Are you looking to develop your skills in earning, saving, managing, and growing your money? Let’s discuss simple systems that can help keep you on track, starting with how you earn it and ending with how it can earn itself.

Disclaimer

I am not a professional financial advisor. The information provided is for educational purposes only. A qualified professional should be consulted before making financial decisions. I am not responsible for any errors, omissions, or the results obtained from using information on my site. The user of this website assumes all risks associated with actions that they take.

Past performance is not indicative of future results. No particular result can be guaranteed. All investments involve risk, often including a potential loss of principal.

Earning and income

Before you can create a plan for your money, you’ll need to understand how much is coming in. Gain a picture of your total income, any amounts being withheld from your pay, and some ways to grow your income.

Primary income

Primary income is the channel that accounts for the majority of your earnings. For most, this would be their 9-5. Start by viewing a few pay stubs to see the amount of money you earned for those pay periods. Recognize that gross income is different than the amount that hits your bank account (this is called your net income). View deductions to understand the cost of things like health insurance, dental, and any withheld amounts, such as 401 (k) contributions.

Average your net income using 2-6 months of pay stubs. If you’re salaried and earn the same amount every pay period, you won’t need to review as much. If you earn commission or work an hourly wage position, make sure you have more data to consider both slow and busy periods.

Be conscious of the average and write it down. Note contributions to retirement accounts and consider them when evaluating your total savings.

Additional income streams

Are there other ways that you are bringing in money? Do you have a second job, a side hustle, or periodic windfalls? If these sources can be averaged out reliably, perform the same practice we used for your primary income. Be aware of your net income from each source and the total from all sources combined.

Growing your income

Increasing your income can dramatically affect your financial progress. You can earn more from an existing source through job promotions, bonuses, or working extra hours. To create other income streams, you could start a side hustle or pick up another job. Working on skills and finding ways to provide more value can help to support raises and higher salaries.

Budgeting

Once income is understood, each dollar needs a job. This is known as budgeting. How can you budget?

• Set a limit to spend on each category
• Spend as you would naturally, review the results, and change behavior
• Allocate money first and allow the remainder to be spent

Finding a budget that works for you will encourage consistency, provide a timeline for when goals can be achieved, and make progress measurable.

What does this look like in practice? Let’s use the bulleted list above and look at an example for each:

• Set a limit to spend on each category – Decide that you’ll shop for groceries weekly and aim to spend less than $150.
• Spend as you would naturally, review the results, and change behavior – Review your spending at the end of the month. You notice that the cost of eating out was much higher than expected. Focus on bringing that number down.
• Allocate money first and allow the remainder to be spent – Pay your credit card balances and bills right when you’re paid. Lock away the amount you planned to save. Spend the amount left over.

If you’re overwhelmed at first, start small. Make gradual improvements and acknowledge minor wins to build habits and maintain engagement. As basic strategies become automatic, implement additional strategies and raise the bar. Avoid getting discouraged if you fall short of a goal or feel uncomfortable. Remember why you started and allow yourself time.

These strategies should be stacked with one another. Try multiple approaches to see what works best for you. Weed out what doesn’t work. Below, I’ll provide a more detailed example.

EXAMPLE –

Here we’ll review “Ron’s” financial plan. His goals are to save towards retirement, save for travel, and build an emergency fund. Ron’s primary income comes from his 9-5. He works occasional odd jobs. He is single and rents an apartment. He owes on his car and is working through some personal debt.

Net income from primary job: $3,500/month

Net income from odd jobs: $150/month

Total net income: $3,650/month

Expenses:

• Rent – $1,000/month
• Food – $500/month
• Car payment – $400/month
• Personal debt – $250/month
• Misc. / Variable costs – $550

Total expenses: $2,750/month

Ron averages ($3,650-$2,750=) $900 left over. Here’s how he uses that money.

• Retirement – $400/month
• Emergency fund – $300/month
• Savings account labeled “travel” – $200/month

We could pick apart Ron’s system, but this example intends to give you somewhere to start. Ron’s plan may not be optimal, but it produces data. He’s building a reference to measure how changes would affect his pacing. Without a plan, the impact of change is unclear. You cannot acknowledge what works or see what is harmful without goals and metrics to track progress.

