How to Get Ahead in Life Financially – Tips to Improve Your Life
Do you ever feel like you are not where you want to be financially? You’re not the only one. Most people live paycheck to paycheck, unable to save even for the most basic things, like an emergency fund.
Thankfully, living this way doesn’t have to be your reality. By following some basic principles, you will understand how to get ahead in life financially and set yourself on a path to success.
If you are in your 20’s or early 30’s, the information in this post will help you get a better understanding of budgeting, investing, and finance. So dig in and discover all the different ways to be financially successful.
- Financial Advice from The Top Investors
- 8 Tips to Get Ahead in Life Financially
- Financial Planning Advice
- How to retire as a millionaire?
- Best Books for Financial Success
- Wrapping Up
Financial Advice from The Top Investors
There is no better way to learn about financial success than listening to those that already did it. The following quotes offer some of the best “compact” knowledge that will help you better understand the workings of money.
1. Tim Ferriss
“Money is multiplied in practical value depending on the number of W’s you control in your life: what you do, when you do it, where you do it, and with whom you do it.”
Takeaway: Tim is the author of the best selling 4-hour workweek. In this quote, he weighs down the importance of time management and self-actualization. It invites the reader to ponder upon each “W” and try to get a better understanding of where they stand in life at the moment. The less control you have upon something, the lower the chances of changing it.
2. Dennis Gartman
“Be patient with winning trades; be enormously impatient with losing trades. Remember it is quite possible to make large sums trading/investing if we are ‘right’ only 30% of the time, as long as our losses are small and our profits are large.”
Takeaway: Timing the market is extremely important. So is the timing of your trades. In most cases, the longer you delay instant gratification, the more valuable your investment will be. This, however, goes both ways. Losing trades can destroy us financially and it is important o make decisions based on logic instead of emotion. If it doesn’t serve you, get rid of it as soon as possible.
3. Charlie Munger
“The habit of saving is itself an education; it fosters every virtue, teaches self-denial, cultivates the sense of order, trains to forethought, and so broadens the mind.”
Takeaway: Saving money requires discipline, which is one of the greatest virtues of life. It helps you prioritize, organize and think ahead. Eventually, these habits will lead to financial success.
4. Warren Buffett
“I will tell you the secret to getting rich on Wall Street. You try to be greedy when others are fearful. And you try to be fearful when others are greedy.”
Takeaway: This is probably the most popular investing quote among cryptocurrency enthusiasts. Warren Buffet weighs down on the importance of logic-based decision making during times in which most choose to use their emotions instead.
“Only buy something that you’d be perfectly happy to hold if the market shuts down for ten years.”
Takeaway: Investing is a great way to grow your wealth, but requires massive amounts of patience. This quote illustrates what type of person you need to be and the amount of faith you need to have, in order to reach financial success.
5. Henry David Thoreau
“Wealth is the ability to fully experience life.”
Takeaway: While Henry David Thoreau is not an investor, he was one of the most forward-thinking philosophers of his time. And his advice is the foundation of understanding the importance and benefits of building wealth.
It’s not about the money you make, but what this money can help you buy. And what better way to illustrate this than the pyramid of Maslow? Attaining wealth helps you take care of your physiological and safety needs, so you focus all your energy on fulfilling your potential.
8 Tips to Get Ahead in Life Financially
If you want to know how to get ahead in life financially, here are the 8 most important finance tips to keep in mind.
1. Pay Yourself First
Try to save at least 10% of each salary you receive. Doing so will help you pay off existing debt and yield more savings over time.
- Automating the process will take away temptations to spend your money on things you don’t need.
- Most banking apps can automate the process of automatically sending a certain amount of money into your savings.
- In the following chapters, we will analyze how this tip can help you build a successful portfolio and play a determining role in your financial success.
2. Start investing early in life
Investing your money earlier in life can make a very big difference to your finances down the road. It will also help you save money in a more effective way, so you can retire earlier.
- When you start investing money at an earlier point in life, you benefit from compound interest. Keep reinvesting your earnings and you will benefit from exponential growth to your return on investment. Experienced investors understand the importance of investing early, even if it just to benefit from gains that derive from compound interest.
- The same is true for investments. The earlier you invest in money-making assets (e.g. real estate, stocks, etc.), the faster you will pay off your mortgage.
- There are several different types of investment assets. Earlier in your life, you might benefit more from investing in one particular asset class with up to a certain degree of risk. Later in life, you are better off diversifying your funds to protect your wealth.
- As Warren Buffet says, $10 dollars invested today could turn into $100 in a few years. As such, it is also important to avoid a mindset of instant gratification. Investing is a game where the impatient investor pays the one with more patience.
- A great way to make the right investment decisions in your 20’s is to take an interest in finance. In the following chapters, we will share our favorite resources to help you get started.
