Personal finance plan: a six month system to reset money

0:00You can completely change your finances in 6 months if you follow the right system. By the end of this video, you will have a complete 6 month blueprint to fix your spending, crush your debt, and actually live the life you want. Step number 1, this is your foundation, and it's also month 1. This is where we define your rich life, and we create a clear plan to make it happen. If you skip this step, everything else falls apart. Everything that I'm going to teach you after this will be useless.

0:25This is not a video you just play and Netflix out on the sofa over. This is one that's actually going to require you to do something. Get a piece of paper and write some stuff down. So ask yourself this, what do I actually care about? What kind of life do I want to live? What am I spending money on that I don't even care about? I want you to spend extravagantly on the things you love. Maybe it's travel, maybe it's concerts, maybe it's the best coffee every single morning. Whatever lights you up.

1:09And you got to decide which of these are important to you and it will be different for everybody. There is no right or wrong. There's travel, there is health, there is relationships, and then there is convenience. And then for a lot of people, there is this one down here, social status. One thing I learned to no longer care about at all.

1:30So what I want you to do right now is literally in the comments, identify one money love that you spend $1,000, $5,000, $10,000 on if money dropped into your lap. There will, by the way, be a workbook which you can download. It'll be down below in our community felix.org/resource. You can download that so you can follow along. We'll try to put some steps in there so you can have some stuff to fill in and everything else.

1:55Look at those short-term goals, right? Those building blocks. So the first is your short-term stuff. And something like a big credit card bill will be something that would make you feel better if it wasn't there anymore, right? And then the second is long-term goals. That's the house. That's the starting a business. That's the retiring early. And with long-term plans and consistent investing, those long-term plans are 100% achievable.

2:18So again, I want you to make a plan. What are you going to do now? What are you going to do in the next 3 to 6 months? That's the starting block. Now could be pay debt. It could be build that emergency fund. And then after you've done 3 to 6 months, there's another category here which will be 1 to 5 years. And once you've done that, you can of course go down and do 5 years plus with longer-term stuff.

2:40Those goals are just as important as the short-term ones because they will give you a road map. You'll know where you're going because unless you know what your life, your rich life, your wonderful life looks like and then the goals that'll get you there, you're basically like a ship captain with no idea where you're going. Just useless, right? Going around in circles.

2:58And for those of you who just like, I just need my money to make more money for me. Okay, let me give you something in addition to this. Bonus time. You want to learn literally from my mentors? You want to hop on one-on-one calls with my mentors, guys who've worked on Wall Street for 10, 20, 30, 40, 50 years, even who managed billions of dollars for the big investment banks. You can chat with my team and see if that's something that is right for you. This call is a strategy call. It's an explanatory call. It is giving you the opportunity to ask all the questions and get them answered. And you can book that free call at felixfriend.org/freedom. There's a link down below in the description. You can just click on that.

3:35But let's get back into what I call the conscious spending plan. Because what if you could make sure that you're saving and investing enough each month and then use the rest of your money guilt-free on whatever you want, eating out, travel, whatever. It just takes a little bit of planning. So here's how it works. Take home pay. This is how much you earn after taxes and deductions. That's the foundation of your house.

3:58Next, you break your spending into 4 buckets. So you've got bucket 1, bucket 2, bucket 3, bucket 4. Bucket 1 is your fixed expenses. That's typically 50% plus of most people's money. That's stuff like rent, utilities, groceries, transport, debt, stuff you have to pay, non-negotiables. Because you add all that up and then I would add another 15% on top because you will have forgotten something. Car repairs, medical bills, stuff you need, right?

4:25Bucket 2, that is your investments. Now for most people that sits at about 10%, maybe even less. This by the way, number 2 is where the real wealth is created, right? So think index funds or your investments, your stocks, all that kind of stuff. And then we have bucket number 3, which is your savings. And for a lot of people, that's like 5 or 10%. We're going to want that to be at the very least 10%. What do I mean by savings? Well, it's things like saving for a house down payment, for travel, piggy bank, emergency funds, short and mid-term kind of savings stuff, right?

4:58And then number 4 is the guilt-free spending, the happy money. And for a lot of people, that's 20 to 35% of spend. This frees you to spend guilt-free on what you love without worrying about all the rest of it. If there's no way you can at the moment spend 20 to 35% of your paycheck on the guilt-free stuff, well, maybe that's a gentle kick in the butt to finish watching the rest of this video to get your financial numbers in order, right? Sometimes you're flush and sometimes you're bust. And when you're up, it's never as good as it seems. And when you're down, you never think you're going to be up again.

