Category: Money

WARNING: This post might be long and boring, but I will put a picture of a cute puppy hugging/attacking a cute kitten at the end, and after you’re done reading and implementing this post you can take a nap 🙂 

You’ve worked hard, earned money, saved it, and you’d like to invest it (excellent, and congrats on getting this far! You have a promising financial life ahead of you!).

First you’re going to set up an investment account, which is similar to a savings account. There are plenty of different types of investment accounts out there, but for young adults just starting to make money and focusing on long term goals, a great option is a Roth IRA. IRA stands for Individual Retirement Account.

A Roth IRA encourages you to save early on, because as your money grows and when you take it out, you don’t have to pay taxes on the earnings. (You do have to pay income tax on the money before it goes into the account though. In contrast, with a traditional IRA, your money is taken out of your paycheck before income taxes, it grows tax-free, but then you have to pay taxes when it is withdrawn)

The catch is that with a Roth IRA you will be penalized if you take your money out of it before you get to retirement age, which is 59 1/2 years old. If you want to keep your funds in a more accessible investment, then you would want to open up a brokerage account. A brokerage account would let you invest and do everything you could do in a Roth IRA, but your earnings will be taxed every year.

 

What accounts do I use? Great question!

I have both a Roth IRA, and a brokerage account. This is because I am starting to put money away for long-term, retirement purposes (Roth IRA) but I also want to have access to some money if I need it. I would suggest starting with a Roth IRA and focusing on long-term planning.

It’s super easy to open a Roth IRA account, and you can open one online today if you would like! I would recommend opening an account with Vanguard. They provide simple and cost-effective investment tools, and I personally use their services for both my Roth IRA and my brokerage account.

Here’s the link to open a Vanguard Roth IRA. (I don’t make any money when you open an account with them, I’m just recommending them because I’ve tried other companies and they’re the best out there)

 

Ok, I have my account. Now what?

Once you have your account open, you are going to need to purchase shares of a fund. I personally use Vanguard’s Total Stock Market ETF which goes by the ticker symbol VTI.  This fund gives young investors like us as much exposure to the stock market as possible, and as much diversification as possible as well.

If what you are looking for is simplicity in your investments, just keep putting your savings into VTI, and forget about it. You can set up an automatic deposit with Vanguard so you can set it and forget it. Do that regularly, and in 30 or 40 years you will have plenty of money to do whatever you’d like!

So hypothetically, let’s say you put $1,000 into your Roth IRA from age 25-30, while you’re getting your career started. Then from age 30-60 you are able to put in the maximum contribution of $5,500 every year. How much would you have at 60 years old? You will have put $170,000 of your own money into the account, and it would have earned you $443,418.71, so your total would be $613,418.71. You made $400k and never had to pay a cent in taxes on it. That’s the power of a Roth IRA and investing #MoneyGoals

As promised, here is your puppy and kitten. If you have any questions about investing or setting up an account, I’d love to help answer them! You can either comment on this post, or send me an email at hashtagmoneygoals@gmail.com

(Pictured: A sunset on (I think) Knife Lake, MN August 2016)

You’ve made your money. You’ve saved it, and resisted the marketing departments of billion-dollar companies. Now what? How does your savings make you more money?

You invest it. Investments can range from gold to real estate to beanie babies. But for our purposes, we will be investing in the stock market.

The stock market can be scary. As young adults, our generation witnessed the Great Recession, when the markets crashed around the world and we heard of people losing lots of money. And it’s true, the stock market can go down, and you can lose money. But over the long run, history shows that the stock market will always go up. Need proof? Here’s a chart of the Dow Jones Industrial Average, a measure of how the market as a whole is doing, over the last 110 years. (The Dow Jones is made up of 30 of the biggest companies in the stock market such as Apple, Exxon Mobil, and Nike)

See that little downturn at 2009? That was the Great Recession. Since then the market has recovered and is higher than it ever has been.  See that big downturn at 1929? That was the Great Depression, the worst financial disaster the United States has ever seen. Yet the market continues to go up in the
years following.

The stock market will go up and down, and there is no way to predict what it will do tomorrow, next month, or next year. But over the long term, it averages out to gain about 7% per year.

I’ll be using a 7% return to calculate any future value of money as I’ve already done a couple times, and that 7% will be compounded. Compound interest is when the interest you earn is added to your total, and then interest is earned on that interest. For example, if you had $100 and earned 10% interest, after the first year you would have $110. Then you’d earn 10% interest on that $110, and after year 2 you’d have $121. Year three you’d have $133, and so on.

The effect of compound interest is amazing over time, and Albert Einstein was even quoted saying, “The most powerful force in the universe is compound interest” (actual fact despite my meme).

Compound interest will turn a $1,000 investment every year for the next 40 years into  $228,584.03.

If you want to try other amounts or years, play around with this online calculator and plug in any value you want, then put 7% for your interest rate!

