Part 2 - Growing Your Wealth
PLUS - Trading Chart of the Week
Hello everybody! I’m back.
This is part 2 of 4 in the Personal Finance Series - Growing Your Wealth.
Last week was Part 1 of 4 as you might have expected. Let’s hope you got that one right. If you missed it (not sure why you wouldn’t have read it), you can read it HERE. It was an overview of what a personal finance assessment might look like to get you started.
☘️ If you need help in this area, contact me.
Eric@SouthBayFinancialCoaching.com
Okay, let’s get to it!
If you recall from last week, I discussed getting a bird’s eye view of your total financial picture. This lets you know where you stand…what you’re worth…and how you view money. The good, the bad, and the ugly. (Great movie by the way!)
After you’ve conducted a full financial assessment, the next question I’m going to ask you is:
Do you run your personal finances like a business?
Run Your Personal Finances Like a Business
To be successful with your money, you must treat your finances like a business. Your personal finances are as important as your full time job. What’s interesting is that oftentimes people are great employees, handling responsibility, organizing files, tracking spending and maybe even budgeting properly for the company they work for.
Yet, at home…not so much. Why is that?
Why not carry that same philosophy at home with YOUR business?
Consider the following:
1️⃣ Create Additional Income Streams
What do I mean?
Successful businesses have more than one income stream…more than one product. When one product underperforms, the other might carry the business. This also allows you to diversify your money into different baskets.
At home, it is similar.
Do you want passive income, like investing your money into something that works for you, like investing in out of state real estate? Or do you want something that you invest your time into, like an Airbnb rental? Both are great, but one requires a bit more of your time to manage. I’ve done both…and both offer different value.
Sure, the primary job is the bulk of most people’s money but sometimes it makes sense to seek additional income streams like:
spousal income - yup! Time to get a jobby-job! Lol
dividend income - regular, consistent, predictable
side hustle (LOTS of options here) - sky is the limit
rental income - invest out of state, cash flow king
owning a business - hard work…big upside
Wealthy people depend on multiple streams of income. End of story.
(well not really end of story…I was trying to be dramatic. There’s more to the story below…)
2️⃣ Pay Yourself First
You are the CEO of your business. I wrote about this in a previous edition of The Tobin Report so I won’t go crazy here.
Paying YOURSELF first is the foundation on which you build and grow financially. This is a payment that should go toward some sort of savings, whether it’s an emergency fund, savings account, investment account, or college savings account for your kids. This should be done BEFORE any other expense is paid. Make it automatic. Make it consistent.
Saving money for later will give you security, peace of mind, and make it easier to make needed purchases when they come up.
3️⃣ Reduce Costs
Evaluate your outflow and get rid of unnecessary spending. The goal is to decrease your debt and keep your monthly expenses as low as possible.
As a successful business owner, you wouldn’t spend more than you’re taking in, and high overhead costs can financially ruin you.
Look for ways to reduce overhead costs.
Too many subscriptions? Throwing away food you didn’t eat because you buy too much at the grocery store? (that was me!) Netflix instead of cable tv? You get the idea.
In order to reduce costs, you have to actually look at your costs. This means using the “B” word.
👉 Budget.
I can disguise it and call it something else like an ‘expense analysis’ or ‘outflow cost assessment’…but it’s still the same thing. A budget.
Look at your bank account for the last 30 days…how much was spent eating out? I’m not saying don’t eat out…but if you are looking to reduce costs and set more aside this could be a GREAT area to examine.
Anywhoo, filter through your bank statements and see where the money is going. KNOW your numbers.
4️⃣ Develop Systems
When it comes to personal finances, I believe systems are critical. Systems allow for:
more control of your finances
better awareness of where you stand financially
increased organization
peace of mind
What do I mean by “systems"?
For example, all my bills are set to electronic bill pay through my bank. I separate a couple bills to go out on the 1st of the month and a couple more to go out on the 15th of the month.
I pay half my mortgage every paycheck as well. This allows for my outflow to be more even and consistent instead of paying everything at the 1st of the month and having nothing left over.
Every two weeks, just before pay day, I review what bills are set to go out. Next, in bill pay, I set the amount needed to pay my credit card to zero. It’s usually the same amount. In my family, we use ONE credit card for every purchase then pay it to zero every two weeks. This allows me to track my spending on a consistent basis.
I use the points I accrue on my credit card and cash those in for a fun purchase like going out to dinner. Sometimes I buy physical silver with it. 🥈
An added benefit of using my credit card for all purchases is that I can track and quantify my household spending over a two week period. This is my baseline.
No separate credit cards. No surprises. Complete control and awareness of our spending.
Whatever system you develop will allow for increased control and awareness which leads to peace of mind.
5️⃣ Growth Strategies
Finally, what is your growth strategy? Every successful business has a growth strategy. For me, this is investing the extra money I set aside into something that will improve my financial future.
This is my favorite topic. 🙌
Diversify your money and investing into various “buckets”. Have a plan. Manage risk. Plan for the future.
▶▶▶ This is also the topic for next week: INVESTMENTS 💹💲
🛎Coming soon - reach out if you would like to talk about financial coaching.
Thanks for reading everyone. Please share this with a friend you think might benefit. Next week will be Part 3 where I discuss the different investment strategies that exist as well as the best ways to grow your emergency fund.
Chart of the Week:
I’ve talked about energy and commodities for the coming bull market and I’ll continue to talk about energy and commodities. The world has shifted from a world of ‘virtual’ crap to a world of REAL things. De-globalization is real. Energy shortages are real. Fundamentally, I believe in the long term thesis behind the energy and commodities.
At the same time, there are some technicals that speak to me…
Technically…I like what I see below…
This is a daily chart of Peabody Energy Corp, ticker symbol BTU on the NYSE. This is a coal mining company with operations in both the United States and Australia. Yes, coal. Market cap is $3.4B so there’s lots of liquidity. I won’t go into the fundamentals on why I like coal as an investment, but I will go into the technicals.
As you can see, price has repeatedly (4 times) bounced off the 200 day moving average, which is an important, widely used metric in technical analysis.
Next, we have a recent pullback from the upper rail (green line) of the descending wedge. Wedges of this pattern are bullish, typically. Combine it with hitting support and respecting this support…me likey.
To me this is a buy. This is not investing advice; I’m just sharing my trade as an example.
This is a very nice setup and as such I placed a trade today at the low of $22.50. My upside targets are:
$24.50 - this coincides with the 50 DMA in purple
$26.75 - this coincides with the upper rail of the wedge.
And if we can get through the upper rail, we will have a breakout that leads us to over $33 before a technical pullback.
On the downside…🔻🔻
If price breaks below the 200 DMA (yellow line) just below $21, I’ll exit my position. 🚪 This will be a loss of just over $0.50. Yes, that’s 50 cents.
The risk to reward setup is lovely. Yes, I just said lovely.
Get over it.
Okay, that’s all. Happy saving. Happy investing.
Eric