How to make good money habits and get financial success

Good day my Legends, I hope you’re doing amazing! What did you think about my last post about productivity? Let me know in the comments! Today we’re going to cover the topic of money. How you can make good money habits and create financial success in your life.

Money is an important aspect of life, especially if you’re struggling with it… It is also the goal of this blog to become financially abundant together. So, I hope to give you some valuable tips to improve your finances.

Set yourself up for financial success with good money habits

Alright, Legends what I really want you to start doing is investing in the stock market. One of the easiest ways to achieve financial success is to start investing for passive income. Some of you have probably been doing this already and that’s great! Nevertheless, I still encourage them to keep on reading. You might learn something new!

For those of you who haven’t started investing a part of your income yet, we’re going to change that. In this post I’ll try to make it very easy for you to understand, so you can start this important money habit today.

Get financial success — *The most important thing is to start!*

The importance of creating good money habits for financial success

Every person I know who has become wealthy created good money habits, which always included investing in one way or another. The easiest way to start investing for passive income is to put money in the stock market.

Investing is so popular because of the power of compounding. This means that the longer you keep your money invested, the bigger your gains will be. Time is your friend. So we’ll play the long game. Although there are some people who got rich quick by investing in the stock market, this is rather the exception than the rule. And that is not our aim.

I want you guys to build in some financial security. Hopefully, this relieves you of the stress of money a bit. So you can bring better focus to build great things in your life!

Good money habits — *Let’s reach financial freedom!*

The power of compounding

Before we get into the technical stuff of investing, I want to show you what an impact it can have on your life. As I stated before, investing is so great because of the power of compounding.

Compounding can realize an exponential increase of your invested money. The interest on your invested money PLUS your previous interest can cause this massive gain. It will let your money grow much more quickly. Because of this principle, your money would double every 7 years with a 10% interest rate, instead of taking 10 years. I hope this is a little clear, but I’ll give some extra examples of what compounding can do.

Assume that you would start investing in the stock market today. You are 25 years old and will invest $100 every month for the next 40 years, with an interest rate of 10%. This will get you a healthy $632.408 by the time you are 65 years old. If instead, you invested $200 per month during this time, you end up with $1.264.816! More than a million dollars just by investing 200$ every month… That is amazing!

If you started a little later it will be a little different though.. Starting 10 years later, at the age of 35, $200 per month for 30 years with an interest rate of 10%. This will ‘only’ get you $452.098 when you’re 65 years old. That’s a massive difference! You’ll have nearly three times less. Wow!

How to make good money habits and get financial success example 1

How to make good money habits and get financial success example 2

So you guys, I hope it is clear. The important message from these calculations is that you should start as soon as possible. Preferably TODAY!

Invest a percentage of your income and make in automatic

The beauty of investing is that you don’t have to be super smart and build your own successful business to become rich. You just buy a tiny part of a company that is run by wicked smart people. It improves your chance of financial success significantly!

Now we know the power of compounding we need to decide how much we will invest per month. A lot of experts advise investing at least 10% of your income per month. For some of you, this might seem a lot. So start with a percentage you feel comfortable with in the beginning. It doesn’t matter how small! Once you’ve started and notice how easy you can do without that money you can always put in more.

Good money habits – Making it automatic

A very important part of this step is that you need to make it automatic. You don’t want to ever see this money. Ask your company to make an automatic deduction in an investment fund. Or do it yourself and set an automatic payment to your brokers’ account. THIS IS VERY IMPORTANT.

Although I knew about the importance of this step I forgot to do this a couple of months ago. It resulted in not putting money in my investment account monthly for a couple of months! Only because I saw the money, and so you create the habit of spending it all…

Another tactic you can use, one I found even easier to implement, is to invest a percentage of the ‘extra’ money you get. With ‘extra’ money, I mean all the money you receive that isn’t your normal income. This includes your bonuses, holiday pay, the money you receive for your birthday, whatever! I like to put a higher percentage of it in my investments. This varies from 25% to even 50% of that ‘extra’ money.

Where to put your money

Some of you will be thinking, ‘Yes Maarten! I know that I should start investing and I want to, but where do I put it??’. That brings us over to the part that I like to keep very simple in the beginning. A lot of people just don’t start their good money habits because it is too complex and causes overwhelm.

What you shouldn’t do is give your money to a financial advisor and let him invest your money! The majority of these financial advisors don’t beat the market consistently, and they take commissions (of your money!) in the process…

So what is this ‘market’ I am talking about? It is the place where many of the expert investors advise you to put your money. The S&P500 is what they call the market. It consists of the 500 largest companies in the US. With an average annual return of 8-11%, this is the place I advise you to start investing.

Once you get a bit more acquainted with investing you can change your strategies a bit, depending on the risk you’re willing to take. I won’t get into much detail with it in this post, because I just want you to start! But know that you can change your strategy along the way. If you’re interested to learn more in-depth about the stock market I advise you to read Money: Master the Game.

Avoid costs to increase financial success

Now that you’re ready to start investing and know where to put your money we need to talk about one more thing. How fast your money grows is very dependent up on your costs. Costs can reduce the return on your money significantly. That’s why you need to take the following things into consideration:

1. Avoid costs of a financial advisor

As I mentioned before, financial advisors are not really of added value. They cost money to invest your money, but they struggle to beat the market. Often they put your money in high-cost funds that their company composed. It’s not worth it, trust me.

2. Avoid high transaction costs of a broker or a bank

Some people I know started investing their money with the bank they’re with. This might not be the best idea… Many banks or brokers have high transaction costs. This means that you sometimes pay a couple percent per purchase you make. You want to avoid these high costs. It can really have a big impact on the growth of your money.

Try to find a reliable broker that has low costs. If you’re living in Europa I can recommend Degiro.

3. Avoid trading costs

Every time you buy and sell a stock you need to pay a small fee. We’re not becoming active traders. Although this is possible, we are investing for passive income. This means making money without spending too much time on it.

Financial success — *Don’t wait until you’re retired!*

Your new good money habits to achieve your dreams

One thing that you might be wondering is when you can finally enjoy the money that you’re making with your investments. Do you really need to wait until you’re 65 years old? The answer is no, definitely not!

A strategy you can use is the bucket system. You divide your investments into different buckets. A safety bucket and a growth bucket. The percentage in each bucket might differ for the risk you’re willing to take. The safety bucket is very secure, like bonds, but this comes with lower returns. Your growth bucket is for high-risk investments, like individual stocks, with potentially high returns.

At this moment in my life, I see the S&P500 as my safety bucket. I still have a long time for my investments to grow, so I like to take more risks. Some experts would say the S&P500 is not something for your safety bucket, but I like to take the risk. As I said earlier, the S&P500 has an average return of 10%. Although this is riskier than investing in bonds, it will reduce in risk based on the time you’re willing to invest.

Good money habits – Bucket system

So, to be clear. Your safety bucket is for secure investments. Bonds are secure investments but have a low return on investments. Somewhere around the 3%. If you are still young and want to take some more risk you can also see the S&P500 as your safety bucket.

The growth bucket is for riskier investments. This can be individual stocks or even things like investing in crypto. You have more chance to make more money, but also have a higher risk of losing it.

Now finally, we get to the third bucket. This is your dream bucket! Every time you have a big gain in your growth bucket you want to take out some money. A third of this gain is going in your safety bucket, a third in your dream bucket and the last third stays in your growth bucket.

Your dream bucket is for dreams you have. A special holiday, a vacation home, a boat, a special car, … whatever! Something you’re dreaming of and look forward to. Hopefully, this triggers you to put more money into your investments to achieve your dream faster!