You know there are a lot of subjects that I would love to be able to cover on this channel.
So many little things and neat ideas that can go into creating a wildly successful personal
Financial picture for ourselves and others.
But I'm just one man and I'm not always able to get to as many of those concepts as I would
like as quickly as I would like.
So in the spirit of just tackling a bunch of ideas all in one go today, I'm going to
be talking about five different things you can do to supercharge your finances.
Hey everyone Daniel here and welcome to Next Level Life a channel where you can learn about
Investing, debt, retirement, and many other general financial education videos because
the school's aren't going to do it for us.
So if any of those topics sound interesting to you or if you want to learn how to better
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and leave a comment below letting me know what topics you’d like me to cover in future
videos.
In the interest of keeping this video under 20 minutes, I won't be going as in-depth as
I normally do to any one of these ideas today, although I will be covering many them in future
videos in more depth if I haven't already by the time this video is released.
So I encourage you to use this video as kind of a jumping-off point for yourself.
If any of the ideas that come up today intrigue you, definitely look into them more, talk
to your financial advisor about them, research other people’s perspectives on the subject,
and figure out how to best apply them to your situation.
With that out of the way let's get started.
So the first thing you can do to supercharge your finances is to, if you haven't already,
set up a zero-based budget also sometimes known as a zero-sum budget.
Most of you are probably already familiar with this and I know a lot of you who follow
Dave Ramsey as well as this channel know exactly what this is because it's the budget he recommends,
but for those not in the know real quick a zero-based budget is a budget where every
dollar you bring in gets accounted for whether through expenses, investments, giving, or
some other means, it doesn't matter, every dollar has a job before the month even begins.
If you don't know how to set this budget up there are tons of budget templates out there
you can use, just Google "zero-sum budget template" and you'll get a bunch of them that
come up or you can try out one of the apps that use this method of budgeting, of course,
Dave Ramsey's app every dollar being one of those but there are others that you may find
you like better.
The reason why this is so important, and the reason why I recommend everybody does this
budget at least once, is because unlike some of the other budgeting methods that I've covered
on this channel and will cover on this channel the zero-based budget is very, very good at
helping you to figure out not only where you're overspending but also finding areas where
you didn't even know you were spending money in the first place.
This is because since every dollar has a job, there's no wiggle room there's no mystery
in the budget.
If you have too much month at the end of the money it's either because you overspent in
some other category, you didn't earn as much as you were thinking you would, or you simply
spent money in a category that you didn't think of before the month began, when you
were initially setting up the budget.
If that's the case then it forces you to go back and look at your expenses in-depth to
see what those unaccounted for expenses were and forces you to think of whether or not
those expenses were actually needed.
Finding these for lack of a better phrase "phantom expenses" can be a huge money-saver
for a lot of people especially if you've never done a budget like this before.
On the other hand, if you overspent in some category then it forces you to look deeper
into that category and figure out whether or not you can cut that expense down a bit.
Ideally, this leads you to thinking about your priorities and what you really value
spending money on which ultimately is what a budget is trying to teach you as I've covered
in previous videos.
Sometimes you'll say to yourself "yes I do need this expense and it does need to be this
high," and if that's the case then, that’s fine, you simply adjust your budget in other
categories to make sure that you're still able to make ends meet and reach your goals.
Other times you'll find that there are ways to cut that expense down a little or maybe
even a lot and still maintain the standard of life that's important to you which can
also be a huge money-saver especially if the issue has been found on big line items like
housing, transportation, or debt.
One thing I would like to add to this though is that cutting down on an expense doesn’t
necessarily have to mean spending less on something.
This is particularly true with housing.
Many people have taken advantage of various rent hacking techniques, which I will be covering
more in depth in future videos, in order to lower their effective housing costs.
Rent hacking can take on many forms but the idea is that you lower your effective housing
costs by either splitting the bills somehow, say by living with a roommate either by design
or by subletting, or by using your living space to generate an income like people who
put their homes up for rent on places like Airbnb.
They can then put that money towards their housing costs instead of having to pay for
it entirely out of their salaries.
Like I said I’ll be covering this topic more in-depth in future videos but that’s
the gist of the idea.
A second thing you can do to supercharge your finances is taking full advantage of tax-sheltered
Investments.
