One of the highest searched phrases on the internet is “how to save money.” Owning a financial firm and training martial arts I can tell you first hand that one of the questions I get asked the most is “how do I get started investing?”
If you’ve read my blog and watched a few of my videos you know that I’m a big proponent of buy and hold, but there is a certain point where you want to start developing a strategy that encompasses buy, hold, sell, and audible.
It is key to build yourself up to a strategy that takes into account industry, sector, and market-wide valuations so that you have an idea where you are over and under valued.
What makes the $25,000 mark so significant is that it is really the point where you have enough to really start thinking about some of these strategies and using them to put together a sophisticated investment strategy.
With this guide I’ve assembled all the pieces to the puzzle necessary to go from 0 to $25,000 as soon as possible.
How To Save Your First $25,000
Start an Emergency Fund
Nothing can derail your savings strategy faster than not having a safety net.
Your car needs a sudden repair, you get sick and can’t work, you lose your job, you lose a roommate, a relative passes away, you need to go to the ER, and on and on and on.
The point is life happens and all it takes is one slip up to take you off your path to saving your first $25,000.
Think about all the people who start a diet or a workout routine for New Years. I don’t have the statistics in front of me but I know it hardly ever works. Why? Well for the same reason people tend to start BJJ and not finish.
People tend to go after their goals without a backup plan in mind. They start training and before long they get an injury, or they go through a financial hardship, and haven’t put a plan in place or wrapped their brains around the “what-if’s” and the down times end up turning them into couch potatoes.
The same is true for savers. Get a safety net… get an emergency fund in place with at least three months of expenses this way you can take a hit and keep on saving.
Get Your Cash Flow on Point
Getting started saving your first $25,000, especially when money is tight, is all about trimming the fat and hammering down your income and expenses.
Getting out of debt and taking control of your cash flow is the key to financial success for any up and coming saver.
In fact, if you’re making $25k, $50k, $75k… your ability to save your first $25,000 is dependent on your ability to be diligent with your budget. Period.
There just isn’t enough room to mess around when you have an apartment, car, phone, and BJJ lifestyle to pay for.
Cash flow and debt reduction is a topic I’ve covered inside and out in the first couple chapters of my e-book.
The book has everything you need to get your money on point before saving including some activities and homework to get you started. It’s free… check it out if you need to get things in order before saving.
Download Free E-Book
Focus on Saving That First $10,000
Also you know from your training, it is always important to have smaller short term-goals to help facilitate the big picture. Attaining a Black Belt in BJJ can take up to ten years or more, having that or a world championship as your one an only goal can quickly lead to falling off the wagon.
The same holds true for saving your first $25,000. In personal finance, a great short term goal to reach for is that $10,000 milestone. As Eric Ravenscraft from Life Hacker puts it…
“Ten-thousand is a big deal because it’s when you’re money starts to feel like it has some weight to throw around. It’s probably more than you earn in one month, or even two or three… [after] you get your first $10,000, every subsequent $1,000 will seem to come easier.” [1]
ERIC RAVENSCRAFT – Life Hacker
Think $10,000 is out of reach? Here is how Derek Johanson Saved $10,000 in 10 Months at an Entry Level Job.
Open a Roth IRA
For an up and coming saver, the Roth IRA is king. Why? Well, while most investments like your 401k or Traditional IRA are “qualified” meaning you pay the taxes later. The Roth IRA is a “non-qualified” investment that allows you to get the taxes out of the way from day one.
Just wait, I know paying taxes doesn’t sound like a lot of fun, but for a young saver you are essentially locking yourself into an extremely low tax bracket.
You plan on being worth a heck of a lot more when you’re older, am I right?
I have built over $200-million in retirement plans for individuals who are at or close to retirement and I can tell you that one of the things keeping them up at night is the amount of taxes they are set to pay before touching that nest egg they’ve built up.
With a Roth IRA, when you reach retirement age all the money you have (including the capital gains you’ve accumulated) is available to you tax-free.
Not to mention with Medicare, Social Security, and Pensions set to implode at some point in the future, you can bet that something will have to give and there really isn’t a long-term solution that doesn’t involve eventually raising taxes.
I am not alone in loving the Roth. My good friend and fellow Financial Planner Jeff Rose and over 140 other financial bloggers actually led a movement to help young hustlers get started saving with the Roth.
For everything you need to need to know about the Roth IRA and why it’s a great tool to help save your first $25,000, check out the Roth IRA Movement.
How to Invest Your First to $25,000
Until you reach that $25,000 mark, your main goal is just to build up enough principal to get some skin in the game in order for you to, again, continue to build up to a more sophisticated investment strategy.
Really up until this point all you’ll really need is to find a fund that covers a benchmark that you feel comfortable with. One of the ways that you can do this simply by finding an ETF that follows the S&P 500.
But the risk vs return from the S&P 500 is often off track with what investors are comfortable taking on, especially in an environment where interest rates are set to rise and we are long overdue for a market correction.
It is a much better idea to find a fund that is targeted toward your particular risk tolerance. Only a select few individuals want to carry the risk associated with the broad market, but funds like the DOW Jones conservative, moderate conservative, moderate, moderate aggressive, and aggressive funds are a better option for targeting your true appetite for risk/reward.
The only way to know your true appetite for risk is to fill out a Asset Allocation Questionnaire. You usually have to sit through a meeting and a sales pitch to get ahold of one of these, but I’ve put together one for you for FREE.
This is 10 quick questions that should take you less than 5 minutes to fill out. Just fill it out, send it back to me, and I’ll give you the results. No questions asked.
FREE ASSET ALLOCATION QUESTIONNAIRE
Click here to Download:
I can’t tell you how many people come in to our office saying they are conservative, or they are aggressive, and a quick look at their portfolio tells us their investments are the polar opposite.
Know your true risk tolerance and put a strategy together in the near term to match that level of risk/reward. Once you’ve saved your first $25,000 you can really start to put some pro-level strategies together, so get started sooner rather than later…
My Gift to You:
I’m giving away E-copies of my book Master Your Money Training Manual. This manual gives you everything you need to know about building a savings and investing strategy from white to black belt.
All you have to do is click the book… it’s FREE. No Cyber Monday required, the only catch is that I will likely discontinue the free version after the holidays so get your copy now. Enjoy 🙂
