Whether you’re living on a fixed income or planning to start saving soon, new tools and expert perspectives can help you better set aside resources to invest for the future — and limit how much money you’re inadvertently losing. Meanwhile, Treasury bonds offer particular benefits right now.
You’d never stop buying gas and then complain that the car won’t go. Saving should be similar, in that you plan to always do it.
- Spencer Sherman
Financial advisor Spencer Sherman urges his clients to boost their savings game by making a plan to save a small amount of money at regular intervals or with every paycheck, and make a note on the calendar to slightly increase that amount every six months (and proportionately for any salary increase or bonus). This will lead not just to more wealth creation, but to an increased confidence and sense of financial well-being, says Sherman, who founded financial consulting firm Abacus Wealth, which today manages more than $3 billion in assets.
Rather than regarding saving, or saving more, as something you always mean to do but never quite get around to, consider it like buying gas for your car: You’d never stop buying gas and then complain that the car won’t go. Sherman says that saving should be similar, in that you plan to always do it.
Round Up to Save a Little (More)
Happily, we live in an era where technology helps us do many things with less effort, and one of them is saving money. One such tool, Acorns, helps you automatically save a little bit at a time by rounding up your purchases to the nearest dollar and putting the change into savings. This small difference doesn’t feel like much at the moment of purchase, but it adds up.
This relatively simple approach is so effective because of the power of compound interest. Compound interest means that, when you save money, that money earns interest, then it earns interest on the interest, then again on that new interest, and so on. Compound interest is also the reason it’s important to stay invested as long as you can — and why it’s important to have an emergency fund, which we discuss below.
Are You Losing More Than You’re Saving?
If you have a lot of credit card debt, the best investment you can make may be to pay down that debt before you start saving anywhere else, says Sherman.
Let's take a quick look at the math behind Sherman’s advice. Let’s say you start the year by investing $1,000 in the stock market and you’re hoping for a handsome 10% return. If you’re successful, you’ll earn $100 on that initial investment, and you’ll have $1,100 by year’s end.
When you have credit card debt, you’re paying compound interest. Better to be the one earning that interest rather than paying it.
If, at the same time, you have a credit card balance of $1,000 and you’re paying an average of around 20% interest, your balance will grow to around $1,200 by the end of the year, depending on your precise interest rate and minimum monthly payments. This cancels out your 10% gain in the market and puts you $100 more in debt. While you made money in the market, you lost money overall.
Since you’re unlikely to make more in interest on your investments than the 20% or so that the credit card company charges in interest, paying off your credit card debt will ultimately result in more cash in your pocket than carrying debt and investing at the same time. This is the wisdom behind the famous quote attributed to Einstein. When you have credit card debt, you’re paying compound interest. Better to be the one earning that interest rather than paying it.
Sherman recommends that people with a track record of credit card debt consider cutting up those cards and paying off the balances as soon as possible, then use a debit card thereafter.
Cariuma’s OCA Canvas and Suede sneaks are carefully handcrafted with textured suede for a luxe look and feel while providing superior support through a signature memory foam insole that molds to your feet, providing the perfect marriage of style and comfort.
Every pair purchased gives back to the environment by planting two trees as part of their restoration initiative; they also source the highest quality natural materials, and manufacture their sneakers in a low-impact environmentally friendly way, in partnership with ethical factories.
There’s no need to choose between personal style and eco-friendly, ethical shoes! Remember, it’s cool to care.
Purchase a pair, and give back to our planet with your personalized code OZYOCT and grab 15% off for a limited time.
It sounds much scarier than it is: Advisors will tell you to calculate your “monthly nut,” or the minimum you need each month to maintain your expenses. You can keep this simple by making three columns on a piece of paper. In column one, write all your fixed expenses, like monthly bills. In column two, write your variable expenses, such as travel, and if you don’t know this number, then just think back to what you spent last month on things that weren’t in column one, then double it to get a safe estimate. Then, in column three, list your payments on any debt. Add the totals from the three columns to get your monthly nut. Any cash on hand beyond the monthly nut can be saved.
Current tools that help you build a budget and track your expenses include Mint, which allows you to consolidate your account balances and make a plan on how to pay off debt. Meanwhile, for a smart tool that helps you choose which savings and other accounts are best for your needs, Nerd Wallet can be valuable.
If your goal is to invest like a pro, then you’ll want to avoid making unexpected withdrawals from your investment fund. That’s why you should have an emergency fund, says Sherman. “It's good for your finances and your stress level to have a money market fund or savings account for the unexpected. Then, when your car needs repair or a family member needs help, you don't have to withdraw from your investment or retirement accounts. Look at your history with unexpected withdrawals to determine the amount to allocate to this emergency fund,” Sherman tells OZY. The standard is an emergency fund equal to three to six times your monthly nut.
If your goal is to invest like a pro, then you’ll want to avoid making unexpected withdrawals from your investment fund.
Say “hello” to the shoe that has caught the attention of surfers and skaters everywhere. From catching waves to tearing it up at the skatepark, Cariuma’s OCA Low Canvas and Suede sneakers will have you hanging loose through the fall season.
This sustainable take on the classic low and high-top sneaker will have you lookin’ and feelin’ 🔥 no matter the occasion. With over a dozen colors and patterns to choose from, and a broken-in feel, the outfit options are limitless.
And JSYK: these cult favorites never go on sale, but OZY readers can snag 15% off with code OZYOCT at checkout.
More than 100 OZY readers responded to our first Punk Rock Finance poll, in which we asked what topics you’d like to understand better. Your answers included exchange traded funds (ETFs), mutual funds, stocks, cryptocurrency and Treasuries, among many other topics. We’ll address all of these in turn; today, Treasuries are particularly timely.
Treasury I Bonds purchased before Oct. 31 earning 9.62%.
- Spencer Sherman
Sherman notes that recent opportunities in Treasuries have been especially attractive, with Treasury I Bonds purchased before Oct. 31 earning 9.62%. But what exactly does that mean? The percentage listed on a bond when you buy it is the annual rate of return promised by the issuer — in this case, the U.S. Treasury. With a 9.62% interest rate, a $1,000 bond will earn $96.20 annually. This represents a strong rate of return for what Sherman calls “about the smartest investment you can make today,” as U.S. government bonds are considered to have the lowest risk of any investment, and are exempt from state taxes. I-Bonds can be purchased attreasurydirect.gov.
Upcoming installments of Punk Rock Finance will highlight tools to help you do your own research to evaluate opportunities like this one, and try powerful apps for setting up new accounts.
OZY is a diverse, global and forward-looking media and entertainment company focused on “the New and the Next.” OZY creates space for fresh perspectives, and offers new takes on everything from news and culture to technology, business, learning and entertainment.
OZY Media, 800 West El Camino Mountain View, California 94040