The truth is that if you aren't where you want to be financially then I'd be
willing to guess that there are knowledge gaps that are holding you back
techniques you don't know which is whether rich tend to focus a lot of
their attention on raising their financial IQ lucky for you boss in this
video I will go over five tips that will significantly improve your financial
situation and if you're new to the channel then hit the subscribe button
below for more life-changing content tip number one leverage compound
interest if you've ever heard of Albert Einstein then you will know that he was
a pretty smart dude and is famously quoted as saying compound interest is
the eighth wonder of the world he understands it earns it he who doesn't
pays it and I think it's fair to say that any financial principle becomes
this highly touted should be put to good use if you are familiar with compound
interest it's the accumulation of interest on any principle amount
invested over time well this doesn't sound very magical by its description
the leveraging of compound interest can make your wealth exponentially increase
as readyreturn continues to be applied to larger and larger balances over time
let's use an example to illustrate just how powerful this financial principle
really is if you deposited five thousand dollars into an investment account that
yielded a five percent return and compounded once annually after the first
year you would end up with five thousand two hundred and fifty dollars now in the
second year the five percent return will be applied to the new balance of five
thousand two hundred and fifty dollars Mickey money grow a little bit more in
the second year to five thousand five hundred and twelve dollars and fifty
cents this calculation assumes that you won't be taking out any money from this
investment but as you can see as you allow the interest to continue to be
applied to your untouched principle it can grow quite quickly in fact in just
ten years your original five thousand dollar investment would have grown to
eight thousand one hundred and forty four dollars and forty seven cents
without ever having contributed another penny to it since you first started this
is why you often hear me preach that you need to start investing as early as
possible because it true for behind this financial principle is the
power of time every year the interest compounds along your wealth to grow that
much more this is why I like to share the story of my friends Justin and Ryan
Justin began investing at age 19 and put two thousand dollars into a twelve
percent interest bearing investment vehicle every year until age 26 for a
total of eight contributions now Ryan put off investing until use 27 years old
then contributed two thousand dollars into a twelve percent interest bearing
investment vehicle every year until age 65 for a total of thirty nine
contributions well you would think that Ryan would have ended up with more money
since he invested many more contributions in Justin the sheer power
of time on compound and growth will actually allow Justin to out earn Ryan
by more than seven hundred thousand dollars for the total fund worth two
million two hundred and eighty eight thousand nine hundred and ninety six
dollars versus Ryan's 1 million five hundred and thirty two thousand one
hundred and sixty-six dollars by the time they both turned 65 therefore if
you want to transform your financial life for the better then you must start
leveraging compound interest now tip number two build multiple streams of
income so you just graduated college and are now starting during your first real
paychecks and are feeling richer than you've ever felt before that's great but
as a majority people come to realize pretty quick that money goes out much
faster than it comes in that's because when you get paid you then need to pay
your taxes contribute to your 401 K make payments on your student loans pay rent
fill your fridge with groceries and make sure to at least pay the minimum balance
on your credit card while you envision being able to enjoy that money your
employer handed you through reality is that after expenses it can be easy to
have nothing left to show for all of your hard work but wait you still
haven't put money aside for a future vacation your child's education or any
other worthwhile causes you see unfortunately we are sold the idea that
if you go to college and get a good job you will not have to worry about money
for as long as you live however this is very far from the truth across the board
salaries are growing at a much slower rate than the cost of living which means
that every year unless you get a big raise of promotion your salary will
actually have less buying power than the year
before your income after it is netted against inflation is known as real
income and many studies showed that in the United States real income or the
buying power after inflation has barely risen since 1978 besides the cost of
nearly everything going up the general population is becoming more and more
consumer centric we keep finding new things we didn't even know we needed and
every year we find ourselves out spending our prior self and in an effort
to keep up with those around us who are falling into the same financial trap so
how do we combat this financial struggle my recommendation is to start building
other sources of income for the typical person to run an only source of income
is their nine-to-five job and the reality is that for most people this
won't give them the amount of income they need to prosper financially and the
statistics back this up 78 percent of Americans live paycheck to paycheck
which means that they have little money to put towards their financial futures
further supporting the point that having multiple sources of income is important
this income could come in the form of a part-time job freelance work building a
side business or anything else that can earn you a steady second income going
one step further you can then live off your primary income and make your second
