7 steps to financial freedom for first time investors

With inflation on the rise, it’s becoming even more important to invest your money rather than let it sit in the bank. The average savings account will not yield you enough interest to cover the current rates of inflation. Money can be a taboo topic in many circles, but in mine, money gives us the power to live the life we want most. I want to be transparent with my successes and failures to help empower females seeking financial freedom and independence. 

We don’t need to work (unless you want to) until we are 65, and even if we do, we likely will not see a social security check like our parents. With the right steps, patience, and effort we can bridge the gap between financial scarcity to abundance. 

Disclaimer: these are the steps that have worked for me. I am not a financial expert, but I do have passive income, savings, own properties, and travel the world without a permanent address at age 30. My method is not for everyone, and I am always open to learning. 

First, let’s understand a few basic definitions

  • 401K: a retirement savings and investment plan offered by employers; what you contribute is often (and should be) matched by the employer up to a certain percent. You can withdraw them penalty-free after age 59.5
  • ROTH: a retirement account that you can contribute after-tax dollars, where earnings can grow tax-free. You can withdraw them penalty-free after age 59.5
  • Stocks: equity in a company that is publicly traded
  • Bonds: a loan from an investor to a borrower (a company or the government)
  • Brokerage account: an investment account that allows you to buy and sell a variety of investments such as stocks, bonds, mutual funds, and ETFs
  • Index fund: a diverse portfolio of stocks from multiple companies
  • Crypto currency: decentralized digital currency based on peer to peer blockchain technology. 

Where do I get started? Here are 7 actions to check off your list (in order of importance)

    • Open a money market account 
      • We utilize zero risk savings account if we are saving for a car, house, vacation, or emergency fund
      • If/when the market crashes, be ready to buy stocks with cash held in this account. (Don’t hesitate; the market is a long term play) 
    • If your company offers a 401K match, opt in to receive the match
      • This is free money. 
      • If you want to build your retirement account, you can invest up to 10% of your monthly income. However, I would recommend investing elsewhere with your money above the match because you cannot access 401K money until you are 59.5 without penalty. There are exceptions, like a first time home purchase.
      • I personally keep my 401K at $100,000 to ensure it will mature with steady growth for the next 35 years. 
    • Open a ROTH IRA account and max it out each year
      • A ROTH IRA allows tax free gains on money that has already been taxed. This means that whatever profit you make, you keep without penalty. Like your 401K, you can only take this money out after age 59.5
      • If you make under $140,000 per year, you can add up to $6,000 per year
    • Open a brokerage account 
      • Instead of putting money above and beyond my match into a 401K, I have chosen to put my extra monthly funds into medium-high risk index funds.
      • Historically speaking, growth is continuous. Yes, a crash can happen, which is why investing in the stock market is a long term strategy. 
    • Invest in a home that allows you to live rent free
      • Buy a duplex and live in one side
  • Buy a property with a basement that you can turn into an ADU and rent
  • Buy an investment property that yields profit above the mortgage and fixed costs
  • Invest in something you are interested in
    • Crypto currency 
    • Art 
    • Micro-loans 

FAQs

Should I have a financial advisor? 

From meeting with multiple financial advisors, it only makes sense to have someone managing your funds once you reach the point of having $1,000,00 worth of assets. For now, the above steps can help you reach this goal. 

When is it OK to keep cash in the bank? 

If you are planning to purchase a home, car, keep emergency funds on hand, or want liquid cash to invest in a stock market crash. 

How much of an emergency fund should I have? 

This is a personal choice, but I like to have $25,000 available at any time. (This is high for some people, but this gives me the freedom and flexibility I personally desire.) 

Should I pay off my student loans before I invest? 

This depends on two things: 1) Does your debt give you anxiety? If you answered yes, then it may be best to pay it off. 2) Aside from minimum payments, if you were to invest that money elsewhere, would it make more interest above and beyond your loan? If this is the case (and you are comfortable with slight risk) then let your money work for you. For example, if your interest payment rate is 6% for your loan, but your stocks are making 12%, then your money is making more in the market, than paying off your debt.

What does diversification mean? How can that translate? 

I like the rule of thirds: cash, property, stocks + bonds.

Why does the timeframe of when you will be using your money matter? 

The proportion that you invest will directly be related to when you may need it. The market is not a sure bet, so don’t invest money that you may need in the short term. 

Is all debt bad?  

No, debt can be leveraged to accrue positive cash flow. 

What credit cards should I use? 

Only use a credit card if you are able to pay off your debt each month on autopay. If you are looking for a credit card, I like Chase Sapphire and Capital One Venture for their points options. 

Where should I put my money, both cash and stocks? 

  • For banking, I like CitiBank: the money market account has been great for me, and they don’t have international transaction fees.
  • For my 401K, ROTH, and brokerage accounts I like Vanguard because they have historically low fees, but the interface does require learning. 
    • My second choice is Charles Schwabb, because the interface is easy to use. 

Shouldn’t I be investing in local credit unions instead of big banks? 

This is a personal decision, but I do agree that money is a loud voice for what you believe in. For me, I pay off my credit card every month and I reap the benefits of points. This is a moral question, and I leave up to you where you land. 

Can I invest in stocks that are good for the world? 

Absolutely. More to come on this in the next article, but here is a good podcast for now: Life Kit: How to make ethical investing work for you

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