Your Most Important Number
Episode Summary
Your Investment Rate is the percentage of your salary that you're able to invest every single month - and spoiler alert, it's way more important than your salary. Today Allegra shares why this is the case, along with a few tips for how you can increase your Investment Rate ASAP.
Episode Notes
Your Investment Rate is the percentage of your salary that you're able to invest every single month - and spoiler alert, it's way more important than your salary number. Today Allegra shares why this is the case, along with a few tips for how you can increase your Investment Rate ASAP.
Check out "The Shockingly Simple Math Behind Early Retirement," a blog post by Mr. Money Mustache.
Apply to the Fall Wealth Circle.
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Transcript
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It doesn't matter if your monthly income is low or high, I get this question a lot. People want to know exactly how much they should be investing per month a dollar amount. That's why it's a rate. What truly matters is how much of your income you prioritize towards investments, which is why we have this percentage.
This is a Allegra Moet Brantley, and you're listening to the coffee and coin podcast where women talk wealth. I'm the founder and CEO of Factora, a company on a mission to lead 1 million women to 1 million in net worth. Because when women have more money, we'll have more power to be the change we want to see in the world. If you're ready to hear real women share their real numbers and investment journeys and have a sneaky feeling you should be doing a little more with your money, you are in the right place. Just sit back, relax and turn me up.
All opinions expressed by Team Factora and podcast guests are solely their own and do not necessarily reflect the opinions of Factora Incorporated. This podcast is for informational purposes only and should not be used as the basis for investment decisions. Team Factora. And podcast guests may maintain positions in the securities or investments discussed in this podcast.
Alright, hello, everybody. I've got my red lipstick on, I'm ready to talk to you about a really fun topic. It's fun, because I'm going to be talking about the most important number you can focus on during your wealth building. And that number is your investment rate. This topic is about 5% of what we covered during session one of the wall circle, which is all about building your investment foundation. So if you're listening to this and thinking, wow, I should be doing this, but I need some more, I need some more people to hold me accountable, I need some more information on what you're talking about. When you say investment rate and wealth building and this being your most important number, well, then you should probably apply to the wealth circle. And there will be the application for the Fall Wealth Circle in the show notes. Before we dive in, let me remind you why investing is so important and why we should be focusing on your investment right in the first place. Investing is how we build wealth. And building wealth is what drives us towards financial freedom, aka time freedom. So the more money we have, the more time we get back. And in order to achieve this, we have to be comfortable with the investing piece because it's the driver it is the accelerator. Once we do that, we can start focusing on investing as much as soon as possible so that we can pave our path to financial freedom even faster. As women, we are natural savers, we tend to be a little bit more risk averse and want to protect our money. But saving it doesn't actually protect our money like we might think because every dollar in your savings account is just sitting there. There's no compounding effect or potential for exponential growth, when it's just sitting there stagnant. It's kind of like you're putting it on the couch to rest and watch Netflix. So if investing intimidates you, right now, you're gonna need to lean in and start getting comfortable with that discomfort because the biggest investment risk you can make is never getting started at all, or just taking the time to learn how to do it. So to access exponential wealth growth, investing is simply a must, it is a requirement. And when we can get our money off the couch and put it on the investing treadmill, it can get to work working for us. So throughout the wall circle, and afterwards, we remind women to recalculate their investing rate on a regular basis because the goal is to always be increasing it so that more of our dollars get put to work. So what is your investing rate? It is the percentage of money you invest monthly, and it's how you grow your net worth, because you're directing these dollars towards investments that can grow, how much you have. So you calculate your investment rate by taking the amount of money you invest monthly, and dividing it into your total monthly income. Then you multiply that number by 100 to get a percentage. So for Example, if you make 1000 a month, and you invest 2000 a month, you would divide 2k into 8k and multiply it by 100, to get a 25% Investing, right.
So, I just want to point out that your investing rate is not the same as your savings rate, you've got one of those two, but we're focused on your investing rate, your savings rate is talking to you about the percentage of cash you keep and store each month. But that money, like we just talked about, isn't generating you return. So there are really only two reasons to save your money and cash. One being to fill an emergency account, emergency funds are so important, and we have a whole section in the wall circle about how to calculate yours because it's different for everybody based on your current financial situation, your current fixed expenses, your current job sitch and, and also how much insurance you have and what life stage you're in. So we're not going to get into that. But the reason you save money is to make sure you have an ample emergency account at the ready when life throws lemons, you do not have to stress beyond whatever the stressful thing that comes up is because it's why you have a cash fund right there ready to handle that emergency. The other reason we save money in cash is for near term goals in which we don't want our money invested Because investing is putting your capital at risk, but no risk, no reward, right. So other than those two reasons to fill an emergency fund or to pay for near term goals that are happening in the next zero to 36 months, you definitely want to have the rest of your money invested in assets working for you so it can grow, your investing rate is so important. And that's the big difference between your savings rate and your investing rate. Investing rate is the amount of money per month out of your income, you get invested. And your savings rate is the amount of money per month out of your income you store for those two reasons. So it doesn't matter if your monthly income is low or high, I get this question a lot. People want to know exactly how much they should be investing per month $1 amount. That's why it's a rate, what what truly matters is how much of your income you prioritize towards investments, which is why we have this percentage, and why it requires discipline. So someone with a $60,000 salary and someone with a $260,000 salary can both be investing 10% of their income, or they could be investing 25% of their income. And obviously, the higher