If you cannot save money, the seeds of greatness are not in you.
To become an excellent saver over the long term you must get some sort of mental reward from saving - if saving is a difficult process (like resisting eating food when dieting), you might be able to do it for a little while but over time you'll fail because we all only have limited amounts of willpower and energy. The real secret to being an amazing saver is to love saving - the secret is to have saving be a very enjoyable thing.
For some people saving money is very easy - they were either born with a mind or a disposition that rewards them when saving or they developed such a mind or disposition over time. Rarely will you see a really excellent saver who has to consistently battle himself or herself to put money away for the future or to resist spending in order to save - it's just too hard to do over the long term.
Other people, however, just can't seem to save. They spend all of their incomes (and sometimes even more) and they don't seem to feel any reward by putting money away - it feels like a chore to resist spending all of their money or putting some money aside. They won't become wealthy unless they strike it rich through luck or unless they have extremely high incomes. For most people who can't seem to enjoy saving money, they will need to change their mind a bit in order to be able to become truly excellent savers capable of building real lasting wealth overthe long term.
How can you change your mind? That's the hard part. You'll need to force or will yourself to start saving at first despite any internal resistance you have to it. When you do save some money, take the time to sit down and think about what you just did:
Reward yourself with a nice dinner, a nice movie on Netflix, or anything else you enjoy. Let the pleasure sink in and try to associate the pleasure with the act of saving money. Do this consistently and over time saving will seem more pleasurable and easier.
Here are some other tips to help you become an excellent saving:
Now, it's possible that not everyone can be an excellent saver - as much as we want it to be true, it seems like some people either don't have the personality or the internal energy to become excellent savers. That's a sad proposition. However, if you're reading this post, you're very likely not one of those people - you've already shown excellent initiative and you're already ahead of the game in your search for high-quality information. Go out and practice the tips above with vigor and intensity until you saving feels amazing for you also.
An exchange-traded fund is an investment fund (similar to mutual funds) but can be traded throughout the day with general liquidity (like stocks). In a sense, an ETF combines the best parts of mutual funds and stocks:
ETFs are relatively new - they first appeared in the United States in 1993 and in Europe in 1999. They began as index funds - index funds are investment funds that are created to track indexes such as the Dow Jones Industrial Average (DOW), the S&P 500 Index (SP500), the FTSE in England, or the DAX in Germany. Over time, ETFs have evolved beyond index tracking and now come in a plethora of tilts and styles (eg. US oil, emerging markets, technology, biotech, etc.).
There are other important differences that distinguish ETFs from mutual funds, but they aren't truly very important to a novice (or even an intermediate) retail investor. If you want to know more about the legal structure of ETFs, you can visit this Wikipedia article for more.
The main thing we should point out is that ETFs are almost like a hybrid between mutual funds and stocks. Mutual funds are usually not as liquid as stocks and can't be traded throughout the day. Mutual funds are usually priced once a day (at the end fo the day) unlike stocks, which are priced continuously by the market. Stocks are usually very liquid and can be generally bought and sold throughout the day. An ETF combines these two - you can purchase an ETF easily through your online stock broker the same way you would purchase a stock. There generally are no minimums for ETF purchases and it really feels like purchasing a stock.
Since most ETFs are indexed (and not actively managed) fees are generally lower for ETFs - this is an incredibly attractive aspect of ETFs because it is generally believed that active management isn't worth the fees investors pay for it (most of the time, BUT not all of the time).
Although there's no general legal definition for the term "mutual fund," a mutual fund generally refers to an investment fund that is professionally managed and pools together money from many investors with each investor owning a share of that investment fund. However, let's go a bit further...
We won't go into the laws of mutual funds - almost every country has its own laws on how a mutual fund can be set up and managed. Briefly, mutual funds are usually regulated well and have certain tax advantages if they comply with certain requirements.
The more important thing about mutual funds for retail investors, however, is their general structure. A mutual fund is actually a very amazing financial creation that allows investors to purchase shares in a large amount of companies (allowing them to diversify their holdings) very easily with little effort and little cost relative to replicating the mutual fund's portfolio with individual securities.
A mutual fund basically is a company that buys a bunch of shares of different companies (or bonds) and then packages them all together. Then, it sells shares of that new package. So, when you buy a share of a mutual fund, you actually buy a small piece of each of the shares of the individual stocks that the mutual fund is made up of.
Mutual funds usually have specific tilts or styles - some mutual funds focus on US equities while others focus on international equities while others focus on oil while others focus on real estate while others focus on bonds and so on and so on. There are a plethora of mutual funds to choose from and you should easily be able to find a fund that matches your investing strategy. There are even target date mutual funds that are specifically designed for people planning to retire in certain years - these funds become more conservative as the target retirement date fund approaches.
Fees are important for mutual funds - mutual funds charge a fee for the services they provide. Fees are very important - be mindful not to pay too much in fees because paying high fees will deeply eat away at your earnings over the long term. A popular firm that specializes in low-fee mutual funds (and the one that pretty much started the low-fee mutual fund sector) is Vanguard. Their average fee (according to their own website) is 0.18% while the average mutual fund fee in the industry is 1.02% (also according to Vanguard's website). Be mindful when choosing a mutual fund - you don't want your earnings to be consistently eaten away by high fees.
Finally, there are generally 2 types of mutual funds:
P.S. For more on how detrimental high fees can be to your long-term returns, check out this bulletin produced by the SEC
A stock is a share of ownership in a corporation - buying a stock means buying a piece of ownership in a corporation. However, there's more to know than just this...
Shares vs. Stocks
If you want to speak properly, there's no such thing as stocks - there is the "capital stock" of a corporation and that capital stock is divided into "shares" that you can buy and own. Those shares represent little pieces of equity in the firm - they represent ownership of a small piece of the firm.
In popular usage, however, the term "stocks" are often used in place of "shares" - we can say that we own "stocks" instead of "shares." It's ok to use the term this way because most people will understand you and most people use it this way, although it's a good idea to understand the proper way the term should be used.
What does a share (or stock) represent?
We said above that a share represents equity ownership in a corporation. What this means is that when you buy a share (or a stock), you are literally buying a piece of a corporation.
For example, if there are 1 million shares that are publically traded and you buy 1000 shares of the operation, you now own one-thousandth (1/1000th) of the corporation.
But, what do you actually own when you own shares of a corporation? You literally own piece of everything the corporation owns (eg. buildings, equipment, patents, copyrights, etc.) and you have an interest in the future income of the corporation - all relative to your ownership size (eg. if you own 1% of the shares you own 1% of the firm). If you owned a small business (eg. a small ice cream shop) in your neighborhood free and clear, you would own 100% of that shop - the same is true for a corporation except you will own a small percentage of it instead of owning it outright.
As the owner of the firm (as a shareholder), you are usually able to vote for certain things regarding firm decisions. The owners of the firm cannot run the firm by themselves (unlike the owner of a small business) so they appoint a board of directors who then hires managers (eg. CEO, CFO, COO, etc.) to run the day-to-day business of the corporation.
Let's Get a Bit More Complex and Consider Debt
As we said above, you literally own a piece of a corporation when you own a share of a firm, but that ownership is net of liabilities (debt) - that means that shareholders are second in line behind bondholders. If the corporation has no debt (if it's totally financed with equity), then there's no reason to even discuss debt at all. However, most corporations have significant amounts of debt (it's rational for corporations to use debt to finance various things), so we must take debt into account when calculating our ownership.
How can we take debt into account? We just do what you would do when calculating your net worth - we subtract liabilities from assets to come up with equity:
Once we figure out how much total equity is in a firm (the portion of assets financed through equity), we can divide that by the number of shares to determine the equity that corresponds to each share (this is somewhat of a simplification).
Additionally, as we stated above, we must keep in mind that debtholders hold senior claims to equity holders - that means that debts must be paid first before shareholders receive anything. Just like if you owned a house with a mortgage where the mortgage would have to be paid off first after you sold the house - the debt of corporation must be paid back before shareholders receive anything in a liquidation.
Assets > Financial Assets > Financial Derivatives
Another way to think of stocks is by understanding that they are financial assets. Real assets are things such as computers, desks, machines, and equipment while financial assets derive their value from these real assets. You can own real assets (eg. owning a computer or a piece of heavy equipment) but you can also have a claim on real assets through financial assets. A stock or share is a financial asset that gives the shareholder a claim on the real assets of a corporation and the income that those real assets produce.
Going a step further, we can have financial derivatives, which derive their value from financial assets. Financial derivatives such as options, futures, and forwards allow holders to have an interest in financial assets without actually holding financial assets.
Although we try to live life as wisely as possible, financial emergencies do arise simply because of the unpredictability of life. We might plan, but the best we can really do to protect ourselves from life’s financial emergencies is to have an emergency fund in place.
Read this comprehensive article to learn how to quickly build up your emergency fund
Once you've dealt with a financial emergency, you'll need to rebuild your rainy day fund - read this comprehensive article on how to quickly rebuild your rainy day fund
So, what do we do when we are facing a financial emergency?
