Hello LeoFinance. Today we are going to look at How we can start to build wealth. This is the second post of the series that will be uploaded every Thursday for the next 5 weeks. The goal is to help provide some information on how to start building your own personal wealth. There's nothing exciting about what we'll talk about, in fact, it's all very boring and the hardest skill required is the discipline to resist putting your money into rubbish defi magic bean projects, forex scams and other stuff where you are sold a hope.
Authored by @silverstackeruk
In this series, we will look at how anyone can start to put a plan together, set goals and achieve your goals. We're going to set the main goal to be retirement but your goals can be everything you like. These posts will not be long to keep the information bite-size and easy to digest.
1- Get Prepared - link
2- Emergency fund
3- Safe long term investing
4- Passive are active incomes/side hustles
5- Diversification
6- Retirement
2- Emergency Fund
An important part of building wealth is making sure you are prepared and ready for any financial problem that should come your way. Life has a way of throwing a spanner in the works at the most inconvenient times, maybe your car gives up, a loved one gets sick and you need to travel are you are made redundant from your employment. There are 1000 problems life can throw your way and having $5-10k in the bank will help fix those problems are at least take away the stress of money problems.
You can invest before you have an emergency fund but it's not the smart play. If you have worked hard at paying off debt, im guessing you'd like to keep it that way for the rest of your life so building an SHTF fund is essential. When you have an emergency fund, you can lose your job and continue to live as you do for x number of months. You'll be able to keep investing as I'd assume investing would be part of your weekly/monthly outgoings. You'll not need to sell off any investments. You'll not stress as much and live longer.
a- Set your fund amount
The first thing you'll have to do before you can start investing is set a target amount of money you think you'll need to cover for life's curveballs. This amount will be different for everyone as the cost of living, medicine, travel, and income if different for everyone.
This amount should be in my POV enough to cover you for 4 months of living costs plus 50% for unexpected problems. You could say 6 months pay but you could use this as a guide, some people say you should have 12 months pay in the bank. If you can't find a job within 4 months, you are probably either 2 picky are you dont really wanna work (my POV).
After you have decided on the amount you need, now you need to plan how to get it. The amount you can save each week/month is not that important, to be honest, you'll need whatever you'll need. If you need $5k and you can save $20 per week, it's gonna take you 4 years to reach your goal but you will reach your goal which is much better. Remember, we live a pretty long time. Think back 10-20 years ago, remember a job you had for 4 years? school you went to? place you lived? You'll hardly remember those 4 years and in 20 years from now, the 4 years of saving $20 per week will seem like nothing. You work out the amount you need for an emergency fund and that's your target. You can always earn more money if you want it hard enough.
My personal emergency fund is not based on my income but my outgoings for 6 months. I set my target to be enough to live for at least 6 months are travel me, the wife and 2 kids to anywhere in the world should we have to with no notice. I started my emergency fund when I was 28 and it took me around 3 years to get there. Worth it.
b- How much can you save each week/month?
Set a minimum amount to save each week/month. Something that is very realistic and doable. If you have been paying off debt up until now, you'll already know what you can save and you can just swap paying off debt to saving for a rainy day. If you get overtime at work, get a win on the horses and just get a windfall of cash, you can always save more. Saving more than your min target should feel satisfying because you're getting to your goal faster. If you plan it's going to take 4 years, it might only take 2-3 years if you get an extra income are cut your living expenses. Remember to set a target amount that's doable, if you set the bar too high, you setting yourself up for failure. If you have a target of $100 per week and you only have $50 one week, would you save it are thinks it's not enough and just forgot about it? You forget it for a few weeks and you've lost. Setting a small amount that's doable ensures you save something every week and keep the routine. Better to set a target of $30 and save $100 instead. You gotta trick yourself
In the beginning, this might be hard, it's never easy going with $20-100 less each week but where there is a will, there is a way and you'll always get by on what you have. Im not saying to eat rice and eggs for dinner every night and cancel your Netflix but you'd be surprised at how little an impact removing a few dollars from each paycheck has on your life.
