Beating Broke

Personal Finance from the Broke Perspective

Make Improving Your Finances Your Part-Time Job

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Imagine you give all the money you make in a month to an accountant and ask him to manage the money for you.  However, at the end of the month, he can’t tell you where the money went, just that it’s gone.  You’d likely be highly upset and fire the accountant.  Yet, that’s how millions of people handle their money.  You can’t fire yourself, but you can educate yourself and make improving your finances your part-time job.

Make Improving Your Finances Your Part-Time Job

Are You Like Most Americans?

When is the last time you took a vested interest in your own finances?  Do you make a budget every month?  Do you track how much you spend each month and on what?  If you don’t, you’re not alone.  In fact, approximately 60% of Americans don’t have a monthly budget (Business Insider).

How much time have you spent reading personal finance books and articles in the last year?  Learning about investing?  If you’re like the average American, the answer is not much.

Instead, many of us spend time doing activities that really don’t help us much in the future—scrolling through Facebook and Instagram, watching our favorite tv show, having a Netflix binge, talking on the phone or texting.

Make Improving Your Finances Your Part-Time Job

What if you used just a fraction of that time to improve your finances?  How different would your financial situation be a year from now?  Five years from now?  Ten years?

If you’re finances aren’t in the shape you’d like, why not challenge yourself to make improving your finances your part-time job?

What Is the Weekly Time Commitment?

Don’t worry, improving your finances isn’t going to take a lot of time.  I’m just asking you to set aside two to four hours a week to improve your finances.  You won’t be sorry.

Make Improving Your Finances Your Part-Time Job
Photo by Kelly Sikkema on Unsplash

What can you do in that amount of time?  Plenty.

  • Set up a budget
  • Track your spending
  • Pay your bills
  • Call your credit card company to get your interest rates reduced
  • Investigate refinancing your student loans, and if doing so will save you interest, actually refinance them
  • Read a personal finance book
  • Call your internet and cable provider to get your monthly bill reduced
  • Investigate house and vehicle insurance costs and change companies if you’ll save money and get the same coverage
  • Get an assessment on your home to potentially lower your property tax bill
  • Learn about investing
  • Take free online personal finance classes
  • Invest some of your money
  • Sell some of your unused items on Craigslist or Facebook
  • Listen to personal finance podcasts

This is only a small list of things you can do when you start your part-time job of managing your money, yet you can reap serious financial rewards.

Tools to Use

If you’re new to taking an educated, methodical approach to improving your finances, there are many places to go to learn more.  There are also many tools available.

You Need a Budget (YNAB)

For the last four years, I’ve been budgeting using You Need a Budget (YNAB).  I’ll admit, there’s a bit of a learning curve to using this software, but there are many free online trainings you can watch that cover every aspect of how to use the software.  There’s also an active Facebook group, YNAB (You Need a Budget) Fans, where you can find quick answers to many of the questions you might have about the software.

If you’re interested in trying YNAB, you can sign up for a 34-day trial for free.

Morningstar Free Investing Classes

Don’t know the first thing about investing?  Don’t worry.  That’s how everyone starts.  When you make improving your finances your part-time job, investing is an important concept to master.  Morningstar offers a number of free classes that cover a wide-range of topics:

  • Stocks,
  • Funds,
  • Portfolios,
  • Bonds,
  • ETFs,
  • Retirement, and
  • Planning

To access these free courses, simply sign up for a free Morningstar account.

The Library

Make Improving Your Finances Your Part-Time Job
Photo by Devon Divine on Unsplash

Another excellent, free place to learn more about money management and investments is the library.  You can find so many books there that will teach you about improving your finances!  Some of my favorite money management books include:

I Will Teach You to Be Rich by Ramit Sethi,

The Money Book for the Young, Fabulous and Broke by Suze Orman,

How to Make Your Money Last by Jane Bryant Quinn, and

Is Your Child a Money Master or Money Monster by Sunny Lee (excellent book for teaching your children in a natural way about money management)

YouTube

You can find many money management and investment videos on YouTube.  Just be sure to first check the credentials of the person offering advice.  Anyone can put up a YouTube video.

