#oadvice

PT.2: Overview to understanding different saving/retirement methods, investments, and forms of income

2.1 Savings and Retirement

Welcome lovelies to (what I hope will be) a helpful series on gaining wealth and becoming financially literate and independent!

*disclaimer: while this advice can generally apply to many it will not apply to all. Everyone is in a different situation and should do their own research before they take what ANYONE says as fact or law. This is also coming from the perspective of a young, biracial, first generation female business student following a hypergamous lifestyle and who does sw so some advice may be specific to my like-minded ladies, but for the most part I just love money and want to help others find joy in their wallets as well. I am also operating in the US so things regarding accounts, stocks, and certain laws will vary by your country. Also, this is just a fun thing I wanted to do because talking about leveling up and learning and growing and money are my favorite past times. None of these pictures are mine, however I am using some links which may compensate me in some way, but I only used links which were mutually beneficial and would help you gain something as well, they are still just actual sources I use for myself.

✨THINGS TO KEEP IN MIND✨

Financial independence is different than financial confidence.

Financial Independence: “The most common sense of the term is that someone has enough wealth to live as they wish for the rest of their life without having to work.” -Investopedia https://www.investopedia.com/financial-edge/0611/declare-your-own-financial-independence-day.aspx

Financial Confidence: “We define financial confidence as having three aspects,” says Miler. “The first is awareness of how money can be a tool for helping you reach your goals and dreams. The second is financial literacy and understanding economic factors. The third is trust and knowing where to turn for financial advice.” -Forbes https://www.forbes.com/sites/shelleyzalis/2018/06/16/women-money-8-steps-for-growing-your-financial-confidence/?sh=2175b65e2468

While the ultimate goal is financial independence, financial confidence should be the main focus. I’ll give an example why. Imagine there are two people: Rhonda and Jill. Both of them like nice things, love to shop, and participate in the occasional splurge. Rhonda works a regular 9-5 and has a decent salary. She doesn’t have much financial knowledge (translation: financial confidence), but she has a savings account at her local bank and puts a couple hundred into retirement each year and she thinks that's enough. Suddenly, Rhonda wins the lottery. Overnight she has become a millionaire, so she quits her job, moves to LA, and goes on to live life to the fullest. She would now be considered financially independent. However, Rhonda has no idea how to manage all that money. She puts a small amount into that bank savings account and takes the rest to do what she will. One day she tries her luck at a casino, in less than five hours she has lost all of her money and has to start back at square one with no job, only a few thousand to get her through, and no-good way to explain to employers that she just wasted the last 5 years spending money on handbags she now has to sell at a depreciated value. (BTW you would not last not working with only a million dollars in LA for that long)

Now, let’s look at Jill. Jill is an independent contractor and has a relatively steady income. She knows very little about finances, but she actively learns how to manage what she has and keeps up to date on the latest money news. The day that Rhonda won the lottery was just another Thursday for Jill, the only unique point for her was that she opened a savings accounts with a high APY (we’ll say 1%) and put in $5000.00. A little later she also opened a Roth IRA and puts in the maximum yearly allowance of $6000.00. Along the way she opened a brokerage account of her own and started trading in the stock market along with investing in real estate which has given her some extra income to play with each year. Unfortunately, another housing crash occurs, and all of the money Jill invested into real estate is gone. However, since Jill learned the skills behind her choices early on, she is knowledgeable and understands the ups and downs of the market and how to invest her money in other places in the meantime. And, that High yield savings account accrued around $50 more without her doing anything and she has that to fall back on, or worst case she can take out part of her principal Roth IRA contribution. 10 years from now Jill should start to see a steady increase in her Roth IRA that by retirement will be a little over 1 million and she should be comfortable and invested enough into stocks that she gains around $200-1000 extra each month.

I think you understand why you want to be Jill.

✨HAVING ADEQUATE SAVINGS = BEING YOUR OWN LIFEGUARD✨

As discussed in Pt.1 the first goal you should achieve is securing an emergency fund that could sustain you for a couple of months if things were to ever hit the fan, and starting a retirement fund should be in your top 5 goals to complete. The saying, “the rich get richer” is popular for a reason. Wealthy people know how to make their money work for them instead of them having to work for money. An easy way anyone can do the same is by opening the right accounts for your savings and retirement.

