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7 Personal millennial financial tips.

Let us discuss 7 practical tips to increase your wealth and 7 millennial personal finance tips.

  1. Understand Assets and Liabilities.

Most people see a person’s primary residence that they own as an asset. Yes, you built equity as a property. You can use it as a saving account. You can borrow against it. But how can we say that the property is an asset or liability for us?

If you own a rental property and rent covers the mortgage, the insurance, all of the expenses associated with it. Considering all this, if it delivers a little bit of profit then that is said to be assets.

Similarly, the same property could be a liability, if it went vacant or if you had to lower the rent for some reason and the cash flow coming is no longer covers the expenses. In fact, you have to spend money each month on its maintenance. So it’s important to understand the difference between assets and liabilities.

You aim to buy assets, not a liability. Examples of liability are Primary residence, car, undeveloped land. Examples of assets are rental property delivering cash flow, Stock, A rented car, and cryptocurrency. Personal tips monitor your assets and liabilities.

2. Start Investing Early.

It works with the formula of how wealth builds over a long period of time. If you put away 500 U.S dollars per month at an 8% rate of return, you will be a millionaire in 33 years. If you continue to keep going, you will surpass 2 million in just 9 more years. In 5 more years, you have 3 million.

This is the power of compound interest. It takes discipline to do this though because you have to go many many years with your wealth only increasing a little bit. But there is sure you will get huge gains later on and it is totally worth it.

So where do you need to put your money to make this happen? The 8% that we mentioned earlier is the average gain of the S and P 500 over the long term. So you can put your money in an S and P 500 index fund. You can also look at different ETFs or individual stocks and get that kind of return.

If you are going to invest in the stock market you need an account. The wealth front app is a super easy use app that builds you a portfolio based on your own risk tolerance. They will manage for you. So my personal tip is to start investing early.

3. Optimize your tax situation.

Most of the financial influencers are located in Las Vegas. That is because of the Zero percent state tax rate. But although New York is a high tax state, there are other ways to optimize your tax situation. At the present day, there are different states in the U.S having different state income taxes.

In fact, there are 7 states that have no state income tax. But do remember, you don’t pay those taxes unless you are a millionaire. So the smart thing for people to do, who can work remotely, is to just move to a state with Zero percent state tax. Also, a lot of people are doing that already after the pandemic had hit last year.

Another way you can save tax, like state tax and federal tax, no matter what state you live in is how you structure your company. Set up an S Corp and this is a tax-saving strategy used by the president of the United States himself.

What you do is you pay yourself a salary that is appropriate to your industry. On that salary, you have to pay Fica Taxes of 15.3 % for social security and medicare.

In addition to that salary, you can take a distribution of profits from your company. On that portion, you do not have to pay those social security and medicare taxes. For example, if you have an income of 150,000 dollars, you could pay yourself a 50,000 per year salary.

Also then take an additional 100,000 dollars a year as distribution of profits. And on that portion, you do not have to pay those extra taxes. That’s wonderful, isn’t it? This saves you 10,000 dollars a year. But before doing this you need to talk to the CPA first. Again my personal tip is to organize the tax situation.

4. Understand where you are on the Wealth ladder.

This is an important step as you want to make sure you do not overspend on your wealth-building journey. I’m talking about the net worth you don’t care about. If you have a net worth of over 10K – 100K dollars you won’t care what stuff costs in a grocery store.

But you would still care what stuff costs in a restaurant. Also net worth above 100K -1 M, you care less about restaurant prices. But you would still care what a vacation costs.

Similarly net worth above 1M-10M you stop caring about the price of vacation and finally net worth above 10M you stop caring about house costs because 1000 dollars is now your 0.01 percent of a trivial number.

You can use a 0.01 percent figure, divide your net worth by 10,000 to get the amount you should see as trivial. Also, an amount higher than that you definitely should not see as trivial.

By doing this definitely help you to speed up your wealth-building journey. It is because now you would not be overspending on things you are not high enough. A personal tip is to know your limitations while spending.

5. Be an Early Investor.

This is not the same as starting investing early. It is different. This is investing early in new companies and industries or new technologies. Suppose you had bought 10 Bitcoins, 2 years ago. You have already multiplied handsome money in your account.

Examples of those invested in Tesla electric cars are walking away with thousands of dollars as people see electric cars as the future and Tesla is one of them. Metaverse cryptocurrency is one of them. So be an early adopter. Not every company or investor will turn big, but you have to apply your ethics. Personal tip an early investor can make you rich.

6. Have an emergency fund in addition to your investment.

You need to have an emergency fund in addition to your investment. This means liquid cash, which is not locked or won’t fluctuate over time. You need to keep at least 3 months of your monthly expenses, depending on risk tolerance.

So put some in your saving account. Don’t worry about earning interest in it. The basic idea is that you have to have 3 to 6 months of your monthly expenses saved up in liquid cash that can be accessed at any time of emergency. The personal tip is to always keep an emergency fund.

7. Understand the Macro-financial climate.

For this, you need to keep updated through news and live updates because it can help you plan your investment efficiently. For example, right now the stock market is at an all-time high, but interest rates are quite low.

While inflation is on the high side. So it might not be the right time to invest in the stock, but it’s a good idea to take out long-term debt. Example mortgage on a rental property, because interest rates are all-time low. The personal tip is to be aware of day-to-day market conditions.

So these are a few practical tips and maybe you will one day turn to be a millionaire who knows. Personal financial tips.7 Millennial Personal Finance Tips. Tweet this?