income which is known as the two income savings technique then you can start to
build a solid financial base and see you also grow over time
tip number three plan for emergencies doesn't it feel like every time you put
some money aside your car breaks down your washer breaks or the air
conditioning on your car stops working well you should keep a positive mindset
in your day-to-day life the reality is that emergencies happen and the best way
to handle them is to be prepared in advance I remember when my uncle fell
ill and I had to fly out to see him with very little notice and having money
stashed away allowed me to focus on him and not the stress of the financial cost
of the situation now not every situation will be this dire but having money set
aside for a rainy day is important nonetheless many financial gurus will
recommend you save up 3 to 6 months worth of living expenses in your
emergency fund but my advice is to put aside a year's worth if you can having a
bit more money put aside gives you extra peace of mind it can be leveraged in
cases where you need to take off an extended
time for work or have to deal with multiple emergencies at the same time
now if you don't know where to start when it comes to building an emergency
fund let me walk you through the two-step process I personally use many
years ago first take out a piece of paper and write down all of your monthly
expenses this should include things like rent or mortgage payments your grocery
costs utilities car payments etc well it's easy to list out your most obvious
expenses make sure you don't miss any hidden costs like recurring insurance
payments investment contributions or monthly subscriptions once you have your
total monthly cost calculated multiply it by 12 to get the total amount you
will want to have in your emergency fund once you have this figure it's time to
move on to step number two in step number two you will set up a system to
begin saving up to this total amount what I recommend is that you open up a
bank account specifically for your emergency fund and then set up a 10
percent automatic deduction from your pay with your employer that will send a
portion of your paycheck into that emergency savings account every month by
automating this process you can be sure that your fund will continue to grow to
your target amount and once complete you can reroute that automatic deduction
into other accounts like your 401k or a mutual fund tip number four avoid the
lifestyle inflation if you didn't know any better you would probably assume
that the people around you're rich as it's become so common to see people
constantly spending their money on new clothes cars and electronics the truth
however is that most people are spending much more than they actually have well
social media in the comparison culture of fosters contributes to this behavior
another factor at play is lifestyle creep lifestyle creep is defined as the
act of increasing your standard of living in order to match your increased
income and this phenomenon is destroying the wealth building potential of many
individuals you see for the average person when they begin to make more
money their level of spending Rises accordingly for instance you may be fine
with driving around in your twenty thousand dollar sedan when you're
struggling to pay your bills but once you get a big promotion or your business
takes off you may find yourself wanting to splurge on that fancy $100,000 sports
car and this is one of the big differentiators between the rich and the
poor when the rich make more money they forego the desire to spend the money
today and said socket away into savings and
investments that grow in value and provide financial resources that can be
used in the future to maintain their current standard of living in financial
terms delaying gratification is known as delay discounting and it takes place
when someone decides to discount the value of future rewards to immediately
gratify themselves even though accepting a lesser award isn't exactly rational
the rich nor the future payoffs will be greater than present rewards and said he
strongly support how this restraint from present gratification can lead to larger
income realizations in the future in a study of over 2,500 people
participants were us whether they would hypothetically accept a smaller sum of
money Klieman dollars USD or a larger sum a
thousand dollars USD after a delay which could be one day one week one month six
months or one year when the researchers used machine learning algorithms to
model the relationship between individuals tendency for delay
discounting and other self-reported variables they found that delay
discounting was more predictive of income than age ethnicity race and
height therefore if you want to say goodbye to your money worries then make
sure you avoid lifestyle inflation at all costs tip number five manage
financial stress we all know that stress can be harmful to not only our physical
but mental health as well and one of the main causes the stress relates to our
finances compare these two situations and ask yourself which of these two
individuals will be more stressed out due to their financial situation person
one who makes minimum wage and can barely cover their bills or person two
who has multiple streams of income has their house paid off and has a fully
funded retirement account I think the answer is pretty obvious and when you
can establish a solid financial position you can start to see your financial
stress dissipate so what can you do to avoid this type of financial turmoil
reducing debt having adequate insurance and automating your finances are all
ways to reduce the mental bandwidth money will have in your mind and will
allow you to focus on more important things like family friends and your
health thanks for watching if you want to go from the life you have to the life
you deserve then hit the subscribe button now
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