✨Money Management & Wealth Building Guide ✨

Money Management & Wealth Building Guide
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To start, consider the power of compound interest:

$1000 a month saved for 40 years (e.g. 25 - 65):

• 4.5%/year returns = $1.09M
• 7.5%/year returns = $2.29M

$500 a month saved for 40 years:

• 4.5%/year returns = $544K
• 7.5%/year returns = $1.15M

Notes:
This is not financial advice. Always seek professional guidance.
This information is from my own experience and research.
This guide assumes you have a job. If in uni/college complete til step 2.
When you're early in your career it is smart to invest in your future, so prioritise that.
Don't go over the top. Invest what you reasonably can. Memories are created now.
Create specific goals. X amount saved by Y date. Helps you focus.
Don't underestimate the need for an emergency fund.
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1. Build a budget
Figure out your monthly incomings and outgoings and accurately track these in a spreadsheet.

At the end of each month log:
- Incomings: salary, other.
- Outgoings: rent, bills, groceries, eating out, social, transport, subscriptions, shopping, travel, savings & investments.

There are many apps online you can connect to your bank find this information easily at the end of each month.


2. Build an emergency fund
This is a separate bank account to your daily one, with 3 months of outgoings (check your budget) set aside for disaster situations. Imagine you lose your job, this is to help you maintain your life while you find a new one. If you're in the UK Marcus by Goldman Sachs is a good savings account choice.

E.g. you spend $1500 a month in normal circumstances. In emergency situations you will probably cut back on things like shopping etc. Lets imagine this brings us to $1300/month. Your emergency fund should be $3900.


3. Collect your employers pension contribution
Make sure you are enrolled in your workplace pension. In the UK for example employers are legally obligated to match your payments, with 3% being the minimum. E.g. if you put 3% of your paycheque in your pension, your employer needs to also put 3%, sometimes they voluntarily do more. This is free money. Make sure you are at least making the minimum contribution.

A good rule of thumb is to half your age and have that as your pension contribution. So if you are 24, and your employer matches you 3%, you should contribute 9% (9% + 3% = 12%).


4. Pay off any debts (excluding UK Student Loans)
A very important step if you have any. Consider the avalanche method (See here) and reach out for help if it is getting too much (StepChange in the UK for example).


5. Build a larger emergency fund (optional)
4-6 months worth, depending on your risk appetite. Note also as your life changes your required emergency fund will too. If you get a higher paying job your outgoings will probably increase, so you will need to add more to your emergency fund.

With the $1300/month outgoings example from step 2, your emergency fund should now be from $5200 (4 months) - $7800 (6 months).


6. Buy / not buy a house
Are you saving for a house? Open a high interest bank account, consider your government help to buy schemes (Lifetime ISA in the UK), and save to buy a house. Continue steps once you have bought your house & are paying a mortgage. If this is not a goal of yours, continue to step 7 or 8.

Note: the reason I wouldn't recommend investing this money is that market volatility could strike & leave you unable to fulfil this goal. Saving for a house usually requires less than $100K (deposit for mortgage), so you're better off in high interest savings accounts or bonds. If however you live in an expensive city and saving for a deposit will take 10+ years, move to step 7, taking note of the equity/bond ratio equation.


Now its time to start investing. What is your long term goal?

Does this goal happen before your countries retirement age? Go to step 7.
Does this goal happen at or after your countries retirement age? Go to step 8.


7. Invest
S&S ISA
Firstly, fill up your Stocks and Shares ISA. In the UK we have a £20K limit. But this money is allowed to grow tax free each year. Once you have reached this limit, you can open a secondary account. You will hit this limit if you are ever able to save above $1666.66/month.

Note: ISA's are tax efficient in terms of growth. You will not need to pay capital gains.

FUNDS
You will have to pick where to invest your money. My advice is to put this in a low-cost index fund tracker. This is a fund made up of thousands of equities designed to track the market. This is also known as a passive fund. They are low cost & provide good returns. A passive fund will only crash and burn when the world economy also does.

An alternative choice is an actively managed fund. These can provide better returns, but also run the risk of the fund itself crashing, a higher likelihood vs a passive fund. The fee's will also be much higher (passive fund vs active fund). In the US 88% of actively managed funds from 2010 til now performed under market, a few did really well and a lot did not.

Thus, choosing an actively managed fund cost's more and has more risk. This will be totally up to personal preference, but I'd recommend doing a lot of research of who and what you're investing in if you go active.

I have personally gone for Vanguards LifeStrategy 100, a passive fund made up of 100% equities. Below is their past few years of returns for reference (note past performance does not equal future performance).



RISK: EQUITY/BOND RATIO
You will now have to decide what ratio of equities and bonds you would like. Bonds are backed by governments are are 100% risk free. They will not vary in price like an equity will and thus a higher percentage of bonds = lower losses when the market goes down / lower gains when the market goes up.

For circumstances where you will park your money in the fund for 25+ years, I'd recommend 100% equities. But when you are getting closer to retirement, start to increase the percentage of bonds.

When you're less than 25 years from retirement you should start to buy bonds. To know how much, consider this equation:

Equities(%) = (years to retirement)*4.

E.g. when you are 24 years away from retirement:

100 = 24 * 4
= 96

Thus, when you're 24 years away from retirement, move 4% of your fund into bonds.

The next year you will reshuffle again, doing:

96 = 23 * 4
= 92

Buying so that 8% of your fund is now in bonds... and so on.

Important: The market will naturally go up and down no matter what. There will be points in your investment journey where you may be down a significant amount (with covid everybody is atm). This is a natural cycle the economy goes through. If you cannot handle this, investing is not for you and consider just using a bank account.


8. Fill your pension pot
Check how much your workplace pension costs. If the fund's fee's are above 0.5% per year open a SIPP (Self-invested-personal-pension). If it is below, then send your monthly contributions to your workplace pension pot (note: it's tax efficient to do this through your normal contributions, i.e pre-tax). Once you have decided which pension pot to invest into, go to step 7 to find a fund and see equity/bond ratios.

Note: pensions are tax efficient going in and when growing. You don't need to pay income tax or capital gains. You will have to pay tax after a certain amount (usually 25%) when withdrawing.


KEY DIFFERENCES
ISA's = No tax growing / out (you still pay income tax)
Pension = No tax growing / in (you will be charged withdrawing)

Thus: if you see yourself paying higher tax in the future, for example going from the lowest tax band to the highest, it would be efficient to put your money in savings/ISA and then increase pension contributions when in the higher band.


Appreciated the guide? Any donations are welcome!

BTC: 3P99y7D4TSVSWzX66hNjkxy6591iYtB86H

 

Very nice guide, i like financial literacy, are u open for questions? i swept read but will re-read again

 

Nice nice

 

Thanks. Feel free to send any feedback / ask any questions

 

Nice and simple guide, follows a lot of the basic advice that every person should have. Thumbs up from me

 

Even though I'm from Canada, I can still say this guide is solid man. Well done!

 

Where in this guide did it say to scamquit? I'm lost

 

You didnt pay to get the full guide ,the scam quit technique is not included in the free version of the guide.

 

Well, this didn’t age well. Maybe he couldn’t save $500 dollars a month this month.