You can keep significantly more money in your pocket if you mind the details and look for little opportunities that add up to big chances to grow wealth.
We want Beyond Finances to be more of a conversation, and not a lecture or just a set of instructions for what to do with your money. But that doesn’t mean the specific to-dos of your financial plan aren’t important.
This episode dives into some really simple but easy-to-miss opportunities to grow your wealth. Tune in, learn about these 5 things that you could be leveraging to your benefit — and then make sure you’re taking advantage if you can.
Jump into the episode here, or check out detailed show notes and takeaways below:
Our Favorite Shareable Moments & Takeaways
- Making big mindset shifts around your money can create a serious positive impact on your ability to reach financial success — but don’t ignore the little stuff along the way!
- If you haven’t started saving/investing yet, start today. You can’t beat yourself up over not starting earlier because you can’t change that. But you can start now.
- Just because something happens doesn’t mean it MEANS something. Also, just because something is possible does not mean it is probable.
Further Reading & Resources Mentioned in the Show
- These 3 Charts Show The Amazing Power Of Compound Interest, via Business Insider
- Budgets Are Sexy shows how a penny doubling every day will give you $10 million at the end of 30 days
- A must-read if you have an HSA or are considering using it: How to Leverage an HSA Account to Grow Your Wealth (A Real-Life Example)
- The Geometry of Wealth by Brian Portnoy = recommended reading. Find it on Amazon or check it out at your local library!
- More details on how to set up a “Wealth Building Account” (and why you should do so), via the BYH blog
Full Show Notes
0:25: We wanted this podcast to cover the stuff you can’t necessarily just Google. That’s why we don’t talk about stuff like “how to budget” or “what you should do with your Roth IRA.” We didn’t want it to be a lecture, either!
0:40: The things that are going to make you “good with money” are not the kinds of things you can just quickly pick up anywhere or find in a basic search. That being said, you do need to know the basics, and it’s important to get into some of the technical stuff with personal finances.
0:50: You have to make some strategic moves at some point, and you need to have a basic level of knowledge.
1:11: In order for any financial plan to work, you need to know the tools to use, the moves to make, and sometimes, the objectively best choice in a specific situation to maximize the money you keep in your pocket.
1:30: So today, we’re gonna look at some parts of the more “tactical” side of managing money. Let’s look at some common opportunities that a lot of people have available to them… but very few are taking advantage of.
1:45: The first one is crazy simple: compounding, or taking advantage of compounding returns, compound interest, compound returns, etc etc. Not understanding how powerful this factor is in building wealth can seriously cost you.
2:04: If you don’t really understand how much of an impact compounding can have for you if you let it go to work for you, check out this piece from Business Insider that provides some examples. (In the show, Kali mentioned it’s this piece that shows the penny doubling example — but that actually comes to us from Budgets Are Sexy.)
2:28: Obviously a 100% return on your money every day is not going to happen when you invest, BUT there’s a huge benefit to getting even a 5 to 7% return (which is much more realistic if you invest in the stock market over the long term).
2:50: The opportunity that’s being missed is not taking advantage of the time that’s on your side right now. Compounding is amazing — but it only works if you give it time to work.
3:25: If you haven’t started saving/investing yet, start TODAY. You can’t beat yourself up over not starting earlier because you can’t change that. But you can start now.
3:57: Another big missed opportunity we see all the time is not using a health savings account if one is available to you, or never considering the high-deductible health plan (which is required to have to use an HSA) because you’re scared off by the high deductible part of that. You must run the numbers because the high-deductible health plan + HSA might actually be better for growing wealth.
We wrote about this topic in detail — including how WE use our health savings account in the most strategic way possible to increase our net worth — and you can read that post here if you want more information than what we shared on this episode of the podcast.
6:24: There are a couple missed opportunities with this:
- Not considering an HDHP because the high deductible freaks you out
- Not saving into an HSA at all, even if you have access to one
- Not leaving the money you save into your HSA invested over time! Use your cash flow to pay medical bills and treat your HSA like a retirement account that you don’t touch while you’re working
8:50: The third missed opportunity? Misunderstanding your ESPP (employee stock purchase plan) or your stock options.
9:15: This is a really common one for professionals working for both private and public companies. The opportunity when you have an ESPP is buying company stock at a discount, then selling it immediately which gives you an immediate profit. It’s like a built-in gain (and probably the closest to a guaranteed return that you’re ever going to get in the investment world).
10:49: Things can get complex if your employer uses blackout dates, which means you can’t immediately sell. You own the stock for a certain period of time before you can sell, which leaves you exposed to market risk just like any other investment.
11:33: You also deal with concentration risk — not only does your employer write your paychecks, but now your net worth is even more tied up in that company if you own its stock. If something happens with the company, the value of your stocks could drop and you could lose some or all of your income (through restructuring, layoffs, etc).
12:04: Kind of related to this but NOT the same thing: stock options. You must understand exactly what kind of stock options you have. There are many different kinds, and sometimes we see people assume that they have, for example, incentive stock options when they actually have non-qualified stock options — and these are not the same thing. Very different tax consequences for both these two different things!
13:19: Equity compensation is great! But you have to take the right actions to make the most of them, so you’re not paying too much in taxes or making mistakes around when you should sell versus hold the equity you can access.
14:59: Our 4th item on the list is not so much a missed opportunity as a misunderstanding that can lead you to make some really big mistakes with your investments, and that is the failure to understand randomness and/or the miscalculation of probabilities.
15:16: People are “meaning-making machines” and we see patterns everywhere. Even when no pattern actually exists! If you do this with the market you are in big trouble.
15:44: Trying to find the next Apple is futile and just like gambling. Hindsight is 20/20 and we can’t forget that many events that happen are random, or due to luck/chance and not something we can necessarily predict with certainty next time.
16:40: Just because something happens doesn’t mean it MEANS something. Also, just because something is possible does not mean it is probable.
17:15: When it comes to your investments, you need to design a strategy that allows you to take advantage of things that are most probable to happen or work out in your favor. Successful investing is not about trying to hit a home run once and being set for life because that’s too dependent on luck (which is out of your control) rather than strategy (which is something that you can control).
17:44: The Geometry of Wealth by Brian Portnoy makes an excellent point about this — Portnoy points out that you don’t need to hit a home run. In fact, that’s where most people get into trouble. In order to swing for the fences, you have to take on so much risk — and it’s actually not worth taking on that risk because A. you can’t afford it and B. the likelihood of you succeeding even if you take on the risk is so low. Focus on what you actually need to meet your goals/needs, which is much more achievable.
19:00: The final missed opportunity? Not saving when you don’t have a specific goal. You don’t need specific goals! You just to know what you value. You should be saving even if you don’t have something highly specific in mind that you want to fund.
19:45: People rarely have things like, say, 15-year goals. Most of us have short-term goals that we want to accomplish in the next 1-5 years and we all want to retire/be financially independent at some point, which is a long-term goal. But it’s hard to define the “mid” term goals. But Eric points out that whether you have a goal or not for a set time period, will you need money at that point in your life? Of course! If you need money in 15 years, that’s a good reason to save — even if you don’t know exactly what you’ll spend that money on yet.
20:06: Saving and investing money just because you know you’ll need money at some point in the future is smart! You don’t need the goal to have a need to grow wealth. Set up a wealth building account for this purpose.
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