Soddee is a wealth coach in Oklahoma City. He is an investor in stocks and real estate, and holds a law degree.
The Most Important Financial Step Every
Respectable Adult Must Make
by Soddee Knight
I grew up in a home where my parents spent just about all of their paychecks each month. They rarely had any savings.
I saw how they were forced to operate their lives having very little savings. When my father passed away after working for 40+ years and earning an above average income, his net worth was very below average.
My dad drove new automobiles and had the newest electronics. He had no investments or savings, and his financial picture during the majority of his adult life was very sad.
This opened my eyes.
I’ve been investing in stocks for roughly 20 years (since I was about 13 years old). The past five or six years I’ve added Oklahoma City real estate (doing mortgage notes, flips, and rentals) to my portfolio.
Through investing in equities, mortgage notes, and real property I have been able to generate very high returns.
None of this investing could be possible without the most important financial step every adult must make. Drum roll…
The most important financial step every person with any income must take is to do whatever possible to save 20% – 50% of your profits and/or income.
Keep in mind I am not talking about retirement savings (401k, TSP, IRA). Retirement funds/investing is completely separate. With some limited exceptions, you cannot access those monies until you are 59.5 years old or pay a (not too terrible) penalty.
If you don’t have adequate liquid savings then you can’t:
1. Protect yourself against unforeseen financial emergencies. If you have no savings when your refrigerator or furnace goes out, or for an unforeseen job loss, the only way to survive these life variables may be high interest loans or credit cards.
High interest loans or credit cards can set your wealth building, financial freedom, and financial security back years.
2. Invest. With stock investing over the years, I’ve been able to buy stocks that increased in value 1,000%+. I’ve also had some losses in stocks.
With real estate investing, I’ve been able to generate infinite returns because of leverage and the cash out refinance process. (See BRRRR real estate investing.)
3. Take advantage of business opportunities. People and businesses who plan poorly – or people and businesses who plan well, but have an uncontrollable external event happen to them – need cash. Sometimes these people or businesses are in financial distress.
When people are in financial distress, they make certain financial decisions that under normal circumstances they may not make. When you have extra cash, and you meet someone in financial distress, you may be able to acquire assets from that person or business at huge discounts.
The three items above either protect or grow your financial wealth. The easiest way to protect yourself and family from financial emergencies and grow your net worth is to have adequate liquid savings to invest.
Benefits of investing:
1. The gains are taxed at a lower rate than ordinary earned income; you are only taxed on your investment profits, and not your total investment income.
This means many items you buy for your investments or investing activities can be deducted from your profits to lower your income.
I like to buy things for my real estate company that I can use in my everyday life.
If you don’t have a company or business, form one.
2. Your investment earnings are not connected to your time. This means you earn money while you sleep (my favorite thing to do).
3. You do not need to be near your investment. You can invest anywhere in the world to generate the best return for your investment dollars.
This means you could invest in equities, notes, or real estate while you’re relaxing on the beach.
4. Increase your net worth and passive income (dividends, loan payments, rents).
If you spend all of your profits or income on bills or consumer goods and services, you will live paycheck to paycheck. I think of living paycheck to paycheck as a miserable life.
Save 20% – 50% of your income or profits to invest.
I am not an accountant so do not take this article as tax advice.
My book, The Stock Market is For Everyone, is a short guide for the beginning, inexperienced investor that is easy to understand and can be put into action immediately.
Click the image of the book at left to be taken to its Amazon page. (Disclosure: As a participant in the Amazon Services LLC Associates Program, I earn a small commission on each sale generated through these links.)