3. Improve Personal Financial Management
You won’t be able to save money unless you know how to keep a good overview of your money. Nowadays, there are numerous apps to help you create a budget and track your spending. The more you get to save, the more you will have to invest. Here are our favorite apps:
- Mint (Android & iOS) – Allows you to sync all your account to better track spending
- YNAB (Android & iOS)- Utilizes zero-based budgeting ($84 per year or $11.99 pm)
- Pocketguard (Android & iOS) – Shows a simplified budgeting snapshot for day/week/month
As soon as you download the app that works for you, it’s time to take a hard look on your current spending habits.
- By limiting your expenses and changing your lifestyle you will be able to save more money and start investing early on.
- Apart from saving money, you will also practice the discipline required to prioritize your needs with long-term growth in mind.
- Use this calculator to understand how much you need to save each month to reach your goal.
4. Avoid depreciating assets
Depreciating assets and products that lower in value over time. A new car, for example, is a common depreciating asset. The moment you drive it out of the dealership it’s value drops massively. Cash, if held for several years, is also a depreciating asset due to inflation.
- Instead of buying depreciating assets, try to invest in earning assets. These will multiply your money in the long term.
- Earning assets lead to what is known as compound interest, which means that the money you earn increases exponentially, as your portfolio grows.
- Compound interest is also the reason why saving and investing in your early years is more beneficial than doing so later in life.
5. Know the value of your time
Apart from time management, it is also very important to know the value of your time. After all, time is money. Here is what you need to remember:
- Knowing the value of your time will determine the tasks you outsource.
- Pricing your time depends on the industry you work in, the salary you demand, and the availability of the market.
- When in doubt, it is better to overvalue your time instead of undervaluing it. This way, you will better understand what to prioritize and what to avoid doing with your time.
6. Improve your money-making skills (specific knowledge)
Naval Ravikant’s “How to Get Rich (without getting lucky)” is a perfect example that illustrates the importance of skill mastery. If you keep one thing from this post let it be this. Learning a specialized skill is the first step to financial freedom.
How to Get Rich (without getting lucky):
— Naval (@naval) May 31, 2018
- Specific knowledge is the knowledge that you cannot be trained for. If society can train you, it can train someone else to replace you. And your replacement will most likely have a cheaper cost.
- Master a skill that is in high demand and not readily available. In other words, solve a problem society has but doesn’t yet know how to solve.
- The best way to learn specific skills is through apprenticeships. The internet is a great way to start this journey and connect with potential mentors.
Financial Planning Advice
Now that you have a better idea of how to get ahead in life financially, its time to put things in practice. And that is best done by creating a step-by-step plan that is easy to follow.
Step 1: Track your expenses and see what you can eliminate.
Download a financial management app and start tracking what you spend and where you spend it. If the app does not offer a complete overview, consider listing all your expenses on a spreadsheet. Then, consider eliminating the following:
- Takeout food -> cook your own instead
- Taxis and trams -> walk or use a bicycle instead
- Subscriptions that offer no value -> Netflix, expensive phone bill, etc.
- Clothing, footwear, and accessories -> Designate a budget for these
The list goes on, and you can choose to add as many limitations as you need to see a positive balance at the end of the month.
Step 2: Save 10% of your monthly salary
By cutting your expenses you should at least be able to set aside 1/10th of your monthly salary. Then use this money as follows:
- Use 5% to pay off existing debts
- Put the remaining 5% in your savings account
- Once you pay off your debt, keep saving 10% of your salary
Step 3: (Re)Invest the money in low-risk assets
At some point, your savings will reach a point where you can make investment decisions. Here’s how to get ahead in life financially using the money in your bank account:
- Invest your savings in low-risk investments that are considered safe
- Reinvest your earning to grow your investment portfolio
- While doing this, keep saving 10% of your salary
Step 4: Build more streams of income
After a few years, your portfolio will grow to a point where you will no longer be dependent on your salary. With more sources of income, you will be able to make better choices for the future.
- At this point, you will be more comfortable maxing out your retirement contributions
- If your portfolio generates a significant amount of cash flow, you can consider early retirement.
How to retire as a millionaire?
The steps described above are a great start to financial freedom, but what if you want to retire as a millionaire? What is the most risk-proof way to reach this status in your senior years?
Obviously, investing has its risks. Therefore, let’s take a more moderate approach and assume a 9% annual return, which is the more or less the average profits one receives when investing in safe stock options (e.g. S&P500 index fund).
The following chart shows how much money you need to save when starting at different age-points. You can also see the number on a daily, weekly, and monthly amount.
As you can see, the contributions increase exponentially with age. This is why it might be best to start setting money aside as early as possible.