Savings: 

All of your savings should be in a high yield saving account or split between different high yield accounts. This is an account which will reward you some interest every period for having money in your account with them. This is incredibly easy to do. You can either research/ask your bank about their high yield accounts or do some googling to find some other bank. Then transfer your money and there you go! When looking at banks understand that the highest Annual Percent Yields (APY), or the interest they will reward you, are going to be from online banks because they have less operational costs than a brick and mortar, but they will also come with their own disadvantages, like less ATMs to access or the inability to use when outside of your country so make sure to look into that. IMPORTANT: Make sure that whatever bank you choose is FDIC-insured so if the bank were to ever collapse or lose your money you have insurance up to $250,000.This won't generate a lot of extra cash, but an extra $20 every year is better than $0.

Retirement:

These accounts usually go by your current situation and what you see for your future.

401K: Probably the most known (I believe it’s only in the States but there might be something close to it in other countries) and that’s just because this is what employers usually offer if they offer anything. It is a retirement fund that your employer will set up and you can predefine how much of your paycheck you want to automatically go into it every time. Sometimes, the employers will also have a match program, and if they do you better max out the money they will contribute because that is FREE money! Most advice that I have seen has said to really only focus on this fund if your employer has that match program, otherwise I would focus on one of the accounts below. https://www.investopedia.com/articles/retirement/08/401k-info.asp

IRA: An IRA stands for Individual Retirement Account. There are three kinds…

                         Traditional: This IRA lets you put in pre-tax money and lets it grow tax-free until you make a withdrawal. Once you make the withdrawal that money is taxed at the current rate of your income at the time. Your contributions are tax deductible so you can write them off of your taxable income of that year. There are limits to how much you can contribute depending on your income, status, and whether you have another retirement fund as well.

                          Roth: With this IRA your contributions are taxed, but when you withdrawal money later on it is tax free. For those of you in a lower tax bracket than you believe you will be in the future, this IRA makes the most sense as you will pay less taxes now than you will when you are 59 ½ (The official age of retirement in the States). There are limits to how much you can contribute depending on your income, status, and whether you have another retirement fund as well.

                           SEP: Simplified Employee Pension. This is also an employer-based plan and may also work better for my self-employed gals out there. I don’t really know a lot on this one so I’ll just leave a link you can look into if it interests you: https://www.investopedia.com/ask/answers/102714/how-does-simplified-employee-pension-sep-ira-work.asp

You can have both a traditional and Roth IRA as long as you are eligible for both. Anyone with earned income (with a job or can prove a steady income) can contribute to a Traditional IRA, however with a Roth IRA, as a single you can earn up to $139,000 and contribute. Personally, if you are just getting started with all of this just set up one IRA and as you learn more you can take steps to get another or switch accounts.

https://www.investopedia.com/retirement/roth-vs-traditional-ira-which-is-right-for-you/

There are a plethora of other accounts, but they are more specialized and the top four should get you started on the right path to saving for retirement. I’m guessing that the majority of the audience reading these are women between the ages of 20-30. Trust me when I say that I love to spend money as much as the next girl, but I also would like to be completely comfortable should anything happen in my older years that screws up my marriage or job, and no one is going to secure that for you.

Also, I’m sorry this is so US-based, but once again it is all I know. I believe IRAs are more widespread than a 401K, but all that takes to find out is a Google search on your part.

Either way, make sure you have a plan going into 2021 for your savings and retirement because this economic whirlwind is far from over and there is always a chance for another recession, depression, or disaster. (Wow O, way to keep the mood light)

This was getting way too long with the investments added so look out for Pt.2.2 on the overview for investments (where the actual fun begins and I can stop being such a stick in the mud)…

VOCAB TO KNOW/RESEARCH:

Financial independence

Financial Confidence

APY

Roth IRA

brokerage account

High yield savings account

principal

401K

Traditional IRA

Once again… if in these posts I ever give bad advice, F- something up, or am just generally ignorant PLEASE call me out! Remember that just like you I am a young woman figuring everything out and while I am confident when talking about money, I am by no means a genius (only in spurts) so any chance to learn I appreciate. I hope you all learned something new today and as always…