The financial media speaks constantly about the importance of having an emergency fund and on how to build one up, but we rarely come across articles or videos or pieces on how to actually deal with those inevitable financial emergencies. This is unfortunate because, although a rainy day fund is crucial to your financial stability and your ability to build wealth over time, the ability to handle financial emergencies with a bit of savvy is also an incredibly useful financial skill that will pay dividends over time - handling financial emergencies well will allow you to use less of your emergency fund and get back on your feet more quickly so you can start earning and investing again.
Long-term vs. Short-term Financial Emergencies
It’s obviously impossible for us to know your exact financial emergency within the context of this piece, so you should take what’s written here with a grain of salt and filter it so that it makes sense for your and your situation. However, there’s one point we do want to bring up regarding your potential financial emergency: your emergency will either be short-term or long-term.
Here are a few examples of short-term financial emergencies:
Here are a few examples of long-term financial emergencies:
Whether you’re facing a short-term or long-term financial emergency, this article is for you. However, if you’re facing a long-term emergency, you will have to follow the steps for a longer period of time as you traverse the emergency - whether it be looking for a job or healing from an injury, you’ll have to follow the advice (which might prove difficult at times) while getting your life back in order so you can go out there and win again (and again).
Cut Expenses Fast and Hard
In a financial emergency, the first (and possibly the most crucial step) is to cut expenses down deeply to bare necessities while you are recovering.
Remember, your "monthly living expenses" as we defined them do not equal your income or your average monthly spending during normal times - your monthly living expenses for calculating the size of your rainy day fund are just those expenses that are required to pay for the basics. So, you'll have to cut down so you can stay within those monthly living expenses. That means that while you’re dealing with the financial emergency there are no fancy dinners out, no new clothes that aren’t absolutely necessary, no trips, no gifts, no luxury purchases, and no other luxuries.
Read this article for an in-depth piece on what we include in your monthly living expenses when calculating the size of your emergency fund
This is hard to write about in such a general article, but it’s important to note. You must strive to recover from your financial emergency quickly. This might seem obvious, but it’s a little more nuanced than it might seem at first glance. What we mean by recover quickly is that you should be willing to exert energy and spend money from your rainy day fund (within reasonable bounds that you have to put in place for yourself) to get things back to normal.
For example, if your washing machine breaks and your family can’t wash clothes anymore, it’s wiser to get things taken care of by repairing or replacing the washing machine than by delaying in some sort of attempt to save money.
In another example, if you are injured in some way, it is wiser to quickly recover at home and use some of your rainy day fund to get by instead of attempting to work while recovering and thereby delaying your recovery while underperforming at work due to your injury. You'll recover faster, you'll be back on your feet sooner, and you'll have a better quality of life throughout the recovery.
Recovering quickly from a financial emergency means being willing to use some of your rainy day fund in order to get things back to normal so that you can continue earning money, building wealth, and enjoying life. Your emergency fund is there exactly for this - for financial emergencies.
Maintain a Positive Outlook
Above all else, do your best to not get discouraged by a financial emergency. Many people feel discouraged when one of life's financial storms wreaks havoc on the financial house you were trying to build. Rest assured, however, that you'll recover from this and move far beyond your current state and station if you consistently apply the principles of prudent investing and frugality to your life.
1. Wait A Year Before Purchasing a House
If you don't already own a house (or if one of you do own a house but you don't own one together), don't buy a house together until you've been married one year. This is a simple thing that will contribute to your marital bliss and will help you have a better chance of becoming one of the few prosperous households in the world (instead of one that just gets by or one of the households that just can't get by).
This might prove an unpopular idea or suggestion to those newly married couples that want to quickly purchase a home, but discipline and prudence are what make people rich, not doing what you want whenever you want. Of course, we all want to purchase a house with the one we love so that we may have a proper home, plant roots in the world, and start a family. Additionally, buying a house can have some real long-term financial benefits for many (but not all) people if it is done properly. Regardless of the pleasures and benefits of owning a house, waiting one year to purchase a house will allow you and your new husband or wife:
Even if you have everything else taken care of, we still recommend spending a year in a calm state, enjoying each other in your new marriage, before buying a home because buying a home is a very big commitment and can be a very stressful thing to do properly. A calm and prudent approach will benefit you in the long run. Finally, if you think that "now is the time to buy" or that you have to buy a house right now to take advantage of some sort of real estate low, you should take a deep breath and back away - very few wise decisions were ever made in a hurried state and you won't be the exception. Don't act imprudently just because you think you can get some sort of deal - that's not how wealthy people live their lives and it's not going to really affect your financial picture much either way.
2. Start Saving for a Down Payment
If you don't already have a pile of cash for a down payment and you plan to buy a home (which most of you should do at some point for various financial and personal reasons), start saving now for a down payment. That's an obvious thing to advise - you must usually put up some sort of down payment when purchasing a house (at least 3% in most cases but sometimes more). There's little more to say here than that you should save aggressively for this and that in most cases, it might be reasonable to pull back on some of your investing in the short term in order to build up your down payment.
3. Consolidate Credit Card Debt
In many cases, married couples can improve their financial positions by consolidating credit card debt. Consolidating debt can benefit your household in various ways depending on your current situation. The biggest benefit usually comes from being able to lower the total average interest rate on your debt. This is usually possible if one partner has a better credit (FICO) score than the other partner - by refinancing all debt under the better score, you can usually get a better interest rate.
4. Speak to Your Accountant About Tax Benefits
Now that you are married you might very likely be able to get a nice benefit on your next tax filing due to the fact that your household size increased. This isn't always true, but you can often get a tax advantage in your first year of marriage because you were paying taxes from your paycheck as a single person but now you will be filing (possibly) as a married person (and possibly as a single-earner married person). If you're self-employed or if you have very high incomes it might not work as well. Regardless, speak with your accountant or tax professional to see what you can do here.
There aren't that many tips to really give married couples actually - so that's pretty much it. That's because if you did everything in our article on what to do before getting married, you're likely in a good place already and there's really not that much more that needs to be done once you're married. You've hopefully done the hard work already and you can enjoy your new marriage for a while. Of course, if you haven't prepared and if you haven't done the things we recommend you do before getting married, you should read the article on what to do before tying the knot and do as much as you can - it's really never too late to get on the path to financial freedom, wealth, and marital success.
If you just married, Pennies and Pounds wishes you and your new husband or wife a happy marriage filled with luck and financial success.
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Living below your means is absolutely required if you are to build wealth, gain financial independence, and live a life of dignity. However, too many people fail to live below their means even though they intuitively know that they should do so. Are you one of them? Below are 3 powerful tips that will help you live below your means and set you up on the path to financial prosperity and wealth.
1. Make Saving and Investing Automatic
One of the most effective ways to live below your means and save more money is to put your savings and investments on autopilot - have your saving program and investing program draw money from your transactional account (usually your checking account) before you can get to the money.
So, for a typical example, let’s take a look at an hourly or salaried employee who obtains all of his or her income from his or her job. Let’s say they get their pay via direct deposit into their checking account every 2 weeks (this is the most typical payment timeframe). They should set up a system so that it automatically withdraws money from their checking account either every two weeks or once a month. Such a system is very easy to set up on most online savings accounts and online brokerages - once your accounts are open, it usually will take you less than 20 minutes to set something like this up.
Automatic withdrawals into a savings or a checking account almost always beat manual withdrawals into those accounts because of issues presented in the field behavioral finance. Humans are prone to procrastination, forgetting, getting lazy, or getting distracted - the algorithm or computer program that will be in charge of executing your automatic withdrawals will not be prone to such things (although it could be prone to computer bugs). You might think you’ll be able to consistently save and invest every month, but if you look at what people really do in the world, you’ll see that too many people fail themselves and their financial plans at some point in time. Usually, it doesn’t take very long for them to fail and not make the monthly or weekly transfer or stock purchase they committed to making. With an automatic investing and savings plan, however, you’ll turn your human faults into advantages - the same procrastination and laziness which would prevent you from saving and investing money will also help to prevent you from going into your online savings account or online brokerage to change or remove your automatic savings and investment plans.
2. Understand that Many Significant Expenses Don’t Occur Monthly
We’ve written about this a bit already on Pennies and Pounds, but it is worth restating often. Only a portion of all of your expenses are monthly expenses - other expenses occur once a year, once every few years, once every five years, once every decade, or once in a lifetime. These expenses are not financial emergencies because we can predict them (eg. you know you’ll have to pay your child’s college tuition or you know you’ll have to pay for a wedding).
Click here for more on non-monthly expenses and an extremely in-depth explanation on why you must save a lot of money and build up a pile of cash!
Since we know that many expenses (especially the big and important ones) occur very rarely (but predictably), we must save for them if we are to be prudent adults. Anyone who is serious about building wealth and attaining financial independence cannot ignore this important fact about our current financial reality - that not all of our expenses are monthly. Ignoring this fact will cause you unnecessary stress and anxiety down the road and might cause you to have to either dip into your emergency fund or your investments for something that you should have (and could have) planned for.
Realizing the above should motivate you to live below your means in order to save. We must all realize that our monthly expenses are just an illusion (they don’t represent the full reality of our expenses over long stretches of time) and we must live below our monthly means in order to save for future expenses. It’s pretty interesting that before even taking investing and wealth building into account, we still must live below our monthly means in order to just break even over the long term - if you spend your entire monthly (or biweekly) income you are actually overspending. For example, multiplying your monthly expenses by 120 would severely underestimate how much you’ll need to spend over 10 years because you won’t be taking account those big expenses that occur once every year, once every five years, or once every decade. If you’re spending your entire monthly income you are doing the equivalent of going into debt except you are borrowing from your future self who will have to struggle and strain to make up for your lack of forethought and planning today.
