In general, I’m a pretty positive guy. I try not to hate anything if I can help it (plz ignore my other blog). Although, there are a few things I can’t stand.
- Indian network marketers
- People who say buying a house is “a good investment”
- Pundits screaming “Financial crisis!!!” every time there’s a dip in the market
One other thing I can’t abide by is someone disparaging a person as a “trust fund baby.”
A trust fund baby is a person (typically in their early twenties) with wealthy parents who set up a trust fund for them so they don’t have to worry about money when they grow up. As a result, many of these people have the opportunity to travel, buy nice clothes/cars/houses, and live a generally Rich Life.
And let’s be honest: This is something we ALL would do if we had the chance.
So many of us operate under the invisible script that if we had the chance, we’d act differently if we had a lot of money.
I have something to tell those people…
…NO YOU WOULDN’T!!!!
That brings me to Christine.
Christine is an IWT reader and self-described trust fund baby, and a while back she emailed me this question:
I am a 22-year-old female in my last year of college. I never learned how to manage my money. If I got money, I spent it. So, freshman year of college, a credit card seemed like a fantastic idea. My parents have even bailed me out a few hundred dollars. I’ve kind of come to terms with the fact that this is a stupid move on a lot of students’ parts, and I’m working through it.
Recently, I learned of a pretty good deal of money – $140,000 give or take – that my well-off, childless aunt and uncle have put into a trust fund for me.They have brought it up to this amount by contributing $30-40k at various times over the past 10-15 years. Anyway, my question is: what should I do with this money?
I LOVE this because she had no idea that she had over six figures in the bank thanks to her generous aunt and uncle and she actively sought out my thoughts on how to best invest her money.
So I put it to my readers: What would you recommend to this “trust fund baby”? The answers I got back were fantastic for two reasons:
- IWT readers are generally Top Performers and, as a result, give great advice.
- Though the advice is for a “trust fund baby,” you don’t need a trust fund to find value in it. In fact, these are things I suggest EVERYONE do if they want to live a Rich Life.
So whether you have a trust fund or just want sound financial advice, be sure to follow these four recommendations.
Trust fund baby recommendation #1: Set SMART goals for financial success
Sometimes when we want to get started with something — building your own business, learning a new skill, spending your newly discovered trust fund money — we forgo an incredibly important step: Setting goals.
Doing so gives you the focus you need to accomplish anything. That’s why it’s so important that you need to set good goals when it comes to financial planning.
But how do you set good goals exactly? Simple: You set a SMART goal.
The SMART goal is the be-all, end-all solution to vague goals that get you nowhere.
Think about it. How often have you set a broad New Year’s Resolution like “I want to get fit” or “I want to read more” and given up on it completely in a few weeks?
That’s because the problem with typical goal setting is that the goals set are too broad — and you have no idea where to start.
Enter the SMART goal.
SMART stands for specific, measurable, attainable, relevant, and time-oriented. And with each element in SMART objectives, you’re going to want to ask yourself a set of questions that’ll help you develop a winning goal.
- Specific. What will my goal achieve? What is the precise outcome I’m looking for?
- Measurable. How will I know when I’ve accomplished the goal? What does success look like?
- Attainable. Are there resources I need to achieve the goal? What are those resources? (eg gym membership, bank account, new clothes, etc)
- Relevant. Why am I doing this? Do I really WANT to do this? Is it a priority in my life right now?
- Time-oriented. What is the deadline? Will I know in a few weeks if I’m on the right track?
Here are some examples of how you can turn bad goals into SMART goals.
BAD GOAL: I want to be fit.
SMART GOAL: I’m going to run for 15 minutes a day for the next 3 months.
BAD GOAL: I want an internship that’s rewarding.
SMART GOAL: I want to intern at an independent publishing house focused on fiction in San Francisco this summer.
BAD GOAL: I want to be rich.
SMART GOAL: I’m going to invest 5% of my paycheck into a low-cost, diversified index fund every single month.
Do you see the difference between the SMART goals and the bad, vague ones? When you get specific, you know exactly what you want and the measure by which you can achieve it.
For Christine, a good SMART goal would be to eliminate her debt as soon as possible — which brings us to…
Trust fund baby recommendation #2: Pay down your debt
If you want to live a Rich Life, the first thing you need to do is pay down any debt you have. Debt is the most common roadblock keeping people from living a Rich Life — preventing them from being able to enjoy themselves and the money they have.
