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Too many books!

Investing For Millennials: A How-To Guide From One Of Your Own

Last week . But pointing fingers is easy. This week, we’ll do something about it.

I started investing 25%+ of my monthly income in January 2015, and have since been growing my money at just under 7% compound annual growth rate.

I’ve used the advice of several personal finance books to get on this practical path towards financial freedom, and with their help, put together this guide for investing for millennials (but not just millennials).

These 7 steps got me to where I am:

1. .
2. .
3. .
4. .
5. .
6. .
7. .

Disclaimer: I’m not a CFP or financial advisor. This is just my system. I know it’s not perfect. Think of it as something to take you from 0 to 1, not 1 to 100.

1. Know why you’re saving and investing.

In the movie “,” time is used as currency. There’s a scene where Justin Timberlake’s main character is asked what he’d do if he had more of it than he could ever spend.

His answer?

“I sure as hell wouldn’t waste it.”

For most of us, why we’re trying to save or invest our money rarely comes up day to day, and if it does, we shoot back the standard material-items-checklist from the Joneses:

  • New house
  • New car
  • New kitchen
  • New TV

…and oh, yeah, right, the kids. They’re supposed to go to college. “You know, the usual stuff.”

But…why? Why? Why?

Money does buy a lot of material belongings, but you can also trade it for the most intangible, scarcest resources on the planet: time and freedom.

“Look at me, I’m free to make this decision.”

Isn’t that the statement a new BMW really makes? Given you’re happy with a modest lifestyle, $1-$2 million at a 4% interest rate is more than enough.

You could take your clock and do what Will said:

Stop watching it. You have all that time. Don’t waste it.

If you can figure out why saving and investing now is important to you, it’ll be a lot easier to stop putting it off.

2. Set a financial goal.

Once you have your purpose, you can derive the appropriate goal from it. That’s how it works, not the other way around.

When you’re young and have so much of life to go, it’s hard to set your eyes on a goal that’s 50, 60, 70 years away. An investor’s best asset, however, is time and right now you have more of that than money.

In , Tony Robbins suggests these three investing goals, :

  1. Financial security — you can pay your rent, utilities, insurance, transport and basic food costs.
  2. Financial independence — you can cover the cost of entertainment, clothing and some luxuries too.
  3. Financial freedom — your investments pay for a significant amount of luxuries (vacations, cars, etc.) too.

I don’t know about you, but I’m swinging for the fences here. We only get one shot at this. Financial freedom it is!

As John Goodman put it in , I want the position of f**k you.

(language warning!)

3. Spend less than you earn.

Before you do any investing whatsoever, you first need to have money left over at the end of the month.

Here are the steps from the various books to help you do that:

  • Make a list of all the fixed costs you can’t change in the short run (like rent and car insurance payments) — from .
  • Look at where you’re spending money for convenience, entertainment and gratification — from .
  • Now, make budgeting a game by taking on little challenges like:

-Walking or biking to work

-Canceling your cable for a month to see how it feels

-Trying to beat your partner in who can find the most discounts for food in a week

-Not buying new clothes for a month — from .

When looking at where you can save money, I see:

1. Save money on recurring purchases, like…

  • Rent
  • Utilities
  • Insurance
  • Transport
  • Groceries
  • Food

2. Save money on one-off purchases, that continue to cost money, like…

  • Cars
  • Houses
  • Memberships (Spotify, the golf club)
  • Large appliances (a fully automated coffee machine, lawnmower)

3. Save money on one-off purchases, that continue to cost time, like…

  • a TV
  • an Xbox
  • a jet-ski

The first one only has a few places you can optimize, like rent, utilities and insurance, before it gets tiring to try to save 13 cents on every coffee you buy.

The second one deals with unnecessary liabilities, where a cheaper option might get you the same result (like a monthly pass for the subway instead of a car).

The third one is seriously underrated: whatever repeatedly takes your time also costs you money, because you could spend it trying to make more and get to your goal faster. This doesn’t mean you have to kill all your hobbies, but be aware of time-suckers that you pay for, as it’s a double loss.

So, what to do with the first few bucks you manage to save?

4. Create an emergency fund.

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You need a little cash package you can grab any time, anywhere, for absolute emergencies. This is a lesson from by Dave Ramsey. The very first $1,000 you save should go directly into an emergency fund. You never know.

Then, take care of any money you owe.

5. Eliminate your debt.

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Ideally, you will be able to skip this step (because you have no debt). However, if you can’t, then pay down your debts, starting with the smallest, moving from

  1. Your outstanding $25 phone bill to
  2. The $100 you owe a friend to
  3. The $1,500 TV you purchased on credit to
  4. Your remaining payments to make that $35,000 car your own.

You get the idea. This step also comes from . Pay down everything that’s below $100,000, so no houses or massive student loans, as you’ll have to tackle those separately later on.

Before that, turn to your emergency fund again.

6. Save for a rainy day.

Last one from Dave Ramsey. Having $1,000 in cash for emergencies is nice, but they go really fast. One broken leg, a minor car accident or a careless mistake at a party and poof, that money’s gone.

What you really want is to have a solid, 3–6 month cash buffer you could live on, whatever happens. Dave Ramsey estimates this should usually be around ~$10,000 — $15,000, depending on where you live.

The result of these steps (3–6) is you’ll free yourself from any financial burden that mentally weighs you down and feel safe enough to take the necessary risks to grow your money, because you have a net to catch you when something goes wrong.

And now, the fun begins.

7. Grow your money.

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At this point, your liabilities are covered with money to spare, which means you can start building assets, which will put more money into your pocket each month, instead of taking some out.

Here are the 8 steps I personally started with and that have worked well for me:

  1. Start with investing 10% of your income. However little you have, 1/10th of it won’t hurt you — from .
  2. Take this money away before you spend on anything else, and treat it as if it’s gone forever — from .
  3. The best way to do this is to set up an automated payment to your investment account that sends the money right where it needs to go — from
  4. Take a value investing approach in which you minimize losses, focus on safe and steady returns and pick stocks for the long term — from .
  5. Since evaluating companies is not that easy, your best bet is to invest in safe, low-cost index funds, which model the stock market and thus, its average annual 8% growth rate — from .
  6. Start with the cheapest fund that’s available to you () and then diversify across various index funds — from .
  7. Stick to a fixed budget you will invest every month or quarter, no matter the current stock/fund prices, which will allow you to average your costs — from .
  8. Add the 2% and 6% safety rules, so you’ll never risk more than 2% of your portfolio on a single trade and never more than 6% of it in any given month — from

This approach will make the stock portion of your portfolio somewhat antifragile, meaning it’ll only get stronger from shocks and market crashes, because you can buy the same, valuable stocks and index funds at discounted prices when they happen and reap even bigger rewards long-term — from .

I hope this will turn out as practical as I want it to be. I want this to give you security, independence and freedom.

Maybe one day, you and I will both be in the position of f**k you.

I think this is the most practical way to get there. What do you think? Is it?

PS: I’ve summarized all these personal finance books and more .

If you’re going to change just one financial behavior after reading this post, please press the 💚 on the left. Maybe another millennial will see it and improve their finances too.

I’d really appreciate it.

I write more . This was originally published at on March 17, 2017.

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