Back in 2010, I graduated with $97,000 in student debt, bought a brand new car and a cool leather jacket. If it’s any consolation, the car was a Kia. So even when I’m reckless, I’m still fiscally responsible. I didn’t know much about personal finance management back then, but as I got more interested in self development, I started to learn more about how to effectively manage my own money.
I eventually built a profitable business, opened my first retirement account and became 100% debt-free. The latter, I consider it one of my greatest accomplishments. And so today, 10 years since I graduated college, I wanna talk about how I manage my money, specifically, the accounts that I use, why I use those accounts and some of the lessons that I’ve learned about personal finance over the past decade. Okay, let’s start by getting a bird’s eye view to see how I manage my money and which accounts I use and then we’ll break things down even further.
About my Personal Finance Accounts
I have a personal checking account, a personal credit card, a Roth IRA, and an Individual 401k. All of my money goes through one of these four accounts. The one thing you’ll notice that’s missing from this equation is a savings account. At this point, I haven’t seen the need to open one because the interest rates are so low that opening an account for maybe getting a 100, 200 bucks over the course of the year isn’t really worth it for me.
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I’m not always simply trying to get the greatest return possible. I’m trying to manage my time and prioritize my energy in a way that makes sense for me and that gives me the best return on both my happiness and my finances. So I choose to put more of my time and energy into focusing on working on my videos and growing my business versus running around from bank to bank, trying to find the best interest rate possible.
Choosing a Personal Credit Card
So I pay myself through my business, like anyone would get paid by any employer. That money goes directly into my Chase, personal checking account. So this personal checking account is a joint account that I share with my wife. We use it to pay for rent, utilities and a few other items that can’t be paid with credit. The main reason that we rent an apartment versus buy a home is because we can’t afford a home. It’s really, really expensive in Los Angeles.
It costs upwards of $1 million to find a decent home in a decent neighborhood. And so right now, even though we’re not ready to buy a home; we are starting to look into the real estate industry by looking into what it takes to buy a home; what you should be thinking about because once the two factors align our income and then the market; once they align in a way that makes sense to make that investment; then that’s when we’ll likely go through with it.
But when it comes to any major purchase; I think it’s really important to be cautious and careful and not get too starry-eyed; and too eager to go into a deal that you might eventually regret. For everything else, I use my Chase Sapphire Preferred Credit Card. I use it for small things like coffee, groceries and books, and big purchases like electronics. I chose the Chase Sapphire Preferred Credit Card because it’s really good for both travel and eating out; which are two things that I used to do a lot.
Understanding Risk and Reward of Credit Card
Before moving on, I think it’s important to talk about the inherent risks and rewards of having credit. Now when it comes to personal finance, experts are often split on this. There are those that say it is an amazing idea and you should get the rewards from it; and those that say credit is the worst thing in the world; and you should avoid it at all costs. Now I fall somewhere in the middle. I understand the apprehension, the reason that somebody would say; “Do not get a credit card,” because there are so many people; especially in America who suffer from really bad consumer credit.
According to bank rate, the average credit card debt for millennials is $4,889. Since there’s such widespread abuse of consumer credit in the United States; and since I personally have a past of poor decision-making; when it comes to money, I made a rule to myself when I first got a credit card. I will never ever, ever pay for something on my credit card; when I don’t have the money in my debit account. Now this is a rule that I’m incredibly strict with.
Most people, when they take out a credit card, they use it to buy things that they don’t have the money for and this is the absolute worst way to use a credit card because eventually you’ll pile on the debt, you’ll have higher interest rates, you’re gonna be paying so much extra money for things when you don’t need them. The most simple rule when it comes to personal finance is save more money than you spend and you can’t do that if you’re spending money that you don’t have.
Personal Retirement Account
The very first retirement account that I opened after I paid off my debt was a Vanguard Roth IRA. The decision to go with Vanguard came about in the same way that I make every decision when it comes to personal finances. I do as much research as I can without passing out, I listen to the experts that I trust that are already in the industry, and I make the best decision as it relates to my own lifestyle and the risks that I’m willing to tolerate. And so I learned that Vanguard is a trusted investment company that has really low fees, lower fees in the industry average and I decided to go with them.
One of the biggest selling points for going with a Roth IRA versus a Traditional IRA is that I pay taxes on all the money I invest into the account now, but then when I take it out at retirement, it’s absolutely tax-free. Now if any of this is putting you to sleep and trust me, it did when I first looked into it, all you need to do is look up traditional IRA versus Roth IRA, do a little bit more research on your own. But honestly for me, the Roth has been a great investment.
Choosing Investment Product
Some of the safest investments you can make are in low-cost mutual funds. If you go with funds that mirror the stock market, your returns will likely average around 10% over a 30 plus year period. You may be wondering how my investment strategy has changed with the given downturn of the economy over the past month or two and the truth is that nothing has changed. And that’s not because I haven’t lost money.
I have just like everybody else who’s investing in stocks, my profits have gone down quite a bit. But for me, it’s all about having the right mindset, knowing that there is going to be short term losses and big gains in the future.
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Just sticking it out for the long run is so important and pulling out your money too soon is you trying to time the market and not even the greatest experts in the world are able to do that consistently.
So keep your money in there, invest for the long run and eventually you will likely see the return that you need to retire with dignity. There is around a $6,000 contribution limit for your Roth IRA in the United States. Early on when I got started out, I would barely reach that. And then as my income started to grow, I wanted to invest beyond that and that’s when I opened up my Individual 401k. For this, I opened up a Vanguard Individual 401k account with my business.
I cannot stress this enough – Diversification
My investment diversification is similar to my Roth IRA account, largely low cost mutual funds highly invested in stock. How I balance my investments is going to change as I near retirement age; where I’ll begin to move most of my stocks into more secure bonds. Diversification is highly recommended in personal finance management.
If you’re new to this stuff, it can be both intimidating and overwhelming; but just know that if you start to invest now; if you invest when you’re young; you can see a massive amount of growth in compound interest over the course of 30 to 40 years. Let’s say you’re able to invest $4,000 a year for the next 35 years.
At a 10% return, you’ll have nearly $1.2 million. If you didn’t invest your money at all, and simply save $4,000 a year, you would only have $140,000. Invest now and your future self will thank you. So in order to be able to contribute to something like a 401k; you need to be able to make income.
My own Personal Finance Management
I consider myself an expert in my own personal finance; and that’s why I feel comfortable talking about my own strategy. But I know with that comes inherent risks; it comes people talking about all the things; that I’m doing wrong and how I’m not optimizing to the 10th degree; and getting every single benefit I could from every account that I have. And I understand it and that’s okay. But I also think that part of that reaction is; why people don’t really take an interest in personal finance to begin with; because there are so many conflicting opinions.
There are so many people out there telling you the right thing to do, the right direction to head. And really when it comes down to it, there are so many different options that could be right for you. And so being honest with yourself; doing the research, taking a look at your personal finances and figuring out how to get out of those financial holes that you currently find yourself in; it’s going to give you so much of a return, much more of a return than money can provide.
When I got out of debt, like when I paid off that final student loan, I cannot tell you the weight that was removed from my shoulder, how much freedom I had. I now had the ability to take greater risks, to start a blog, to maybe slow down my income streams because I wanted to pursue my passions. And this is something that you can do, you have to do with confidence and having a solid financial ground to make those decisions on is just paramount.
And so no matter what, don’t let the fear of doing the wrong thing prevent you from doing anything. And so do your best, do your research, but no matter what, just make a decision and move forward. Investing in your personal finance is an investment in yourself. Hope you like the article on Personal Finance Management A Minimalist Approach. Please do share this with friends and family.