This is quite an obvious one I know but that doesn't make it any less relevant or important.
According to the Bureau of labor statistics, the average household income before taxes
in 2017 (which is the most recent year we have that's finalized as of this writing)
is about $73,500 per year.
That would either put someone in the 12% or 22% tax brackets depending on whether they're
single, head of household, or married filing jointly.
With the contribution limits of the 401K and ira being $19,000 per year and $6,000 per
year for the individual respectively there are potentially thousands of dollars in taxes
to be saved.
And that's not even to mention other tax-advantaged accounts like HSAs, ESAs, and 529 Plans that
may or may not be relevant to someone’s situation.
But those accounts are for future videos I'm just going to focus on the IRA and 401K today
since they are pretty universally applicable.
Let's say for instance a married couple making that $73,500 a year maxed out one 401k and
one IRA each year.
In doing so, they would be lowering their tax bill by $25,000 and saving roughly $3,000
on their federal income taxes.
That's a savings of $250 a month on taxes alone not to mention the fact that the investments
they made will be growing tax-deferred.
Or they could go the other way and invest in a Roth IRA or a Roth 401k if they had that
option pay the taxes now and then save on taxes down the road.
Now we don't know what those savings will be because
we don't know what the tax brackets will be when they retire and decide to take the money
out but there will be savings.
Or they can even mix and match the two by putting the money into a traditional IRA or
401K now and then take advantage of the Roth conversion ladder down the road.
Whatever the case may be the point is that's a decent chunk of savings each year and since
the savings is through the act of investing over time, thanks to compound interest it
can have an enormous effect on your financial picture.
At $25,000 a year and an average 8% annualized rate of return over the long haul they would
have over $1,000,000 saved in just 19 years, over $2,000,000 saved in 26 years, and over
$6.75 million saved in 40 years.
The third way that you can supercharge your finances is through education.
And I'm not talking about education in the "go to college and get a degree" sense, that
certainly can help if you're getting a good degree that will get you a good paying job.
It is certainly one way to go but that's not what I'm talking about here.
I'm talking about seeking out knowledge that you will be able to apply to your life and
your specific financial situation, ideally in the here and now.
My favorite way to do this is through books which is why in every single video on talking
about Amazon's Audible service.
Because seriously I can't stress this enough none of us... none of us are born with the
know-how to be financially successful.
Some of us may have great mentors growing up and I was very fortunate myself to have
a dad that did start studying finances and passing that knowledge on to me at a young
age, but even with that, had I not gone out and searched for other knowledge, insight
and different ideas for myself that either he didn't know about or that maybe he knew
about but was never able to explain to me in a way that I got it, I wouldn't be where
I am today.
I would almost certainly be more well-off than the paycheck to paycheck life that a
lot of people are unfortunately living because my dad did give me that strong foundation
but I wouldn't have been as far along as I am today.
So again I can't stress it enough seek out as much as you possibly can whether that's
in the form of blogs, podcasts, and videos, or books and audiobooks, or even seminars
at your local library, whatever works best for you, just find something so that you can
get those insights, get those ideas, and apply them to your life.
Listening and learning from others is so important.
And there's a great quote that sums it all up better than I could.
It's from Woodrow Wilson and he said, "I not only use all the brains I have but all that
I can borrow."
Be like that.
Learn from others, it’ll not only get you much further on your journey much faster than
you could on your own, but it’ll probably save you from making a few crucial mistakes
along the way as well.
A fourth thing that you can do to supercharge your finances is to start a side hustle.
And your side hustle doesn't have to be big or extravagant or cost a lot of money either.
Realistically speaking, it doesn't even have to make a ton of money to be a huge difference
maker in your life.
Even taking home something like $500 a month can still make an astounding difference in
your life, even if it probably wouldn't be quite enough for you to quit your day job.
Say you applied that to a mortgage loan.
Maybe you recently bought a house and you have a 30-year mortgage loan of $200,000 at
4% interest, that $500 a month would nearly cut your time to paying off that mortgage
nearly in half!
From 30 years all the way down to 15 years and 5 months.
And it would save you over $75,000 in interest.
That’s an average of over $400 a month in savings over the course of that time which
is not half bad considering it came from just a $500 a month side-hustle income.
Or maybe you don't have much any debt to speak of or just decided you wanted to go the investing
route.