3. Imagine and Connect With Your Future Self
At Pennies and Pounds, we value research but we also value common sense, good stories, and tradition - we're not religious about research like many people are in today’s modern world because we are aware of the games that can be played with research and the various biases and agendas that can influence studies. We also know about the games that can be played with statistics. Have you heard the following saying?: “There are lies, damn lies, and statistics." We won’t go into it deeper than this in this article, but we wanted to let you know our views on research before we proceeded with the following point.
New research is showing that when people are better able to “connect” with their future selves, they will make better long-term decisions including financial decisions. A piece by the Harvard Business Review on the study can be found below. We encourage you to read HBR’s piece and look at the actual research study if you are so inclined. In very general terms, the research implies that people generally have a disconnect with their future selves - people don’t really understand that their future selves are themselves. This might sound funny, but it’s true in a way. The research showed that people are more willing to commit to things in the future and are also more willing to commit other people’s time. It’s almost as if they view their future selves as a different person.
It’s astonishing in a way, but the disconnect described in the research between your current self and your future self sort of makes sense. Have you ever committed to something in the future only to realize how foolish you were to do so when the time to actually execute on that commitment comes around? Have you ever set an alarm to wake up extra early the following morning only to hit the snooze button and wake up at your normal time (or wake up late) when the time comes around? Have you ever promised yourself to save more money or spend less money only to not follow through when it’s time to actually have the discipline to follow through? The research suggests that this occurs because it’s as if you’re committing another person to something when you’re making a future commitment - it’s easy to commit your future self to a project if it’s a year from now because it is as if you’re not really committing yourself but are instead committing another person. If you had to execute on things immediately, you would be far more cautious about what you promise to other people and to yourself and you would feel the weight of your actions (or inactions) much more.
All of this is to say that if you can better connect with your future self, you are more likely to make better financial decisions - you’re more likely to save money today and live below your means today because you’ll have a better connection with the future you who will one day benefit from your smart decisions today.
In the study, researchers used MRI and sophisticated aging techniques to present participants with photos of their aged selves. This is very expensive and difficult for us to do, but there are other techniques that can help. You can simply sit and imagine yourself in the future or you can write a letter from your future self to your current self. Additionally, there are apps available that can “age” your current photos. Check out one such app below. Your connecting with your future self doesn’t have to be complicated or sophisticated - it just has to help you realize that it’s not some distant other person that will benefit from your positive actions, it’s you who will benefit.
We once again will stress this important point because we believe it cannot be said enough - you cannot be satisfied by living at your means, you must live below them if you are to truly build wealth and become prosperous. As is stated above and in other places on this website, you must live below your means because:
Don't foolishly fall into the trap that derails many financial plans and needlessly taps into people's emergency funds: mistaking a non-emergency for a real financial emergency. A financial emergency is something unexpected, not something that predictably happens every so often.
Read our comprehensive article on emergency funds for more on the randomness of life and how so many things are unpredictable (that's why we have to have an emergency fund)
Here's what unexpected means: that you cannot reasonably anticipate the nature of the financial emergency in advance. You can of course anticipate that a financial emergency will occur based on the nature of our reality and existence, but you cannot reasonably predict what it will be.
Therefore, the following would not properly be considered financial emergencies:
The above are not emergencies because we can anticipate them - we have anticipated them for you and we don't even know you.
Real financial emergencies, however, are things that we think might happen, but things we cannot predict in any reasonable way from where we currently are. We know we might get a flat tire or injure our ankle, but we don't know if that will ever happen, when it could happen, and the financial cost of it.
Do not confuse rare expenses with financial emergencies - you will not be served well by doing so because you will consistently fail to build lasting wealth if you dip into your emergency fund to pay for things that are not at all emergencies.
In order to have a successful and prosperous marriage with the one you love, your marital finances must be in order and you must both be on the same page regarding money and how your household will approach it. Read the 8 things to do before getting married below for a comprehensive guide on getting financially prepared before your wedding.
1. Have a Conversation (or many) About Your Views on Money
If you’re engaged and planning on getting married, we hope you’ve already had all of the important conversations that a couple needs to have before tying the knot. Such conversations include discussions about:
One important topic that should be included in the above set of important premarital discussion topics is (but is surprisingly often not included) is a conversation about money and finances. We’re not sure why this is and we only have anecdotal evidence for this statement, but it seems that couples have an easier time discussing things such as how many babies they want, their religion, or where they want to live than they do discussing money, finances, personal spending and saving habits, and financial goals.
In order to maximize your chances of having a happy and prosperous marriage that creates wealth and prosperity for your household instead of poverty and stress, it is wise to have multiple discussions about money and how you relate to it before your wedding. These discussions don’t have to be formal in any way nor do they have to be very technical or sophisticated, but they must be honest and they must be courageous - you must not be afraid to tell your love and future spouse how you feel about all things related to money or finance.
Here are a few points you should cover in the conversation(s):
These discussions should be loving - you’re not fighting or trying to change your future husband or wife very quickly. You’re not going to not get married to someone you love just because they are an over-spender and because they are terrible at handling finances - although you will want to help them change so that you can have a happy and prosperous marriage. Remember you’re speaking to the one you love and the one you must care for - allow that to color your conversations.
Although you want to be loving and compassionate, you also don’t want to be too weak and overly understanding - your love for the other person requires that you help them become a better person in every way and that includes a better person financially. Additionally, money is important to a marriage (many marriages fall apart due to financial issues) so you’ll want to guide your relationship and your future household to a better financial place in a courageous way - you must muster the courage and the energy to improve things if your future husband or wife isn’t financially savvy or financially intelligent (or if they are financially irresponsible). A marriage isn’t just an economic partnership (it isn’t any longer at least - and it shouldn’t be if we are to realize our true potential as loving human beings) where each has an equal say in how things go. A marriage is (or, at least, should be) a sacred bond between two people in our modern Western culture that gives each partner a certain right to influence things and influence each other beyond what would be allowed in an equal partnership. It’s not that each of you owns 50% of your marriage - each of you owns 100% of the marriage and that ownership gives you a sacred right and a sacred duty to improve the relationship and improve the other person where they are weak or lacking.
2. Reveal All Debt to Each Other
This is simple but can be difficult to do if you have a lot of debt that you have not previously revealed to your partner (usually because you were afraid of being judged for it).
Hopefully, you’ve already revealed all of your debt to each other earlier in your relationship, but if you haven’t the first step is to find out all of your debt yourself. It’s surprising to see how many people don’t know their full debt balance themselves. If you’re not totally sure about how much money you owe, look into the following:
Once you’ve assembled a list of all your debts (this is an exercise that will prove very useful beyond just this step), communicate it to your partner. Your partner should do the exact same thing.
If you are hesitant to do this because of some sort of fear - stop being scared and even if you are scared, do it anyway. You’re going to marry this person and have a life with them - it is not acceptable for you to be willing to do all of the things that come with marriage and to commit your life and energy to this union but be unwilling or to too afraid to reveal all of your debt.
Revealing all of your debt to each other before marriage is a wonderful exercise. It might cause some drama or tension at first if things weren’t previously revealed, but once things are in the open, your relationship will improve because you will no longer be hiding things in your financial closet. Additionally, you will have set yourself up for a prosperous and happy marriage because by being aware of your household’s debt load, you will be in a much better position to deal with it and to gradually eliminate it on your way to building wealth and achieving financial freedom. A household that is confused about how much money it owes cannot be a financially successful and prosperous household.
3. Reveal All Assets to Each Other
This one should be easier than Step 2 if you have a lot of debt, but you still might find some resistance if you have a lot of assets. That’s somewhat understandable, but you must ask yourself what marriage really means to you and what you want from this marriage if you are unwilling to tell your future spouse what your current asset holdings are. Assets include everything you own (eg. cash, stocks, bonds, real estate, gold, silver, private business interests, etc.).
Marriage means combining everything - including your assets (unless you have a prenuptial agreement - more on that in Step 8). That means that when you get married, from a philosophical perspective, everything that belongs to you belongs to your spouse. Legally that may not always be the case, but we’re not talking about marriage law here - we’re talking about what marriage means beyond the letter of the law and what will set you up for a successful, prosperous, and happy marriage. If your partner is going to inherit everything you own when you’re married, shouldn’t they be aware of what you own today? Isn’t it much wiser to prepare each other for what is to come than live in some dark illusion?
Again, some people might hesitate, feeling that they should keep their assets separate or feeling afraid to reveal how much or how little money they really have. That is possibly understandable, but it cannot become an excuse to avoid this very important and very necessary part of marriage - combining everything with your husband or wife. If you cannot allow your future spouse the knowledge of what you have, how can you possibly enter into the sacred bond of marriage with them?
