Dollars and Hops

043 | 7 Financial Principles To Live By | Budget Hack Of The Week | "What Do I Do With My Extra Money?"

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Core principles we live by:

  1. Live on less than you make
    • This sounds simple enough, but so many people do not do this.  All of the other things we talk about don’t matter if you’re not following this #1 step.  You MUST free up cash flow by living on less than you make or you will NEVER be able to get ahead.
    • Tips on how to achieve this:
    • Keep Housing costs <25% of your income.  Don’t think you can do this? If you’re young -think about house hacking.  Buy a small house, rent out one or two of the rooms, get your expenses as LOW as possible, especially in your early years.
    • Keep auto expenses as low as possible - Average american spends almost 9,000 per year on automobile expenses.  This is $750 per month.  Get a cheaper, but reliable car.  Take the extra money and put it to work for yourself.
    • These are the two largest expenses in people’s budgets.  Keep the overall costs of these two things low and make sure your I.R.’s on both are as low as they can be.

      •    2.  Get rid of any high interest debt.  Anything higher than 5-6% - get rid of it from your life.  If it’s low interest rate debt - keep it and pay as agreed on it.

         3.  Automate your savings

      • Invest at least 10% of your income.. After you have your emergency fund locked down and high interest debt is paid off.
      • Make this automatic by 401k deferral or automatic deduction on recurring basis to your roth or other tax advantaged account.
      • Short term savings - automate these in an account like Ally/Capital one 360.  Can automate
      • By living on less than you make.  You should free up some cash flow to be able to invest some of that income each and every paycheck.
      • The more income you save, the greater flexibility you have.

        •   4.  Invest in low cost mutual funds and ETF’s OR Buy assets that will make you money.

        Episode # 5 gives you our favorite ETF’s

        • Pay attention to fees when investing - you don’t get what you pay for when it comes to fees and investing.
        • Want to spend money on other things besides just using excess money to invest?  Consider buying assets that offer passive income potential
        • Examples include: Real Estate investing or businesses

          •   5.  Track your spending

          • Budgeting tools: YNAB, Mint.com

            •   6.  Know your net worth

            Episode # 1 - net worth tracker, Mint.com.

            • Make sure you’re tracking your net worth on at least a monthly basis.  This is important for helping you to track your progress and to ensure you’re accomplishing your goals

              •   7.  Set big goals so you know if you’re on track - episode 13

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