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Break the routine looks to advise and guide city dwellers and suburbanites alike to think smart by different about their time and money. My goal is to provide financial wellness education, spare-time management techniques and suggestions for fun and fulfilling free time around the city I love. Through these shared articles, influences, and improved life techniques I hope you create your own plan and act on them immediately. I'm here to help and inspire you. 

Little Wins

Financial Advice

Little Wins

Eric Roseman

Your grandmother has probably squeezed your cheeks and reassured you that you're going to be successful one day, your mother has utmost faith in the same proclamation and you internally believe so as well. Don't let those wise words of encouragement creep into your wallet such that you bank on future income and spend everything you have now. You are never too young to start saving for your future. Spend now, save later is one of the biggest misnomers I hear when talking to friends about savings and investing- I'll get to it later. If you are making money now, get into the habit of putting a fixed or percentage of your income away for a later date, you're wallet won't feel the impact as much as you think and it's important to build the habit early on. Allow me to explain my process: 

Every month I get cut three paystubs, two salary paychecks and one commission check. Of those paychecks, 5% pretax gets redirected to my company sponsored traditional 401k. Another 5% gets siphoned away pretax for my employee stock purchasing plan which allows me to invest in my company's public stock at a discounted price. Besides other minor pretax deductions, the remaining ~90% of my paycheck is considered taxable income. After taxes are deducted and I'm left with my net income, that is when the budgeting and the saving fun begins! 

Everyone's financial situation is different and only you can be the judge of your own discretionary savings budget but as a hard rule, I always take $200 from my monthly net income and ship it off to one of my electronic investing platforms. $100 of that money goes into my Tradeking account for me to invest in single stock investments (my attempt at beating the market returns) whereas the other $100, I've set up with Betterment, my chosen robo-advisor.  With Betterment I have an automated monthly contribution program. This means that $100 every month gets redirected into my automated investing strategy that was selected for my risk tolerance and investment horizon. According to the software's calculations and projections, I can say with at least 50% confidence that I will have over $200,000 by retirement in just this account if I continue to put away a mere $100 a month!

That's a serious amount of money for such a small monthly contribution. That makes me think about two things, 1) imagine how much more I could save if I increased my monthly contributions as I get older and start to make more money. 2) What are the small spending habits I could cut back on to make that $100/month feel meaningless? One less round at an NYC bar? Cooking a few more meals a month? The possibilities and the avenues of savings are endless. 

One of the biggest questions you may have though is, how can $100 a month get me to $200,000 in 40 years? The math doesn't work, explain this Eric. The simple and beautiful answer is compounding rate of return. Any finance major or mathematician can easily explain this but for a quick and dirty explanation, as the markets go up and your money grows, any future positive returns on that same monies will increase at a faster rate. If you had $1000 and the market went up %10, you would have made $100 in new money. If the next year the market increases another 10% than your $1100 would have made $110 of new money and then $121 more to get us to $1331 by year 3. You should be able spot the trend, that money begins to grow very quickly in an up market and that's not taking into account contributing more money regularly. Of course this scenario would be a very beneficial outcome, the realities are not always so favorable which is why it's so important to trust the process and believe in the long term value of investing. The markets have experienced some turbulence recently and because of that you can see I've taken a bit of a hit (down ~4%) but again, I trust the process and keep contributing because the long term prospects are what matters in this game. 

For more information about automated investing platforms check out the investing platform resource page or leave me a comment and I'll be quick to respond.  A few great personal finance bloggers that I follow are Ramit Sethi & Mr. Money Mustache. Check them out if you get a chance.