With a system in place, Ron can begin implementing changes. Here are some questions he could ask himself to improve his savings rate:

• Can he decrease any of his spending categories?
• Which ones, and by how much?
• Is he able to consistently put away the amount he planned to?
• Does he have more left over than expected?
• Can income sources be increased?
• Could a new income source be added?

Savings rate

Be familiar with the amount of money you earn. Use budgeting to develop a plan. Your savings rate is a metric to determine how effective your plan is. Increases to your savings rate result in faster growth. This shortens timelines for savings goals.

Play around with tools such as compound interest calculators. Here’s a link to one of my favorites: Compound Interest Calculator | Investor.gov. Whether you’re planning a wedding, purchasing a home, or saving to retire, this can offer valuable insight and highlight the significance of small increases to your savings rate. How do you use this calculator?

Large savings goal (Wedding, home purchase, vacation):

• How much money do you already have saved for this purpose? Plug that number into “initial investment”. I’ll use 5k for this example.
• Identify a timeline in which funds will need to be available. We’ll use 3 years.
• Choose an account where money will be stored to gain a reference for expected returns. I’ll choose a high-yield savings account with a 3.5% interest rate.
• In this case, with a savings account, the interest rate variance shouldn’t exceed 1-2%. If we were calculating for retirement, we might enter a 7% interest rate with a 3% variance to better represent the stock market.
• For compound frequency, I would use “monthly” as the savings account I selected pays interest every month. Monthly would apply to stock-based calculations, too.

If I contribute $50/month using the above information, I am expected to have $7,447.69 in 3 years. If I contribute $100/month, I’d end up with $9,342.69. $500/month would result in $24,502.57.

How fast do you want to achieve your goals? Some goals take priority over others, and you can use different accounts with different levels of risk depending on how soon you plan to access your money. Accounts that I consider “key players” would include high-yield savings accounts, retirement accounts, and taxable brokerage accounts. This is only the tip of the iceberg, and there are many options that best suit various timelines and exposure to risk.

Investments

As with the other sections in this post, I’ll provide only high-level information. Each of these topics could use a post of its own (and will have one – check out other posts if a specific section interests you!). With your time in mind, we’ll stick with ETFs, being they’re the meat and potatoes of most portfolios.

Oversimplifying them, ETFs are a single fund consisting of multiple individual stocks, bonds, REITs, and or other assets. Some are meant to track entire sectors or markets, such as the top 500 companies in the U.S. (S&P 500). They offer some diversification, as ups and downs from individual holdings won’t necessarily dictate the price of the ETF or index fund as a whole. The S&P 500 has returned an average annual return of 10% over the last 20 years. This is outstanding relative to interest rates that banks offer, and for much less risk than most other investments of similar return.

When should you look into investing? You have a strong emergency fund – 3-6 months’ worth of expenses. You have “buckets” (I use high-yield savings accounts, labeling the account by expense…car maintenance, home repairs, gifts, travel, etc.) that you contribute enough money to in order to cover most foreseeable expenses. You contribute to a retirement account at a rate that will meet your goals.

When you have money after everything foreseeable is accounted for, you can focus on returns. Returns refer to the percentage of your principal that is earned by your investment. If you invested $1,000 and had a 10% return, that $1,000 would produce $100. Returns are usually based on annual performance. In that example, you made $8.33/month.

Due to volatility within the stock market, it’s not wise to put money you’ll need in the short term into stocks. Most recommend holding off on investing in a taxable brokerage account until you have built an emergency fund and can easily handle all of your expenses. Generally, prioritization goes as follows.

• 401 (k) (employer match, tax advantaged)
• Ensure all expenses are easily covered
• Emergency fund
• Max out Roth IRA (yearly cap, tax advantaged)
• Brokerage account

https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator

Use the calculator we used earlier, substituting 3.5% returns with 7% – meant to reflect the average 10% return of the S&P500 factoring in inflation. Use a 3% variance. Compound interest becomes substantially more powerful when the percentage of return increases, especially over longer timelines. There’s a saying that goes something like “you can’t build wealth by saving”, and that refers to the necessity of accessing higher returns than regular savings accounts offer. If your goal is to build wealth, you need to invest.

Summary

Earning, managing, saving, and growing your money presents a long road ahead. By exposing yourself to these concepts over and over, you’ll work towards a deep understanding of them, gain clarity through context, and ultimately know best through trial, error, and experience. Your system around finance and any changes to it have the potential to drastically affect your future – do thorough research, consult professionals, and pay attention to the results of your decisions.