I sometimes enjoy watching Dave Ramsey videos (though not when he goes on tangents).

If you’re new to budgeting, there are people on YouTube who share their budgets every month.  One person that many people find inspiring is The Budget Mom.  She shares her budget each month and also does a recap at the end of the month.

Make It Fun

If the idea of spending a few hours a week on personal finance makes your eyes glaze over with boredom, try to make the time fun.  Set aside a certain time, maybe Saturday morning, or a few minutes every day.  Get comfy and make your favorite drink and settle in to work.

Investing Time Now Means You’ll Save Time Later

Remember, as you increase your financial education, you won’t need to spend as much time on your finances.  Maybe initially you’ll spend four hours a week or 16 hours a month, but a year or two down the line, when your finances are better and you know more, you may only need to spend two hours a week or eight hours a month.

As your financial situation improves, you’ll likely have more incentive to keep spending a little time each week working on your finances.

Try it.  What do you have to lose except a better financial future?

How much time do you spend every week working on your finances and growing your financial knowledge?

Is It Really Possible to Invest When Broke?

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Investing is the best way to grow your wealth.  You can watch your money grow thanks to the compounding power of interest and dividends.  Especially if you start investing at a young age, say your teens or twenties, the power of time is on your side and you will increase your money much more rapidly than someone who begins investing in their 40s or 50s.  But if you’re just starting out or have debt, you may wonder, is it really possible to invest when broke?

Is It Really Possible to Invest When You're Broke?

The answer is, yes, it’s completely possible, though you may start investing with less money and in a less conventional way than other individuals who are investing.  Remember, every little bit helps!

Is It Really Possible to Invest When Broke?

Should you be investing at all if you have debt or if you don’t have an emergency fund or extra money each month?  Yes, you should, but feel free to invest in a smaller way.  Consider some of these options:

Take Advantage of a Company Match

The first place to start investing is in your company’s retirement plan.  This is an even smarter option if your company matches your contribution.

Is It Really Possible to Invest When You're Broke?
Photo by Allef Vinicius on Unsplash

When I started my first full-time job in my 20s, I was broke.  Flat out broke.  And my company automatically withdrew 8% of my paycheck every paycheck to put in the state retirement system.  There was nothing I could do to stop this investment, and trust me, I would have if I could have.

But, I’m so glad I couldn’t!  My company also matched the mandatory 8%, so I was investing 16% of my salary in my retirement.  When I left that job 10 years later, I walked away with an impressive start to my retirement, thanks in large part to the company match.

Use Acorns

Another easy way to invest is with an investing app.  Acorns is a microsaving app that takes the discipline out of investing.  You connect the app to your checking and credit card accounts.  Every time you make a purchase, Acorns rounds up, and the difference is invested.

You can also choose the option to boost your round ups by up to 10x.  So, if you make a purchase for $4.60, normally, 40 cents would be invested.  However, if you boost that amount by 10x, Acorns will invest $4.40 for you.

There are over three million people currently using this app, which is a great way to start investing even if you’re very young, say still in college, and don’t have a full-time job.

How to Learn More About Investing

Once you start investing, you may want to know more and invest more.  If you’d like to learn more about investing, there are several low-cost classes such as Udemy’s Investing in Stocks: The Complete Course.  This 11-hour course is currently $14.99.  If you’d like a free option, Morningstar offers a free investment class that includes 170 lessons!

Is It Really Possible to Invest When You're Broke?
Photo by Markus Spiske on Unsplash

Final Thoughts

The best time to invest is now, especially if you’re young.  But even if you’re not, it’s never too late to start investing.  Your future self will be so glad that you did!

Saving vs Investing: Investing for Income

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Saving and investing go together like milk and cookies, sweet and sour, and Elvis and banana peanut butter sandwiches, right?  Right.  Well, almost right.  It’s easy for us to say that saving and investing are important parts of a personal finance plan.  It’s easy for us to say that and then move on.  After all, we just said they’re important, right?  Not so fast.

