Sometimes, I feel poor.
My bank account has a low balance and I use credit cards for all my purchases.
This might be the hard reality of many people living paycheck to paycheck. However, I choose to live like this to optimize my savings and live a better, happier, life. 🙂 For example, I do not keep a large balance in my bank account since it pays a whopping 0% in interest. Instead, I try to optimize my returns by keeping any extra money into a high-yield savings account. I highly suggest you do too, you could be making a few extra hundred dollars simply by keeping your money there instead of your checking account.
I only keep a small buffer in my checking account (roughly $1000) and then use my savings account to pay my monthly credit card bill, mortgage payments, and keep my emergency fund. In terms of emergency fund, I suggest keeping at least 3 months of expenses saved in a savings account. Some go up to 6 months or a year but this is more of a personal preference and depends greatly on your job stability. The important thing is to keep your money at work and have enough put aside in case of an unplanned event such as a job loss or an unforeseen major car repair.
You can even open different accounts for different goals if you prefer to separate your finances. One account for emergencies, one account for the month-to-month expenses and one for your medium-term goals such as a new purchase you are planning or a vacation fund.
Once your basics are covered and you have a healthy emergency fund saved up, you can invest into low-cost, highly diversified, index funds and let your money grow to achieve your long-term goals. You can see exactly how I invest in my Open Book series.
I sometimes feel poor because my paychecks are very low once they get to my bank account. On top of taxes, I also automatically deduct from my paycheck to fund multiple investment accounts. I start by maxing out my company match plan (10% of my salary) to maximize the 50% match I get. Then I also max out my registered accounts and automatically invest in my preset asset allocation.
Credit cards companies pay for our travels
For my day to day purchases, I always use credit cards to reaps the rewards. I optimize my rewards by applying to generous “Welcome Bonus” offers most banks offer online or in the branch. Most banks will offer bonuses worth anywhere from a few hundred to thousands of dollars simply to signup to their cards. My top choice is the American Express lineup of cards. By using my link, you can get 10,000 additional points and the first year free if you apply today!
They have a lot of cards and you can hold more than one at once to accumulate the rewards! They even offer the SPG cards that reward you with free hotel stays. You can easily accumulate thousands of dollars worth of hotel bookings just by applying. We used our point on our honeymoon and could not be happier.
Flying inside the country can be practically free with points. However, it will not give you the best value for your points compared to international flights.
For example, flying coast to coast, from Toronto to Vancouver, would save you about $800 and offer a point value of 3.22¢ per Aeroplan. For this example, I am using Aeroplan rewards but the same calculations can be done with any reward program in the US or internationally. (All figures are as of date of publication and the cheapest flight option was selected)
|Flight Cost||Taxes & Fees||Total Cost|
|Value Of 1 Mile:||3.22 cents||Savings:||$807|
To maximize my return on points, I search for the best flights and try to fly business class when available. Here is an example of the costs to fly across the globe, from Canada to Hong Kong and the savings I can achieve by paying with reward points:
|Flight Cost||Taxes & Fees||Total Cost|
|Value Of 1 Mile:||4.44 cents||Savings:||$6673|
This is an example using Aeroplan, which is the main reward program I use here in Canada, but if you are in the U.S., there is more flexibility in the programs offered. A quick search into the airlines and hotels reward programs can show you the full potential of using credit cards for your everyday purchases.
Of course, you need to be responsible and always pay the full balance owed each month! You should not spend money you do not have and you should never have to pay credit card interest.
Where do you stand?
Using those three main techniques:
- Keeping your money in an interest-bearing account,
- Investing automatically in low-cost index funds, and
- Earning rewards on everyday purchases with credit cards,
you can maximize your money and get ahead in your financial independence journey. If you start following these and start tracking your net worth then you can clearly see your progress and achievements.
CNN Money has a fun net worth comparison tool you could use to see how you compare to the average American but remember, it is not a race. It is not a matter of being ahead or behind but rather about your personal progress and the concrete steps you are taking to better your financial state.
Under 25, $1,475 of Net Worth 25 to 34, $8,525 of Net Worth
35 to 44, $51,575 of Net Worth 45 to 54, $98,350 of Net Worth
55 to 64, $180,125 of Net Worth 65 and over, $232,000 of Net Worth
Comparing to these figures, you can see how you compare to the general population. Obviously, if your goal is to retire early (35 in my case) these figures would need to be greatly accelerated. I aim to retire in 10 years or less with a million dollars so my net worth would then stand 19 times higher than the average for the 35 to 44 years old age group. I’m on the right track!
I wish you best of luck in your journey and hope I can help along the way. Please ask any questions in the comment section below and I will be more than happy to help. Xyz.