the rate, the better. But it doesn't matter how much you earn, it matters how high your investing rate is. So we have something called a Lifestyle Analysis inside the wall circle where we calculate both your savings and investing rates. And it's part of your session one assignment so that everyone can get really squared up on where they're starting from how much are they putting away and oftentimes people think savings is investing. And like I just shared, it is not because savings is couch money and investing is treadmill money. And we want way more money on the treadmill. So let's run through a quick example. If you were to take home $6,000 a month, and save $600, your savings rate is 10%. Right 602 6000 times 100. If you were to invest 2000 of your monthly income from that 6k, then 2k into 6000 makes your investing rate 33%. Which is awesome because it means you'd be investing a third of your income and definitely living way below your means to be able to do so. The reason that I can't harp on the investing rate enough is because it's the part of your financial plan that you have the most control over. There are a lot of outside factors that determine your investment returns market fluctuations, property values, if you're investing in a business, whether it's going to succeed or fail a ton, but what you are in control of is the portion of your income that you get into assets monthly. So let's go through another example. Let's say Sarah earns eight k annual income. And she invest a portion of that into stock market investments that earn her an average annual rate of return of 8%. If she were to invest 4000 of that 80k income a year, that would be a 5% Investing rate. If she puts that money into this example, stock market account with 8% return, in 30 years, she'll have just under half a million dollars for putting away 4k annually for 30 years and getting that return. If she were to raise that investing rate up from 5% to 50%, and invest 40k of her 80k. She'd have closer to 5 million in 30 years. So I know that sounds like a huge jump, whoa, how can you invest half of your salary, but I'm watching Factora women do it left and right. Okay, they get in there, they see that they have a low, no, or you know, 10% Investing, right, and they get it up to 15, and then 20, and then 25. And don't forget, you're going to be earning additional income each year, because you're getting smarter and sharper and better at your job. And you're negotiating for more money annually at a minimum, right? That's some encouragement if you haven't been. And so suddenly, when you're making 100 120k 150k, that 40k A year is really viable, but it has to be prioritized. And you can prioritizing it, by understanding it, and then putting it into place by paying yourself first and setting up automations. And that's what women in fact, Torah do. So they see a lot of progress happen really quickly. So back to that example, if you're making the ADK salary, and you're only investing 5% of it a year, in 30 years, you only have under $500,000. But if you're investing 50% of it in 30 years, you got $5 million. So that's a huge difference of becoming a millionaire, well, excuse me, a multimillionaire or not. And that's why it's so important to pay attention to this stuff. And to understand the economics of wealth building,
increasing your income over time. And keeping your living expenses. The same is a magic formula to growing your investing rate. And it is what all of these factors are women are getting really good at. That's why it's easy for them to up their investing rate 1015 20% Each year, because as they make more money, they don't spend more money, they instead prioritize that additional income over to their investments, so they can pull financial freedom closer, faster. So that's why we want you to always be increasing that investing rate, because none of us want to work until we're 65 the quote unquote, retirement age, I'm sorry, but we got sold a bad dream. And then what are you going to do? By the way, you're going to just retire and do nothing? No, no, no, we are young now. We are capable. Now we are so good at our jobs. That's why it's so important to get good at understanding investment principles and financial fundamentals so that as women, we can get really good at that too. While we're in our income earning years. There's also a chart that we love from Mister Money Mustache. I'll link to that in the show notes as well. He is quote unquote, the leader of the fire movement, which stands for financial independence, retire early, feel free to look into that if it sounds up your alley. And he shows the shockingly simple math behind how your investment rate correlates to how many years it would take you to hit financial freedom. So again, we're focused on the rate, not the dollar amount. If you have a 10% Investing rate, it means you've got about 50 more years in the workforce. And this is crazy, right? Because the internet basically says Save 10% And you're doing great. You're doing better than a lot of other Americans which is true, but you're not doing great you're doing okay because who wants to work for 50 more years before they have the option to retire? What if something happens to a family member and you need to retire early? What if you Want to start a family and go out of the workforce and you're supposed to have 50 More earning years consecutively to be done. So Mister Money Mustache shows you in that chart that if you can increase your investing rate to 30%, you'll only have 28 more years in the workforce. So that's cutting down quite a bit from 50 to less than 30. Right. And then he shows if you can get that up to 50% and maintain it, it means you only have 17 years left until you are financially free and set sail for the Caribbean or whatever it is you plan to do with your time. So the next challenge is figuring out after calculating your investment rate, how to increase it. And even if it's just by 123, or 5%, it is going to make such a difference in your life. But I know you're all these listeners are way more capable than that. So I want to see you doing 1015 20% Because the more of that money you get invested, the faster you can achieve financial freedom. And that is pretty, pretty exciting to me. And it's what women are learning how to do left and right in the wealth circle. So wouldn't it be nice to have financial freedom in your 40s instead of your 60s or heck, your 30s because it is possible. We are doing it. And if you want to do it together and with this amazing group of wealthy women, you know what to do apply to a well circle. So that's it for today. I hear a lot of women say investing is complicated. It's hard. It's overwhelming. But hey, if you can just start by focusing on your investment rate, and raising it as much as possible. You're going to be in much better shape today than you were yesterday. And if you feel like you need a community to uncomplicate and and overwhelm you when it comes to all things investing. You have one in fact Torah. See you in the next episode.
If you enjoyed this episode, come join us in a wealth circle. It's our live online 12 week course and community where we teach you how to create a personalized financial plan alongside hundreds of other women building wealth. It will change your life and your money for good. You can apply at factorawealth.com forward slash wealth circle. That's factorawealth.com forward slash Wealth Circle. See you in the next episode.