Of course, if your spouse has proven to be very irresponsible with money and reckless with finances, you might be unwise to go beyond just revealing what you own. In that case, you’ll still want to reveal your assets, but you will want to make sure that you are in total control of them now and possibly even after marriage. This will prevent your newly formed household from misbehaving with money - if your spouse misbehaves with money your household misbehaves with money. This can become a touchy issue if your future spouse is very irresponsible with money because he or she isn’t likely going to easily accept you simply revealing assets but not allowing them to control them in any way. If your spouse is prudent, mature, and honest with himself or herself, however, they will likely understand that they have proven themselves to be an unworthy recipient of control over of a lot of money or a lot of assets - they’ll understand that you are somewhat justified in your caution and that they’ll have to slowly prove to you that they have changed their ways and are committed to being in a healthy and prosperous union with you. If they don’t understand, however, you’ve got a bit of an issue on your hands that is now out of the realm of personal finance and household finance and in the realm of relationship problems - you might consider seeking some sort of relationship counseling or premarital counseling before tying the knot in such an unpleasant situation.
4. Check Each Other’s Credit (FICO) Scores
This is a simple one and should be easier than both Step 2 and Step 3 because it’s not as important for your financial future - although your FICO score (aka credit score) is somewhat important, it isn’t nearly as important as cold hard assets and the debt that you owe in determining your household’s financial well-being and financial future.
Here are are few reasons why a good credit score is important:
The good news is that once you’re married you’ll be able to rely on your spouse’s credit score if theirs is good and yours is bad (assuming you are both applying for the financing). If both of you have poor credit, however, then you’re in a tough situation because you might find it difficult to finance purchases (and do some other things that might require a good credit score) in the first few years after marriage until you two are able to rebuild your credit.
Remember, there’s a fine line between being too concerned and not concerned enough about your FICO score and credit history - be concerned but don’t obsess over it or think that your credit score is the most important thing in your financial picture. Your abilities to earn a solid income, to live below your means, to save money, are far more important than your credit score because they actually determine how much money you have in your pocket and in the bank - a credit score is only a number that is supposed to predict your creditworthiness (how likely you are to repay a loan) but you can’t live on your credit score - your credit score doesn’t pay your rent or put food on the table or pay for your vacation.
You can check your credit score in a variety of places. One free service is Credit Karma, although there might be other (possibly better) options out there.
5. Save to Pay for Your Honeymoon in Cash
After your wedding, if you plan on doing a honeymoon (there’s nothing wrong with not doing a honeymoon or postponing it), make sure you pay for it with cash - do not go into debt to pay for a vacation (yes, a honeymoon is a vacation) no matter how important you think it is.
You will be making a big mistake if you finance your honeymoon with credit cards and other forms of debt. You’ll return from the trip but you’ll be stuck with the debt for many months or possibly years. The debt will prevent you from achieving other financial goals and the debt will be attached to a vacation you already took - you won’t able to go back and “sell” the vacation as you would be able to sell your house if you decide it was an unwise purchase. If you pay for your honeymoon with cash, however, you’ll come back home calm and you’ll be able to continue your financial program (or start one) as a married couple and you won’t have to first pay down thousands of dollars of useless credit card debt - debt that was incurred for a luxury purchase.
If you do have the cash to pay for the honeymoon, however, don’t hesitate to use the money you’ve saved up on a nice (but reasonable) honeymoon with your future husband or wife. Some financial nerds and super-savers might think it’s better to instead invest the money rather than spend it on a honeymoon after a wedding. While this might be a good move when considering only your financial life, your spouse (who might not be a super-saver or might really want a honeymoon) might find the entire notion of foregoing a honeymoon to instead save or invest the money very unromantic and they could be disappointed with such an idea. Remember, life isn’t just about your net worth. So, if you’ve got the money for it and it’s something you two want to do, do not hesitate to take a honeymoon with your new spouse and don’t feel even a little bit guilty about doing it - enjoy your honeymoon and remember that the only reason we want a lot of money and a lot of wealth is because we want to help people and have amazing experiences in life. Money for money’s sake is really a pointless and dark proposition that won’t make neither individuals nor societies truly rich in the broad and proper sense of the word.
Additionally, do not tap into your emergency fund to pay for your honeymoon. Tapping into your rainy day fund to pay for such a luxury is almost as bad as going into debt to pay for it - you know very well that a honeymoon is not considered an emergency.
6. Save for Moving Expenses and New Furniture
Most couples do some sort of living space change after marriage - either you’ll move in together or you’ll move somewhere new if you’re already living together. You’ll want to save up for any possible moving or moving-related expenses and pay for them with cash. Whether you’re just planning to buy a new couch for the living room in the apartment you currently live in or you plan to buy a new house in another country, if you anticipate some expenses for settling in together as a married couple, save for it immediately and aggressively to make sure you can pay for it all with cash. Do not make the mistake of burdening your new marriage and your new combined financial house with useless debt.
7. Consult with Family About Potential Help You’ll Receive from Them
Some new marriages are lucky enough to be blessed with financial support and financial assistance from parents, grandparents, or other family members. If you’re lucky enough to have parents or in-laws who will help you start your married life by contributing financially, be thankful for this and resolve to use your luck and their assistance as wisely and as prudently as you can.
It’s a good idea to speak to your parents (or other family members) well before getting married to understand how much they will:
Generally, each person should speak to his or her parents alone without the presence of the other future spouse - this makes things much more proper and pleasant for everyone and is in line with common courtesy. You know your parents and you should have an idea of their financial means and what they think they’ll contribute already so you shouldn’t be too surprised after the conversation(s). The point is to understand what’s going to happen so you can effectively plan for the future together.
8. Discuss Prenuptial Agreements and Make a Decision
Some people come into a marriage with substantial assets or with substantial incomes and wish to protect their assets or future incomes in the case of divorce. We won’t go into whether prenuptial agreements are “right” or “wrong” here, but you’ll want to discuss a prenuptial agreement with your spouse in a very tactful, respectful, and loving way if you want a prenuptial agreement set up before entering marriage.
Some people view prenuptial agreements as unromantic no matter what assets each partner brings into a marriage and no matter what incomes each person earns. Make sure to understand this if your partner is opposed to it. If you’re opposed to it and your partner wants a prenuptial agreement, understand where they are coming from as well. Prenuptial agreements are popular and most couples generally are able to relatively easily agree about having or not having one, but sometimes the issues can get touchy when a couple has never discussed this and when one partner has a disproportionate net worth and income relative to the other. Usually, prenuptial agreements are more popular among older couples, as younger couples often have not had the time to build enough wealth or develop high enough incomes to make a prenuptial agreement very useful.
Remember, your financial life is only a part of your life. The above 8 things are what you should do to maximize the chances of financial success in your marriage, but marriage is far more than a simple economic partnership - never forget this as you embark on what should hopefully be the most rewarding partnership with another human being of your life. Marriage is a complicated thing that is at once a legal, spiritual, and historic proposition with many traditions and historical aspects mixed in even in our modern Western society.
Pennies and Pounds wishes you and your future spouse the best of luck as you embark on this journey and we are thankful that we had an opportunity to contribute to your marital happiness and prosperity in some small way.
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Saving money is the first step to financial freedom and wealth, but it is usually not enough. Simply saving money will force your entire financial plan to rely on your ability to earn and save. Investing the money you saved, however, will create a situation where you money could potentially work as hard as you do - earning every single year and compounding those earnings in order to earn more and more in subsequent years. Read the piece below to get a good grasp on why you likely must invest your savings.
Saving vs. Investing
Saving money is not the same as investing money. Although to invest money, you must first save it, saving and investing are two very separate things.
First you must earn an income. You can earn an income by selling your hourly labor or you might earn an income in other ways (eg. investment income, residual income from intellectual property, etc.). Regardless of how you earn an income, you must decide what to do with the money that is coming in. A prudent person will never spend his or her entire income - they will instead make sure to live below their means in order to be able to save a portion (hopefully a substantial portion) of their income for various things:
an emergency fund for financial emergencies
a cash reserve for expenses that don’t occur monthly (eg. once a year, once a month, once in a lifetime)
investing money in order to grow it - this is where most of your money will go
You save money in order to invest, but just because you save money doesn’t mean you are investing it or that you’re an investor. Investing money is a very specific action that you take with your money in order to grow it in a calculated way. Read our article on what constitutes proper investing to get a good understanding what investing really is:
Are you investing or speculating? (The Real Definition of Investing)
If you put money into your checking account, into your savings account, under your mattress, or in your backyard, you are not investing it - you are merely saving it. Even though a savings account pays you a rate of interest, it doesn’t qualify as proper investing because the rate of return is certain at the outset and because the goal of such a product isn’t to grow your money but to keep it safe. Additionally, this will almost never outpace inflation - you'll lose purchasing power every year on average. For more, read the article above on what constitutes proper investing.
So, why do we have to invest?
You must invest because saving is not enough - if you are a salary earner or a small business owner or self-employed (if you’re never going to strike it rich but instead rely on a monthly income), you will never become very wealthy by just saving money every month unless your income is incredibly high. You must invest because of simple mathematics - because the numbers don’t make sense otherwise.
A Simple Example of the Power of Prudent Investing
Let’s imagine two households: Household A and Household B. Each of our households earns a decent income although Household A earns more. Both of our households are hard-working and both have goals for the future - they both want a nice nest egg to retire on and to enjoy.
