Financial Starter Plan

You have just finished some form of education, whether that be college, technical training, or a primary school. Finally you can start working, making money, and buying all the things you dreamed about as a kid. This fantasy goes on for maybe a month, you quickly learn that being out on your own is harder than it looks and one of the biggest struggles people will encounter are financial issues. The cold hard truth is that financial decisions you make in your early career can greatly improve your quality of life in the future or massively impact it negatively.

When I graduated college I had no financial roots, I was not taught about finance in school, and money was something that people in my childhood just did not like to talk about. So my financial decisions I made early in my career were not the best, I was just doing what I knew. I am sure a lot you reading this post are in the same boat. So I want to share with you 5 financial guidelines to help you avoid big mistakes that most people make while getting started.

1. Outdoing Your Parents

I think this is a subconscious thought that we have when we first start making money, we want to have everything our parents have and more right away. We have lived with certain things in our life growing up and we feel like we need those things as soon as we have enough money to afford them. Just because your parents have a 2,500 sqft house and a luxury SUV does not mean you need to buy this with your first pay check. You must remember it took your parents many years to get where they are at and you are not in a race to outdo them

If you can drive your college car for another 5 years do it! I made the mistake of trading a perfectly good sedan that I drove in college, for a brand new $35,000 dollar car right after I landed my new job. I really regret this looking back I could have saved so much money to create a better investing head start. If you must buy a car, think practical. I would recommend not spending more than 10K on a car and try to pay cash if possible. no car payment equals a huge head start for your savings that will be used for investing.

For living I recommend to not spend more than a quarter of your income. So with rent/mortgage, utilities, insurance, and upkeep you should try to only spend a quarter of what you make. This forces you to rent a reasonably priced apartment, or room with someone in a nicer apartment, buy a reasonably priced house, or live with your parents until you can afford somewhere to live with a quarter of your income.

The whole point of rule number one is to not extend your financial well being by acquiring things that eat up your entire paycheck on a monthly basis

2. Monitor Spending and Automate Savings

Everyone needs to keep some type of budget, whether this is hand written, a spreadsheet, or an application. I was bad about this early on, I thought my finances were fine and I knew how much I was spending every month. I was very surprised when I finally sat down made a budget, and recorded my spending for the month. You will be amazed at how much you spend at the bars, on coffee, and on eating out. Keeping a budget shows your financial money pits and helps you to manage them by careful monitoring.

Budgets are key for financial goals, like saving for a new house, a big exciting vacation that you have always dreamed about, and of course your financial future. You must tell your money what to do or it tends to do what it wants; and that savings account goal for your big dreams will never get reached. The key is to determine a base line, with your budget, on how much it cost to live the lifestyle you want. Once you have that base line you can determine how much you can save each month and you must stick to this amount.

You might be thinking it is so hard to deposit your money into a savings account when you could use to buy that new gadget. I know this is tough, but due to the financial magic in banking automation it does not have to be a battle of willpower. Companies like Ally Bank allow you to set up multiple savings accounts for all financial goals and automatically allocate the money you have set aside for savings into these accounts. This allows you to move on with your busy life and let these systems do the saving for you.

3. Investing Basics: Company 401K/IRA Plans

I know a lot of you cringe when you hear the words investing and 401K. It is okay though, these things do not have to be that complicated and like your savings account they can pretty much be automated if investing is not your forte. You just need to know a few basics to make sure you put the proper automation in place.

If you company has a 401K program, I strongly recommend taking advantage of any money they will give you. My company deposits a set amount of money into my 401K account each month and does not match anything. However, if your company matches I suggest you put the max amount in that they will match. If your company does not match but offers you to put money into a brokerage that they support, this requires a little more homework. I recommend doing a little research on the company brokerage to see if they are producing good returns for their customers and they are not charging ridiculous fees. Your savings goal for your retirement should be a minimum of 10% of your paycheck, the more the better though.

You might be a freelancer or run your own business and do not have the company benefit of a 401K plan, not to worry, there is an easy solution. I recommend opening a Roth IRA and investing 50% in a simple index fund such as Vanguards S&P 500 for the stock portion and the other 50% into a bond index fund. This is advice given from defensive investors from Benjamin Graham's book The Intelligent Investor. These options can also be used by someone who works for a company that does not match their 401K contributions.

Once your money is in these accounts just leave it alone, do not stress yourself out by trying to beat the hedge funds that spend their lives devoted to the market. This is your retirement money for the future, just let the market go up and down while you enjoy your life. Remember you are getting an early start in your professional life, you will reap the rewards of the market's long term gains over the next 40 years.

4. Advanced Investing: Passive Income Through Real Estate

If you are happy with the returns you will make on your money from the Index funds then you can skip this section and move on to tip number 5. However, if you want your money to work extra hard for you then this advice will be beneficial.

With the birth of HGTV, everyone thinks they have the ability to go in and flip houses. These shows glorify house flipping and leave out the important details of what actually makes a certain property a valuable flip. Also house flipping is just one small portion of real estate investing gambit, there are many different forms of real estate investing.

Real estate investing requires a lot of knowledge and studying before venturing off into your first project. If you do not want to put the work in to learn a form of real estate investing, but want the returns and passive income; I recommend attending a local real estate meet up or talking to friends and family that invest. Experienced investors with a proven track record will allow you to make bigger returns with your savings through real estate passively.

If you can learn how to create passive income on your own through real estate, or find someone who can do that for you, you will be able to make your money start working hard for you. As you sleep, sit on the beach, or hangout at that new trendy coffee shop your money is making more money for you. The key to investing is to create a stream of passive income to support your future lifestyle.

5 Engineering Your Lifestyle

What kind of life do you want to live? This is the most important question you can ask yourself when setting up your financial game plan. The immediate answer most people will say is a happy and successful life, but what is your definition of successful and happy.

My definition of success and happiness is to do something I am passionate about and not being enslaved to paying bills and taking care of things I don't care for anymore

I want the life of financial freedom, I want my saving and investments to pay for my lifestyle, and be free to tackle anything I want to do on this earth. Now the definition of lifestyle is different for everyone. If you want a mansion and a super car, you will have to work a lot harder at generation money and maximize the work your money is doing for you. On the flip side, if you are comfortable with a modest house and necessities for living, you can become financially free with a lot less money. I am not preaching early retirement, sitting on the beach from 40-80 will get old, but the ability to do things that really inspire you and to give back. If you plan your life with this goal in mind you can avoid being a slave to debt and liberate the remaining years of your existence.