Money Rehab with Nicole Lapin - The 4 Steps to Financial Independence

Episode Date: July 8, 2024

Nicole couldn't let Independence Day get too far behind us without talking about a very important kind of independence: financial independence. Today, she breaks down the four steps she took to become financially independent. You can — and should — try this at home! All investing involves the risk of loss, including loss of principal. Brokerage services for US-listed, registered securities, options and bonds in a self-directed account are offered by Public Investing, Inc., member FINRA & SIPC. Public Investing offers a High-Yield Cash Account where funds from this account are automatically deposited into partner banks where they earn interest and are eligible for FDIC insurance; Public Investing is not a bank. Brokerage services for alternative assets are offered by Dalmore Group, LLC, member FINRA & SIPC. Brokerage services for treasury accounts offering 6-month T-Bills are offered by Jiko Securities, Inc., member FINRA & SIPC. Banking services are offered by Jiko Bank, a division of Mid-Central National Bank. Securities investments: Not FDIC Insured; No Bank Guarantee; May Lose Value.  Brokerage services for Regulation A securities are offered through Dalmore Group, LLC, member FINRA & SIPC. Risks at public.com/disclosures/alts-risk-and-conflict-of-interest-disclosure See public.com/#disclosures-main for more information.

One of the most stressful periods of my life was when I was in credit card debt. I got to a point where I just knew that I had to get it under control for my financial future and also for my mental health. We've all hit a point where we've realized it was time to make some serious money moves. So take control of your finances by using a Chime checking account with features like no maintenance fees, fee-free overdraft up to $200, or getting paid up to two days early with direct deposit. Learn more at Chime.com slash MNN. When you check out Chime, you'll see that you can overdraft up to $200 with no fees. If you're an OG listener, you know about my infamous $35 overdraft fee that

I got from buying a $7 latte and how I am still very fired up about it. If I had Chime back then, that wouldn't even be a story. Make your fall finances a little greener by working toward your financial goals with Chime. Open your account in just two minutes at Chime.com slash MNN. That's Chime.com slash MNN. Chime. Feels like progress. Banking services and debit card provided by the Bancorp Bank N.A. or Stride Bank N.A. Members FDIC. SpotMe eligibility requirements and overdraft limits apply. Boosts are available to eligible Chime members enrolled in SpotMe and are subject to monthly limits. Terms and conditions apply. Go to Chime.com slash disclosures for details.

I love hosting on Airbnb. It's a great way to bring in some extra cash, but I totally get it that it might sound overwhelming to start or even too complicated if, say, you want to put your summer home in Maine on Airbnb, but you live full time in San Francisco and you can't go to Maine every time you need to change sheets for your guests or something like that. If thoughts like these have been holding you back, I have great news for you. Airbnb has launched a co-host network, which is a network of high quality local co-hosts with Airbnb experience that can take care of your home and your guests. Co-hosts can do what you don't have time for, like managing your

reservations, messaging your guests, giving support at the property, or even create your listing for you. I always want to line up a reservation for my house when I'm traveling for work, but sometimes I just don't get around to it because getting ready to travel always feels like a scramble, so I don't end up making time to make my house look guest-friendly. I guess that's the best way to put it. But I'm matching with a co-host so I can still make that extra cash while also making it easy on myself. Find a co-host at Airbnb.com slash host. I'm Nicole Lappin, the only financial expert you don't need a dictionary to understand. It's time for some money rehab. Money rehabbers, I hope you had a fantastic 4th of July filled with fireworks fun,

funnel cake. I don't know. I was trying to make the alliteration work there, but it was a stretch. Anyway, I hope it was a great one. Last week, in honor of the 4th, I talked about how politics affect economic systems, including the stock market. But I can't let Independence Day get too far in the past without carving out some time to cover a different kind of independence, financial independence. I'm not going to define financial independence because you probably have your own definition for it, and whatever that is should be your North Star. For me, financial independence means having the freedom to make decisions with my needs and wants in the front seat and my money in the back seat. And I'm talking small decisions here, like being able to go to the grocery store and feel okay

about adding a few things into my cart that weren't on my shopping list so I could satisfy a craving. Or the bigger decisions, like saying no to any partnerships that I am not completely and totally into. For me, and really I think for all of us, financial independence is about having options. Want to switch careers? Go ahead. Want to travel the world? Pack your bags. Want to retire early? Hand in your resignation. True financial independence gives you the power to live life on your terms. Of course, this is easier said than done, and I have built enough financial freedom to only work with partners I'm obsessed with and to buy that weird matcha can drink thingy without feeling guilty. It was a lot of work to get here, and I still struggle with a scarcity mindset and the financial trauma

