Have you ever looked around at people who appeared to be miles ahead of you financially and thought, “what do they know that I don’t?”. While there could be a host of different reasons why you your respective financial situations differ, chances are if they are lapping you financially, they know certain things about money that you’re still unaware of which is why I want to share with you five money tips you’ve never heard before that will definitely change your financial life for the better!
Money Tip #1: Avoid Iceberg Costs
When you think about the movie Titanic, what comes to mind? Chances are you think about two things: how much you cried during the movie and how much it must suck to hit an iceberg. Unfortunately, many people are allowing themselves to be just like the Titanic and are regularly crashing into icebergs that are literally destroying their financial lives. Cue iceberg costs.
Yes, you read that right, there are actually such things as iceberg costs so my Titanic analogy was more relevant than you probably thought. So what are iceberg costs? Iceberg costs are hidden costs associated with an initial action or financial outlay. Let me share with you a couple examples now.
One example of iceberg costs are hobbies. Let’s say that one night you accompany your friend to the driving range to hit a bucket of balls. You have fun at the range and think to yourself that maybe playing a full round of golf would be fun, no harm in that right? However, then one round turns into a full season membership and a new set of clubs and all of a sudden that $10 bucket of balls at the range has turned into thousands of dollars in expenses. Hence, the iceberg — you see the initial cost however other costs exist below the surface.
Now, maybe you don’t golf so that examples doesn’t really hit home for you — no problem! Let me share with you another example that will pertain to most people. Take your car. Whether you bought it new or used, before buying it you will be made aware of the purchase price of the car. Therefore, when you buy that $20,000 car, it appears to cost you $20,000 but that’s just the start of the economic outlays. You then have the cost of gas, repairs, insurance and even a body kit that was prompted from you watching the new Fast and the Furious movie.
If you want to get ahead financially, you need to control your costs. Fortunately, if you can see past initial outlays and the greater expense that will ensue when you spend your money then I promise you will be saving more money and this is something we can all afford to be doing more of!
Money Tip #2: Accelerate Your Mortgage Payments
Would your life be better if you no longer had to make monthly mortgage payments? I bet it would and as such we need to talk about an important money tip pertaining to your current mortgage repayment strategy.
If you’re like most people then you probably slap down one large mortgage payment each and every month however this is absolutely the wrong approach to take if you want to become mortgage free sooner rather than later. In fact, making monthly payments is the slowest way of paying off your mortgage.
An approach that I use and that you should consider is using accelerated weekly mortgage payments
You see, using accelerated weekly payments is like putting NOS in your car, you’re pushing harder and as a result will get to the finish line sooner. So, before you click off to go watch the Fast and the Furious, let me explain how accelerated weekly payments work.
An accelerated weekly payment is calculated by taking your normal monthly payment and dividing it by four. Since you pay 52 weekly payments, by the end of a year you have paid the equivalent of one extra monthly payment. This additional amount accelerates your loan payoff by going directly against your loan’s principal. The effect can save you thousands in interest and take years off of your mortgage.
Now, it’s time for an example to show you just how powerful this mortgage repayment approach can truly be!
Let’s say you have a mortgage of $500,000 at 3% for 25 years. Using the standard monthly repayment approach, it would take you the full 25 years to become mortgage free and you would end up paying $710K in total payments. Now, let’s compare this repayment path to one where you are instead using accelerated weekly payments.
Again, let’s say you have a mortgage of $500,000 at 3% for 25 years but are paying weekly instead. In that case, you would end up paying off your mortgage in just 23 years and paying $680K in payments instead of the $710,000 which would be the case under traditional means. Therefore, as you can see this approach can shave years off your mortgage timeline and save you tens of thousands of dollars!
Money Tip #3: Prioritize Health Over Wealth
In the world of finance, when it comes to getting ahead, all you ever hear about is how to optimize your savings efforts or find slightly more lucrative investments. While these tips are great, they rarely move the needle but one way you can significantly improve your wealth is to actually focus on your health. If you ask me, health is one of the main factors in achieving financial prosperity and let me explain why.
First, let’s talk about physical health. There is this crazy misconception that in order to become financially successful you need to be working 24 hour a day and as such many people excuse their lack of attention to their physical wellness because they are “too busy”. However, taking care of your body by exercising, sleeping and eating well is a money making hack if you ask me. From my own experience, exercising and eating well gives me MORE energy to put in extra hours of concentrated work. Moreover, getting proper sleep allows me to think clearer so I can get my work done in half the usual time.