I recommend either setting up a standing order to transfer saving out of your account to another one on the day you get paid. If you dont wanna do that, the next best thing is to get into the habit of removing saving money from your account when you get paid. Saving what's left ever at the end of the week/month will not work, we're programmed to spend and this is a path to failure. You need to remove saving money before your starting spending or paying bills.
c- Where are you going to save?
Again, this is totally up to you. My recommendation would be something that is easy to access and something that earns a little interest to keep up with inflation. Why keep up with inflation? If you save up enough to last you 6 months, you'll what that money to do you 6 months in 20 years time as well so keeping up wit inflation is a smart move. Any cryptos and stocks would be a no-no in my books as they are investments and if you need to unlock funds, you do not want to and might be tempted to go back into bad debt.
Stable crypto's held on the likes of Nexo, Celius or crypto.com, ok because you can earn 5-12% on these lending/saving platforms. Stable defi farming, not recommended because it's not passive and there are too many steps and fees connected. If you saving $20 per week, do you wanna pay $3-5 or more in fees each week? Depositing directly to a centralized lending/saving platform is much easier and cheaper, they auto compound and can be cashed out to your bank account in a few minutes.
I personally decided to save my money in silver. I decided on silver because it offered me a few things that saving in a bank or credit union could not. For one, i can not spend silver coins. Saving for me was hard so buying silver bullion was the only way for me to hit my target. I had to save something that was a little harder to liquidate but still doable within a few days. Silver is known as something that can be a hedge against inflation and stack market crashes. At the time, it was very cheap compared to gold and lastly, you hold it yourself. From I first bought silver, the price has increased by around 50-60% which beats inflation but not by much. It could dip are go sideways for a few years and i'd be fine with that. I have had to sell a few oz's here and there but they were replaced and now I just hold. I sleep better at night with my emergency silver fund. I'll have it till I die are going broke. It would be the last asset I'd sell if I needed all my money into cash.
If I was to make a recommendation, I'd say earn 4-12% per year with a wildly used stable token on a centralized lending/saving platform that's been around a while. Set up a weekly or monthly standing order if you can and then just forget about and check in every 6 months. The key is to keep it simple and best for you. If you cant save, save into something you can't sell on a whim as I did. Dont lie to yourself and think this time will be different.
Roundup
The importance of building emergency funds is vital if you are serious about building wealth. They will ensure that you dont have to worry about money as much and you'll never need to sell investments to pay a bill. If you have been buying BTC each week for the past year and you have $2000 worth, the dog gets sick and the vet bill is $2200, what are you gonna do? You'll sell your BTC and then watch the price moon, get bitter and not buy back in because now it's too expensive. What if you did start to rebuild and the price goes down and stays down because crypto is in a bear market. Something that can move up or down 10%+ on the regular is not ideal for an emergency fund even if the ups or more than the downs long term.
Set the emergency fund target to whatever it has to be, set a realistic saving target you can meet and save it somewhere safe. Plan each of those stages and stick to your plan even if it takes years and your reach your goal. When I started to stack silver, my target was 5-6 years but each oz got me closer and I could see that (feel it) by the increasing weight of my storage box each time I got some more bullion.
After you reach your target amount, this is your new ZERO $ amount. You will once again start from zero as you move over from saving your emergency fund to investing. By new $0 amount, I mean you dont dip into your emergency fund to pay for a vacation. If you need to use $500 of the fund, then you are -$500 and need to replace that. If you are already investing, you need to put a hold on investing and top up your emergency fund back to 100% otherwise it'll disappear over time. It's not easy but in the end, after 10-30 years, it'll be worth it. There is no beauty without pain.
I hope you have enjoyed this second part of this series. We got some great feedback last week so im hoping this series will do well and get some interaction going between Leo users/ HIVE users, anyone really. Im, sure there are things I could have added in here but im trying to keep it simple and bitesize. I set myself a target of 1000 words but seemed to have doubled it.
We'll be back next Thursday with "Safe long term investing". As always to protect my own and LBI's asses...
