During a recent podcast appearance, I was asked to share my top 10 financial tips. As someone who has spent years studying and teaching about money, I knew it wouldn’t be easy to narrow down my list to just 10. But I was determined to give the listeners the best of the best – the tips that I find myself sharing most often with friends, family, and clients.
After careful consideration, I landed on these 10 financial tips that I believe can make a real difference in people’s lives. They are the tips that I wish I had known when I was just starting out on my own financial journey. And now, I have the privilege of sharing them with you.
1. CONSIDER YOUR FINANCIAL LINEAGE
We’ve all heard of the money mindset. It’s a topic that is frequently mentioned in financial books and is usually the opening chapter. But have you ever wondered where your money mindset comes from?
In most cases, it comes from our parents, who inherited it from their parents before them. The cultural mindset around money, work, and success also plays a role.
If you’re experiencing stress and tension related to money, it’s crucial to do some “money work.” As one of my mentors, Jim Kwik, likes to say, “Behaviors follow beliefs.” If your behaviors aren’t serving you well, it’s likely due to faulty beliefs. Therefore, the first step is to identify what you believe to be true about money. What subconscious beliefs do you have that are acted out as truths? It’s helpful to reflect on what your parents said and did when it comes to money.
Through this process, you may realize that you’re repeating the same patterns as your parents, or perhaps doing the complete opposite (which can be just as problematic). Essentially, you’re continuing the narrative of your family’s financial lineage, and your children may do the same.
Action Step: Write down what you heard your parents say most often about money. (e.g. we can’t afford it). Do you hear yourself saying this same thing? Do you say it to your kids?
2. BUY A HOME AND PAY IT OFF EARLY
I highly recommend buying a home and paying it off. Why? So that when you are 30 years older (which is not that far away), you will have a comfortable place to live without the financial burden of a high mortgage or rent payment.
To accelerate the process, I suggest making two additional principal payments each year to shorten the mortgage term from 30 years to 15 years. It’s amazing to see how much interest can be saved by removing 15 years of interest payments!
Action Step: Do the math. Figure out how much money can be saved by shaving 15 years of mortgage interest payments. WHAT could you do with that extra money?
3. SET UP A HEALTH SAVINGS ACCOUNT
If you qualify and are looking for ways to save on healthcare expenses, I suggest setting up a high deductible insurance plan and pairing it with a Health Savings Account (HSA). With an HSA, you can use pre-tax money to pay for a wide range of health-related expenses, including services like massages, acupuncture, and chiropractic that you may have been putting off. It’s a great way to save money while also prioritizing your wellness needs.
Action Item: Look into an HSA
4. BUY A USED CAR AND PAY IT OFF
If you’re in the market for a new car, I have a piece of advice for you: consider buying a used car instead of opting for a brand new one. Buying a brand new car is throwing money down the drain. New cars typically depreciate by 20% as soon as you drive them off the lot, which is equivalent to burning $15,000. Instead, consider buying a used car that has already gone through the majority of its depreciation period. What could you do with an extra $15K?
These days, people don’t trade cars for cars. They trade car payments for car payments. This means they’re making payments on cars for most of their working careers. Don’t do this. If you have to finance the car, choose 36 months. Anything over that means you can’t afford the car. Your goal is to pay it off as soon as possible. Why?
Well, let me ask you this: Can you imagine how much money you’d be worth in 40 years if you put that monthly car payment into investments instead? It’s definitely worth doing the calculation – you might be surprised at the amount!
Action Item: Calculate how much you would be worth if you invested $750/month into an index fund instead of a car payment – for 20 years and 40 years.
5. SET UP AN LLC
If you’re a W2 or self-employed individual, I highly recommend considering setting up an LLC – and even incorporating your own name!
Why is this a good idea? Well, for starters, W2 employees typically pay the highest tax rates. The more income you make, the higher your tax bracket, without the ability to take advantage of many tax write-offs. An LLC can be an integral part of a tax strategy, allowing you to take advantage of around $10K in tax deductions just by opening one.
But that’s not all – setting up a legit business can also help you develop a business mindset and become more conscious of profit. And speaking of tax strategy, did you know that you can start paying your underage children? This can be a tax break for you and a way to fund their college education.
Action Item: Ask your CPA about paying your children under 18. Also, ask them about the $17,000 tax free gift exclusion.
6. GET A BUSINESS BANK ACCOUNT
To all 10-99ers, I can’t stress enough how important it is to get a separate business bank account set up.
Even if you haven’t set up an LLC yet, opening up a business bank account should be the next step. As a non-W2 worker, you want to make sure all of your income is deposited into your business account and never directly into your personal checking account. It’s important to avoid commingling monies in order to maintain clear separation between business and personal finances.
Remember, income from work is considered business income, and you should always pay yourself from the business account after taking into account expenses and profit. Once you’ve paid yourself, that money becomes your personal income and can be transferred into your personal account.
So take my advice and set up a business bank account as soon as possible – it’s a crucial step in maintaining clear and organized finances for your business.
Action step: Separate your business expenses from personal expenses
7. BUILD YOUR BUSINESS CREDIT
If you’re a new (or seasoned) business owner, it’s important to understand the importance of having access to capital. I’ve spoken with many business owners who have found themselves in financial trouble because they used high-interest personal debt to fund their new venture and/or grow their business.
