Whatever sport you prefer, you’re definitely aware that your team needs to play both sides of the ball. Even if you prefer the offense over the defense or vice versa, both are essential in winning the game. I mean Tom Brady, LeBron James, Mike Trout, or Cristiano Ronaldo can put up all the points in the world. But, if their defense crumbles, it’s all for nothing.
In a way, the same is true with your finances. If you want to keep your head in the money game, then you need to step up and bolster both your offense and defense in the following ways.
Offensive planning to build and manage wealth.
Boost your income.
“It’s about winning games and scoring as many goals as possible.” — Romelu Lukaku
You know it’s impossible to be victorious when you can’t score more points than your opponent. And, when it comes to your finances, that means increasing your income.
Some of you may be rolling your eyes and muttering, “Thanks, Captain Obvious.” While others may be proclaiming, “That’s easy for you to stay.” Regardless of what camp you fall into, your first financial offensive move is to increase your income.
- Grow your career. Whether you’re hunkering down or partaking in the ‘Great Resignation,’ make yourself more valuable. The simplest way? Enhance your existing skills or learn new ones that are connected to your job.
- Optimize your 9-to-5. “Negotiate a raise and work remote opportunities, so you have more control over your time and more time to make money on the side,” advises Grant Sabatier of Millennial Money. “Make sure you’re maximizing all of your employee benefits, including commuter benefits, HSAs, and all retirement investing account opportunities.”
- Work a second job. While not glamorous, and you may not have the availability, you could work a part-time job temporarily. For example, you could work in a department store during the holiday season in order to pay off your credit card debt.
- Start a side hustle. A side hustle may offer more flexibility than a second job. Also, if it’s something that you’re passionate about, it could eventually become your full-time gig. But, for the time being, a side hustle can be an effective way to introduce a second income stream.
- Build a passive income. After putting in the initial time and money, a passive income is another income source where you can earn money while you sleep. Check out these 101 Passive Business and Income Ideas to get started.
Eliminate your opponent, aka debt.
Imagine that you’re the quarterback of your favorite team. Your main goal is to get points on the board. To make this happen, you look for an open receiver down the field. But, before you can release the ball, you get smacked by the opposing linebacker.
After returning to your feet for the next play, you’re ready to score this time around. But again, the linebacker gets past your offensive line and you’re back on the ground. In spite of several attempts, you just can’t get past him. And, now your team must punt the ball after an unsuccessful third-down attempt.
Playing like that can’t lock up a win, can it?
Having credit card debt or any other “bad” debt on your balance sheet has the same effect. The interest will continue to accumulate every month that you don’t pay, pushing your back financially and increasing your stress. To counter this, identify the best method of paying off your debt with the help of a financial “coach.” With their guidance, this ensures that nothing will prevent you from scoring when the ball is in your hands.
Design a smart investment playbook.
“One of the most important personal finance moves you can make is starting an investment portfolio, but if you’ve never done it before, it can seem intimidating,” writes Peter Daisyme in a previous Due post. “And if you’ve gone through the process of starting your own business, you may be overly reliant on that business as a source of recurring revenue, downplaying the importance of investing.”
Just like the playbook for any successful team, you need to have an investment portfolio to accumulate wealth. Moreover, this can help you outpace inflation, protect your assets, and diversify your income. At the minimum, your portfolio should consist of a blend of stocks, exchange-traded funds (ETFs), mutual funds, real estate, and even precious metals.
“If you are nearing retirement, you might also purchase an annuity,” suggests Peter. “In exchange for a specific amount of money down, you’ll sign up to receive a steady rate of money on a periodic basis (often monthly) for the rest of your life.”
Continue to train.
“I hated every minute of training, but I said, ‘Don’t quit. Suffer now and live the rest of your life as a champion.” — Muhammad Ali
Here, the focus is on financial education and not getting your body athletic shape. But, just like an athlete, you need to constantly improve through training, learning the game, and knowing your opposition.
Take time to reflect on your financial weaknesses. From there, access resources like blogs, books, podcasts, and TV to fill those gaps. After all, knowing financial basics allows us to change our approach more easily.
Even if you work with experts to help, it’s ultimately your decisions and actions that determine your success. Moreover, various strategies will work for some players and not others. With that in mind, work with a pro who can coach you in strengthening your weaknesses and help you reach your goals.
When your team is in the lead, you want to burn the clock. Even before that, you need to pace yourself so that you have the stamina to make it through the game. And, this is also true when it comes to the money gamer.
“Building wealth is a process, not an event — a process that takes discipline and a long-term outlook,” notes Anthony Isola from Nerdwallet. “You must focus on yourself, not what others are doing. Work hard and maintain a consistent approach.”
Despite the challenge, “it’s doable for most people if they choose to make a commitment and stick to it.” How should you go about this? Thinking for the long haul by:
- Recognizing that anything of value takes time. An example would be bailing too soon on an investment rather than riding it through.
- Maintaining a daily grind even if you do not see results immediately. Learning a new skill doesn’t guarantee a raise right away. However, bear in mind that you “will be rewarded with the miracle of compounded returns in the future.”
- Maintaining consistency. “Persistence is the key to any successful endeavor,” explains Isola. “While it might satisfy a short-term urge to remodel your kitchen by raiding your 401(k) account, resist this temptation and stick to the plan.”
