When working toward financial freedom, you can control the income you have streaming in and your expenses flowing out. In fact, it's kind of like a bathtub.
In this Motley Fool Live video recorded on July 23, Fool.com editor Desiree Jones chats with Wealth Noir founder Damien Peters about how to get more income from the job you have, add new income streams, and turn the cash you have into income-generating wealth.
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Desiree Jones: I'm just now learning about investing and talking about money. For me when I was raised, my parents didn't tell me anything about investing. I have to learn myself about investing, which is why I'm glad I'm a part of The Fool because I'm able to learn and grow. Talking about money in the Black community is very important, especially right now during the pandemic. I will be trying to stay there with you. I'm still new. I'm new to investing and honestly and truly, I personally don't think I can afford to invest right now because I'm working on my personal finances and all of that, so let's talk about what are some budgeting practices do you think can help with when it comes to money.
Damien Peters: Ironically, outside of budgeting one thing actually I always tell people is to make more money. This can be as simple as asking for a raise or getting very intelligent about your own compensation and whether you should change jobs or not. But one big way I have built money and we oftentimes talk about a corporate job being bad or holding you back, but the truth is, it has funded a lot of my ability to build wealth. I focused on my career and I was able to do that. But in addition, I have always had more than one job. I've always had a side hustle. I've always built something on the side. In addition to wealth where I work, I have two other jobs that I work, so making more money, there's a lot of options out there and people should feel comfortable using these tools and skills and what they have available to increase the income that they make. Some of the other stuff is things that you'll hear all the time from anyone who talks about personal finance. Spend less than you make. Save and increase your savings rate. Even one thing I would say to you is you feel as if I can't afford to save, but even if you were to start at $1 per month, something very, very small, the point is you participating in investing will increase your knowledge. It will increase the amount of attention that you pay in there, and when you are comfortable to put more money in, you won't be trying to figure out what to do with this $10,000. You'll be like, “Oh, great. I've been working with $1 per month, then $10 per month,” whatever it may be. Participate in the market, start investing and increase, and I always tell people either start with what you know or just start with something really boring. Invest in the entire U.S. stock market with one ticker symbol, and there are great sources like The Fool which really help give you the due diligence and some information about specific companies that you may not have considered or a place that you may not have thought about. Living below your means falls into that. It's very, very easy to earn $500,000 and spend $550,000. Lifestyle creep is very consistent. It was something I worked on very much in my life between 2012 and 2015, so when I graduated grad school to when I was working at Facebook, my income had quadrupled over the course of the year along with my wife's, but we still lived on approximately the same budget at the beginning. What I found was I had all this extra income coming in and that I could deploy the capital and put it into other places. One thing that I was able to do with that capital and wealth was take some time off from working and actually move to Spain for two years, so I was able to enjoy that. Understanding the amount of money coming in, understanding your expenses, and managing that, and being smart about investing the difference really makes sense. Really matters, and then some of the other stuff, which is hopefully everyone has heard about before about having an emergency fund. The truth is, even when it comes to your investments you don't want to be pulling from them because your car broke down or something along those lines. If there's a large downturn, you don't want to feel overtly nervous because you really live off or need that money, so having an emergency fund, three to six months, just in case there is a downturn. In case there is a health situation that shuts down everything, is really important, and then prioritizing high-interest debt in particular. Credit cards, number one up there. Typically, I say if the percentage you're paying on your debt is low, 3% to 4%, things like that. It may not be the most important thing to prioritize that as opposed to investing that money, but if you're paying 15%, 20%, 25%, 30% on any type of debt, get rid of that because that is a drag on your entire portfolio that needs to be made up somewhere.
Jones: Now we're talking about more about wealth. Of course, we talked about what's an income. What are some ways to improve your income and improve that top line?
Peters: There's like three buckets, three areas that I think about, that, I think, everyone should think about, when they think about the money coming in, and how to pour into your tub, how to build that bucket. First, you have work and your salary. Second, you have side hustles. These will fall into active income. You work, you make money. You stop doing them, you don't make them. Then lastly, you have passive income. This goes back to that it's money making money for its own self. When it starts with the active salary income at work, understand how to negotiate a salary. That's something they don't teach you in school and will make you a lot of money over time. Understand your worth. Understand that if a job is giving you an offer, is it above market salary, is it below market salary, should you be asking for twice as much, should we ask for 10% more? One core thing, anytime you get a job offer, ask for more money. The worst they will say is no, typically no one is going to be so offended, but they're going to retract their job offer. But understanding your salary is one of the biggest sources of income and maintaining and mention that up-leveling your skills, moving into industries that pay you well, super important. The second one, part of active income is side hustles. Again, I've been well-compensated and people are always shocked that I still work on the side. I consult, I actually do some interview coaching, I do things on the outside because I like the idea of one having multiple streams of income that I can turn up when the other one goes down. Then secondly, again, add some more money to that pool that it allows me to build my wealth quicker. In today's world with the gig economy, it is easier than ever to write on the side, to drive Uber. If you want pets, there are sites that you can go on. It's very easy to add on some additional income. It can oftentimes be hugely transformational, because oftentimes we view this as extra income. Then lastly is passive income. For me, that's been the real estate investing into rental properties, I get checks that come in every single month. I don't actively work for that, I had to work to buy the property and get someone in there. I had to find my property manager. In addition, my stocks, investments, they grow over time. I open the account, I'm like, “Oh, there's more money in it today than there was three months ago.” or a year ago, and I have a long-term outlook. But focusing on passive income, thinking about ways that you can have your money work for you will reduce your need to actively work for money. Again, it will really help accelerate that growth and wealth and net worth.
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