What are your big money moves?
I discuss the high-level “money moves”, the important decisions you can make that will be the most impactful in your financial life.
I hope by this point you’re not under the belief that just by cutting out coffee or by buying less avocado toast, you’ll become wealthy.
Those are red herrings that are put out to blame you for our society’s failure to take care of its members. Sure, our social services and healthcare are the laughingstock of the developed world, but let’s instead blame you for your morning Starbucks.
I’ve talked a lot about the little things you can do day in and day out that make a difference in your money life, but I recognize that people want the big moves, the big money moves, the stuff that makes a real difference at scale.
So let’s talk. These aren’t necessarily “quick” money moves, because wealth doesn’t work like that. Anyone telling you how you can make money quickly is either lying or trying to rip you off.
Nevertheless, here are the big money moves you can make.
Don’t carry a credit card balance
One of the biggest drains on your money is interest paid on debt.
Credit cards carry an interest rate of upwards of 25%, much more than you’ll ever receive in an investment. This means that any money that you were lent you will never make back.
So while your credit card company thanks you for your generous donation, if you vow now to never take on a credit card balance, you could save yourself tens of thousands of dollars over your lifetime.
That’s big money.
Don’t buy a car on credit
Cars are expensive, and these days, cars are more expensive than ever.
Because of a car’s expense, it can seem normal to take out a car loan for 4, 5, even 6 years.
Don’t do it. Cars are too big a purchase to pay for with credit.
Yes, it’s true that car loans tend to have a much lower interest rate than credit cards. You can find 3–8% on car loans, depending on your circumstances.
But it’s also true that cars get replaced, and if you keep replacing your cars and keep replacing your car loans, you’re going to be paying that percentage rate for the rest of your life.
What if you were lucky enough to get an interest-free loan? Well, that’s not any better, believe it or not, because of two reasons. First, you probably bought a new car, which is pretty much never a good financial decision.
But aside from that, you’re still buying a car and then figuring out how to pay for it, which is backwards, and doesn’t set you up for anything different in the future. Whenever you buy another car, do you think you’ll have saved up money to buy it? I doubt it.
Bonus: Don’t buy cars at all
Cars cost the average driver about $10,000 a year to own. If you ditch the car and take the train or bus or bike, you are going to save massive amounts of money.
I know that I and most of my audience lives in the U.S., where we make it as tough as possible to not own a car.
But we also make it almost impossible to not use a smartphone, and I’ve managed to never own one. So hard things are possible.
And with the money you save by not owning a car, you could afford to rent a car whenever you wanted one.
Maximize tax-advantaged assets
Most of you have the ability to put a few thousand dollars away in a Roth IRA each year. This money can grow at roughly 8%, depending on your investment choice, and when you go to pull it out, you don’t have to pay taxes on any of it.
If you put in the maximum to your Roth IRA year after year, you can net yourself hundreds of thousands of dollars over the course of your life.
Does your job offer a 401k? Put money away. Try to get up to 15% of your income into investments. Even though you’ll probably have to pay taxes on the withdrawals, you’ll still have put away money without having paid taxes on it. This is huge. Don’t pass this up.
Own appreciating assets
Buying a car is nice, but its value will approach zero over time.
Buying a home, however, will generally appreciate in value. And even if it doesn’t, you still get to live in it without paying rent the whole time!
The more money you can put into products that appreciate in value, the more you can make your money work for you.
Choose your partners wisely
Finally, most of us seek partners in our lives. Maybe these people will become our husbands and wives, maybe not, but still, we will likely seek to build a life with at least one other person.
Choose these people carefully, because they can make or break your financial life.
A wise partner can provide you with good counsel and advice, keep you from making bad decisions, and help you make good ones. As brilliant as I’m sure you are, you want to find someone who’s at least as brilliant as you to save you from your bad impulses.
Also, should you choose to share finances, you want to partner with someone who shares your same money goals, and is willing to work together with you to reach them.
And of course, divorce is messy, awful, and expensive, so you want to choose someone with whom that is less likely to happen, but if it does, that it will be decent and amicable. (A prenup is a nice measure you can take here to save you from your future worst selves.)
I recognize that this point doesn’t have anything to do with money directly, but nevertheless, this one could be the biggest money move you can make.
Did I miss anything in this list? Please comment and let me know.
Originally published at https://empathicfinance.com on March 28, 2022.