To avoid this situation, it’s important to focus on building your business’s PayDEX credit score, which is not tied to your personal credit cards or bank account. When you start and grow a business, you’ll need to invest money into it to cover expenses before revenue starts coming in. This means you need access to capital.
Building your business credit score gets you access to capital including different financing options like business loans, lines of credit, or investments from angel investors or venture capitalists. By using these types of financing, you can avoid relying on personal debt to fund your business and instead build a strong credit score for your company. Not to mention, the interest rates on commercial loans are far less than personal loans.
Action step: Calculate how much personal debt, interest rates, and debt service (monthly payment) you are spending each month that’s accumulated for your business.
8. GET WHOLE LIFE INSURANCE
If you’re looking for a way to secure your family’s financial future and invest in your own, then Whole Life (WL) Insurance might be a great option for you. Personally, I view WL insurance as a forced savings plan that comes with many benefits.
Compared to term insurance, WL offers a guaranteed payout that can be essential if you have family members you want to provide for even after you pass away. Moreover, it can also serve as a retirement vehicle and offers tax advantages.
One of the most significant benefits of WL insurance is that over time, you can build up “cash value” that can be used to fund opportunities, like a new business or a real estate investment.
The key here is not to wait! The sooner you get a WL insurance policy, the cheaper it is.
Action step: Answer this question: What happens to my family financially if I were to pass away unexpectedly?
9. FIGURE OUT “HOW MUCH MONEY IS ENOUGH?”
I strongly believe that figuring out “how much money is enough” is the most crucial number you need to know to achieve financial freedom. This number is both philosophical and practical, and without knowing it, you won’t be able to create a concrete financial plan to achieve your financial goals and dreams.
It’s astonishing to see that most people – over 90% of the population – never become financially free and wealthy because they fail to calculate this number. Without knowing what you’re working towards financially, you won’t have a clear plan, so it becomes easier to avoid thinking about it altogether. Don’t fall into that trap.
It’s interesting to note that many people, especially men, can recite sports stats, even though they don’t have any real impact on their lives. Yet, they fail to keep track of their own family’s financial stats, which have a significant impact on their quality of life.
I urge you to take the time to figure out your “how much money is enough” number. You can do this by creating a detailed budget, identifying your financial goals, and estimating your retirement needs. Once you have this number in mind, you can start building a financial plan that aligns with your goals and dreams, and make adjustments as needed along the way.
Action step: Click here if you’d like my Wise Money workbook that will help you calculate your How Much is Enough Number. Take the Quiz and it will automatically be sent to you.
10. BECOME FINANCIALLY LITERATE
I can’t stress enough the importance of becoming financially literate. Money, believe it or not, isn’t intuitive and building wealth is mostly counterintuitive. Financial literacy is a skill that even the highest income earners often lack.
As someone who has taught thousands of highly paid professionals, I’ve come across many who are what I call “high income broke.” Despite earning over $250,000 per year, they are still only a few paychecks away from financial disaster. For instance, if a doctor were to lose her ability to work for a year, she wouldn’t be able to cover her bills for more than two or three months.
One of the biggest money myths is the belief that making more money is the answer to all financial problems. If this were true, high income earners wouldn’t have financial struggles! Shockingly, 78% of NFL players who have multi-million dollar contracts go bankrupt or report financial difficulties within two years of retirement. Similarly, 60% of NBA players report going broke within five years of leaving the court. In fact, most lottery winners end up bankrupt in two years!
The common factor in these cases is a lack of financial literacy. By investing in your financial education, you’ll learn how to manage your money wisely, invest in assets that appreciate in value, and make informed financial decisions. Take the time to read books, attend workshops, and seek out financial mentors who can guide you along the way. In the end, the investment you make in your financial education will pay off many times over in the form of financial security and prosperity.
Action step: Set up a financial coaching call with me by clicking here.
11. BONUS – REPEAT OF #1 – FINANCIAL LEGACY
One of the best financial legacies you can leave your children is financial literacy. This starts with you. Remember, your beliefs, narratives and behaviors with money will be passed down to your children unless you intentionally teach them a different way.
Make it your mission to create generational wealth for your family. I did this because I wanted my children to have a better financial future than I did. It wasn’t about spoiling them, but about teaching them how to build financial security, stability and wealth.
I started from humble beginnings, living in a trailer home, and my parents were dependent on me financially for most of my adult life. When my dad passed away, he had nothing to leave behind. But I am changing that for the next generation. My twenty-something children and their future children will receive a substantial inheritance through a trust one day. More importantly, they will have the financial knowledge and skills to build their own wealth as they go through life. This follows the “teach to fish not give a fish” motto.
Action step – Answer the question: What financial problems will your children have if they follow your money beliefs, narratives and patterns? What would you want them to do differently?
Cheat Sheet calculations:
#3: Assuming the $500,000 mortgage at 6% interest is a fixed rate and not adjustable, here is the calculation: You would save $295,758.81 in interest!
#4: Assuming a $750 month at 10% interest rate, 20 years of payments going to investments instead of a car payment would be: $386,000. 40 years would be $2,037,000. In other words, that BMW lease is robbing you of a couple million of retirement dollars!
Wishing You Wealth,
P.s. I can help you with each and every one of these top 10. If you need help, it’s as simple as a phone call!