A couple of years ago, I had a startling realization. The last number of my net worth page had jumped dramatically from the year before, so much so that I double- and triple-checked all my account values. But it was correct. Now, what I’m about to tell you may sound very simple. Truly it is, but for me it was also quite profound. Only three levers that I pulled caused a significant increase in my assets.
I call them the Good Money Levers. How and when you pull them will cause your money to work for you, not against you.
Good Money Levers:
- Save more
- Crush your debt
- Earn more
Is it really that easy? Yes. I’ve shown how the levers work to thousands of clients over the years, explained them, dissected them, tailored them to each individual, and I’ve seen the levers work wonders. The more I saved, the more debt I paid off, the more my money grew, the more I could give away.
- The money I saved was invested well and performed well.
- I aggressively paid down debt (in my case, the mortgage on my house and my business expansion loans).
- I earned more and saved more.
I love riding the Titan roller coaster at Six Flags Over Texas. Roller coasters are actually simple machines that use levers to help make them run. Each lever plays a crucial job in making the ride work. There’s not one more important than the other—all the levers must be operating correctly in order for the roller coaster to perform its intended purpose. Think of my three levers the same way. How you move all of them at the same time determines how hard your money will work for you.
Let’s start with Lever 1: Save more.
You work hard for your money, perhaps even at a job that you consider a daily drudge. Even then, your savings gives you a sense of comfort. It’s the moat principle. Think of medieval castles. Many of them had a wide band of water around them and, in cartoons at least, crocodiles swimming around. In the event of an enemy attack, marauders would have to trudge through the water, significantly slowing them down and making them more vulnerable. The moat was intended to help insulate the castle’s inhabitants from unforeseen attacks.
For most of us, our cash acts as that same kind of buffer. Even if it isn’t earning much interest or invested in an aggressive portfolio, it is protecting you and your family from marauders—in this case not human infidels, but unexpected expenses or threats to the health of you or a family member. Stockpiling cash gives us a sense of comfort.
An even better feeling occurs, however, when your money is in motion, particularly that moment when you move from working for your money to your money working for you. If you don’t want to think about your money as a moat that surrounds your life, think of it instead as your 100-percent-owned business, and yourself as the CEO of your money.
Bola Sokunbi, founder and CEO of Clever Girl Finance, a personal finance platform that empowers women to achieve real wealth, puts it another way: “It’s really building a plan for your money and being the boss, being the CEO, of your dollars and saying, ‘Okay, I have this limited amount of money ... and based on this, based on my expenses, I’m going to be intentional about designating some of this limited amount of money to work for me.... That’s where the whole idea of paying yourself first comes from. Even if it’s a small amount—fifty dollars, twenty dollars, a hundred dollars—it’s about being consistent with doing it over time and building the habit of saving so that when you start to earn a ton more money, you’re able to save more.... It’s about building the habit and doing what you can with what you have.”
Continuing to speak to this idea of being the boss and the CEO of your dollars, Bola said, “I love for people to think about their finances as their business, their corporation. When you go to work for your employer, you work for a corporation, but in this instance, your dollars are your employees.”
Bola offered a good illustration of what she meant that has stuck in my mind. When you go to work at a company, everyone working there has a job. Some people work in marketing, some in sales, some in product creation, but if it’s a company that’s not doing well, people are likely wasting time. They’re in the break room, they’re coming to work late, they’re slipping in and out of the office without anyone really knowing what they’re doing. Bola makes the point that the same applies to your finances. When you’re the CEO, you’re supposed to be designating specific tasks to your employees and making sure everyone is doing their job well and responsibly. When you are the CEO of your own dollars, you act in precisely the same way. Some of your dollars are focused in the retirement savings department, some for investing, some for paying down debt, some for a cash reserve, and some for having fun and splurging. That’s you telling your money what to do.
“When you don’t have a plan for your finances, your dollars are hanging out in the break room, having the best time, and not doing anything you need, and they’re slipping away, they’re leaving work, they’re disappearing,” Bola told me. “And that’s why people look [at their finances] at the end of the month and say, ‘Oh my God, I don’t know where my money went!’”
Every dollar should have a purpose. You work hard for your money; I want it to work hard for you—beginning today.