When it comes to mental health, this is equally important. I’ll be the first to admit that it can be easy to get down on yourself — life is no easy game! From navigating family issues to trying to keep up financially, it seems like there is always something to be worrying about! This is why if you want to be the best version of yourself, you need to manage your emotions because as you know, when your emotions are out of whack, it can lead to bad investing decisions, employing poor spending habits and can even lower your performance at work. Therefore, while I want you to sleep, don’t sleep on the importance of health when it comes to building financial and overall wealth in your life!
Money Tip #4: Set Money Dates
Take a moment and think back to the last few dates you’ve been on. If I were to guess, they all had two things in common. The first thing was that you were there, unless you didn’t show up which in that case shame on you! Second, going on that date probably cost you money — maybe even a lot of money! Well, what if I told you that you could be going on a lot more dates AND could be making money on those dates as well! No, I am not suggesting you become an escort. Instead, I recommend you employ another rarely used money tip which is to set up regular dates with your money.
You see, I live by the quote, “what isn’t measured isn’t managed” and a few years ago I implemented money dates into my life and I’ve never looked back. Now, admittedly, I kind of just wanted to be able to tell my family and friends that I had been dating but implementing regular reviews of my money has been invaluable to my overall financial progression. So what all takes place on a money date? Let me give you the spicy details now!
The main goal of a money date is to analyze the state of your finances and I believe that your analysis should consist of four pillars: debt, investments, income and savings. What you want to do is set a baseline for each of these pillars. This means you need to first gain an understanding of how much debt you have, your portfolio value, how much you’re actually earning and how much you have stashed in savings. Then, set an incremental target that you want to achieve by your next money date.
For instance, if you are focused on becoming debt free then your goal may be to pay down $500 worth of credit card debt because you reconvene with your money. Alternatively, if raising your income is your top priority, then you may aim to earn an extra $100 in the upcoming month instead. It’s generally best to focus on one pillar between each date but whatever approach leads you to the best financial results is the one you should take!
Money Tip #5: The More Boring The Better
When you think about the profession of accounting, what word comes to mind. If I had to venture a guess I would say that the word “boring” comes to mind. As a CPA myself, I know that my profession is often seen as boring and while it definitely doesn’t intrigue the ladies, being boring is one of the greatest traits you can possess if you want to achieve true financial success.
It’s no surprise that today there are a plethora of exciting new investment opportunities out there. From cryptocurrencies to NFTs and of course popular meme stocks, the opportunities to invest in popular assets exist all around us! Unfortunately however, while these assets of the day present opportunity for profits, for most people they need to be handled with caution.
One great financial saying I love is “when you hear about it on CNBC, it’s already too late” and this saying pertains to the ever increasing instances of people trying to hop on the profit bandwagon by buying the stock of the day. We saw it with GameStop stock and AMC stock and this phenomenon continues to take place day after day but it’s just dressed in different clothing. Now, I am not saying that identifying a rising stock can’t be done but for 99% of people, this approach is simply not sustainable.
The truth is, most people do not pay enough time or attention to stocks to have even a fighting chance of predicting the short and long-term outcomes of said stock. For instance, with GameStop, it probably would have taken committing full-time working hours to be able to get a gauge of where the stock was headed. However, if you are jumping in once you hear it on the news then chances are you got in when it was over $300 a share and as at the time I'm writing this, you would be sorely regretting that decision.
With all that being said, this is where it pays to be boring. Being boring gets you boring returns but that doesn’t mean that those returns aren’t still incredibly profitable. Sure, you can double your money if you find a winning stock, but you can also get a 10–15% return on the S&P 500 with literally no research and no effort by investing in a low-cost index fund. In fact, this is the way I have been looking at investing these days. I don’t just look at the total return but I look at the cost as well. Now, by cost I don’t mean the literal transaction cost, I mean the cost of my time. If you’re doing it right, you should be spending numerous hours researching a company before you put even a penny into its coffers.
Therefore, if you spend 20 hours researching a company and you value your time at $20 an hour then all of a sudden that $1,000 profit is really only $600. Alternatively, you can just invest in a more hands off way and free up your time which lowers your investment cost while still seeing “boring” but lucrative returns.
Therefore, while you don’t want to be labeled as boring by your friends and family, it definitely doesn’t hurt to claim the boring label when it comes to your investing efforts!