How to Build Financial Reserves

My best hack for growing your net worth fast: Know the right order of operations for your money management. Operation 1, above and before all else: PRIORITIZE YOUR SAVINGS. No excuses, and no matter what your income - make that the number-one financial priority and action you take. What does that actually look like in practice? For 10 years now, my wife and I sit down every quarter to assess our income - so we can determine how much goes straight to our taxable investment account for long-term savings before we do anything else. And THEN we worry about how much we owe for taxes and set that aside. And THEN we look at how much we need to have available to pay our set expenses and fixed obgliations (like our mortgage or daughter's school tuition). And THEN we look at what we need to fund our short-term spending goals, like a new car or big family trip to Europe this summer. And THEN we consider any and all other discretionary spending we need or want to do. I'll be honest with you: A decade ago, there were times when that was essentially $0. And we still didn't deviate from this order of operations. Our long-term savings to build our wealth was priority number one. We're starting to reap the benefits of that focus now... and even still, the first thing we did this month when it was time to review our quarterly distribution was to review projected income for the year and use that to determine what got transferred to our investment account ASAP. I credit this system as one of the core components of our net worth growth over the years, and why we enjoy the kind of freedom and flexibility in our life and in our finances that we have today. If you want to adopt this yourself, first identify your own personal savings rate. Keep things relative by using a percentage target for your annual savings. That way, as your income rises or even drops, your savings rate stays relative to your actual earnings. We recommend around 25% of gross income as a good savings rate target for anyone earning six figures or more. Second, prioritize your savings! Pay your long-term investments with that money first... and then work your way through everything else.

"I don't get 40 years as a creator or an influencer; maybe you get 10 if you build a sustainable business and get lucky. So, I am doing my very best to set aside as much money as possible so that I can take care of my future." In my conversation with Vivian Tu, also known as YourRichBFF, we covered practical aspects of financial literacy, including savings, debt management, investments, and the FU number that allows you to achieve financial freedom. So, here are the key takeaways: 𝐏𝐥𝐚𝐧 𝐀𝐡𝐞𝐚𝐝: Understand the costs of your goals. Even smart people can miscalculate without proper planning. 𝐈𝐧𝐜𝐫𝐞𝐚𝐬𝐞 𝐈𝐧𝐜𝐨𝐦𝐞 & 𝐂𝐨𝐧𝐭𝐫𝐨𝐥 𝐄𝐱𝐩𝐞𝐧𝐬𝐞𝐬: Vivian saves more than 20% of her income, focusing on the future. Aim to boost income while keeping expenses steady. 𝐒.𝐓.𝐑.𝐈.𝐏 𝐌𝐞𝐭𝐡𝐨𝐝𝐨𝐥𝐨𝐠𝐲: It’s a five-part plan designed to help you manage your budget with a focus on securing your future financial well-being. ▪️Savings: Have an emergency fund. Single folks need 3-6 months of living expenses; households need 6-12 months. ▪️Total Debt: Rank debts by interest rate. Pay off the highest interest debt first while making minimum payments on others. ▪️Retirement Funds: Use 401(k)s and IRAs for tax benefits. Invest to keep up with inflation. Aim to get the full employer match. ▪️Investments: Saving isn’t enough. Invest in high-yield accounts to keep up with costs. ▪️Plan: Develop a comprehensive financial plan and adjust it as your life circumstances change. Calculate your financial freedom number (FU number) by determining your annual expenses and dividing by 0.04. For instance, if you need $1 million annually, your FU number would be $25 million. 𝐑𝐞𝐚𝐥 𝐄𝐬𝐭𝐚𝐭𝐞 𝐋𝐞𝐯𝐞𝐫𝐚𝐠𝐞: Leverage debt if the economics work in your favor. For high mortgage rates, paying down might be wiser. For rates under 7%, investing might be better. 𝐌𝐨𝐧𝐭𝐡𝐥𝐲 𝐏𝐥𝐚𝐧𝐧𝐢𝐧𝐠: Use spreadsheets to manage finances, track credit card statements, and have regular financial discussions with your partner. Vivien’s approach emphasizes understanding your finances, making informed decisions, and continually adjusting your plans to align with your goals and circumstances. Thanks for such a great conversation! #YourRichBFF #VivianTu #MoneyManagement #FinanceTips #FinancialLiteracy

A CPA's guide of where to put your money 1. Establish an emergency fund. Aim for at least 3 to 6 months of living expenses. This cushion will provide you peace of mind for any unexpected events. 2. Then max out your employer's 401k match, if one's available to you. This is essentially free money and a "guaranteed" return on investment. 3. Take a look at your debt. Pay off any high-interest debt first - especially credit card debt, which typically carries the highest interest rates. This can often outpace any returns you might earn elsewhere. 4. If you have access to a Health Savings Account (HSA), consider maximizing your contributions. Not only are contributions tax-deductible, but withdrawals for qualified medical expenses are tax-free. PRO TIP: Invest some of this money into the stock market if you have that option. 5. Max out your Roth IRA. If you're over the income limits, look into a "back door Roth". The benefits of tax-free growth and withdrawals in retirement are too good to pass up. 6. Any leftover funds can go towards a taxable brokerage account or real estate investments. Some level of diversification is key here. 7. Lastly, but perhaps most importantly for some of you, invest in yourself. Whether it's books, courses, or hiring a coach or mentor, investing in your own growth will increase your income potential now and in the future. Remember, this is a suggested order and might not be perfect for everyone. Always consider your own unique financial situation and goals. It's always best to consult with a financial advisor. If your goal is financial freedom, remember this is not a sprint, but a marathon. ---- If you found this helpful, reshare ♻️ and follow me for more content like this.