And if you’re saddled with credit card debt, it’s hard for you to even begin to consider investing or saving your money — even if you have a trust fund.
That’s why it’s smart for Christine to tackle any debt that she might have (like her credit card issues) before she invests in anything else.
Here are three of my best resources on getting rid of debt:
- IWT’s credit card debt payment calculator
- My 5-step system to eliminate debt once and for all
- Case study: How one reader cut the time to pay off her debt from 33 years to 5
And once Christine’s debt is eliminated, it’s time for her to start investing.
Trust fund baby recommendation #3: Invest early and often
The single most important factor in ensuring a solid financial future is investing — and doing so wisely.
So many people think investments are chasing hot stocks and reading the Wall Street Journal, when in reality, this couldn’t be further from the truth.
In fact, the best way to invest is through low-cost, diversified index funds over a long period of time. That’s because smart investments are about consistency more than anything else — not making weird investments.
And when it comes to long-term investments, there are essentially two ways you can do it — and I HIGHLY suggest doing both.
A 401k through your employer
If your work offers a 401k plan, there’s absolutely no reason for you not to invest in it. In fact, you should contribute enough money to get the employer match so that every cent you put into it, your company will match it pre-tax.
This is a powerful earning technique and can help you essentially DOUBLE your money over the course of your career. This is literally free money from your employer, people!
Check out this chart showing you how much you can potentially earn from your 401k:
A Roth IRA is a retirement account that allows you to contribute up to $5,500 a year (at the time of writing this). You can choose where you invest this money, but I suggest putting it into an index fund such as the S&P 500.
Like your 401k, you should make sure you max this out each year if you can.
Note: If $500/month sounds like a lot, read all the ways you can free up that money with just a few phone calls.
Trust fund baby recommendation #4: Spend it on the things you love
Many of you might roll your eyes at Kevin’s suggestion, but I LOVE it.
After all, living a Rich Life isn’t about how much money you have or how nice your car is. It’s about living the life you want and being able to spend what you earn on the things you love.
If you’ve been reading my blog for awhile, there’s something that you’ve heard me mention before: Anyone can be rich.
Being rich ISN’T just about money. It’s about what being rich means to you.
If that means an awesome trip to Vegas with your friends, great! If it means more time so you can spend it with your family, that’s great too.
Having money to spend is a great way to facilitate your Rich Life.
One of my all time favorite ways to get started living a Rich LIfe is through a system I call the Conscious Spending Plan. It’s the same system my friend uses in order to spend more than $21,000 on going out.
I don’t EVER want you to cut out the things you love in order to save money. That defeats the purpose of a Rich Life. With the Conscious Spending Plan, you’ll be able to save money purposefully by avoiding the mindless spending that can come from disorganized finances.
Setting up the system might seem hard — but in the end, it’s all about:
- Automating your finances.
- Knowing where your money goes so you’re in complete control of the situation.
And it’s simple: At the beginning of the month, when you receive your paycheck, the money is immediately sent to where it needs to go through automatic systems that you have set up already.
Some spending recommendations for your system:
- 50%-60% Fixed costs: This includes things like utilities, rent, internet, and debt.
- 10% Investments: This includes your Roth IRA and 401k plan.
- 5%-10% Savings: Here’s where you’re going to put money that goes towards things like engagement rings, weddings, vacations, and unexpected expenses.
- 20-35% Guilt-free spending: Fun money! Spend this on anything you want from nice dinners to movies.
Because as humans we have incredibly limited willpower. It’s so limited in fact that it can render things like paying bills and putting money away in your savings each month a very difficult task.
Automating your finances subverts this by allowing you to save money without ever having to do it yourself.
If you want to find out more on how to automate your finances, check out my 12-minute video explaining it here:
No trust fund? No problem.
You don’t need to be a trust fund baby in order to live your Rich Life. All you need is determination and the right systems put in place in order to help you get the most out of your financial situation and not have to worry about living “frugally” (aka sacrificing the things you love).
That’s why I’m excited to offer you something for free. I have an offer: My Ultimate Guide to Personal Finance.
In it, you’ll learn how to:
- Master your 401k: Take advantage of free money offered to you by your company…and get rich while doing it.
- Manage Roth IRAs: Start saving for retirement in a worthwhile long-term investment account.
- Automate your expenses: Take advantage of the wonderful magic of automation and make investing pain-free.
Enter your info below and get on your way to living a Rich Life today — no trust fund required.