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Recently Michael & I did a semi-solo episode on The Skinny Confidential HIM & HER podcast all about finances. I say semi because my sister Mimi was there too. It was perfect because she had questions that lined up with a lot of the ones you guys asked, which is just so important for the younger listeners & readers.
Michael is someone who I really respect when it comes to finances. He has read so many books, is so organized & he just gets it. I’m not going to pretend that I love the subject of finance & investments. It’s confusing & overwhelming to me. But it is a necessary life skill & I think more of this kind of thing should be taught in school.
We’ve been getting so many DMs about this episode & people are LOVING it. As always, I want the blog to be a resource for you guys so want to break down the finances episode here too.
As Michael said in the podcast episode, it’s important to say that we are not financial experts & are not pretending to be. We ( mostly Michael ) just wanted to share things that we have learned through trial & error, & things that he wished he knew when he was younger.
Like I said, before the episode we asked listeners what questions they wanted answered & compiled a list for Michael so be sure to listen to the episode for the full breakdown but we’ll go over some of the main questions here.
If you don’t really understand finances, saving, investing or are one of those people who DREADS looking at your bank account or credit card statement, then this post is for you.
Let’s get right to it.
Financial Freedom, Investing & Saving Your Money
♡ saving vs. earning
It’s important to save, but you can’t save your way to financial freedom. We’ll talk about investing soon.
The rule of thumb is to save 10% of your income. Let’s pretend you make $1,000 a month. That means you should take $100 every month & put it aside. Pretend it’s not even there. Put it aside BEFORE you do anything like pay your rent, buy groceries, pay off credit card debt, etc.
The easiest way to do this is to have a separate bank account for your savings. Now, for YOUR financial freedom you might might 1 million dollars or 10 million dollars. It looks different for everyone.
Once you start to see your savings account grow, it becomes easier to add more, see how much more you can add. Maybe an extra $10 this month. One of Michael’s best tips ( & again, just his opinion ) is to save first. A lot of people spend, pay off debts, pay rent, THEN try to save.
Save first !! Get that money into your savings account & pretend you never even saw it.
♡ when you make more, don’t spend more.
This tip is so good if you’re young in my opinion. Let’s say you make $40,000 a year at your job and you’ve got your living expenses covered, you’re getting 10% of your monthly wage into a savings account, you’re doing pretty good.
Then you get a raise… Congrats !! You’re now making $50,000 a year. The key here is to keep living like you’re making $40,000. Just because you make more doesn’t mean you have to spend more.
Michael says: “a person who makes 30k & spends 20k is richer than someone who makes 50k & spends 55.” Another thing he thinks when he sees a fancy car or a huge house is ‘debt.’ Wealth is what you don’t see, not what you see.
♡ change your view of money.
Michael used to have a bit of ‘spending’ relationship with money. LOL. Thank god he got over that at 25. But if you’re someone who thinks money is something that impresses other people, it’s time to say goodbyes to that mindset.
People who care about where you travel, what you wear & what you drive have their own issues with finances & probably don’t understand it. Shift your mindset so that you think of money as something that can build up businesses, provide for your family, give you a comfortable life, buy back your time. Think of money as a tool to gain things in life that you want, not something that can impress others.
♡ lots of cash is not a good thing.
Having cash is not always the best thing thanks to ‘inflation.’ Inflation is the reason your grandparents bought their house for $50,000 back in the day & now it’s selling for $2 million. LOL.
Cash actually becomes less valuable every single year. We have what Michael calls an Emergency Fund where we keep ‘liquid cash’ but even he says it’s not the smartest thing to do that.
Michael recommends having 3-6 months cash in savings & the rest in an investment. We mostly have our investments in Index Funds.
If you don’t know what Index Funds are, Michael explains it in the podcast, but just imagine you have little shares of the top performing 500 companies & in order to have those shares they have to continue to be in the top 500. If they drop below that top 500 then they’re not in your fund anymore.
♡ renting vs. buying.
The bottom line is renting is the MAX you will pay for something, & buying is the MINIMUM you will pay for something.
It’s Michael’s opinion that you shouldn’t be buying a house until you can comfortably make a down payment. There is something to be said for paying rent & having things pretty stress-free.
When you own a home you have to factor in other monthly bills, maintenance, things break, etc. There are a million things people don’t factor into the cost of owning a home. If you’re young, with no kids, it could be a smart idea to rent until you have a down payment & are ready to really settle down somewhere.
Michael’s Book Recommendations for Understanding Finance:
♡ The Richest Man in Babylon
♡ Think & Grow Rich
♡ Money: Master the Game
♡ Unshakeable
♡ Your Simple Path to Wealth
♡ The Psychology of Money
♡ The Path to Financial Freedom
♡ Rich Dad, Poor Dad
♡ I Will Teach You to be Rich
The last book rec, I Will Teach You to be Rich is by Ramit Sethi who was just on The Skinny Confidential HIM & HER podcast. So if you’re into money, do not miss this one.
Also be sure to listen to the full episode on financial freedom with me, Michael & Mimi. He answers a ton more questions & gives so many good examples to help you understand investing & saving a little better. You’ll also learn more about Michael’s mid-life crisis at 25, how he learned from his frivolous spending habits, what happened with GameStop & his stance on lending money to family & friends.
Hope you love !!
x, lauryn
+ listen to this podcast episode for more on couple’s financing.
++ stalk what I learned from reading The 4 Hour Work Week.
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