So, we see that Household A and Household B end up with about the same amount of money in 30 years but had vastly different approaches - Household A just saved money while Household B not only saved, but also invested.
The reason Household B did comparatively better than Household A (it saved almost 10 times less per year but achieved the same results) was because Household B worked for its money and then it put that money to work - Household A just worked for its money.
Work for Your Money - Then Have Your Money Work for You
Investing allows your money to work hard - investing allows your money to grow and compound. By just saving your money and not putting it into ventures or schemes that will allow it to grow, you are relying only on your hard work to get you to your financial goals. Financially wealthy and wise people, however, realize the power of money - they see its power to earn a return and to allow that return to compound over time. The compounding that occurs over time is like a snowball rolling downhill, picking up ever-increasingly large amounts of snow as it continues.
1. Saving alone isn’t usually enough to reach your financial goals unless your income is sufficiently high and you have the willingness and ability to save very large amounts of money (to sacrifice a lot) - investing is a much easier and much more effective strategy for building wealth.
2. The advantage of investing is simple - with investing your money works for you. With saving only, however, your entire nest egg is dependent on your ability to save. By investing, you are allowing your money to earn a return and the compounding of that return beautifully increases your wealth over time.
Every journey begins with a single step. Have you heard of that saying? You’ve probably heard of it and although it might sound cliche, it is extremely insightful. If you don’t have at least $1000 put away you have not taken your first step on the path to financial freedom - it’s time to take it with the help of Pennies and Pounds in this in-depth guide. The first step on your path to financial freedom and wealth is putting $1000 away as a starter emergency fund - that fund will stand between you and the financial emergencies that will come your way in the future. Without even $1000 saved, you are exposed to extreme risk because even a slight financial emergency has the potential to wipe you out financially or put you into debt. Read the piece below for a comprehensive guide on getting to your first $1000 and you’ll be well on your way to financial success and financial freedom.
Don’t Have $1000? You’re in a dangerous situation!
Whether you are 18 or 80, if you don’t even have $1000 in your pocket in the developed world, you’re in a dangerous situation and you must immediately do the things below to build up at least a basic $1000 rainy day fund.
A rainy day fund or an emergency fund is a required part for most financial plans because it protects you in various ways. You can read more about why you need an emergency fund in this very comprehensive article that will surely make you look at your finical life in a different way (check this article our immediately after reading this article):
Why You Need an Emergency Fund: The Most Complete Explanation Ever
However, if you don’t even have $1000 saved, we can’t yet be concerned with a real emergency fund because you don’t even have a tiny buffer between you and life’s uncertainties and financial storms. An emergency fund will almost always be more than $1000 if you’re an adult with living expenses (and will definitely be more than $1000 if you are running a household), but we must take the first small step, moving you from the absolute nakedness of not even having $1000 saved to putting a $1000 financial blanket over you.
Without any money saved in a rainy day fund or emergency fund, you will have trouble handling the following possible financial emergencies:
Additionally, without even a bare minimum of $1000 saved, you will likely find it very difficult and stressful to deal with expenses that aren’t emergencies, but that are rare (eg. those that occur once every few months, once every few years, etc.) - expenses such as:
If you don’t have $1000 saved, you probably know the above already and you probably already know how stressful life can be without some sort of financial cushion, but we must reiterate it in order to really demonstrate how important it is that you act now and act quickly to put $1000 away.
Once you have your $1000 saved, you will feel much better. Although $1000 isn’t a proper emergency fund for most people, you’ll still have some breathing room in your life once you are able to put away your first $1000 - you’ll have some cash put aside for when life comes knocking on the door. You’ll know that you can handle small financial emergencies easily because you have the money put aside for them. You’ll also feel proud for doing it because getting to your first $1000 (regardless of your age) isn’t an easy task. If you can get to $1000, you can move forward to building up a full emergency fund and then building some wealth for you and your family.
Why don’t you have $1000 already?
If you don’t have $1000 put away already, it’s likely for one of the following three reasons:
First, let’s address the third category - if you recently dealt with a financial emergency that wiped you out financially. That’s a very tough situation to be in. However, if you had an emergency fund before the financial emergency and if you had some wealth built up, you actually did pretty well. Yes, you’re back at square one now, but you have proven yourself capable of building an emergency fund and building wealth. So, you can do it again, even though it may seem incredibly hard now. In a way, we’re not as worried about you as we are with those in the first two categories. So, ask yourself whether or not you were doing well once financially and whether or not your current situation is just because of some finical emergency. If that’s the case, get back up, look into getting some more insurance in place to guard you in the future, and begin anew, with the knowledge that you’re capable of doing what’s right for your finical life. There’s deep dignity in being able to take a hard punch to the chin and having the grit to get back up again - have the grit and get up.
Now, on to the first two categories - these are serious issues because they demonstrate fundamental or structural problems with your finical life - it’s not that you had a run of bad luck. If you’re in the first two categories, some drastic but focused changes will need to be made so that you can get on the right track finically and put some money aside for yourself and your family.
1. Don’t Make Enough Money
This is tough and everyone should understand this. After the Great Recession, the US economy (and generally speaking, the global economy) has recovered, but it has been an unusual recovery compared with other economic recoveries in the last century - it has been a recovery in the stock market and the GDP, but not in employment. Yes, the unemployment rate has dropped, but the definition of the term “unemployment” is very precise and that precision can be misleading when people exit the workforce. We won’t go into the details of how unemployment is measured or the technical definition of the unemployment rate in this article, but it is important to note that just because the unemployment rate has gone down doesn’t mean that things have gotten much better in terms of employment - people might be employed but underemployed and some people might have dropped out of the labor force altogether (and, therefore, wouldn’t be counted as unemployed per the current definition of unemployment in the United States). Those are a lot of words to explain what you probably already know, just because you have a job doesn’t mean it pays enough and doesn’t mean you have enough hours at it to make a good income.
If you don’t have an income at all currently and are on your own (if you’re pursuing some sort of education and are living with parents or other relatives you’re not really on your own yet) then you’ve got a bigger problem than those that are underemployed - you’re not even earning anything. That’s an understandable position to be in - the economy of the United States and much of the Western World has shifted and is continuing to shift towards a more capital-intense knowledge-powered economy that is making many people simply unemployable. What this means is that many people aren’t unemployed because they are lazy or don’t apply for jobs or because they somehow failed to get the right skills - it’s that we’re transitioning towards an economy where there are no right skills for you to have, an economy where not everyone can have a job because there just aren’t that many jobs available. Now, we know it’s a tough situation for many people, but that can’t stop you from doing your best to earn some sort of income and putting some money aside for the future. You cannot afford to be left in the backwash of the transitioning global economy - you must find the energy to do something today to move forward while at the same time creating a gameplan for the future.
Whether you are underemployed or unemployed, you should likely get working right now in some part-time job or freelance gig. The job doesn’t have to be something you see yourself doing one year from now, it just has to be something that can reliably bring in extra cash every week and every month, allowing you to put some money aside to get you to your first $1000.
A Few Potential Side Gigs
Pizza Delivery: This is a slightly old-school recommendation for a part time gig but it can still work in the right situations and for the right people. It doesn’t pay very well hourly, but you have the potential to earn a decent amount in tips if you work in a good area and are personable.
Drive for Uber or Lyft: This seems like the 21st-century version of the pizza delivery job. It’s becoming common knowledge that Uber, Lyft, and other firms are attempting to move away from human-based transportation, so the opportunity to earn money with Uber and Lyft might not exist a decade from now, but you can definitely take advantage of it today as long as your car meets their requirements.
Cashier: This works best for seasonal work - times of the year (usually the holidays) when business picks up and extra workers are temporarily needed. There are a few disadvantages with this type of job, however. You can’t set your own ours and you can’t work extra hours. Freelancing or driving for Uber, for example, you can decide to have an intense two weeks and drive a lot of hours to earn some extra cash quickly - with a typical cashier (or similar) job you just can’t do that and you’ll have to be ok with the money trickling in slowly. Additionally, the pay is likely to be low with few or no opportunities to earn tips.
Upwork: If you have some advanced and in-demand skills, check out Upwork, an excellent way to freelance online. It might take some time to build up your profile so you’ll have to be a bit patient compared to other jobs (you don’t start earning much immediately) but you have the potential to earn a very good hourly wage and you can work from anywhere.
Fiverr: Similar to Upwork, but paying less, Fiverr allows you to freelance and take jobs from anywhere if you have in-demand skills.
If you can get a side job (or two - and possibly three), even temporarily, you should be able to put enough money away every week or every month to build up your first small rainy day fund of $1000. If you’re in this camp, however, you need to make sure to stay vigilant and forward-looking because you don’t want to:
The ideal situation is you working now and putting money aside while developing some sort of gameplan to earn more in the future - earn more not just by working more hours but by earning a higher hourly wage. To earn more per hour, you’ll need to improve yourself - you’ll need to improve your technical or job-related skills, your professional skills, and your overall personality. Think about where you want to be in a year and in a few years and move in that direction, getting the necessary skills and experiences so that you can end up in the job you want (and can realistically obtain).
2. Earning a Decent Income but Spending Too Much
If you’re in the camp of people who earn a decent income but who overspend, you’re in the toughest camp because some deep changes will need to be made in order to make financial progress - changes that might take less time than a side job but that are more mentally and spiritually difficult to accomplish and changes that you’ll have to stick with for the long run if you are to permanently improve your financial situation.
What’s a decent income?
Now, by decent income, we don’t mean earning six figures or earning enough money that all financial irresponsibility will be wiped away just by the sheer volume of money coming in. By decent income, we mean an income that is around the median income of your community or state. There is no hard and fast rule for this, but you could consider earning anywhere from 75% of your community’s median income as a decent income that should easily allow you to put away $1000. If your household makes a median income, in the vast majority of cases you should easily be able to have $1000 put away - if you don’t seem to ever be able to do this then it means you are likely consistently overspending and living beyond your means even though your means allow you to live a reasonably comfortable life while still saving for your future and building your financial house.
Read this excellent Wikipedia article that lists the median household incomes for every state in the United States
You Must Cut Out Unnecessary Spending in Order to Save Money
If you’re making a reasonable income and you still don’t have $1000 saved, you must likely cut down on your spending. It’s very difficult to write general statements for a general audience, but it is likely that most readers who earn an income 75% of the median in their communities (or more) and are unable to put away $1000 likely have a problem with overspending and understanding the difference between necessities and luxuries.
It is very difficult to move from a lifestyle of reckless wastefulness to lifestyle of frugality and discipline. Many people try for a little while but then return to their old ways of overspending. It seems that there are underlying reasons for many people’s dysfunctional financial habits that cause them to behave in irrational and self-destructive ways. We won’t go into them here in any depth, but here are a few possible psychological issues or neuroses that potentially cause people to behave recklessly with their money (and overspending is definitely reckless financial behavior):
Now, we all feel bad about ourselves at times. We all doubt ourselves at times. We all have occasional fears of being in poverty and many people have been spoiled in certain ways. However, many of these people are still able to live financially responsible lives because they do not allow their internal psychological issues and neuroses to influence their pocketbooks, their bank accounts, and their wealth building programs - they understand that the cost is just too great and that nothing will be improved by mishandling finances. However, handling your finances properly and spending less then you make (living in financial dignity) will allow you to improve both your financial life, your personal life, your professional life, and your internal life - it will make you into a happier and stronger individual.
I know the above is easy to say but hard to do - it’s very hard to overcome yourself and stop misbehaving financially. However, if you are to ever build wealth and live a financially stable and successful life you must begin to improve your interactions with money and your ability to handle it properly. You must begin by saving your first $1000 so that you may go on to amass $10,000 and $100,000 and hopefully much more than that in time. But, you’ll never be able to amass any real and lasting wealth if you are governed by your own psychological neuroses and your momentary whims and desires to spend money on frivolous things when you don’t even have $1000 put away for yourself.
To the Details - Start Putting Away Some Money Every Week
If you put in a concentrated effort into building up your wealth, you’ll be able to save your $1000 in less than a year (and possibly in less than 3 months if you can save more).
Don’t save every month - do it every single week. If you attempt to save every month you might end up at the end of the month with not enough to put away. You will run the risk of not having the needed amount if you do it every single month. However, if you save a bit of money every week, it will be both painless and it will assure that you actually are able to put enough money away. Weekly savings will be relatively painless. Weekly saving doesn’t even require receiving a weekly income - you can be paid biweekly or once a month and still successfully save every week because you can save a very small amount every week (an amount possibly less than the cost of a single skipped restaurant meal).
Take a look at the graph below to see how long it will take you to reach $1000 by saving either $25 per week, $50 per week, $75 per week, or $100 per week. Obviously saving more is better, but even if you can put away $25 a month, you will have your $1000 in less than one year - you will transform your financial house from a desolate and empty lot to a lot with a slowly building solid foundation (a foundation on which you will continue to build upon).
Additionally, you will want to create a monthly budget. This is tough and you can expect that you’ll be way off on your budget for the first couple of months, but things should get easier if you keep at it. In creating a budget, plan on where each dollar will go to next month and do your best to stick to it. Next month, before creating another budget, evaluate the success and failures from the previous month. If you’re married or financially intertwined with a partner, make sure to create the budget together. Not both of you have to put in equal effort (some people are more financially savvy or more interested in personal finance than others) but both of you should have a seat at the table and both of you should have a say into how the budget is determined if you are to do this in a proper and overall healthy way.
1. If you don’t have $1000 saved up, you’re in a dangerous situation because you are exposed to both financial emergencies and one-off expenses (those expenses that are not monthly but that instead occur yearly, every few years, or once in a lifetime). Without having even a very basic $1000 rainy day fund, you are in a very precarious situation which will prevent your from building wealth - if you can’t even save $1000, how will you save $10,000 or $100,000 or build lasting wealth. This should motivate you to put in the work and make the necessary sacrifices to get to your first $1000. The good thing is that $1000 isn’t very hard to save up - as the above graph demonstrates, even putting away an extra $25 per week will get you to your $1000 in a lot less than a year.
2. Depending on your current situation (not earning enough vs. big spender), you will have to approach things as described above. Be aware that the problem with your current financial situation isn’t just the numbers, but it is with your heart and your soul also - never forget that who we are inside will manifest itself in our finical life also. Be courageous as you make the necessary external (getting an extra job or building a budget) and internal (understanding why you overspend if you’re in the second category) changes to start on the path to financial success and finical freedom.
An undergraduate degree is a wonderful thing and college or university can be an amazing experience. You’ll learn a great deal, but almost as importantly as your educational experiences in college, you’ll expand your horizons and your mind beyond basic academic pursuits and you’ll grow personally into a more interesting, sophisticated, and happier (hopefully) person. However, to have an amazing college experience, you’ll want to make sure you to do the below 8 things - they’ll help you manage expectations and reduce both financial and personal stress so that you can focus on school. They’ll also set you up for a successful financial and professional life once you’re out of school.
1. Understand What an Undergraduate Education Really Means in the 21st Century
An undergraduate education isn’t what it used to be. Today, a college degree is more like a high school diploma than a ticket to a great job and a great salary. You must understand what an undergraduate education really means in the 21st century for your learning and for your career if you are to make the most of your college or university experience and if you are to avoid being disillusioned and disappointed in the future.
We won’t go into the history of education here, but since the end of World War II, a Bachelors degree was an almost sure fired way to get a good job and earn a good income for your entire life in the Western World. Almost regardless of what you studied, if you graduated from a decent college or university, you would very likely be able to enter the workforce and earn a good income as some sort of white collar worker (or a more technically-oriented blue collar worker). You would have a stable job with a stable financial life.
Since the turn of this new 21st century, however, things have been gradually changing. The 1990s saw a massive proliferation of high-powered, connected, and affordable technology for both consumers and enterprises. Today, that technology is reaching even the most remote and forgotten parts of the world. That technology, which was a novelty for many years, is now permeating deep into everything and is beginning to transform enterprises around the world in ways that are too numerous to describe in this article, but here are just a few:
Who would have thought ten or twenty years ago that so many smart college graduates would be working in places such as Starbucks - this would have been almost unimaginable to someone int he 1980s, for example, where a Bachelors degree from a reputable college or university meant you would almost surely find a decent career. Today, however, too many college graduates can’t get good work or are forced to go to graduate schools to pursue a Masters degree or professional degrees in order to have the same shot at a good job their parents or grandparents had just by obtaining a Bachelors degree.
Whether or not this is “right” or “wrong” or why this is occurring are are very interesting discussions, but they are beyond the scope of this article, which is intended to make sure you’re very successful in your undergraduate education and beyond. What you need to understand is that times have changed and that your college degree might just turn our to be the equivalent of a second high school diploma. Your college degree might be very useful to your personal and intellectual life, but it might not be very useful for your career unless you choose one of the handful of majors whose graduates are very in demand with only a Bachelors degree (majors such as certain types of engineering, accounting, data science, or computer programming).
Don’t take the above as anything more than it isn’t meant to be - a simple statement of what seems to be currently occurring. The above discussion is not at all meant to dissuade you from pursuing a college degree. An undergraduate education is way more than a ticket to a job - it is an opportunity to grow both personally and intellectually, it is an opportunity to become a more interesting and well-rounded person, and it is now an opportunity to see what you might really want to do with the rest of your life. Unlike past generations, graduating with your Bachelors degree will just be a starting point for most students in terms of their careers and their professional development.
Check out the very interesting (and slightly dark) video below for one take on what the future of work means and how the "rise of the machines" will affect employment:
2. Save at Least $1000 for a Small Emergency Fund
Having a $1000 emergency fund before heading off to college is a must and a bear minimum - do your best to save more. There will very likely be unexpected expenses that come up and you’ll want to have the cash available to take care of them without going into debt and without stressing out too much over them. Here are just a few examples of possible finical emergencies in college:
You might already have $1000 or more saved up from gifts you’ve received over the years or from a job or two you’ve had during high school. If you don’t have that $1000 saved up, then start saving it now. You can easily save up $1000 with a part-time job (or two) during the summer before you start your freshman year at college or university. You probably won’t want to work hard the summer before college and that’s understandable, but if you can manage to work hard anyway and do the right thing of putting a starter emergency fund in place, you’ll set yourself up for a much better college experience with a lot less financial stress and worry.
