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THE FINANCIAL WORLD generates a lot of noise. As a financial planner, I see that every day. Being in my 20s, it’s fun to learn about new alternative investments or imagine getting rich quick thanks to one stock or following the advice of one social media post.
But I know that’s all it is—fun. Instead of imagining my way to wealth, I take control of my finances by creating rules to live by. Rules are driven by values. I know my financial rules may change as my life progresses, but I suspect my values will stay the same. Here are three of my money values, and the current rules I’m following in an effort to adhere to them.
1. Focus on one thing at a time.
Building on this principle, my big focus right now is investing in myself. I’ve spent a lot of time and money educating myself on financial planning, while also striving to gain work experience.
Social media and the financial news have glamorized side hustles, passive income and multiple income streams. But creating passive income takes time and an investment of money. Meanwhile, side hustles can mean spreading yourself too thin and focusing on too many different skills. The phrase that comes to mind is “jack of all trades, master of none.”
I’m focusing on becoming a master first. The biggest asset for a young professional like me is the ability to earn active income. I’m focusing my time and attention on creating one large income stream—that delivered by my fulltime work.
2. Control what you can.
I can’t control what happens to the stock market. Stocks are glamorized and often depicted as the primary path to wealth. I disagree, especially for those of us who are at the beginning of our savings journey.
My first rule is to prioritize my financial foundation. To me, that means having a stable income and an emergency fund. With those two buffers in place, I shouldn’t have to tap my longer-term investments during rough markets—and my finances won’t live or die based on uncontrollable stock market performance.
Second, I focus on how much I’m saving, which is more important for me today than my investment performance. At some point, I expect the pendulum to swing, and my investments will make more than the amount I’m able to save each year. Until then, the amount I’m contributing each month to my portfolio will have a bigger impact on my financial foundation.
I’m humble enough to know I can’t beat the market or control my investment performance. I don’t pick individual stocks, thereby saving time and avoiding hassles. Instead, I invest in a few exchange-traded index funds that give me exposure to the broad stock market.
3. Personal finance isn’t all math.
A key benefit of building a strong foundation is that it relieves much financial stress. Amid market downturns and economic turmoil, it feels good knowing I have cash that I can fall back on. That peace of mind is worth far more than the market returns I’m giving up by keeping a chunk of my money in cash investments.
I also make financial flexibility a priority. Investment projections show I’d be better served by putting all my savings into retirement accounts, such as a Roth IRA or 401(k). But at my age, I couldn’t touch most of that money for another 30-plus years.
I’d much rather give up today’s tax benefits to have easier access to my money if, say, I want to start another business or buy a house. Who I am today probably won’t be the same as who I’ll be in the future, and I want the ability to adjust my finances accordingly.
Finally, I don’t believe in getting rich quick. That’s a strategy based on hope and it’s doomed to fail. There is an abundance of financial “opportunities” competing for my attention and insisting I’ll be left behind if I don’t get in right now. But I’m not biting. I’ll continue to follow my rules, learn a little bit more each day and trust in the process of getting rich slowly.
Logan Murray is a solo financial advisor. His company Pocket Project offers subscription-based financial planning services to young professionals. For more financial insights, read Logan’s blog, connect with him on LinkedIn and check out his earlier articles.
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Nice post, Logan. On the one hand I can understand your rationale for avoiding maxing out your 401k. OTOH, I found myself wondering whether:
a) you have access to a ROTH 401k?
b) you have calculated the value of the employer match that usually is part of 401k plans, and then calculated the RoR for those funds (i.e., your contributions plus your employer’s match plus the value of the increased amount of your contribution due to deferred tax) versus what the RoR would be if instead it was invested in an taxable account over your working career?
Doing the math doesn’t eliminate the fact that 401k plans do tie up your money. But it does make visible to you how much you’re sacrificing in the name of liquidity, thereby giving you the basis to make a more informed business decision.
Enjoyed the article Logan. Many very good points that I agree with. I understand your desire for maintaining flexibility, but don’t wait to long to take advantage of the long term benefits of retirement accounts, especially Roth. It never has to be all or none. Good luck with your business.
If you are still young, and have the right temperament, you can go for it. Put all you money into your business, and try to build something. If your business takes off, you will be much wealthier than if you put that money into passive investments like the stock market. If you fail, you can always go back to work and slow accumulation.
Don’t look at me, I’m nearly 70 and keep my personal fortune in passive investments. But young people have all sorts of opportunities.