In this series, “Mint Makes You Money” by EverydayCPA, we’re going to talk about why and how personal wealth begins not with good investment decisions but with good spending decisions. And how and why we like to use Mint to help us do this.
Welcome to the EverydayCPA channel, helping small business owners and families better manage their businesses and their families. This program will help you learn and adopt the strategies and tactics on business and family accounting, budgeting, credit management, and improvement. And we teach you ways to build and grow savings to help you compete, win, and succeed and hopefully live a happier, healthier life.
In this series, “Mint Makes You Money” by EverydayCPA, we’ve been telling you that good personal financial management is the first step to building savings and wealth. This episode is focused on some tips and tactics on what you do with those savings that you’ve created by better managing and controlling your spending.
I will give you three key tips in this episode and two in the next episode. These five tips will help you avoid making bad decisions and hopefully make some great decisions on the wealth you have been building through your better spending and budgeting plan.
Hello, this is Kelly at EverydayCPA. As you begin to manage your expenses better you will quickly realize you can accumulate savings because you are no longer spending all of your hard-earned money. Rather, you’re spending some and saving some.
The first goal should be to accumulate enough savings to pay for 12 months of living expenses. Maybe you title it Disaster Savings; it is intended to be an account you never touch. It is your backup in the event you absolutely need it in an emergency.
The next goal should be to start building wealth, and that’s what today’s three tips are about. So let’s get busy!
Tip number one: take advantage of an employer-sponsored 401k plan. Especially take advantage of the matching component. When you put your money away in a 401k plan you don’t pay any income tax on that so you immediately generate about a 10 to 15 return on savings right there through cost avoidance. Yes, you will have to pay that income tax later but you get to earn on those funds you save now. In addition to this return, you get the return created when your employer contributes to your 401k. This varies from plan to plan, but between these two elements alone, the return on investment in your 401k can be in excess of 15% without taking any risk to do this.
Tip number two: investments need TLC. I don’t mean tender loving care, rather Transparency, Liquidity, and Custody. Transparency means you need to see what and where your money is. Liquidity is how quickly you can get your money out and at what cost. Is there a charge or fee or commission or a penalty to get your money out? You need to know this. The third is custody. This, in my mind, is the most important. Who or what is actually holding your savings or investments? Is it a bank that has a guarantee by the US government that your funds are safe? Or is it a guarantee from a financial advisor working out of his parents’ basement, trading stocks?
Tip number three: The Big D – diversification. I call this the tip you heard from your grandmother: don’t put all your eggs in one basket! In the investments and savings world, you have three levels of diversification, which we call ACD: Asset diversification, Company diversification, and Decision-maker diversification.
Asset diversification. There are three main asset class types: cash, stocks, and bonds. There are also alternative investments. Alternatives include cryptocurrency, real estate, hedge funds, venture capital, and there are loads of and there are loads of free information available on the internet. So structuring a savings plan around this model is a good way to build the portfolio. That’s asset diversification.
Company diversification. In each of the asset classes above, you can further diversify by selecting different companies or entities within those asset classes. You can either elect to invest in individual companies or entities or a collection of them in the form of a mutual fund or exchange-traded fund (ETF).
Decision-maker or influencer diversification. In our next episode I will cover the differences between these types of decision-makers or influencers, but let’s just agree that there are over 10 million of these advisors, brokers, and agents out there. Like any profession, there are good ones and bad ones. One thing that both the good ones and bad ones have in common is that they make money from your savings and investments. This leads to my fourth point that we will cover in the next video: be careful of the fees and costs related to your investment portfolio.
To recap this episode of Mint Makes You Money:
Tip #1: Take advantage of your employer’s retirement plan.
Tip #2: TLC – Transparency, Liquidity, and Custody.
Tip #3: The Big D – Diversification. Diversify assets, diversify companies, and diversify the decision-makers or influencers who advise you on what to do with your savings
* * *
Thank you for watching the EverydayCPA channel. Visit us again as we help small business owners and families better manage their businesses and their families. We aim to help you learn and adopt strategies and tactics on business and family accounting, budgeting, credit management and improvement, and ways to build and grow savings. We want to help you compete, win, and succeed – and hopefully live a happier, healthier life!