With Love,

Agenda for this series as of now:

1. Pt. 1 Overview to the world of money, financial plans, and how to manage your money Updated on 12/03/20

2. Overview to understanding different saving/retirement methods, investments, and forms of income

Pt 2.1 Savings and Retirement Updated on 12/18/20

Pt 2.2 Investments Updated on 01/12/21

3. Types of saving: high interest savings account vs cash

4. Types of investing: the stock market

5. Types of investing: crypto currency

6. Types of investing: real estate/art

7. Types of investing: yourself

8. Ways to generate cash flow: starting a business

9. ???

This is the general idea of how I'm going to organize these posts, I may separate and add stuff if I think it works better but this is pretty solid. I'll also be doing smaller posts along the way of just snippets of advice or ideas. If you guys want me to add anything, or have any specific questions you want me to answer message me!

-save

-invest

-budget

-credit

-debit

Etc.

Could you also share how exactly someone moves when they’re wealthy/well-to-do? Ie. Quietly? In an understated manner?

I'm so glad that you find the series helpful and thank you for the sweet words🤍 I would say for the most part you do have the general categories listed. I would just set them up like this to be more in detail...

1. Budget (understanding your income, expenses, and lifestyle)

2. Earnings (active vs passive income, creating more streams of income, how to get a raise, etc..)

3. Saving (emergency funds, retirement, health savings)

4. Investing (stocks, commodities, crypto, etc...)

5. Taxes (how to file them and how to make them most advantageous to you)

6. Debt (if you have debt paying it off, or using debt as another stream of income)

7. Insurance (getting the right insurance to protect yourself)

8. Credit (building it and maintains it)

9. Spending (knowing how different purchases affect you and how to optimize your earnings)

This is in no particular order but I would start off getting the gist of each one then going in depth so you see how they all intertwine.

As for how the wealthy move it depends on the type of wealth I would say, but I'm only going to comment on what I call "briefcase wealthy" ie. Business men who earned their own wealth whether or not they came from money or were rags to riches, since this is the type I'm surrounded by:

1. Most people with money do move "quietly" but it still doesn't hide the fact that you can tell they have money. It comes from a nonchalance regarding the material world. There is no comment made about how much the steak is at a restaurant or how they got a great deal on someone's Christmas present. They know they can afford it so money isn't even an obstacle.

2. Do not get the above twisted with overspending or not caring about money however. A big difference I constantly see between those with money and without is valuing quality over quantity and understanding the value of their dollars. Middle class people spend $5 every day getting starbucks while the upper class will just make their own at home, it may be using a $3000 espresso machine or coffee maker, but in the long run they are the ones saving money and the drink tastes much better without 65g of sugar in it.

3. They try to save time over money. It's the reason they have drivers and chefs and maids. They have packed schedules, people they need to talk to, and things that need done. The time they could save by having a driver and being on the computer and phone in the car is worth more than the money they could save by driving themselves.

4. Lastly, they wear a watch. This is something my grandma told me when I was young and it has rang true throughout time. "Never date a man who doesn't wear a watch, he either has nothing to do or doesn't care that there is stuff to do." This goes along with number 3. Time is their most valued asset.

There are a lot of other quirks but these are the main ones that stick out to me, others that you'll notice will just come from experience with the wealthy and really depend on where you are, what they do, and them as a person.

With love,

If I created an advice series about how to manage/invest your money like a wealthy middle aged man would y’all be in to that??? Going to a top business school really has its perks and these past couple of weeks I have done extensive research for my classes and talked to so many top financial advisors and it makes me want to share all of the incredible knowledge that I’m gaining since I think being in this ✨lifestyle✨can sometimes make women dependent on men when they could have made their own millions by using his money. I’m thinking like how to utilize Bitcoin, how to leverage index stocks, and starting retirement funds

Let me know cause I’m not about to speak into the abyss lol😘

This is so late, but I hope you're meeting went well!

I would absolutely advise telling your planner your ultimate financial goals. If they're good at their job they will take you very seriously. The more money you make the better off it makes them in the long run. However, a good planner will also let you know what's viable and attainable. They want to have realistic goals to reach with you.