Note that inflation must also be kept in mind. By the time you retire, $1 million dollars will have less value than it currently has. You can estimate just how big of a difference this makes by looking at the dollar’s performance over the past few years.
Best Books for Financial Success
One of the main reasons that people succeed financially is their willingness to never stop learning – so, that is also a must.
The only way to move forward is by working on your skills and by learning a new thing every day.
Or else, you will be left behind.
Just watch this 27-second video that explains what life is all about:
To make sure you work on yourself, here are the books you must read or listen to:
1. Rich Dad Poor Dad
Best selling finance book Rich Dad Poor Dad is a story of a boy (the author) with one rich father and one poor father. The lessons in the book will help you build the habits and financial knowledge you need to achieve financial freedom.
2. The Richest Man In Babylon
Many of the ideas shared in the article stem from this best-seller. The book tells the story of a young man who asks a rich person to mentor him. This wealthy man teaches him the rules of wealth, which are timeless and applicable by everyone. Eventually, the young man attains wealth.
3. Think and grow rich
Napoleon Hill shares the principles of wealth and the mindset you need to adopt in order to live by them. This book is one of the most celebrated “How-to” guides to help you attain riches.
4. The Intelligent Investor
Benjamin Graham was considered the best practical investment thinker of his generation. In his book, he analyzes investment principles and investor attitudes. Even though the book is more than 70 years old, the lessons are evergreen and applicable in today’s markets.
5. The Warren Buffet Way
No book list on financial success would be complete without Warren Buffet. If you want to know how to get ahead in life financially, take it from the person who did so ahead of his time. In the book, Warren shares his strategies to success and lays out a blueprint that you can follow.
Investing takes guts, patience, and consistency. Given the everlasting uncertainty of the future, one could say that it is as much a skill as it is an art. Therefore, if you decide to embark upon this journey, it is best to start educating yourself from an early age.
By now, you should have a basic understanding of how to get ahead in life financially. As for the methods you need to follow to achieve this, here is what we talked about in this article:
- Advice from top investors
- The best tips to help you get ahead in life financially
- How to plan your way to financial freedom
- What it takes to be a millionaire by the time you retire
- And the best books to read to gain financial knowledge
We hope you found value in this article and are ready to set the plan in practice. If you want to find out even more, make sure you check the following section. In it, you will find answers to the most commonly asked questions on the topic.
1. How do I get ahead financially in my 20s or 30s?
Most people will spend the majority of their 20’s in university or college, followed by starting job positions. To get ahead financially at this age, you will need to make a few choices that may lower the quality of your experiences but will multiply them later in your life. These include:
- Create a tight budget while in college. Choose a balanced lifestyle over alcohol-fueled nights and continuous partying.
- Get a (part-time) job instead of going into debt. If planned correctly, studying shouldn’t take more than 3-4 hours per day. Use your remaining free time to finance your studies.
2. How much should you invest in your 20s or 30s?
The amount you invest depends on several factors, including your income, risk tolerance, and type of investment.
- A good rule of thumb includes using a small amount of your monthly salary to start investing in low-risk asset classes. You can start as low as 5-10%.
- If you are more risk-tolerant and financially comfortable, you can consider upping this amount to 15-20%.
- In your 30’s, you will either need to lower the amount you can invest due to higher living expenses (family, mortgage), or you will be able to invest more due to a successful career. As such your 30’s can have a very individual investment window.
- When investing this early in life, you will most likely see significant returns even from investments that tend to have lower return rates.
3. What is a good net worth by age?
The average net worth of individuals, according to CNN Money, sums up to the following:
- Age 25 to 34: $8,535
- Age 35 to 44: $51,575
- Age 45 to 54: $98,350
- Age 55 to 64: $180,125
- Age 65+: $232,000
Keep in mind that these numbers refer to the average USA citizen in 2020 and are calculated with the Nielsen Claritas demographic methodology.
4. What should I do with 20k in savings?
$20,000 is a large enough amount to consider several investment options. These include:
- Making a downpayment for one or more real estate properties
- Investing in low-risk stock options
- Buying precious metals (gold, silver, palladium)
You could also use a small part of your savings to invest in high-risk assets, like Bitcoin, where the risk/reward ratio is favoring the upside. Just a small investment could become a large part of your portfolio.
5. What net worth is considered wealthy?
This question is difficult to answer since every country has different “wealth thresholds”. For example an individual in Romania who makes $200.000 per year (in local currency) is considered wealthy. On the other hand, an individual based in San Fransisco, CA, would probably be seen as middle-class.
An interesting study published in Nature Human Behavior found that people living in the US are the happiest when earning anywhere between $60.000 and $75.000 per year. Higher amounts were associated with wealth and led to negative emotions, which were linked with unhealthy social comparisons and unfulfilling material pursuits.