If you live in the Bay Area, Jim Robertson has advice for you about managing your finances. Even if you don’t live in the Bay Area, though, the following tips might be useful to you.
He helps people improve their financial lives and avoid mistakes that can cost them thousands of dollars over time. Here are some basic finance tips he often repeats to his clients.
Beware of These Seven Mistakes
1. Giving up too soon – Successful entrepreneurs are not quitters, they do not give up when faced with adversity.
2. Finding the wrong partner – Ensure that you have a complimentary partner who can balance your strengths and weaknesses
3. Not reading everything – Gather as much information about your industry as possible
4. Lacking people skills – It is essential to be able to communicate with others in order to grow your business
5. Being stubborn – If it isn’t working, don’t stay there; change it 6. Choosing the wrong niche – Know your niche
7. Taking on too much risk- You need to take calculated risks, not unnecessary ones
Not Saving Early Enough
The good news is that saving enough early in life is as simple as putting a few more dollars in your retirement account each month. But if you don’t start saving early, the math becomes daunting.
You need to save about six times as much money to make up for not saving during those first 25 years of work. If you’re 40 and haven’t saved anything yet, it’ll take about $4,000 a year for 10 years to catch up and retire at age 65 with an adequate income.
If you wait until 50, it’ll take $7,000 annually for 10 years or $8,000 annually for five years.
Investing in Bad Options
Investing in stocks, real estate, commodities and many other investments have traditionally been a great way to create wealth. However, there are some investments that don’t offer great returns or are too risky to consider.
Here are a few things to consider before sinking your hard-earned cash into bad options:
1) Don’t invest in items that can expire (ex. food), depreciate (ex. cars), or increase significantly in price (ex. oil).
2) Avoid spending money on counterfeit goods, even if they seem like a good deal.
3) Beware of pyramid schemes–if it sounds too good to be true, it probably is!
4) Only invest in any investment after you’ve consulted with a professional financial advisor who knows what they’re doing.
Saving Too Late
If you are in your 20s, save 10% of your paycheck. As you get older, aim to be saving 25% or more of your income. While it may seem like a large percentage at first, if you start early and make small contributions to your savings regularly, then the extra money will grow faster than expected. And if you can’t afford that much right now, don’t worry!
Just set aside what you can each month and try to increase your contribution as time goes on. It’s never too late to start investing!
Paying Too Much In Fees
When it comes to finances, we’re often led to believe that higher fees mean better returns. Wrong! If you’re investing in mutual funds or ETFs, just make sure that you’re not paying an arm and a leg in fees.
The average expense ratio for equity mutual funds is 1%. While it may seem like peanuts at first, these percentages can add up over time and eat away at your money. For example, if you invested $100 per month with an expense ratio of 1% annually (12% compounded), by the end of five years, the annual cost would be more than $4,000. Yikes!
Buying a House That’s Too Big
When deciding to buy a house, it can be tempting to get an oversized home. But, if you’re still paying off student loans and saving for retirement, an oversized home could lead to a few more years of hardship and could potentially mean that your inheritance from your parents would go elsewhere (i.e., toward paying down your mortgage). Make sure you stay in reality and take these other considerations into account before deciding on a large home.
Following Everyone Else Into Bad Debt Traps
The financial landscape has shifted dramatically in recent years, making it difficult to know how to invest wisely and stay financially secure, said Jim Robertson.
Traditional methods of saving money are no longer enough; you need to be taking advantage of today’s most innovative financial vehicles.
The only way people can keep up with this changing market is to read about new developments on a regular basis, he said. Otherwise they’ll find themselves following everyone else into bad debt traps.
Overspending on Luxuries
Living in the Bay Areas can be very costly. There are several different types of people that live here; some work at tech companies and make six-figure salaries, while others work at middle-class jobs, making around $40k a year. The lifestyle is really different for these two groups.
Some of my friends have a more lavish lifestyle: they rent in super cool neighborhoods, wear designer clothes, eat out at restaurants all the time and travel internationally 3 times a year.
How to Fix Your Finances in Two Steps
Everyone wants to save money and pay off debt, but it can be hard to figure out how to start with a good financial strategy. I recently had a chance to chat with Jim Robertson, who has some great advice on how to set up your finances.
First, understand where you are right now: What are your bills like? How much do you make? Where is your money going each month?
Second Second, set up a plan: Don’t worry about cutting costs–you’ll make those cuts later. Instead, focus on saving as much as possible from your income first.
If you find that there is still money left over after doing this then look at what you’re spending it on and cut back in areas where there are opportunities to save.
Save For Emergencies First
Save up an emergency fund with 3-6 months worth of living expenses. Emergencies are unplanned expenses like car repairs, or unforeseen health care costs that could put you into debt and make it difficult to reach your goals.
Include a Carefully Considered Investment Portfolio as Part of Your Retirement Savings Strategy (five sentences) A carefully considered investment portfolio is one of the most important parts of any retirement savings strategy.
Investing in low cost index funds will help avoid high fees and stock market volatility, which can eat away at your portfolio over time. A successful investment strategy should also include dividends from stocks, bonds, and real estate to generate income from passive sources after you retire.
Use Debt Wisely and Only As A Last Resort
If you have any unpaid credit card balances, I suggest you pay those off first. It will save you money in interest and prevent the debt from snowballing into a big issue that could jeopardize your ability to purchase large items like a home.
If paying off your credit cards doesn’t make sense for your current situation or it won’t solve all of your financial problems, please get in touch with me and we can discuss other strategies. You may also want to consider consolidating some credit card debts into one low-interest loan so you don’t keep accumulating new high-interest rates.
Finally, when considering whether or not to use a balance transfer offer from another lender, always compare the APR (annual percentage rate) before making a decision.