5:30This is month 1, right? You're like, oh my god, this looks like work.

6:16Doesn't it? Well, it's also going to give you freedom and happiness for the rest of your life. So yeah, there's going to be a little bit of work involved. Month 2, this is about building your own financial moat. The thing that makes you less vulnerable when life throws you a curveball, which is unfortunately going to happen.

6:34So step 1 is what? Anybody? Step 1 is your emergency fund. Medical bills, car repairs, lose your job, anything like that. Without an emergency fund, you end up relying on credit cards or raiding your retirement accounts to pay for the essentials. And that is a disaster.

6:50So my standard advice on this is 3 to 6 months of essential living expenses. So calculate your basics. Remember bucket 1, right? Multiply that by 3 to 6. That's basically it. Maybe it's $2,000. So you then multiply that by say 3. That would be your baseline. That would be $6,000. You want to be a bit more on the safe side here. Then that becomes $12,000. And that is your emergency money.

7:14You're going to open a high yield savings account and you're going to send money into that. Right now, you can do that in increments, $100 a month or $50 a week or whatever, and it's going to go from your checking account to your emergency fund every month. Make that an automation so it's done and you forget about it, right? Most banks will literally allow you to set up an automated transfer with even like I want to do this 50 times and then it stops and then you've got your number and you're done. This is building your safety net.

7:42We then confront the financial bully that has been following you around. I'm Felix Prehn. I'm an ex-investment banker. I've seen how the financial world really works on the inside. I've got Winston back there, chief research hound. That's where all the thinking happens. And I'm also the founder of the GOAT Academy where we've taught over 20,000 students so far and the co-founder of TradeVision.io where I make news and data available to you that is usually the purview of the Wall Street lot. And our mission here is very simple, teach regular people like you and me how to achieve financial independence using the same strategies that work on Wall Street.

8:18Who here has got debt on a credit card or a store card that you haven't fully paid off? That's you. Put a D in the comments and we'll get a bit of a poll going on there. Getting rid of high interest debt is probably the most powerful thing you can do with your money.

8:34Let me show you a real example. Let's say you have $6,000 on a credit card. That $6,000 probably comes with a 25% interest rate if you're lucky. It could be a lot higher than that. So the minimum payment each month is probably give or take $185 per month and you're just paying the minimum, right? Out of that $185, only $60 is actual down payments that reduces this balance. $125 is paying the interest, making that credit card company rich.

9:02If you keep paying the minimum, it would take you 25 years to pay off your debt, and you will pay $12,000 just in interest. So you have taken your $6,000 into $6,000 plus $12,000 into $18,000. You're paying triple what you should, and it's going to slow you down.

9:22So how do you change this? Well, you got to start by listing all your debts, every card, how much you owe, the interest rates, their minimum monthly payments, and do it now. It's not fun, but now you got clout. Next, call your lenders. Ask them to reduce your interest rate. Yeah, they'll do that quite often, actually. Surprisingly often. Worst case, they say no, you haven't lost a thing, right?

9:46Keep paying the monthly minimum on all your cards and then use any extra money to pay off your highest interest debt first. That way, you're plugging the biggest hole in your boat. If your credit score allows, you might also be able to move all of that debt into a lower interest or even zero interest for a period card, and then you can pay that off. But the danger with that is that you've just got a new card and you're probably going to max it out, aren't you, with spending because that's how you got here.

10:14By the end of month 2, you've tackled the urgent stuff, debt, spending, and your emergency fund. And even if it's going to take a while to fully fund them, you have a plan, and you know when it's going to be done.

10:26Now, things get more fun in month 3. In month 3, we create a simple automated system to build wealth. No stress, no complicated stuff, just a predictable growth path. I'm not a financial adviser. I'm not giving you financial advice. I'm just walking you through what is generally universally accepted as financial law.

10:46And the first law is index funds are friends. These are collections of hundreds of stocks that mirror the performance of the overall market. And historically for the last 100 years, the market has gone up. It goes up and down, but over time it has gone up and it's averaged depending on what time frame you look at somewhere

11:43Between 7 and 12% per year. 7% after you take inflation out. So pretty good stuff, right? Law 2 is time is your friend. The longer you are in the market, the better you'll do. Invest early, even with small amounts. Seriously, $20 a month, $50 a month, and your wealth will stack up dramatically thanks to time and a little thing called compound interest.

