It took me reading a few books to realize my financial habits could be imporved. Here are some major lessons I want to share with you.
Disclaimer – This is not a financial advise. I am just sharing my experiences. Every financial journey is unique.
“Help yourself before helping others.” – Someone wise.
It is also what they rightly suggest, as required by law, when safety instructions are being read out before a passenger plane takes off. Over time, I have come to believe that it also applies to life.
If you have read my previous blog about ways to stay fit while getting old, you would know that I am thinking about the time when I get old.
And one of the things I want to be able to do when I get old is to have an income to live and enjoy retirement life.
So with the end in mind, I recently asked a question to the universe “How much money do I need to be saved up to retire?” (Please note that I am not talking about literally retiring but having an option to retire.)
That led me to the 4% rule. In my language it means to calculate how much you need to retire, take your yearly expenses (including living + leisure), and multiply it by 25. You need that much money saved up. So now when you withdraw 4% of that amount every year, it will last you for all of the retirement, roughly 30 years. As a fan of frameworks, I got started with it. I thought this is a good baseline to get started on the financial journey. That number for me as of today is $1.5M.
That number of $1.5M really did put things in perspective for me. I felt overwhelmed. Then I did some calculations and it could be possible. Provided I made some major changes in my financial behavior.
I am not yet financially independent to retire next year. But I am working towards a goal and possibly you are in the same financial boat as I am. Hopefully my journey will be useful to you. That is what I will be sharing in this blog along with my 5 personal learnings so far. Plus, some book recommendations!
Some people are really good with money. I am in awe of such people. I don’t consider myself particularly good with money. So I had to educate myself to be better and develop habits that would enable me to do it.
You don’t start working on something until you are motivated. I got motivated to start on the financial journey when I was about 27 years old. Better late than never.
So this happened when I read Money – Master the Game by Tony Robbins. In this book, he talks about wisdom in the financial industry in a very interesting manner. Being a motivational speaker that Tony is, that book did the trick. It motivated me and I started me on the course of saving. At that time I was interning with Madison Square Garden in New York City. I went downstairs and opened a savings account in Chase bank, with an intention of actually saving money.
That was my first learning – “Live below your means and save money. Your income is your greatest wealth-building tool. Save as much of it as you possibly can!”
The next change came 2 years later when one of my past bosses, mentioned Dave Ramsey’s baby steps. I read the book. And again as a fan of framework, I loved it! It gave an easy step by step guide of reaching where I wanted to be. Realizing I am now on step four of the baby steps, I started investing.
Next lesson – “Money makes money. Invest the saved money.”
This is where I am right now. With the 7 baby steps and 4% rule as the north star.
Financial literacy is a journey. You get smarter by doing what you read and putting it in action. It takes time for your money to grow. I got really motivated by these books. But its not like you can work really a lot and the next week you are rich.
It takes time for the power of compounding to come into effect.
So I learnt to practice patience. As one is working towards financial independence, patience will be his or her best ally. Patience help develope financial discipline. The discipline to not splurge money during Prime day or on that random trip to Sportscheck.
So the next lesson – “Always think long term.”
Dave Ramsey’s book is a game-changer. If you are starting on a financial journey, it puts things on a easy-to-understand format. You start to understand that no one got rich by using credit card points. Credit is a double-edged sword. You don’t want it. As Dave Ramsey says, you need to live like no one else, so later you can live like no one else.
While doing digital marketing I learnt that SEO is not a magic pill, it is result of patience and constant efforts.
Finance is same.
Whoever makes good financial habits sound like rocket science is a crook, at least for my immediate purpose.
I don’t want to know your theory man, doubling the money is not good. For me average is good. If I beat S&P 500, I am content.
Leading a financially disciplined life did allow the savings to grow. Once the saved money crossed $20k, I could see this money grow on it’s own. That led me to learn more about my tax bracket. Which led me to my next learning –
“You want your money to grow in a tax free environment.”
Now depending on which country you are building your wealth in, your options will be different. In US it is called 401k, in Canada it is called RRSP and in India it is called PF, I think. You want to max out your contribution limit here. And that has become my number one yearly financial goal for 2021.
Please keep in mind that you want your investments to grow in a tax free account as much as possible. Now that means RRSP in Canada and 401k in US. Once you reach the stage of investing, please do read about it and make a good decision on the different programs available to you and in your particular situation.
I am glad I have gotten started. I write on this blog only when my thoughts bring me to write the blog and I can no longer hold it in. I just send it out in the world with hopes that it will be useful to someone.
Hopefully you might learn something or get some ideas. Let me know your thoughts! We can learn from each other. I learnt a lot until now from friends, family, colleagues and acquaintances on being good with money.
And I look forward to doing it more.
Some other book recommendations for you –
- Millionaire next door
- I will teach you to be rich
- Rich dad poor dad