$500 a month is $6,000 a year.
That on its own is enough to fully fund a Roth IRA.
Roth IRAs, of course, grow tax-free.
If we assume an 8% average annual rate of return over the long haul your ROTH IRA would
grow to over $100,000 in just 11 years, over a quarter million dollars in 19 years, half
a million dollars in 26 years, and over a million dollars in 35 years, all available
to you tax free!
One way or the other that's quite a big difference if you ask me!
A fifth way that you can supercharge your finances is a little unconventional and it’s
to figure out some dreamlines for yourself.
So much of the time when we've tried to budget and save money or invest we end up falling
off the wagon pretty quickly.
No matter how charged up on adrenaline and motivated we get after reading a book on money,
watching a video, or listening to a personal finance expert talk about how to change our
financial lives it never ends up panning out the way we hoped.
Maybe it’s because we feel we're not making very much progress or because the market tanks
and we panic or we have some unexpected medical bills come up or whatever the case may be.
And when we hit these roadblocks it can be very discouraging, sometimes so much so that
we stop trying to change our financial lives for the better entirely… but why?
How could we go from being so motivated to change our financial lives to giving up so
quickly?
Even with something like those unexpected medical bills… yes, it sucks, it really
sucks and can set us back quite a ways, and yet there are some people who manage to get
through those roadblocks and achieve financial independence.
So what are we missing?
What do they have that we don’t?
Well, it could be different depending on your situation but I think for a lot of us what
we're really missing in those times is our reason to change our financial lives.
Not just a reason, but our reason.
What were missing is what Tim Ferriss calls our dreamline in his book “The 4-Hour Work
Week.”
A dreamline is anything that you either want to have, want to be, or want to do by a specific
point in time and it’s unique to all of us.
So how do we find our dreamlines?
Ferriss recommends creating two timelines one for six months and the other for twelve
months.
On each, list up to five things you dream of having (including, but not limited to,
material wants: like a house, car, or clothing), being (be a great cook, be fluent in Chinese,
be a blogger), and doing (visiting Thailand, tracing your roots overseas, racing ostriches),
in that order.
Don’t worry about how what you write down will be accomplished.
That can all be figured out later with research and proper planning, much of which can be
found on this channel and others like it.
For now, just focus on the dreamlines and trust the process.
If you’re having trouble coming up with ideas ask yourself: What would you do, day-to-day,
if you had $100 million in the bank?
If you're still having trouble, fill in the five “doing” spots with the following:
1 place to visit 1 thing to do before you die (a memory of
a lifetime) 1 thing to do daily
1 thing to do weekly 1 thing you’ve always wanted to learn.
Figuring out these “doing” examples may help you decide what you might want to have
and what you might want to be.
The benefit of thinking about dreamlines in this specific detail is that it forces you
to figure out what things you really want to have (which will help you better prioritize
and allocate funds in your budgets), as well as what you really want to do and be, in addition
to getting you very excited about the possibilities.
More than that if you're able to get a taste of one of your dream lines even if it is on
a smaller scale you can really help keep yourself motivated to continue making and saving money
as you run towards your goals even during the tough times.
If done right, you’ll naturally find yourself researching different ways to live your dream
lines in as affordable a manner as possible.
More often than not, you’ll find that when you’re actively looking for ways to make
your dream a reality when you’re open to all the possibilities out there to help you
achieve your goals, it usually ends up costing less than you would’ve thought going in.
So if you haven't tried it already that would be a good way to supercharge your finances…
probably for a long time to come.
So come up with your dreamlines and try to find a way to test one or two of them out
if at all possible.
Sometimes you may find that that dreamline wasn't what you expected it to be and that's
okay you can take it off your list, but eventually, you'll stumble onto something that is so awesome
that you will run through walls to do it again and again and again.
And with that kind of sustained motivation and desire, I promise you, you'll find it
a lot more possible to become financially successful and have a really enjoyable life.
It is truly a night and day difference from the place where most of us are approaching
finances right now.
But that'll do it for me today once again if you enjoyed this video be sure to subscribe
and hit that Bell next to my name so that you'll be notified of all my future uploads.
I generally upload every single Monday, and if you have a friend that would be interested
in this kind of content be sure to share it with them and let's really get this information
out there and start our own Financial revolution.