I don’t even know how or when it happened, but one day I realized that I was more than a nerd. I had passion for something other than general technology, Microsoft products and Apple Products. I had a discovered a deep, innate love for finance.
There was something about budgets, P&Ls, ROI, and investments that made me feel like I was playing a real life game of Monopoly — and I was not only good at it, I was really good at it.
Many of my friends know me as someone who is, generally speaking, “good with money.” While the assessment is true, it wasn’t always true. What most of my friends don’t know is that just 5 years ago, in the summer of 2009, I had less than $300 cash to my name. I had just left a job where I made an annual salary of $30k and I was $20k in debt.
I was also fresh out of a relationship that eviscerated my bank accounts as well as my self-confidence and I had just started a new job that paid a performance-based salary, as opposed to stable and steady. For those that don’t know, and I barely understood it at the time, performance-based means that your income is based on your level of performance. The harder you work, presuming said work produced net profit, the more you would get paid. On one hand, this was a spectacular opportunity as I didn’t and still do not have a college degree. On the other hand, this required long hours and offered little time for socialization.
I didn’t truly have a plan, but I knew my goal – get out of debt, get myself on my feet and make myself recession proof. The latter goal was definitely a large feat, but it was perfectly attainable if I put the right “bricks in place.”
I scrimped, I saved and, slowly but surely, I paid off my credit cards. Next, I started paying off my car, a car I had only just purchased. I had borrowed $12k from a friend to get the car into my name and remove the co-signer. I insisted on repaying the loan with 10% interest, and I did so within 6 months. Granted, I didn’t have much in savings during this time because my focus was to get out of debt so I could comfortably save and live.
Looking back, I probably should have put $25 per month, at least, into an IRA – even a Roth IRA, something I will write about later. However, I was and am still learning.
I began saving in an ING account, which is now known as Capital One 360, because, at the time, it boasted a variable 0.8% APY (Annual Percentage Yield). Side note — as of yesterday (4/17/2014) the rate changed to 0.75%, which, all things considering, is still a very good rate as Capital One 360 allows you to start with a $0 minimum and does not charge any fees.
I left my job because the long hours were no longer worth the reward. I started a business that capitalized on my skill set — IT consulting — and I also maintained a career as a vendor to Microsoft through a company called Corporate Online Services. I managed to use network connections and Twitter to procure the career opportunity, for which I will be forever grateful.
I began learning everything I could about business and the perks, as well as downsides, of business owners such as deductions. I attempted to make every financial decision based on what I could write off so I could maximize my savings, which was now being split between an emergency funds account as well as an IRA.
By this point, I no longer lived paycheck to paycheck and I could support myself for a period of 12 months if I happened to lose my job. I did it all while making a median salary, nothing fancy, and far from six figures.
So what is the point of this? The point of this is to emphasize that financial intelligence is well within everyone’s reach. It doesn’t happen overnight and it may not be easy, but it is worth it. I was nearly 21 years old when I was eating top ramen because I couldn’t afford anything else. I’ve slept in my car, I’ve been in a position where I couldn’t even afford a bed, much less a place to rest my head. Then I started learning, researching and planning. It’s far more advisable to begin saving and planning for retirement at age 25 than it is at age 40. In fact, studies show that if you start saving at age 25, you will be a millionaire by the age of 60, which is when most want to retire. If you start saving at age 40, you will likely have less than a million dollars in the bank by age 60. Also, depending on your personal financial goals, the average amount most of us in our 20’s will need to retire is $3 million+.
Rather than going out and buying the newest pair of Jordans to hit the shelf, the latest Louis Vuitton bag, or the hottest pair of Gucci’s, put money away first for an emergency and retirement. Now, please know I am not suggesting that you never spend money on goals or desirable and expensive things / trips. Lord knows I have my own LV items and Gucci sunglasses, but it took me 5 years to let myself purchase them.
I’ll leave you on this note. There is a blog I recently began reading and a company I recently began following called LearnVest. Alexa von Tobel, the CEO and Founder, suggests allocating your finances in the following way:
50% – Essential Expenses (Rent, food, heat, etc.)
20% – Financial Priorities (Retirement, savings, debt payments, etc.)
30% – Lifestyle Choices (Personal, voluntary, whatever you want)
For the most part, I agree. I, personally, chose to place 30% towards financial priorities and 10% towards life style choices, and the remaining 10% as additional savings, but all in all the 50/20/30 rule is a good benchmark to initially use.
Stay tuned… I plan to write more on finance as it pertains to all areas. Next week’s financial blog will be on how to get a credit card, how to choose a credit card and why you need one. If you’re using a debit card to make your purchases, you are likely losing FREE money.