Saving and Investing ARE important

They just aren’t equally important.  Heck, it’s another whole post, but even the different types of investing aren’t equal.  Just as important as saving and investing together is the concept of when to use which, and how much.  The mix of liquid savings in the form of cash accounts and CDs with the amount of your money that’s invested can be one of the most important parts of your overall personal finance plan.

Traditional advice tells us that cash accounts and CDs are the super safe way to keep your money with you, and investing, in it’s varying forms is all kinds of risky.  Investing in stocks?  Risky.  Investing in pork bellies?  Risky.  (unless you really like bacon.  Just kidding, still risky.)  But, is the amount of risk involved in investing more or less risky than leaving too much of your money in the bank to rot away at current interest rates?  How about you ask the people of Cyprus if they still feel safe having their money in the bank?

Saving vs Investing : Investing for IncomeSuccess is risky.

Few who accomplish success do so without some element of risk.  In fact, the easier the path to success is perceived, the less chance there is of truly obtaining it.  I don’t say that to seem philosophical.  I want to make a point, however.  You’ve got to have a little risk, if you want to succeed.  You’ve got to have Investments if you want to succeed financially.  And, I think the ratio of investments to savings should probably be much higher than most would suggest.

Investing for Financial Independence

One of the key tenets in a financial independence plan is that you need to replace your income in order to free yourself up to be independent of a job.  Not independent of work, but of a job.  There are, obviously, many ways that you can go about replacing that income.   Decreasing your expenses is usually a part of most plans.  But, most people’s expenses will only decrease so far.  Sure, you can go extreme, and get them lower, but for many that isn’t what financial independence is about.  Even with your expenses decreased as low as you’re willing to take them, you’ve still got to replace the income to pay those expenses.  Investing can be a very good way to get started towards replacing your income.

Investing for Income

In order to replace income with investing, you’ve got to invest for income.  You probably try and do that by becoming a super successful day trader and making up the income in profits from all the great deals you made.  First, find yourself a few super successful day traders who have done that.  Come back when you’ve given up.  If you’re going to invest for income, it’s got to be reliable.  It can’t rely on your ability to find a good bargain and then sell it at a massive profit a few days later.  There are traders who are still waiting on Facebook to make a comeback so they can even get their money back.  Reliable income is the key.  For this, we need investments that are steady, don’t require the continued increase in value of the stock, and also don’t require us to sell like a fiend in order to create the income.  What are these mysterious investments, you ask?  Dividend stocks.

Dividend stocks are stocks that pay a dividend on each share of the stock that is held.  The amount of the dividend can vary, but there are many that you will find that pay dividends in the range of 2-4%.  Depending on the policy of the company, they usually pay quarterly, but there are some that pay monthly and yearly.

Dividend stocks aren’t the only way to invest for income, however.  Investing in peer-to-peer lending in a program like Lending Club is one.  Rental real estate is another.  A business can even be a way to invest for income.  Each has varying levels of passivity, or the amount of direct interaction on your part to earn the income.  A business that you run can mean well over 40 hours a week of direct interaction to create the income.  Something like Lending Club or rental real estate can be brought down to a level that borders on passive income entirely.

Savings vs. Investing

With any investing tool, whether it be dividend stocks, lending, real estate, or some other instrument, there will be risk.  With risk usually comes reward.  I’ve been earning over 8% return on my Lending Club portfolio.  Dividend stocks can lose value, or even stop paying dividends.  The real estate market can dry up, and you can have problems finding renters.  Risk is inherent.  Unless you want to directly trade your time for money (call it a job), you’ve got to take on a little risk and begin setting yourself free.

Savings shouldn’t be shunned completely.  I still believe that an emergency fund is an important tool.  I still covet a debt free lifestyle.  But, once my debt is paid off, and my emergency fund is full, you can bet the rest will go towards investing for income, and building my wealth towards financial independence.

How about you?  What is the role of savings in your personal finance journey?

Original img credit: Two men with pipes posing as boxers / Deux hommes, pipes à la bouche, prenant une pose de boxeur by BiblioArchives / LibraryArchives, on Flickr