This is a beginner investor between 20-48 years old with a net worth between $0 and 999K. This person has above average income with goals of becoming financially independent. They have begun to read books and articles on personal finance and may have attended a seminar or met with a financial planner. Most of these savers have a mortgage, car debt, and possibly some student loan payments. Their job offers a 401K/403B, and they are contributing at least enough to capture the company match. The rest is going to debt and living expenses. The level 1 saver has a rough budget and uses personalcapital.com or mint.com to track accounts and net worth.
“In order to be financially independent, you must get into a high paying profession or own a business. Most people will never jump from a saver to an aggressive investor due to consumption habits, low income, and small thinking. Level one activity is more like modest savings, not true investing.”
- Fund an emergency fund with 3-6 months using an online bank
- Use the Debt snowball to knock out all debt outside of your low-interest mortgage
- Contribute to your 401K/ HSA accounts- capture at least the company match while you are paying off debt.
- Your first investments
- Increase your contributions to your 401K plan. (or SEP or SIMPLE IRA)
- Max out your Health Savings account if applicable. (7K for families)
- Open online savings account for short term goals- (home, car, vacations, etc)
- Choice (You can choose paper assets or real estate for step #5)
Do not start step 4 until steps 1-2 are complete.
Open a non-qualified brokerage account. Start funding this account using a Robo-advisor tool or index fund strategy. (Utah millionaire recommends this because it’s passive and doesn’t require time.)
Purchase a rental property. This requires capital, leverage, time and expertise. This is a great option for non-wallstreet people or for those in the trades.
Please consult with your CPA or attorney before making specific investments.
Homework / Videos
- Maximizing your income is the most important step to achieving millionaire status.
- Living within your means/controlling your spending is the next most important step. Use a budget.
- Automate your savings and investing – Steps 4-5 need to automatically fund. Pay yourself first.
- Don’t try and time the market and don’t pick individual stocks.
- Invest in things you understand and start as young as possible.
- Buy a term life insurance and disability insurance if you have dependents.
- Create an “If I die” spreadsheet- list of all accounts with points of contact.
- HSA: this money isn’t taxed ever when used for qualified medical expenses.
- 401K: Qualified account that allows you to defer taxes until you withdraw.
- Roth 401K: Qualified account where you elect to pay taxes now but enjoy tax-free withdrawals in the future.
- Tax deductions (property taxes, mortgage interest, tithing, credits)