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As promised, let’s build on last week’s email.
I am going to spread these concepts out over a few weeks.
Last week we talked about paying yourself first.
Ideally, we want to start with 10%, but it will be different for each person.
The important part is getting started with paying yourself right away.
I hope you took the first step of setting up a separate account where you can move that 10%.
Ideally, you want to have it where it is out of mind – which means at a different bank than where you usually do your online banking.
This will help create separation so that you are less likely to consider using these funds.
Also, automation is very important.
Have it set up so these funds either automatically transfer from another account, or have part of your payroll automatically deposited into this account from your employer.
Where Do I Start With the 10%?
The first thing we want to do with this money is create a savings.
We want to get your savings between 3-6 months of your total expenses.
To start thought, we want to get to at least 1 month.
This will give us a small level of comfort so we can get to work on a few other areas.
Then, once we have taken care of the other areas we can bump this from 1 month up to the necessary level of 3-6 months.
Savings is very powerful mentally because we know our back is not up against the wall.
It gives us confidence and peace of mind.
It gives us the first step of financial momentum.
Invest as Soon as Possible
For me personally, this next step is very dependent on your age.
If you are older than 30, I believe it is very important to make sure you are contributing 10% towards retirement.
With how powerful compounding interest is, we want to make sure we take full advantage of it.
The older we get, the more we will lose out on its power.
For this reason, I believe we should be putting money there as soon as possible.
Especially if we have an employer who gives us a match, we want to get that free money.
If we are younger – less than 30 - more of this money can be used to get out of debt.
Pay it down as aggressively as possible, because that will give you more monthly cash flow to invest.
If you have an employer that does a match, you will want to contribute whatever you need to get that full match right now.
For most employers, that number is between 1-3%.
If you contribute the same, you will usually get their full 100% match.
Paying Down Your Debt
So which debts should you pay down first?
For me, there are two issues you want to consider.
They are: cash flow, and predatory debt.
Cash flow means, which debt can you pay off that has the highest payment.
This debt will give you the quickest improvement to your monthly cash flow.
As you free up that debt, it gives you more money to start compounding towards other debt – and eventually towards the true goal, which is investing.
Predatory debt refers to debt with high rates.
These debts, if not taken care of first, will keep spiraling out of control.
These are usually debts like: credit cards, payday loans, title loans, unsecured loans, etc.
These debts have such high rates of interest that if you are not paying aggressively towards the principle they won’t ever get paid down.
These should be your first priority unless you have a high payment debt that is just a few months away from being paid off.
Conclusion
These are just the first few steps of how to allocate that 10%.
Next week we will dive deeper into the next steps.
I will also address a VERY common mistake individuals make with their money that is preventing them from making true financial progress.
Thanks for reading,
Darron Rowley
Founder of 1911 Apparel
These writings are not financial advice, just the views of the writer. Before making financial decisions, consider consulting an investment or tax specialist.
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