Remember, $1000 is a bare minimum - try your best to save as much as you can. A big cash cushion for when you’re in college will almost never be a bad thing. Don’t worry so much about where to keep the money - keep it in a simple and safe savings account and don’t invest it until you’re really ready.
Now, as a young college or university student, it might be tempting to spend some of your money on frivolous and unnecessary things. That’s not good, but it’s understandable - we’ve all made financial mistakes (and other types of mistakes too). However, you must have the discipline to not touch the money unless it’s an actual financial emergency or unless you’re going to purchase something that is fundamentally important for your education, career, or health. Don’t waste the money you sacrificed to have (you either sacrificed by earning it or you sacrificed by not spending it if the money was a gift) on frivolous and useless pursuits no matter - your future self will thank you.
3. Set up a Ride-sharing Profile (eg. Uber or Lyft)
Ridesharing services such as Uber and Lyft are transforming transportation around the world and have the ability to create a much safer world. If you’re heading off to college, you will be wise to make sure you have a profile properly set up on at least one ridesharing service so that you will never drive under the influence of alcohol or any other sort of mind-altering substance and so that you will have a ride in case your only other option is riding with someone who is under the influence of alcohol or some other mind-altering substance.
If you’re under 21 in the United States, you shouldn’t be drinking at all per the law, but students don’t always follow the law on most college campuses - in fact, it’s statistically very unlikely that someone will reach the age of 21 in the Unites States without having had an alcoholic beverage. So, you have to be smart and prepare beforehand.
A ridesharing profile will allow you to be able to leave your car at home if you know you’ll be drinking. Even if you didn’t plan to drink but decided to drink anyway, you can leave your car at your destination and take an Uber or a Lyft home safely if you have ridesharing profile set up - you can return the following morning to your car in a sober state. Additionally, if you happen to ride as a passenger with someone who ends up drinking, you can safely ride home using Uber or Lyft instead of having someone who is under the influence drive you home.
4. Read The 7 Habits of Highly Effective People
Read The 7 Habits of Highly Effective People by Stephen Covey. There are many great books you can read (both fiction and non-fiction) that will expand your mind and heart and make you a more effective college student, but the 7 Habits of Highly Effective People is a book that can be counted on in many different situations and for many different people - that’s why I am comfortable recommending it to pretty much every reader.
The book is slightly geared towards an older individual than an 18-year-old freshman. There’s a book written by Covey’s son titled The 7 Habits of Highly Effective Teens as well, but a person entering college is too old for that book. An entering college freshman is sort of in a limbo zone between the two books (People vs. Teens), but I would recommend reading a book that’s a bit out of your league than a book that you’re already too old for. As you grow older and mature in your personal and professional life, you’ll be able to refer to the book and reread parts of it (or all of it).
5. Make Sure Your Health Insurance Is Set up Properly
Your college or university will likely require that you have health insurance in place. You’ll either still be on your parents’ health insurance plan or you’ll have to purchase it on your own or from your school. This is basic stuff, but it is important. You have to make sure you have good and proper health insurance in place because you don’t want to get sick or injured and have to incur debt to pay for your medical bills while you're pursuing your undergraduate degree. You want your college or university experience to be safe and fun, but if it somehow ends up unsafe or unhealthy, you want to make sure your medical treatment is covered and that you won’t have to stress out too much about it. Speak to your parents about this to make sure you're on their plan but take initiative on your own - you might want to call your health insurance provider and let them know you’re going to school and see what they say if you’re planning on remaining on your parents’ health plan. If you’re going to purchase health insurance at your college or university, take the time to see what’s covered, what doctors you can go to, and what the copayments are - you’ll likely be able to find this information on the college’s or university’s website.
6. Check Your Credit Score (and Monitor It Consistently)
Your credit score is important because it roughly is used by lenders and other institutions to determine your creditworthiness - to determine how reliable you are financially and how likely you are to pay back a loan based on various metrics. A good credit score isn’t a necessity for finical success (especially if you have a lot of money and won’t be borrowing money throughout your life) but it is very useful to have a good credit score and a strong credit history.
You’ll likely have none or maybe one credit card of your own as an entering freshman and you probably shouldn’t be applying for more during college, but you still will want to know your credit score and monitor your credit score and credit history over your time as an undergraduate and beyond.
It’s a good idea to check your credit score and credit report at least once a year, but I recommend that you do it at least every six months. There are a lot of free online tools that can help you do this. Credit Karma is a popular and free tool but there might be other products and service that do a better job. Credit Karma is free, but there is advertising involved - they pitch various credit cards and other financial products to you.
Every time you check your credit score, see if your credit score dropped since the last time you checked. If it dropped, find out why. Additionally, check your credit report to see if there are any new things on it that you didn’t do (eg. new credit cards, new loans, etc.). Finally, check to see if there are any derogatory remarks (eg. late payments) on your credit report.
Your credit score is going to start out low because you don’t have much of a credit history as an entering college or university student, but you’ll want to make sure your credit score doesn’t fall and that your credit history doesn’t have derogatory remarks. If your credit score is low in the future, you might find it difficult to purchase a car, rent an apartment, get loans for graduate school or professional programs, open up new credit cards, or get a good loan for the purchase of your first home. You have your whole life ahead of you and you hopefully won’t go into debt, but you might - you might need some sort of loan. You want to make sure your credit score is top notch so that you actually can get the loan and that when you get it, you get it at a good interest rate.
7. Create a LinkedIn Profile
You probably have a Facebook profile set up already (Like us on Facebook if you do!), but there’s another profile you should create before you begin college - a LinkedIn profile.
If you don’t know what LinkedIn is, think of it as a Facebook profile for your professional life. Your LinkedIn profile is like an extensive online resume where you can list not only your work experience, education, and skills, but where you can also:
LinkedIn will become more useful as you go through college or university and then enter the workforce, but it’s a great idea to get a head start now. Here are a few things you can do on LinkedIn starting in your first semester or quarter at college or university:
If you do the above, you’ll have a solid LinkedIn profile when it’s time to look for part-time jobs, internships, and even full-time positions after graduation.
8. Sign up for Khan Academy
Khan Academy is a very useful free online learning platform that’s great for anything but especially seems useful for mathematics. You can use Khan Academy to review basic things before you start classes, but it also proves useful during actual exam preparation for many students. Khan Academy has short videos on a variety of subjects such as mathematics, life sciences, physical sciences, economics, finance, and other useful subjects. Surprisingly, Khan Academy’s videos are of decent quality and seem to provide quite accurate information in relatively easy to understand video bites.
What if you’ve already started college or university?
If you’re already in college or university (whether you’re a freshman, sophomore, or junior), you can and should still do everything on this list if you haven’t done so already. Just because you didn’t read this article before you started college (it might not have been around then) doesn’t mean that it’s too late do do the important and useful things above - it’s never too late to do the right things and it’s surely not too late for a young college student like yourself to move forward in your life and make some wise moves.
If you’ve had a financial emergency that forced you to dip into your emergency fund, rebuilding it quickly is crucial to your financial success even though it might seem like a difficult and unpleasant task. Read the article below to get motivated and to find out how you’ll be able to rebuild your emergency fund very quickly.
If you have weathered a financial emergency by tapping into your emergency fund, I want to take a moment to congratulate you. I know things might seem difficult now and even if the financial emergency is gone, it never feels good to have to tap into your emergency fund. However, I congratulate you anyway because the fact that you even had a rainy day fund in place puts you above so many others who must weather financial emergencies with no rainy day fund - they must either resort to going into debt to pay for the financial emergency or they must liquidate some of their investments. You, however, planned ahead and had a rainy day fund in place to guard you and your household against life’s financial storms - instead of hoping that those storms wouldn’t come, you knew they would one day arrive and you set out to put an emergency fund in place between you and the harsh realities of the world.
Now, however, it is time to once again buckle down and quickly rebuild your emergency fund. You can’t waste time by slowly rebuilding your emergency fund. At Pennies and Pounds we recommend building up your emergency fund very quickly and, in the same light, we recommend rebuilding your emergency fund very quickly after a financial emergency.
First, You Need to Get Motivated
Don’t Have the Energy to Do It Again?
I know how hard it is to weather a financial emergency and to see the emergency fund you built with your sweat, your toil, and your sacrifices be depleted to take care of something that shouldn’t have even happened in the first place. You might not feel that you have the internal energy to build up your emergency fund quickly again - you might feel like you’re not up for it. This is an understandable feeling, but you cannot let it prevent you from putting in the necessary effort into rebuilding your rainy day fund quickly, an integral part of your financial success and well-being.
It’s Not as Hard as It Might Seem
The truth is that even if you feel like it’s too much trouble to rebuild your emergency fund, you’re probably wrong. It’s not as hard as you likely think it is. You built up your rainy day fund once and you can do it again. In fact, it will be easier to do it again because you’ve already done it once before - you have proven yourself capable of achieving the important task of putting a proper emergency fund in place.
Building up your emergency fund won’t take much time, but it will take some concentrated effort. The good news is that the effort you will have to exert isn’t particularly difficult as you will see below - it might be slightly physically taxing, but it won’t likely be overly mentally or emotionally taxing. You’ll need to buckle down for a bit, but it won’t be long or particularly arduous.