- Don’t worry about the outcome. Focus less on money and more on the process. For instance, not checking your long-term investments daily so you can enjoy your life.
- Don’t compare yourself to others. Rather, Isola suggests that “you compare yourself now to yourself two years ago.”
Celebrate your victories.
“A huge body of research has shown that small wins have enormous power, an influence disproportionate to the accomplishments of the victories themselves,” writes Charles Duhigg in The Power of Habit: Why We Do What We Do In Life and Business. “Small wins fuel transformative changes by leveraging tiny advantages into patterns that convince people that bigger achievements are within reach.”
Despite this, we rarely celebrate our financial victories.
“Your financial life will be a tedious trudge unless you establish meaningful milestones,” writes Pete “The Planner” Dunn. “I shudder thinking about people who see their financial life as one long journey.” Failure to taste the sweet taste of success makes it impossible to live the financial life you want to live.
People tend to celebrate the wrong financial moments in their lives when they celebrate their finances, he adds. Although every moment is relative, there are ones that are exciting and monumental but only the beginning, not the end of a story.
So, what finanical accomplishments should you celebrate? Some examples would be paying off your student loans, mortgage, or high-interest credit card.
“Identify significant accomplishments, motivate yourself with visions of pleasure and satisfaction aligning beautifully, and get to work, Dunn suggests. “When the moment is right, and when you’ve reached the point of victory, drink in the pleasure. Celebrate. It will be the fuel you need to willfully and gleefully do it again.”
Defensive planning to protect and transfer your wealth.
Plan your budget.
Every month, you have a certain amount of money is deposited into your bank account. Before you can spend your hard-earned money, you need to take care of your expenses. While that’s just a part of adulthood, it’s vital that you have enough money to pay your rent, mortgage, groceries, and utility bills.
But, you may not know that without a budget. If not, you may be spending more than you’re bringing in. It’s like if you throw three touchdowns, but the defense give-up five. That’s obviously not going to win the game.
A budget can also be helpful by pinpointing the expenses you need to cut in order to live within your means. And, it can also let you know how much you have leftover to save, invest, or pay off debt.
Add depth to your bench.
Regardless of the sport, each successful team has a deep bench. So, if the starting QB goes down with an injury, a solid backup can keep the team competitive. Having this type of Plan B is also essential when it comes to finances.
Make sure you have at least six months of your monthly expenses covered in case something unexpected happens. It may not be top of mind, but there’s always the possibility of losing your job, becoming severely ill, or having to make a home repair.
Can’t commit to six months? No problem, start with one. Just having that cushion can help put you at ease and avoid going into debt, like maxing out your credit card to cover the emergency expense.
Eventually, as you adjust your spending habits, you’ll be able to have six months of expenses saved.
Have the right insurance.
A solid insurance policy can protect your balance sheet by making sure that you don’t take a hit that can’t be recovered from — just like defensive lines work to ensure the other team doesn’t score. There are several types of policies you should have, including auto, home, renter’s, life, and long and short-term disability insurance. And, don’t forget to add liability and malpractice insurance to your business or medical policy if you own one.
When you’re faced with a situation that needs your insurance, you’ll be glad that you paid the premium to protect yourself. It’s also important to review your insurances at least annually. Why? Because this will ensure that you have the appropriate level of coverage.
Close in on your retirement goals.
“The skills it takes to manage a portfolio for a couple in their 60s are substantially different from those used to manage money for a couple in their 40s or 50s,” notes Walter E. Bak for Kiplinger. “You can start by finding a professional you trust, who understands how to get your family to your goals without any last-minute setbacks.” You should also locate a “coach,” who can help you with;
- Income and tax-efficient planning
- Trusts and wills
- Working with strategic partners
- Establishing power of attorney and health care proxies
- Legacy planning and insurance
“Focusing on defense also usually means moving away from riskier investments and toward something safer, including annuities, which can offer the sort of stable return required in retirement,” adds Bak. “If you have more than you need once you’ve figured out your income plan, or if you’re among the few who still have a pension, you probably can be a little less conservative — maybe even throw an occasional Hail Mary.”
“Preserving what you have is a key to retirement success — no matter how big your lead,” he says. And, just like on offense, that means diversification, such as stocks, bonds, and mutual funds. “It may also mean moving away from the securities side of things a bit and keeping some money in the bank (and maybe some under the mattress).”
Don’t go over your salary cap.
It’s tempting for teams to go out and sign the most well-known and expensive player on the market. But, if this signing puts you have the salary cap, then you can’t surround your prized signing with other decent players — both starters and reserves. As a result, you’re not putting a competitive team on the field. And, even worse, if this player has an injury, you may not have a worthy replacement.
When it comes to your finances, particularly on large items like a home, only purchase what you can afford. That means a home that suits your needs while leaving you with enough money to address emergencies or put towards savings. And, ideally, it’s when you’re able to put down at least 20% and have the mortgage paid off in ten years or less.
Protect your lead.
It’s possible that you’ll end up paying $160,000-plus in interest alone over your lifetime. That makes saving for emergencies or retirement much more difficult. So, if possible, avoid all unnecessary debt in order to guarantee a victory.
For example, let’s say that you want a Sonos sound system. Instead of putting that on your credit card, since you can’t pay the balance when the bill arrives, set aside the money you need. This way you don’t have to worry about paying back that high-interest rate, which could keep you in a deficit.