Other Ideas/Opinions on Finances
Here are some things I’ve heard and/or taken notes on over the years that could be helpful to consider when making your financial plan.
Buy investments, but remember you will have to pay taxes if you sell those investments, so most wealthy people will borrow against their investments if they need money rather than cashing them out. This can save them that tax bill, and then if they die, they can potentially pass on those investments without as much of a tax burden to their heirs. Be sure you’ve done your homework and understand what you are buying.
Some suggest that you shouldn’t keep as much cash in your emergency fund, because you could be tempted to spend it on non-emergency stuff. They suggest keeping your emergency fund in something like the S&P or total stock market index fund as it should pain you to take that money out, kind of like breaking glass or a piggy bank. However, if you do this, only think of the value of these investments as half or 50% of the total. (Example, if you have $10,000 invested, think of it as only having $5,000 in it.) This can make you work harder to invest more, and if the markets are ever down, you will still be okay because you have figured that in.
Something to consider is the stock market dropped almost 90% during the Great Depression, and it took about 20 years for it to fully recover. Also, there have been times during our recent history when trading has been halted for one reason or another.
It could still be a good idea to make sure this is not money you will need immediate access to, and still have a cash emergency fund, and some savings in an account that you can easily get access to if needed in an emergency
The wealthy only use debt for things that will bring in income (ie: purchasing property for rentals), and smart investors do not overleverage themselves. There have been plenty of millionaires that have lost all their wealth due to overleveraging. Be sure to prioritize your money wisely so as to not incur so much debt that it becomes unprofitable. A slow continuous wealth growth is likely to be more lasting than an instant / temporary influx.
Focusing more on passive wealth rather than passive income.
Passive income (like dividend income) is something you are taxed on the year you receive it, and most try to delay their taxes as much as they can until retired in order to pay the lowest tax amount now.
Focus on passive wealth (like stocks or real estate) instead as this is something that appreciates in value over time, but you are not taxed on it until you sell that asset. There could also be some tax breaks with real estate that could be worth looking into.
Real estate investments should be prioritized before stocks but be sure you’ve done your homework on how to get good real estate deals.