My Financial Approach at 22
Tags: Passive Income, Asset Management, Investing, Personal Finance, Retirement

In the image above, you can see that I went through my bank statement to determine the amount I spend on each category every month. Manual tracking was necessary for me to realize that I am a bit reckless with my money occasionally. Additionally, it provided me with a fair understanding of where I was spending too much money and what habits I needed to fix moving forward to build a better financial portfolio.

The next step was to calculate my monthly expenses as seen above. My approach when calculating fixed expenses was to overestimate the amount on groceries, going out, miscellaneous, etc. This was more for the peace of my own mind rather than a set rule that you need to follow.

Once I determined my monthly cash flow going in and out of my checking account, these are some of the places where I transfer my money for optimal financial gains. My approach with anything money-related is fairly risk-aversive. I rely on diversifying my portfolio, as well as living below my means to build wealth.

Retirement Account

As soon as I transitioned to a full-time position as an Information Technology Analyst, I inquired about my companies retirement benefits offerings. Currently, I contribute 7% of my income to 401k, so I have just the right amount left to pay my rent, transfer to savings, invest, travel, and have fun!

If you are privileged to be employed in a company who participates in 401k by matching the percentage of your contribution to your 401k account, I recommend that you start investing in this as soon as possible since it’s “free” money!

I haven’t been responsible enough to transfer money into Roth IRA just yet, but that is my next step.

The benefit of transferring money into retirement, apart from automatic savings, is the reward of compound interest. For example, assume that the initial deposit of $10,000 has a 5% annual interest rate, compound interest would result in a total interest of $6,289 interest earned after 10 years, $16,533 interest earned after 20 years, and $33,219 interest earned after 30 years. Who would not want to take advantage of this?

The goal here is to focus on the vision of long-term wealth building and providing a comfortable standard of living for future generations, especially for first-generation wealth-builders like myself who do not have a substantial amount of families’ income to rely on.

Investing

As you may have already guessed, I do not like to take major financial risks. This characteristic is reflected in my investing habits as well.

It’s important to address your psychological reaction to changes in the market before you start transferring money to it. My recommendation for beginners is starting with a small amount of money and then slowly depositing a large amount, which is what I did initially.

On a biweekly basis, I transfer a couple of hundred dollars (about 5 to 6% of my biweekly salary) to my Robinhood account in the SPDR S&P 500 ETF. ETFs encompass many companies and are less volatile than investing in individual companies. I prefer not to invest in individual companies as I equate it to gambling in my mind.

However, I do own a few individual stocks in Amazon and Tesla, mainly because I know that they are going to perform pretty well for a while, but honestly, unless you are super passionate about a specific company — I recommend that you only invest in ETFs due to it being fairly stable.

Once again, my mindset behind investing in ETFs is mostly based on the realization that my money will be in the market for the long run until I am ready to retire. I do not plan on taking my money out of the Robinhood investment account at any point for the next couple of years.

Savings/Emergency Fund

In the beginning, when I started to transition towards becoming a bit more frugal and protective of my money, I would transfer literally ALL of my money to my Bank of America’s Savings account.

Now, I have about 6 months of emergency funds in my savings account. I try to leave this amount untouched and withdraw it only in cases of real emergencies.

Even though savings is a positive step in the right direction. Most savings accounts offer little to no advantage. However, if you do decide to opt for transferring most of your money in a savings account, you would want your interest rate to be as high as possible. High yield-savings accounts help you grow your money faster because of their higher interest rate.

Next Step

I am finally starting to learn and take advantage of the resources available, but not well-taught in school. As I slowly move towards becoming an independent adult, my next step is to continue spreading knowledge around financial savviness and invest in real estate before I turn 24 (hopefully).