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Tom Corley Effortless Wealth Smart Money Habits at Any Age

When I speak to high school and college students across the country about how to develop smart money habits, I always start my presentations with the same question: “How many of you want to be financially successful in life? ” Then I ask them, “How many of you think you will be financially successful in life?

Every time I ask the first two questions, I can count on almost every hand coming up. Then I ask the third magic question: “How many have taken a course in school on how to be financially successful in life?” No one raises their hand in response to that last question.

Over the years, it has become clear to me that almost all students want to succeed and hope or believe they will. But they are rarely, if ever, taught how to pursue that goal. Along with other systemic factors, this lack of education often leads people to live paycheck to paycheck.

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No matter where you start from, there are times when financial decisions will come into play: entering the job market, meeting a partner, starting a family, buying a house, balancing family and career, becoming an empty nest and to retire.

The money choices you make in one stage can certainly have ripple effects on other stages. In my book, “Effort-Less Wealth – Smart Money Habits at Every Stage of Your Life,” I share habits that can help you grow your wealth and even become financially independent.

If part of your long-term plan is to become a parent, based on my Rich Habits Study research, I discovered that there are three key points where your financial decisions have the potential to have the most impact. impact.

When you enter working life

One of the best times to form smart money habits is when you enter the workforce, because these are the choices that create a financial foundation. Some of the most effective habits at this stage may include:

  • Automate savings and investment. Most of the saver-investor millionaires in my Rich Habits study began saving and investing as little as 5% of their take-home pay as soon as they entered the workforce. Each year, they would increase their savings rate until it reached 20%.

    One of the best ways to save and invest consistently is to automate saving and investing habits. Have a certain percentage automatically withdrawn from your bank account and immediately invested, either in an investment account or a retirement account, if your employer offers you a retirement plan.

    If your employer offers one, I would recommend allocating 2% of your take home pay to a health savings account. You can do this with every paycheck or on a monthly basis.

  • Find accommodation within your means. If you’re trying to figure out how much you can afford to spend on housing, especially if you’re earning an entry salary and facing student debt, I recommend keeping housing costs at 25% or less. your net salary, because that will allow you to pay your monthly bills and save/invest for your future.

    Although the cost of living varies depending on where you are, it’s worth considering finding accommodation with a reliable friend, or even living with your family, to help you save.

  • Limit transportation expenses. If your job or life doesn’t require a car, my best advice is don’t buy or lease one. This is money that you could spend on other goals or investment savings.

    If you need a car, I would recommend spending 5% or less of your take home pay on car expenses, which can include monthly loan or lease payments, car insurance, license fees , car maintenance, car repairs and parking costs. I would look for a high quality used car, coming off a two or three year lease. A good used car can give you six to seven years of use.

When you balance career and family

Money can become a more limited resource when raising a family. There are some essential financial habits you can implement during this stage that will serve you well in the long run, while teaching your children how to build generational wealth.

  • Remember the difference between frugal and cheap. Being frugal means spending as little money as possible on the highest quality goods or services. The key here is to look for quality first and then focus on finding the lowest cost, high quality goods or services.
  • Maintain a consistent budget. Determine how much you are comfortable allocating to each category in your budget and do your best to stick to it. This doesn’t mean you should avoid things or deprive yourself of things you love.

    My best advice is, as a general rule, to keep expenses like vacation expenses and clothing expenses, for example, to 5% or less of your take home pay. And if you go to a restaurant, consider a more casual place or BYOB where the bill will be lower at the end of the evening.

  • Spend time with other savers. If you want to build positive, intentional saving habits, surround yourself with friends who have similar financial goals. Having these influences in your life can motivate you to stay on track.
  • Be transparent about college savings goals. For young families, consider opening a 529 plan to allow your college savings to grow tax-free. And be transparent with everyone in your life about what you’re working towards. If they can, friends and family may want to contribute to these funds at key life events.

    As children grow, they may want to pursue a side hustle or a part-time job, and some of what they earn could also go to their 529 plan or college savings plan. If you can, for a reference, allocate 3% of your take home pay to college savings plans.

Approaching retirement

As you get older, your financial priorities will change again. Particularly for parents, once the children have started their adult lives, it can mean that you have more disposable income.

Now is a good opportunity to step back and reassess, especially as the possibility of retirement becomes more and more of a reality. According to my research, some of the smart money habits you can implement at this stage include:

  • Continue to be economical. This means being intentional with your spending and limiting spending on vacations, clothing, and eating out. If you suddenly have an influx of cash, especially as an empty nest, consider how you might apply it to a new goal or to increasing your retirement savings.
  • Review of all outstanding debts. Especially if you have a mortgage on a home, now may be the time to refinance or pay it off entirely. If you feel overwhelmed with how to approach it, don’t be afraid to ask for help.
  • Connection with a financial planner. If you haven’t hired a financial planner yet, now is the perfect time to do so. They can help you determine how to increase your investments, maximize contributions to your retirement accounts, and invest your income where it will be most beneficial for your future. Think about where you want to be in the next ten years and work backwards from there.

Tom Corley is a CPA and Certified Financial Planner with a Masters in Taxation. He is the best-selling and award-winning author of “Rich Kids: How to Raise Our Children to Be Happy and Successful in Life” and “Wealthy Habits: The Daily Success Habits of Wealthy People.

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