 

(Pictured: Me at Gooseberry Falls State Park, MN June 2015)

This is the most important part of the Secret Equation. It is also the most difficult to do because there is a 200 billion dollar industry working directly against you. The next time you go anywhere or do anything, take note of all the advertisements you see. On TV, billboards, in newspapers and magazines, on Facebook, Twitter, Snapchat, and Instagram. They’re everywhere! All using refined strategies to make you part with the money you just earned making pizzas at Domino’s.

My favorite way to reduce my spending is to imagine the lifetime of cash the money would make if I invested it instead of spending it. For example, I could buy a brand new iPhone 7 for $700 and my net worth would go down $700. But if I invested that money, after 10 years it would increase to $1,377* and my net worth would be that much higher. So instead of losing $700 I now have $1,377, which is a $2,000 difference!

If we take that $700 and invest it for 20, 30, or 40 years, the numbers start exploding. If I were to retire at 65 then take the money out, the $700 would balloon into over 14,000 dollars!

Of course, this method might not work for everybody. We will discuss more ideas on how to save money later! But for now, simply be aware of what you are spending. A lot of people don’t put any thought into their outflow of cash, so if you consciously think about it you’re already doing pretty well!

*Calculated using a 7% return. We’ll get to the details about this when we talk about investing.

 

(Pictured: Me enjoying a 100% free walk in the woods. Mora, MN December 2015)

Maximizing your income, AKA making more money, is definitely the most obvious and widely known part of becoming wealthy. We hear about CEOs making millions and millions of dollars, and think, “Yeah, it’d be easy to have tons of money if I made that much too!”

Good news! You don’t have to make  millions of dollars a year. You just have to make more than you spend. And the higher your income is in relation to your spending, the more you’ll be able to invest. So how do you make your income higher?

Get a job (another obvious one there). But most people stop at “Get a job”. If you’re really looking to add some extra income, consider another job! Do something on the weekends. Get a side hustle. Mow some lawns, babysit, help a local business figure out how to use a computer, sell popsicles on hot summer days, run a textbook business on campus, sell your plasma. These are just random ideas off the top of my head, but you get the idea. There are always opportunities, if you see one or think of one, take advantage of it!

Learning new skills is also a huge step to earning more money. You can learn just about anything online now. For example, I taught myself how to cut my own hair, and I now cut other people’s hair which supplies me with occasional extra income. It’s a very small amount of money, but you can go much bigger. You could learn how to code for free and boost your income tens of thousands of dollars.

But making more money is not the most important part of becoming wealthy. Plenty of people make loads of money, but can’t hold onto it.  Unfortunately, success in today’s culture means driving new cars, buying flashy clothes, and living in ridiculously large houses. We are taught that our spending should rise as our income rises. But that goes against the second part of the Secret Equation to Become Wealthy…

 

(Pictured: Me at Winspear Opera House. Dallas, TX September 2015)

I appreciate that you’re still here after my first post, so I will reward you with the Secret Equation to Become Wealthy. This simple jumble of words can help you become free from work and money-related stress, and allow you to do whatever you want in life. Dr. Dre, Eminem, and Stephen Hawking have been in the lab for years cooking this baby up, and I just hacked NASA’s database to provide it to you. *cue hype man with air horn*

(INCOME) — (SPENDING) = SAVINGS

 INVEST SAVINGS

MAXIMIZE INCOME, MINIMIZE SPENDING, therefore MAXIMIZING INVESTMENTS

That’s it. If you understand the ins and outs of how to do all of that stuff, and you are free to click out of this page, and go live your successful life. Thanks for stopping in!

For those of you who may have questions or want to know more about any part of that sequence, we are just getting started! Let’s break down the individual parts and explore ways to accomplish each one.

P.S. Feel free to print this page out, highlight the equation part in all caps, and tape it above your bed.

 

(Pictured: My cousin sitting on the ice while ice fishing. Grandy, MN January 2017)

 

My grandpa used to talk to me about the stock market and investing when I was a little kid, which sparked my interest in the financial world. One of his stories that stuck with me was about a $50,000 carpet that he bought.

Now this carpet wasn’t a rare, foreign, handmade, luxury carpet produced by Kanye West. Just some regular old carpet. So this is why it cost $50,000…

Grandpa was helping to fix his sister’s house in the 1970’s. They needed to buy some carpet to finish it up, but good old Grandpa didn’t have the cash on hand at the moment. So he pulled some money from an investment he had made. He sold some shares of Johnson & Johnson stock, and took out $300. Then bought some carpet. No big deal.

Except that if he had left that $300 in Johnson & Johnson stock in 1976, it would be worth $48,403 today!

We’ll get into how that’s possible pretty soon here, but the main point is that investing is a powerful tool that can turn relatively small amounts of money into massive amounts of money over time.  It is also a tool that some people are scared of and avoid, but with a little education you’ll be able to use it effectively and confidently! #MoneyGoals

 

(Pictured: My grandpa showing off his mad fishing skills)