Volume #4 – Money is Freedom

HI THERE!

TODAY IS ABOUT M-O-N-E-Y 🤑

Quick expectation setting: Money and building generational wealth is not an easy journey. Many of us grew up without examples of saving, investing, or setting financial goals. But that doesn’t mean it is too late to learn how to be a millionaire - or even a billionaire.

First, we must put the house in order (the direct translation of a boricua expression “Vamo’ a poner la casa en orden”).

Short hint: It’s not how much you earn but how much you expend.

Get ready for the first 5 steps you need to take for financial freedom (from my perspective as a previous consumerist, expert about maxing-out credit cards, and $50k+ in student loans).

STEP 1: Facing our biggest fear - LOAN AND CREDIT CARDS DEBTS: Take a piece of paper or open a Google Sheet and complete the following:

Storytime 📝 - I was an expert at avoiding my debts. When I was 24, I impulsively maxed out my credit card to buy things I couldn't afford. I went to Best Buy with $15 in my checking account and bought a Mac Book Pro + Canon Camera valued at $2,000+ with the store credit card. Was I a professional photographer? No! Was I going to monetize the Canon Camera? No! Did I use the camera as I had intended? No, and I ended up selling it in a few months.

… and let’s not start with the interest rate I got for my student loan in Spain, which was ~12%

Now that you know how much you owe…

STEP 2: Let’s write down your monthly expenses by checking your bank statements for the last 3 months and fixed expenses (rent, phone, etc.):

Don’t be afraid; be honest with yourself; it’s important to understand how you spend your money.

STEP 3: After mapping out your debts and expenses, it’s time to check your monthly earnings. Why now? Because you already know what you need to pay next month:

Yes, this doesn’t look good, as you will end the month in negative and without cash. But this exercise will allow you to structure your upcoming months with a repayment plan to be debt free as soon as possible. Prioritize the debt accruing interest.

STEP 4: Are you clear on your current financial situation? Let’s plan the steps to be financially free because paying debt is just the start. We need to save and invest to enjoy life and for our future selves.

A budgeting structure that I like is the 50/30/20 rule (source: nerdwallet).

We covered NEEDS in step 3; now it is time for WANTS and SAVINGS.

• Wants include Monthly subscriptions, Travel, Entertainment, and Meals Out.

• Savings include Emergency Funds in High-Yield Savings Accounts, Retirement like 401k, and Investments.

Storytime 📝 - I have lost a lot of money for not having a plan:

1. I lost $13k for not activating my 401k on time, as I waited a few months, missing out on the matching program offered by my employer for 2022.

2. I started working when I was 18 but didn’t save a single cent until I was 25. Yep - my spending behavior wasn't aligned with my financial goals because I didn't have any goals.

A way to get money for your WANTS is by leveraging the right credit cards, as the traveling ones offer points that could be redeemed for your flights. I paid $0 for my +$900 flight to Brazil. But it's important to use your credit cards for things you can afford and build an Emergency Fund with a High-Yield Saving Account of 3-6 months of your monthly expenses to not end up with credit card debt when an emergency happens.

Storytime 📝 - I also had my money in traditional banks. I had no idea what a High Yield Savings Account was - a type of savings account offering better-than-average interest rates on deposits - with less than 0.03% interest rates. This means my money wasn’t fighting inflation at all - inflation affects us when what used to cost $100 is now $105. As $100 now, it will be valued at $95 in a year with the current inflation rate of 4.9%. My current HYSA accounts are at 3.75%-5.05% Annual Percentage Yield (APY). If the inflation stays as it is, I will at least fight it with the APY of my HYSA.

STEP 5: After you have mapped your debt, expenses, earnings, budget, emergency fund, 401(k), and saving plan, it’s time to set up for…

FREEDOM GOAL in terms of $$$ so you don’t live to work, and your money works FOR YOU!

Storytime 📝 - I started my journey 2 years ago, as I also gave my money to my ex-partner so he could “take care of our finances”… Don’t get me wrong - it’s not bad to leverage each other strengths. Still, the mistake was not being aware of my financial reality without him and without having a financial plan.

Now I’m almost debt-free from student loans and have 12% of my money goal before 35 - and YEAH! I want to be a millionaire.

We’re not covering investing in this newsletter. First, we need to have our finances in order, and then we can delve into multiplying our money with compound interest.

Repeat with me:

Saving and Investing are NOT TOPICS JUST for rich people.

RECOMMENDATIONS CORNER!

📚 Book: Do you feel you’re ready to get into investment as you have extra cash that you could invest? Check out the book Girls That Invest.

🎙️ Podcast: My dear friend, Thamina Stoll, launched a podcast 3 years ago that seems right for this newsletter - How to manage your money (Part 1)? She now created Give Her Dollars to help women build wealth for themselves and other women.

📱Instagram Account - @chavosenlacartera offers financial education in Spanglish - check out the last reel on 401(k).

Did you like these 5-steps? Please share with others + give me feedback by replying to this thread.

P.S. My opinions are my own.

Cliqué by Yane

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