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Life Goal #46 - Invest 10% of your income!
August 15, 2020
How to pay yourself first!
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"Financial peace isn't the acquisition of stuff. It's learning to live on less than you make, so you can give money back and have money to invest. You can't win until you do this." - Dave Ramsey
Life Goal 46 - Invest 10% of your income - learn how to pay yourself first as your top personal investing strategy!REASON FOR THIS GOAL AND HOW TO PAY YOURSELF FIRST: The single best personal investing financial habit you could develop and apply is paying yourself first. This single habit will change your financial destiny.
Take 10% of each pay cheque and invest it into appreciating assets. Just like you would pay all your expenses (car, insurance, utilities, mortgage, etc.), consider the “Pay Yourself 10%” as a mandatory expense that you pay.
HOW TO PAY YOURSELF FIRST! The "how to pay yourself first" is as simple as putting this money into a separate savings or investing account as your first payment, after you pay for your absolute necessities (i.e. rent or mortgage). If you are in a poor financial situation, start with 1% and work you way up in 1% increments until you are paying yourself a minimum of 10%. Don't delay. Start NOW. Consider this payment as important as paying making your car payment or paying your hydro bill.
The key is that you need to create the HABIT now. DON'T WAIT UNTIL YOU THINK YOU ARE MORE READY. START NOW, even if it is $ 10/month. The habit needs to start now, not in 10 years, or you will miss out one one of the wonders of the world . . . compound interest.
Spending below your means is important. Don't overspend on lifestyle.
If you want to be really wealthy, DOUBLE the 10% to 20%. You will be happy you start this key financial habit, as this single habit will (should) allow you to become a millionaire before the time you retire. Much sooner if you adopt 20%.
KEY POINT: "It's easier to spend what's left over after savings than it is to save what's left over spending"
If you use on-line banking, setup a special SAVINGS (INVESTING) account. Setup an AUTOMATIC transfer of your amount (ideally 10% but start with a smaller amount if necessary), on the day after you get paid.
FOR MORE INFORMATION ON THIS ESSENTIAL LIFE GOAL, VISIT MY SITE:
Some personal investing tips . . .My wife and I have been good with our money for most of our life. We both have good sets of parent role models who saved and invested their money, so it was natural for us to do the same. We've learned a few things along the way and here is what we would do differently if we were to start over again:
MANAGE OUR OWN MONEY - No one will value your money and be more interested in having it grow than you. It's only been through recent years through the wide availability of on-line brokerage accounts (like Questrade, Robin Hood, Wealth Simple), that you can manage your own accounts. With these on-line accounts, you can trade (buy and sell) stocks for a small fee, and even for free.
If managing your own money is new or scary for you, check out Life Goal # 47 - Find a financial adviser / mentor
INVEST IN WHAT YOU KNOW - Understanding what you invest in is important. I've noticed that once Kathy and I start using a company's products or services, that would have been the best time to invest. Think about when you purchased your first Apple product, started using Netflix, started shopping at Amazon or Costco as an example. Check out their stock price back at that time and check it out now and you'll see what I mean.
When I purchased my Tesla Model 3 about a year ago, that would have been the perfect time to buy Tesla stock. Unfortunately the financial adviser we work working with at the time talked me out of it. BIG MISTAKE for both of us! The price has increased by more than 5X. We've since left our financial adviser and have taken our investing into our own hands. And yes, we now own stock in TESLA and this is another example of owning stock in companies that you personally believe in because you use their products.
We also have significant stock in the publicly traded company that I am employed with. It is a great company that is demonstrated through it's stock performance over the past 15+ years with returns well in excess of 15% per annum. If you work for a good company that is publicly traded, you should consider owning their stock too.
DON'T DIVERSIFY TOO MUCH - Contrary to popular advice to diversify your investments, my belief is that you will significantly limit your growth potential by over diversification. It is better to understand a handful of strategic investments or stocks (i.e. up to 10 or 15 maximum), than to be so diversified that your returns are watered down. But ensure you own a healthy amount of Exchange Traded Funds (see next point below). My suggestion is that somewhere between 50% and 80% of your investment portfolio is in ETF's. We are currently targeting 50% with the balance in individual stocks.
BUY EXCHANGE TRADED FUNDS (ETF) - It is now recognized that most mutual funds and money managers do not generate returns that beat that of of common exchange funds that track the holding of stocks on the various stock exchanges (i.e. S&P 500, NASDAQ, DOW, TSX etc.). The management fees in owning an ETF are drastically lower than that paid to a professionally managed fund. This alone will add tens and possibly hundreds of thousands of dollars to your return at the end of 30 or 40 years. If this all sounds foreign to you and you don't understand investing in general, it's time you educate yourself.
INVEST IN BOTH REAL ESTATE AND THE STOCK MARKET - For much of our life, we focused heavily on real estate investing and that was a great decision for us. While we've also invested our money throughout this time, I was not actively managing our investments like I am now. If I was to go back in time, I would have paid more attention to our stock market investment decisions.
INVEST MORE AND SPEND LESS - As you get older, you realize that a lot of the stuff that you accumulate throughout your life was not worth it and would have been better invested. Think of every $ 1 you spend money on as a lost opportunity for $ 50 to $ 100 down the road. With the power of compound interest and the rule of 72, if you can manage to grow your money at 10% to 20% per annum, that is how much your $ 1 will grow to in 30 to 40 years!
Investment philosophy at 100 Goals ClubA summary of my investment philosophy and that of the 100 Goals Club:
1. Invest minimum 10% of your gross income for your retirement (but target 20% if you want to be wealthy)
2. Target an annual return of 10% per year minimum on your investment (but target 20%). A financial planner will tell you that 6% is a safe number to plan your retirement on. My experience and my expectations are much higher!
3. Don't become a day trader in the stock market. Invest in solid growth oriented companies and Exchange Traded Funds (ETF) in industries that are expected to grow.
4. Understand what you are investing in
5. Have a long term horizon when you invest (years or decades, not days or months)
6. Know what Compound Interest is and learn the RULE OF 72. See the difference a few percent will make 30 years from now by achieving a 10% annualized return versus 7%.
7. Spend less money on buying lots of things and instead buy fewer things of higher quality
8. Take care of your own money, no-one else will
9. Strive to be financially free, where you don't need to depend on job income to have a good lifestyle
ONE MILLION $+There are few reasons that most of you reading this newsletter couldn't grow your investment portfolio to more than $ 1,000,000 by the time you retire. Target a few million. With inflation, you'll need it. If this sounds crazy to you and you are still young, it's important that you spend more time understanding your finances and personal investing! Check out my financial site at
for the 10 life goals associated with your life finances.
The best thing about money goals is that money is easy to count!!
Next newsletter . . .My next newsletter on September 1st will focus on how to find your passion.
To your success!!
Brian Klodt founder of the 100 Goals Club
P.S. If you have an important milestone coming up like a decade birthday, decide you will have your life goals list ready to go before you turn 20, 25, 30, 35, 40, 45, 50 . . . ! And don't forget we are approaching the 3rd quarter of 2020, another reason to complete your list of goals during the 2020 year (the year of vision).
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