EP153: The Budget Show
Behind the scenes of my simple and practical new financial freedom plan to help me create the life I want. Today is about taking action and control of your finances so you can create the life you want.
The motivation or my why for taking action on my finances.
The two books that helped me build the framework and key takeaways from each.
My new plan along with the tools I am using to put my financial plan on auto-pilot.
Part 1: Why am I taking action on my finances?
- I turn 50 in November
- Reduce stress and self-doubt
- Financial Freedom
- Peace of Mind
- Control & Clarity
- Always Moving Forward
- Opportunity to Advance
Part 2: The 2 Books that led me to action
- I Will Teach You To Be Rich by Ramit Sethi
- The Latte Factor by David Bach
I Will Teach You To Be Rich (Buy on Amazon)
By Ramit Sethi
My biggest takeaway from the 1st edition was setting up online banks for automating your finances. Set it and forget it. Deposit your paycheck in a checking account and have set amounts go to bills, savings, and investments automatically.
I ordered the audiobook from Audible immediately and listened to it non-stop for 2 days.
This book is a crash course in the fundamentals of investing and also very tactical in that he gives step by step advice along with specific recommendations for investments and online banks.
I Will Teach You To Be Rich caused me to take action 10 years ago and it had the same effect on me the 2nd time around because the message throughout the book is taking the time to do this now will help you create the life you want.
This book will teach you exactly what to invest in, how to set up online banking so your savings and investing are automatic, and what it means to live a rich life.
It’s not about the money, it’s about intentional living and purpose.
The Latte Factor
by David Bach
Podcast Mentioned: The James Altucher Show
I also listened to The Latte Factor on Audible from start to finish.
The Latte Factor is story about a girl named Zoey who is a twenty-something working and living the dream in NYC and is buried under student loans, debt, and living paycheck to paycheck just trying to make ends meet. Not an unfamiliar story for many. The thought of savings and investing are the furthest thing from her mind as she can barely afford rent. This is a story many of us have experienced and it can be a vicious cycle of financial stress and worry working hard just to pay debts and eek by without being able to put any money aside for travel or savings or retirement.
Zoey meets a wise old man who changes her perspective and teaches her many valuable money and life lessons such as the power of compounding interest and one of the the most important lessons of this book and my biggest takeaway from the book is Pay yourself first.
**Pay Yourself First: **
You take the first hour of every working day and put that in your savings or investment account.
You work 8 hours per day
You take your hourly rate for 1 hour out of the 8 hours
You put the first hour of payin your savings or investment account.
You can multiply this 1 hour by the number of days you work or multiply by 7 for a full week.
Bonus Math Tip:
To get the hourly rate from any annual salary:
Divide the salary by 2 and that is the hourly rate.
If you make 50,000 per year.
50,000/2 is 25,000
If you make 75,000 per year.
75,000/2 is 37,500
If you make 100,000 per year.
100,000/2 is 50,000
Pay Yourself First Example (First Hour)
You make $50,000 per year which is $25/hour pre-taxes.
Save 1 hour per working day that is $25 x 5 days = $125
$125 week x 4 weeks = $450 per month by paying yourself the 1st hour of every day.
Use this as a benchmark.
Pay yourself first
Treat savings like an expense each month and you will be paying your self first.
Part 3: The Plan & Tools
I figured out my savings goal by using The Latte Factors pay yourself first.
I took my salary and divided it by 2 to get my hourly rate and then I multiplied that by 7 and rounded up to get my the total I wanted to save each month.
This total will fund my 401k, Roth, and my multiple savings buckets that I want to save for. Here are the specifics of my plan:
- Vanguard Funds (highly recommend) I moved my existing mutual fund and Roth IRA to Vanguard Funds
Tip: Look up expense ratios. They matter. A lot.
- Ally Bank (highly recommend) I set up a new online banking account at Ally Bank and added multiple savings accounts that included a regular savings fund, Vacation Fund & Emergency Fund and connected my checking account so I could make recurring deposits automatically as soon as my paychecks get deposited. Auto-pilot.
- Personal Capital is a money manager like Mint. You add every financial account you have including credit cards, Paypal, checking, savings, 401K, Roths etc and it magically organizes and gives you a real-time snapshot of everything.
- YNAB (You Need a Budget) is a popular budgeting tool that I am trying to adopt in my system. It is $80/year. It has steep learning curve.
- Pay myself first I connected my checking account to my Roth IRA and set up a recurring deposit of $100 per month as soon as my paycheck is deposited.
Here is my plan in action:
- I get a paycheck
- Money is automatically deposited in my 401K.
- The rest of my paycheck goes to my checking account.
- My checking account sends money to Vanguard that contributes to my Roth IRA.
- My checking account sends money to Ally Bank with multiple savings accounts and emergency fund, etc.
- Personal Capital is an iOS and web app that organizes all of my accounts
- YNAB (You need a budget) makes sure I am prioritize and track my spending.
- Pay myself first and then I pay my rent and bills and whatever is left is mine to enjoy life with.
- And if you work multiple side hustles like myself, pump as much as you can into your system and let it grow.
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