Use the Following Strategies to Quickly Rebuild Your Emergency Fund After a Financial Emergency
The recommendations below are exactly the same as those given in our article on how to initially build up your emergency fund quickly. They work in this situation just as well.
1. Get a Temporary Second Job
Get a second job doing something on the side. Dave Ramsey's pizza delivery job has been the classic recommendation, but today many more options are available. You can drive for Uber or Lyft if your car meets the requirements. You can tutor if you have skills that are in demand. If you have the skills, it might be possible to do some freelance consulting. Even a weekend job as a cashier is a decent short-term gig if it helps you supercharge your emergency fund savings.
2. Sell Stuff
Selling stuff is a tried and true way of getting your hands on some cash quickly. Some people have more to sell than others, but if you have things that you aren't using anymore, try to put them on eBay or Craigslist.
3. Cut Down Big Time
Most households have some fluff-room (that's not a technical term). What I mean is that most households aren't just buying the basic necessities, but are instead buying extra luxuries. It might be possible to buckle down and cut out a lot of unnecessary (although pleasant) expenses for a short while. It obviously won't feel great while you're doing it, but it's not for long and once you have your emergency fund in place you can go back to a normal lifestyle secure in the knowledge that you have a cushion of cash in place against all of life's crazy unpredictabilities.
Using the above strategies, you can quickly rebuild your emergency fund after a financial emergency. We highly recommend you rebuild your rainy day fund as quickly as possible so you can sleep easier and so you can return to focusing on your other long-term financial goals such as investing for the future and building wealth.
1. Even though it might be hard to rebuild your emergency fund after a financial emergency, it is a necessary action and you must do it in order maintain your financial house - in order to keep a buffer between your household and the financial storms that might come your way again.
2. Now that you’ve already had a rainy day fund and weathered a financial storm, it will be easier to rebuild it than you think - you’ve just got to start and you’ll see how quickly you can rebuild your emergency fund using the tried and true tactics above.
To be successful and to live a life of dignity and self-respect, every independent adult who is of sound mind must live below his or her means. Living above your means is just unsustainable. Living at your means might work, but it isn't enough.
You Cannot Reliably and Reasonably Build Wealth If You Are Not Able to Live Below Your Means
Assuming you are not set to inherit a large sum of money and that you won’t have a large and unexpected windfall such as winning the lottery, to truly have a stable financial life and to build wealth, you must live below your means. In fact, even if you do inherit a lot of money or win the lottery or have some other financial windfall, you must still live below your means if you are to maintain and grow your newfound wealth.
The principle of living below your means is a fundamental principle of personal finance and wealth building - it lies at the bedrock of your financial future and without the ability to live below your income (be it earned income, investment income, royalties, dividends, or any other sort of income), you will never become rich.
There is a quote that is relevant here from the book The Richest Man in Babylon - “a part of all you earn is yours to keep.” That quote is deeply fundamental to building wealth and every person who has accumulated riches throughout history has understood the principle the quote is elegantly trying to convey. What that quote means is that when you earn some money, you shouldn’t give it away to everyone else - don’t give it all away to your supermarket, to Apple, to Samsung, to Microsoft, to AT&T, to Verizon, to Comcast, to T-Mobile, to Netflix, to your favorite stores at the mall, to Amazon, to your favorite restaurants, to Starbucks, to your mortgage company, to your car company, to American Express, to Visa, to MasterCard, to Discover, and to all of the other people and businesses who work tirelessly to get some of your hard-earned money (and even if your money wasn’t hard-earned, you still shouldn’t give it all away). If you give all of your money away, you will have none for yourself. And if you have none for yourself, how can you become wealthy over time?
This concept from The Richest Man in Babylon is deeper than you think. I understood it right away when I first read the book at the age of 18, but when I told people in my family and some of my friends about this concept that I found so intriguing, they were puzzled. I got two types of reactions:
They either thought it was too simple of a concept to be intrigued by. “Of course, you should save,” they would say to me. I realized these people didn’t fully understand how profound this concept was, even though they were probably on the right track.
Others, however, were far more deluded. They thought that it was a ridiculous notion because whether they had money left over for themselves wasn’t in their immediate control. They said they had to make credit card payment, mortgage payments, car payments, insurance payments, purchase food, purchase water, purchase clothes, and do all of the other things needed to live a decent life. They argued that it was naive to think that they could magically have money for themselves - naive that they could magically save money every month.
I understand both perspectives, but I know they are both confused and deluded. I also believe that purely explaining it won’t work - one has to actually take the effort and put some money aside one month and see what happens.
It will provide you with dignity
A wise man once said that “there is no greater dignity than living below your means.” This is very true. Humans need dignity and self-respect. As adults we have a deep desire to find our own way, to pay our own way, and to earn our own way. We don’t want to depend on the assistance of others or the assistance of the government (which is the same as the assistance of others).
Of course, I don’t suggest that assistance to those who are in difficult times should not be given. Nor do I suggest that those who are in difficult financial times should feel even a little bit unpleasant or ashamed by receiving help - we are all brothers and sisters on the Earth. However, I do have a basic understanding of human nature and I know that no matter what, an adult wants to be self-sufficient and make their own way.
I believe a part of the reason we want to make our own incomes and make our own way has to do with our ancestral past. Living in small communities in antiquity, everyone had to contribute or else the entire community would suffer. We have a desire to please others, to create value for the world, and do something good for our fellow brothers and sisters. This value creation is rewarded financially (although only usually and imperfectly).
Additionally, the knowledge that you are able to live below your means will give you dignity and self-respect because you will know you are a disciplined person who is able to steer the course of his or her own ship instead of being blown from place to place by the wind. By living below your means, you will have the knowledge that you can make it, that tomorrow will be ok, and that you don’t need to depend on others to survive or thrive (again, not that there is something wrong with depending on others for brief or long periods of time). By living below your means, you will have the comfort knowing that there is robustness in your life - that you are a resilient person who can thrive even in the face of difficult times and uncertainty. A person who consistently overspends is a person who lacks disciple and who cannot be confident in his or her ability to whether life storms well - that person will wonder about what will happen should things get worse. Instead, we must strive to live life well, but in a manner that reflects our understanding of financial principles, our disciple, our courage, and our resilience.
"A part of all you earn is yours to keep."
It seems that in most things in life that we try, we quit right before the big payoff. Just like a tiny plant that is about to break the surface of the Earth, our life is about to change but we seem to get frustrated and stop trying. Sometimes we look back in hindsight with regret that we didn't continue on just a bit further - we ask ourselves why we stopped watering the plant at exactly the wrong time?
This phenomenon seems to hold true with investing. Many people attempt to invest their savings in a wise way. They want to make their money grow and I’m sure they do their best to invest well and invest properly. Most of the time, however, we’re all really bad at actually accomplishing that goal. I’m not quite sure why that is, but I'll postulate.
One problem might be that we pick the wrong stocks at the wrong time. Instead of buying based on the fundamentals of a company, as traditional investment theory would advise us to do, we buy a stock because we got some hot tip or the financial media seems to be covering the company more.It also might be because of a general lack of financial knowledge, which causes us to not fully understand the risk-reducing benefits of proper diversification. Maybe it's because we’re trigger happy, too quick to buy and too quick to sell on impulse and not able to stick with our investments over a relatively sufficient period of time for momentary market fluctuations to not matter much.
But when you think about it, it doesn’t seem to be in human nature to think for the long term or to be calm and collected in the face of mass hysteria or bad news. It seems like it’s more in our nature to go with what the whole pack is doing. It’s also in our nature to minimize worst-case or catastrophic scenarios, however, slight the chance of them might be. That may be why we’re sometimes too quick to sell. If we just wait a month and then rethink it, maybe we wouldn’t sell. But we don’t wait the month because we don’t want to lose our entire investment. It’s better to leave with a small loss than lose everything we’ve invested. A big win isn’t the equivalent of a big loss in our minds. A big loss holds more weight.
We can’t escape the inner workings of our minds, minds that have been shaped by thousands of years of evolution and minds that aren't equipped to handle the concept of patience or to perform a logical analysis of risk. Knowing that, it’s pretty amazing that we’re even as good at investing as we are.
I guess, when it comes to it, we have to admit that we weren't meant to be investors. If you believe current science, we were meant to run on the plains of Africa, eat, sleep, and have sex. The deepest parts of our minds have not placed for what is required to be an excellent investor in today's artificial world. Some of us are great investors, however. Why is that? I postulate that the greatest investors are able to be so successful not due to their ability to fully embrace their human nature and potential, instead of trying to fight against it. But, that's a story and a discussion for a different day.
And now, given the rise of cyrptocurrencies and crypto assets to quasi-mainstream financial assets, we're dedicated to providing quality, relevant, and interesting material on cryptocurrencies and cryptoassets. Articles on Bitcoin, Ethereum, Ripple, Cardano, and many more cryptocurrencies and cryptoassets can be found on Pennies and Pounds - all that in addition to a plethora of information on what cryptoassets are, how the entire crypto industry came to be, blockchain/immutable ledge technology, mining, proof of work, proof of stake, and how to prudently invest in crypto if you are so inclined (based on your risk tolerance and ability to withstand the volatility that will come with a crypto portfolio).