me, it’s confusing and irresistible. But it is a necessary life skill and I think more things like this should be learned in school.
We’ve been getting so many DMs about this episode and people love it. As always, I want the blog to be a source for you, so I want to break the financial episode here as well.
As Michael said in the podcast episode, it’s important to say that we’re not financial experts nor are we pretending to be. We (mostly Michael) just wanted to share the things we learned through trial and error, and the things he wanted to know when he was younger.
Like I said, before the episode we asked the listeners what questions they wanted to answer and put together a list for Michael so be sure to do that listen to the episode for a full analysis, but here we will move on to some of the main issues.
If you don’t really understand yourself in finance, savings, investing or you are one of those people who DIE looking at your bank account or credit card statement, then this post is for you.
Let’s go for it.
Financial freedom, investing and saving your money
♡ savings in relation to earnings
It’s important to save, but you can’t save your path to financial freedom. We’ll talk about investing soon.
The general rule is to save 10% of your income. Suppose you make $ 1,000 a month. That means you should take $ 100 each month and set them aside. Pretend he’s not even there. Put that aside BEFORE you do anything like paying rent, buying groceries, paying off credit card debt, and so on.
The easiest way to do this is to have a special bank account for your savings. Now, for YOUR financial freedom you might be able to $ 1 million or $ 10 million. It looks different for everyone.
Once you start to see your savings account grow, it becomes easier to add more, see how much more you can add. Maybe an extra $ 10 this month. One of Michael’s best tips (and again, just his opinion) is to save first. Many people spend, pay off debts, pay rent, THEN try to save.
Save first !! Put that money in your savings account and pretend you haven’t even seen it.
♡ When you earn more, don’t spend more.
This advice is so good in my opinion if you are young. Let’s say you earn $ 40,000 a year on your job and have your living expenses covered, you receive 10% of your monthly salary on a savings account, you’re pretty good.
Then you get a raise… Congratulations !! You now earn $ 50,000 a year. The key here is to continue living as if you are earning $ 40,000. Just because you earn more doesn’t mean you have to spend more.
Michael says, “A person who earns 30,000 and spends 20,000 is richer than someone who earns 50,000 and spends 55.” Another thing he thinks of when he sees a fancy car or a huge house is “debt”. Wealth is what you don’t see, not what you see.
Change your view of money.
Michael used to have a bit of a ‘spending’ relationship with money. LOL. Thank God he got over it at 25 years old. But if you think money is something that impresses other people, it’s time to say goodbye to that way of thinking.
People who care about where you travel, what you wear and what you drive have their own financial problems and probably don’t understand them. Change your mindset by thinking of money as something that can build a business, provide for your family, allow you a comfortable life, buy time. Think of money as a means of acquiring the things in life you want, not something that can impress others.
♡ A lot of cash is not a good thing.
Having cash is not always the best thing thanks to ‘inflation’. Inflation is the reason why your grandparents bought their house for $ 50,000 that day and are now selling for $ 2 million. LOL.
Money becomes less and less valuable every year. We have what Michael calls the Emergency Fund in which we keep ‘current money’, but even he says it’s not the smartest thing to do.
Michael recommends saving 3-6 months in cash and the rest for investing. We mainly invest in index funds.
If you don’t know what Index funds are, Michael explains it in a podcast, but imagine you have small stocks of the 500 most successful companies, and that those stocks should still be in the top 500. If they fall below those 500 biggest and then they’re no longer in your fund .
♡ renting versus buying.
The bottom line is that renting is the MAX you will pay for something, and buying is the MINIMUM you will pay.
Michael’s opinion is that you shouldn’t buy a house until you can comfortably pay an advance. There is something to be said about paying rent and stress-free things.
When you own a house, you must take into account other monthly bills, maintenance, breakdowns, etc. There are a million things that people don’t count as the cost of owning a home. If you are young, without children, it might be a smart idea to hire them until you pay an advance and are ready to settle down somewhere.
Michael’s book recommendations for understanding finance:
♡ The road to financial freedom
The last book, I will teach you to be rich is Ramit Sethi who was just on Skinny confidential HER AND HER podcast. So if you love money, don’t miss this one.
Be sure to listen and a whole episode about financial freedom with me, Michael & Mimi Answers many more questions and gives so many good examples to help you better understand investing and saving. You’ll also learn more about Michael’s midlife crisis at age 25, as he learned from his frivolous spending habits, what happened to GameStop, and his attitude about lending money to family and friends.
I hope you like it !!
x, lauryn
+ listen this episode of the podcast for more information on money financing.
++ root what I learned by reading the 4 Hour Work Week.
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