So far we have discussed tackling “the whole” financial challenge all at once. That can take a long time. It can seem a daunting challenge. But most people say they would be satisfied with just 20 % more income than they have now. That may or may not be true. But suppose you covered 20 % of your present monthly outgo with investment income you could tap, starting with one bill? You could consider what specific monthly bills you first want paid out of investment returns. Next we will look at how to build to accomplish that.
Lower expenses paid out of your income can “seem” like a raise in pay. Your investment account is there to help solve financial problems. With large amounts of investment or over a long time, it can solve big problems like retirement. But even with shorter times and less money, it can still solve smaller problems. Like paying one bill each month. Choose one bill for your investment account to cover. You can pay out of your account about 0.5% of account value per month (6 % per year). This works especially well if you are investing additional money each month.
This chart estimates what it takes to cover a given monthly obligation. If you save each month, say 10 times a given monthly bill, then in one year you saved ten times the annual cost of that bill. If the returns on that money continue to be 10 %, those returns can cover that same bill from then on. Saving less or more builds that required amount slower or faster. So, live on some amount less than your income, and save the difference. Then you will at least bemaking progress.And we have software tools to help you measure how much.
If you have debts, you have an additional flexibility in making financial progress. You can actually get rid (eventually) of the monthly payment on a debt. Once you have accomplished this, that monthly payment is available to invest and grow your wealth and personal safety net. There are two ways to do this if you have an investment account. You can pay much more to the creditor and pay the debt off that way. This is best for obligations with high interest rates of consumer (non - deductible) interest. 2) You can save and invest the money, continuing to pay only the minimum monthly payment. This is best for debts where the interest (including tax deduction if any) is LESS EXPENSIVE than the investment returns you have available. Mortgages, perhaps margin loans, and others may fit this. The choice is yours. But keep in mind risk and volatility of the investments.
So far we have discussed tackling “the whole” financial challenge all at once. That can take a long time. It can seem a daunting challenge. But most people say they would be satisfied with just 20 % more income than they have now. That may or may not be true. But suppose you covered 20 % of your present monthly outgo with investment income you could tap, starting with one bill? You could consider what specific monthly bills you first want paid out of investment returns. Next we will look at how to build to accomplish that.