12:05Compound interest is interest you are earning on your money. And then that interest earns even more interest and it starts to snowball because it gets bigger every year. It's basically free money and it comes to you if you're patient and you keep investing. And understanding that compound interest is so important. We actually did a whole video on it just before this one, so check that out. We'll try to link to it at the end.

12:28It drives me insane that so many people think investing is this super complicated thing they don't know how to do and they're worried about losing money. I'm telling you how it works right now. This channel is full of stuff that'll teach you exactly how. Now, the 3rd law is tax efficient accounts must be maxed out. Can you please repeat that every morning as a mantra? Tax efficient accounts must be maxed out.

12:50If your employer gives you a 401k match, put money into it up to the match because it's free money. And if you can contribute to a Roth IRA, let that money grow and it can be withdrawn tax-free when you retire. It's just insane money. It just compounds twice as quick. Maybe you're eligible for one of those health savings accounts. You can use that as an investment account with a triple tax advantage, right? Don't worry about all the rich people's secret investments. They're mostly BS. You have access to amazing cheat codes the government gives you to incentivise you to hand more money over to Wall Street. Sorry, to make you financially free.

13:28Law 4, fire your 1% financial adviser. If you have an adviser or you have a mutual fund that takes 1% of you, get rid of the bugger. If you pay no fees and you have $100,000, that will grow to $761,000 in 30 years. If you're paying 1%, so this is no fees. At 1% fees, same $100,000, same 30 years, you have $574,000. You see the massive whopping difference?

13:58You got more complicated financial situation, you want personalised help, that's okay. Use a financial adviser, but pay him by the hour. Pay him a flat fee, right? I've done that in the past. It was a conversation that was good. You're paying for advice. You're not paying a per cent of your money because it's costing you hundreds of thousands of dollars.

14:18You want to make this an automation. You get your salary, it goes into your bank account, right? And you work out what amount you want to invest. And then that amount will automatically buy some index fund, right? They're called ETFs as well, exchange traded index funds, right? So your money flows into the bank and then a smaller amount of that money buys an ETF. That happens automatically so you will never ever forget about it.

14:45So you can figure that out and you can make this more complicated. You can put a percentage, whatever that is. Maybe 5% goes into your 401k up to the employer match. Some of this might go into a Roth IRA. And very importantly, some of this also needs to pay off your credit card in full every month. I actually do it every week. It's one thing I do manually every week. Every single Sunday, I look at what are all my credit card balances and I pay them off in full.

15:15Now, we get into the good stuff. We get into the really good stuff. We have month 4 ahead of us. It's time to take a serious look at you. Have a conversation with yourself about what is running your money brain. It's simple stuff like, "I'm bad with maths." Money changes people. Yeah, money does change people. It makes you happier. It makes you more adventurous. It makes you more generous.

15:40So what I want you to do is write down everything that comes to mind when you think about money. No filters, no judgements, all the negative stuff, right? And then ask yourselves, are these beliefs helping you or are they holding you back? They're holding you back. I want you to make a decision that you're going to consciously change.

16:00Now, another thing people almost never do, talk to your partner about money. You only talk about money when it's a disaster, right? Talk about what your rich life, your beautiful life would look like. What would it mean to you? Find that out, right? You might be surprised. And then review some of the basics. Income, savings, the big expenses, and then do something little to celebrate. Little celebrations are wonderful. From all the people that we teach how to invest better, the people who do it as couples massively outperform.

16:35So what do we do now? Well, we're in month 5. We want to increase your freaking income because we're enough about the latte pinching Dave Ramsey stuff. That isn't all that much fun. We want to have more income. How do we do that? Ask for a bloody pay rise. When was the last time you asked for a pay rise?

17:18How do we do that? The first thing you got to do is you got to track where you are adding value. Something where you went above and beyond, where you hit your goals, where you saved the company some money. Go out, do some research, talk to the AIs and ask them, "This is my job. What's a salary range?" Right? So before you had to go to all these websites, just ask any of the AI bots out there and they'll do it for you. And if you just don't feel comfortable with negotiating, you're going to stay underpaid.

17:50And then what do we do in month number 6? This is the bonus. No extra homework in number 6. See what I just did there? I made what seemed like a bigger task easier for you. So now it's just 5 steps. And if you implement these 5 steps, your life will be tremendously better down the road. You want to learn from my mentors? Book a free call with us at felixprehn.org/freedom. You got some value out of this, share it with a friend, post it on social media somewhere.