“The truth will set you free.” I’m sure you’ve heard that before, and it’s a pretty accurate statement. When it comes to money, this statement still holds water. With that in mind, I researched the truths about money and came across this interesting video from the Betterment Boss titled 7 Shocking Money Truths I Wish I Knew Sooner | How To Be Good With Your Money. I’ve listed those 7 truths here and provided a quick summary of each…
1. You Must Always Pay Yourself First
I’ve spoke of Pay Yourself First many times. It is essential if you want to be successful at saving money. The concept is that before you pay any bills, you need to automate transfers of money into your savings account first. This way, you never get the money in your spending account, and it’s never really missed.
2. Budgeting Is Your Friend
Even the most successful millionaires in the world budget their money. If you want to be in control of your money, you have to understand how much you’re making and where it all needs to go in order to reach your goals. A very popular method is the 20/30/50 Method where 20% of your money is allotted for savings, 30% is allotted for fun, and 50% is allotted for everyday living expenses. Your job is to get your living expenses down to 50% of your pay. Do that, and the other 50% distribution is easy.
3. Working a 9-5 Job Won’t Make You Rich
Yes, you can make a great living working a 9-5 job. And yes, if you save for years, you can become very rich. But that takes a long time. You can get great benefits from a 9-5 job too but you are still at the mercy of your boss. Your boss pays you what he/she wants, and you’ll never make more than them. Not to mention that you could easily be laid off, hunting for the next job.
Turn the tables here and look at other sources of income like: earned income, profit income, dividend income, rental income, and capital gains. Yes, earned income is in the list again, because you can get a second job!!!
4. You Must Set Financial Goals
You need to have goals for your money if you want to reach your dreams. Goal oriented people get things done. Those who write down their goals and picture them are 1-2x more likely to achieve them than people who don’t. Set goals for your savings, investments, and earned income. Write down the goals and the steps you need to take to achieve them. If you do this, you’ve increased your chances of reaching financial freedom.
5. Putting 20% Down On a Home Isn’t Always The Best Decision
We’re always told that we need to put 20% down on a house if we want to save money. And it’s true that the more money you put down, the lower your payment will be. The challenge comes in where people can’t afford the 20% down and have to take 4-5 years to save 20%. Most houses will appreciate in value, so taking 4-5 years to save for a home will have you paying more money for that home. So, is 20% down really saving you money?
6. It’s Never Too Early To Invest For Retirement
Young people tend to think they have plenty of time to save for retirement. What they’re missing is that wonderful thing call Compound Interest. The earlier you invest money, the longer it has to accumulate interest and for that interest to accumulate interest. There are people who have made less than $18k a year for their entire lives but retired a millionaire because they started investing when they were young.
7. Your Credit Score Isn’t Only Based On Timely Payments
“I pay my bills on time, so my credit score has to be good.” False, there are lots of elements that make up your credit score. Payment history accounts for about 35% of your score. Check out my post next week where I share the 5 Elements of Credit.
Like anything else…if you want to be good with money, you have to study and understand it. You need to know the truths about money and use those truths to set up a financial future that only a small percentage of people will reach. Reading and understanding these truths is only half the battle. If you want to make a big difference, you need to take action. Look at these truths and start creating some actions to get your money moving in the right direction!!!
Check out the Betterment Boss’s video here: