5 steps to catch up if you’re feeling behind on your investments

Financial Planners

Before investing more money, it’s important to understand how the investment fits into your overall financial well-being.

Here, based on the CRUSH acronym, we present five key steps to reassessing your investment strategy. Thanks to these, I became a debt-free millionaire in his 30s.

C stands for “curate accounts”

A study commissioned by Chase found that 55% of Americans who make recurring payments don’t know exactly how much money is automatically deducted from their accounts each month. In particular, consider the following scenario, which I often see with students in financial education.

  • Consolidate your old 401(k) and other investment accounts into one personal retirement account.
  • For simplicity, roll over the old 401(k) to the current 401(k).
  • Review investment account expense ratios and fees.
  • If you’re not maxing out your tax-advantaged account to IRS limits, we’ll close your brokerage account.and
  • Recovery of forgotten investment accounts.

I also often see students using brokerage accounts to invest in the same things an account such as a Roth IRA can do, plus save taxes.

By sifting through your accounts to the ones that allow you to focus more, increasing your investment becomes less difficult.

R is to revert to your independent number

The FIRE movement helps clarify how much you need to invest and provides concrete steps to move forward, even if it’s just incremental steps.

The FIRE number is calculated based on two retirement strategies used by traditional financial planners: the 25x rule and the 4% rule.

When my students first crunch this number, they may feel overwhelmed, as even just living a frugal lifestyle in the United States is likely to be in the millions.

FIRE’s goal is to invest 25 times your annual spend and withdraw only 4% of your total spend each year. Even if you deduct the cost of living, your investment will make up for that money through compounding interest and increasing value and dividends.

The purpose of this number is not to discourage you. This will give you general direction on how aggressive you want to be in your approach and help you identify any gaps that need to be filled between where you are now and your goals.

You are to understand your net worth

Since starting my financial education company in 2020, I have taught thousands of students and the vast majority have been unable to answer this question. “What is your net worth?”

Your net worth captures the monetary value of everything you own and everything you owe, including credit card debt, car loans, mortgages, student loans, and other forms of debt. Calculated by subtracting the value. I teach all of my students to track all their financials in one system, such as Mint, to ease the heavy lifting of updating manual spreadsheets.

In very simplistic terms, the new investment plan begins by closing the gap between the FIRE figure and your current net worth. For example, if your FIRE number is $1.2 million and your current net worth is $200,000, the idea is that you need to build a $1 million investment.

This general idea of ​​where I am financially has helped me move forward to increase my overall net worth by:

  • car payment.
  • Refinance your mortgage for shorter terms from 30 to 15 years.
  • Close savings accounts that are not high-yield savings accounts.and
  • I pay off credit card balances under $1,000 and limit myself to two credit cards.

Understanding your net worth can also help you identify areas where you can save money now to reduce your investment needs in the long run.

S reminds us to spend intentionally

If you want to reap the rewards of your investment, determine your monthly investment amount upfront and put it at the top of your budget instead of putting it at the bottom of your priority list.

According to a 2022 survey of Americans by Credit.com, 27% of Americans think they don’t need a budget, and 24% think they won’t stick to it.

Until I learned how to create a zero-based budget, I thought having money left over was a good thing. However, people often plan their spending on hand with the intention of sending additional funds into investments. While the intent is great, such an approach usually leaves you at the end of the month with no money left.

Consistent monthly budgeting has allowed my husband and I to ensure more cash flow and maximize our annual 401(k) and IRA contributions. Prior to budgeting, we donated nearly $6,000 a year; now we donate over $50,000.

Allocate all incoming money, including the amount you want to invest, before the month begins, instead of waiting for the possibility of leftover money. If you’ve budgeted correctly, there shouldn’t be any money left in your plan, and every dollar should go to intentional items.

H is to heal money wounds

As a financial coach, I’ve learned that most people don’t invest because of fear of losing money, not lack of knowledge. And the fear is not irrational. It is often based on past traumatic experiences with the economy, such as:

  • Losses on past investments.
  • Fired or fired.
  • I am going through a difficult divorce.
  • In the event of a medical emergency causing financial stress.and
  • I grew up in a family with financial difficulties.

I also grew up in a family where money was always a source of contention, and the truth is, my family never taught me how to invest. The emphasis was on high salaries and good positions.

Also, since I started my career as a HR professional in the New York City banking industry during the financial crisis of 2008, I was initially apprehensive about investing more in going independent. I have seen people lose their sense of financial security.

I started going to therapy on a monthly basis at the same time I started my FIRE journey. This has been the best investment I have made in my financial future.

Investing involves inherent risks. I started investing more aggressively only when I felt emotionally and mentally prepared for potential losses. Talking to a qualified professional about past experiences that caused my fears about money helped me overcome them and learn to take more risks over time. rice field.

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