Sound impossible? It isn’t. Try the following savings strategies:
- Cut 20 percent of spending. Find the waste in your current spending, reduce it, and use it to build assets. (Apply the “back against the wall” approach—if my employer said they had to cut my pay by 20 percent, what would I do?)
- Invest with automatic withdrawals. Increase your retirement contributions to the maximum and get the highest possible company match. Invest your accounts on the basis of your estimated retirement date and what lets you sleep at night.
- “Capture and keep” method. As a kid, I was fascinated with treasure maps. The thought of finding money that once was lost was such a fun idea. Even walking along the sidewalk, if I spotted a penny, I went for it. Finding a quarter was like winning the lottery. As an adult, I have expanded that concept, but it’s still a game I enjoy playing, like calling my service providers each year to find costs I can cut. First, focus on what I call “commoditized cuts.” These are services that can be purchased from any number of providers. For example, in Texas, we can choose our electricity provider. Assuming reliability is the same, which it is in Texas, for me that decision is based entirely on cost. I suggest to my clients, “Call your provider and say, ‘I’m considering switching service providers to save costs. Do you have a new customer special or any promotional plans I could switch to right now?’” If they say yes, make sure it’s the best plan at the best price for you. Now here’s the trick: Take that savings and keep it. Once a savings is found, most people just spend it somewhere else. All they’ve done is put themselves on a “save and spend program,” and they don’t move the needle. Instead, capture the money by taking that exact amount you saved and having it automatically deducted from your account and put into savings. Use it to pay off a credit card or a car loan, or to increase your retirement contributions. I used this strategy to pay my house off early.
- “Set and Forget.” Set your paycheck so that on the first of the month a certain amount automatically goes into your retirement account, into your savings account, and into your debt-pay-off account. That way you’ve taken care of your biggest priorities before you spend anything. Whatever money remains can be used for your monthly expenses.
- Shift money saved to pay off high-interest debt and increase retirement savings.
- Purchase ETFs (Exchange Traded Funds). They are sound investments set up like miniature index funds, usually less expensive than mutual funds. (Of course, work with a qualified financial advisor to establish an investment plan based on your specific situation.)
- Establish key dates to mark significant progress. Give yourself incentives and rewards for changing your financial behavior. When you pay off a big debt, celebrate. (But celebrate in cash!)
Bola Sokunbi says two simple words helped her grow her retirement savings by $100,000 in just a few short years. What were those words? “Free money.”
“I was the girl who came out of college, just really wanted to focus on saving money and making my parents proud,” she explained. “But you know, by ‘saving money,’ it was really putting money in my bank account, seeing the cash with my eyes whenever I checked. And the whole idea of retirement savings and a 401(k) and all these things I was being told at the first HR meeting was just going over my head. I’m like, ‘Who cares about that? I’m not retiring for forty years or something.’”
But then on Bola’s next day of orientation, the HR representative described the company’s retirement plan and the words that piqued her interest were, “free money.” Her employer was offering a 100 percent match of up to 6 percent of Bola’s contributions to her retirement plan. “I was like, ‘Wait a minute, free money? I’ll take that, I’ll take whatever it is.’ And that was the beginning of me understanding or getting started with investing,” she told me. You’re putting seeds in the ground with the expectation that they’re in good soil and will grow.
Remember, automation is your best friend. When you’re making 401(k) contributions, you don’t even know it’s coming out of your paycheck. You can’t even have that mental debate, “Should I save? Should I not save?” It’s happening without your input.
Lara Casey is the founder and CEO of Cultivate What Matters, a company that helps women break down their goals into manageable action steps. She loves to garden with her kids. One of her favorite seeds is shaped like a heart, which is why it’s called “Love in a Puff.” It grows into a vine and sprouts tiny white flowers and green, papery fruits. I’m not a gardener, but I do know this: seeds kept in their packet will not grow. They need to be planted and watered so they can do their job. Money is the same way. When seeds sprout, when your money is in motion, there’s no better feeling. It’s the feeling of freedom—that moment where you pivot from you working for your money to your money working for you.
Think of your savings as seeds that can be carefully planted and grow into something beautiful—and you’ll see in the next chapter, it all starts with investing.
(To be continued...)
This excerpt is taken from “Good Money Revolution: How to Make More Money to Do More Good” by Derrick Kinney. To read other articles of this book, click here. To buy this book, click here.
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