![Picture](/uploads/2/5/4/8/25487234/9669386.jpg)
Everyone has a different view of money, it is tied to our psychological mind and how we were raised when we were children. For some big spenders, they might hate money and want to get rid of it once they receive it. Monitoring closely, it is related to their parents who were always arguing on money’s issues. So they have acknowledged that getting rid of money may bring peace since the parents may have nothing to argue about!
In comparison, savers who are reluctantly spend a dime because they think money is providing them a sense of security. Yet, they may not have a clear vision on why they need to save so much money. Possibly, maybe they grew up in a family that didn’t have a stable income or saving, worrying their shelter might be taken away anytime.
Let me use the types of driver as an illustration: Money, just like the car, it is a neutral instrument. But, it is depending on the driver who controls the outcome. When drivers who plan their route and check traffic prior the trip, they will get to their destination on time. Aggressive drivers might get into accidents when they drive dangerously. Thus, conservative drivers aka "Sunday driver", who usually drives cautiously on the road, they may need extra time to get to their destination.
So, what kind of driver are you?
In a financial world, they have a term called “Investment Vehicle.” Of course, their vehicles are not from the maker of Toyota, Honda, or Ford! Instead, they are:
1) Certificate Deposit (CD)
2) Mutual Fund (MF)
3) Bonds
4) Stocks
5) Exchange Traded Fund (ETF)
For young investors, they should put most of their assets in more aggressive products because their portfolio are able to be recovered if the market crash, that defined as high risk tolerance. However, we heard of young investors put lot of money into CD or Bond and they explained they are afraid of losing money.
From the investment point of view, there is a certain level of risk and no one can avoid it. That’s why investors need to be aware of the “Calculated Risk.” The best practice is called “diversification” – never put all eggs in one basket! Before allocating money into investment, ask yourself when I should put money in and how much I should contribute.
Here is the order how money should contribute in my perspective:
1) Building up an Emergency Account - Emergency account is a liquidated account (e.g. Money Market account) which equivalent to 3-6 months of a household expense. If your family spends around $4,000 monthly, you need to save around 12K to 24K depend on how much you feel comfortable with. If you are the solo income, I suggest you to save up to 6 months. Why do you need emergency account? If a catastrophic event (losing job, major damage to your house, or serious illness) happen to you and your family, this account can be a buffet and you don't have to jeopardize your other non-liquidate asset (401K/IRA, primary house, or other investment account). Please be aware that this account isn't for you to tap in for non-emergency situation. You are not supposed to touch that money if you want to a vacation, getting new gadgets or upgrading new kitchen appliance!
2) Contribute 401K/403b/457b up to company match percentage.
Those are free money your company provides (that is part of your compensation.) why not take advantage of it!
3) Clear up debts especially credit card(s).
Currently, credit card financing rate is > 20%. It is pointless to put money into investment, rather than clearing up the credit card debit. Plus, it is not easy to get investment return with 20%+ return constantly. Do you notice that majority of credit card processing center are either in Sioux Falls, SD or Wilmington, DE. Here is a tutorial video about the history and secret of credit cards.
4) Additional contribution to 401K/403b/457b and "max out" if possible.
5) Contribute IRA
6) 529 Plan or other college fund (if you have kids) or invest on regular brokerage account.
What is your priority of your money allocated? How is your childhood affecting your view of money?
In comparison, savers who are reluctantly spend a dime because they think money is providing them a sense of security. Yet, they may not have a clear vision on why they need to save so much money. Possibly, maybe they grew up in a family that didn’t have a stable income or saving, worrying their shelter might be taken away anytime.
Let me use the types of driver as an illustration: Money, just like the car, it is a neutral instrument. But, it is depending on the driver who controls the outcome. When drivers who plan their route and check traffic prior the trip, they will get to their destination on time. Aggressive drivers might get into accidents when they drive dangerously. Thus, conservative drivers aka "Sunday driver", who usually drives cautiously on the road, they may need extra time to get to their destination.
So, what kind of driver are you?
In a financial world, they have a term called “Investment Vehicle.” Of course, their vehicles are not from the maker of Toyota, Honda, or Ford! Instead, they are:
1) Certificate Deposit (CD)
2) Mutual Fund (MF)
3) Bonds
4) Stocks
5) Exchange Traded Fund (ETF)
For young investors, they should put most of their assets in more aggressive products because their portfolio are able to be recovered if the market crash, that defined as high risk tolerance. However, we heard of young investors put lot of money into CD or Bond and they explained they are afraid of losing money.
From the investment point of view, there is a certain level of risk and no one can avoid it. That’s why investors need to be aware of the “Calculated Risk.” The best practice is called “diversification” – never put all eggs in one basket! Before allocating money into investment, ask yourself when I should put money in and how much I should contribute.
Here is the order how money should contribute in my perspective:
1) Building up an Emergency Account - Emergency account is a liquidated account (e.g. Money Market account) which equivalent to 3-6 months of a household expense. If your family spends around $4,000 monthly, you need to save around 12K to 24K depend on how much you feel comfortable with. If you are the solo income, I suggest you to save up to 6 months. Why do you need emergency account? If a catastrophic event (losing job, major damage to your house, or serious illness) happen to you and your family, this account can be a buffet and you don't have to jeopardize your other non-liquidate asset (401K/IRA, primary house, or other investment account). Please be aware that this account isn't for you to tap in for non-emergency situation. You are not supposed to touch that money if you want to a vacation, getting new gadgets or upgrading new kitchen appliance!
2) Contribute 401K/403b/457b up to company match percentage.
Those are free money your company provides (that is part of your compensation.) why not take advantage of it!
3) Clear up debts especially credit card(s).
Currently, credit card financing rate is > 20%. It is pointless to put money into investment, rather than clearing up the credit card debit. Plus, it is not easy to get investment return with 20%+ return constantly. Do you notice that majority of credit card processing center are either in Sioux Falls, SD or Wilmington, DE. Here is a tutorial video about the history and secret of credit cards.
4) Additional contribution to 401K/403b/457b and "max out" if possible.
5) Contribute IRA
6) 529 Plan or other college fund (if you have kids) or invest on regular brokerage account.
What is your priority of your money allocated? How is your childhood affecting your view of money?