that I weathered when I was little. I am still a work in progress, as we all are. weathered when I was little, I am still a work in progress, as we all are. But in order to get to the matcha buying place I am now, I broke my financial journey into four major themes. Debt, budgeting, savings, and investing. And I'm going to share exactly the steps I took to puzzle my finances together so that you can use the same tips and tricks I did. Let's start with breaking free from debt. Debt is like having an annoying ex that just will not leave you alone. It keeps you tied down and it makes it really hard to move on. I'd argue that the first step toward financial independence is breaking free from debt. At least it was for me when I was in $5,000 of credit card debt. I got my debt monkey off my back by doing these three things. Number one, I faced the numbers. My

credit card debt was giving me so much anxiety that I didn't even want to open my banking app. But you cannot fix a problem you don't admit you have. And that problem isn't unsolvable, even if it feels that way. Number two, I created a debt repayment plan. It was really daunting for me to look at that $5,000 bill and know that I didn't have that much money in my bank account to spare. But I decided to break my plan into baby steps, which felt more manageable than trying to tackle five grand all at once. I gave myself two years, which worked out to $2,500 a year, and that was $208 per month, or $7 a day. Looking at my debt in those terms started to feel much less intimidating. I mean, $7 a day? That's one glass of wine with dinner. I mean, less than one glass if you live in LA or

New York, but it's some portion of wine. And I could do that, no problem. It seemed way more figureoutable in little chunks. Number three, I cut unnecessary expenses. This one is obvious, but your unnecessary expenses might not be. I combed through my bank account and I found subscriptions that I thought I canceled months earlier. And honestly, yeah, I did have to get creative when it came to hanging out with friends because the default hang was always going out to dinner or going out to drinks or going out to brunch, which meant more swipes on a credit card. I did not want to see my friends because that would have just bummed me out to no end. So I came up with a bunch of ideas for things we could do together for little or no money,

like a slumber party in Animal Onesies. This is a true story. I also had girlfriends who were in a similar financial boat but did not want to make any changes to their lifestyle while paying down their debt. So instead, they tried to find ways to increase their income by taking on side hustles, freelancing, or even asking for a raise at their job. Paying off debt takes time, discipline, and let's be honest, it's not that fun. But I can promise you, when you make that last payment, you are going to feel the weight of the financial world off your shoulders. And financial independence will be so much closer, you'll be able to taste it. Once you've tackled your debt, the next step is building up your savings. This not only provides a safety net, but it also sets the stage for future

investments and growth. For me, I got my savings on lock by taking four steps, which I did in this order. Number one, I got my emergency fund in check. I built up six months of bare bones savings in the bank that I could pull from when I needed to. Typically, experts recommend having three to six months of living expenses squirreled away for an emergency fund. But after all the craziness of 2020, I'd recommend erring on the side of a bigger buffer and shooting for six months, if you can, of bare bones expenses in savings. This fund is your financial cushion and the answer to the reality that you know what happens. After I swiped my left side mirror off my car and then the right side mirror off my car the very next day,

true story, I can confirm emergency funds are very helpful. Number two, I made savings goals. I identified my short-term and long-term savings goals. This was a fun one. Whether it's buying a house or starting a business or having kids or taking a dream vacation, having clear goals can motivate you to save more effectively. It certainly worked for me. And the show that you are listening to right now is on a network that I started with my life savings. Had I not been saving for a goal of doing something big, I wouldn't have been able to pull off making this show for you every day. Number three, I opened a high-yield savings account. Remember that emergency fund? I parked it in a high-yield savings account to maximize my returns. The average savings account

at a big bank is going to earn you less than 1% on what you save. But a high-yield savings account can earn you many, many times that. Public right now, for example, has a high yield savings account that has a 5.1% APY. And would you rather have less than 1% or more than 5%? I'll wait. Okay, waiting's over. I know your answer. Number four, I automated my savings. I set up automatic transfers from my paycheck to my savings account so that I could set it and forget it. The way I framed it for myself was that I was contributing to my savings account just like I was any other bill I had to pay every month. That way, I was consistently building my savings without having to think about it. Once I had mapped out my goals and started saving for them, I created a budget.

Honestly, I struggled with this part. I looked around at other budgeting systems to try to find something that would help me balance paying my bills while also building toward a greater financial future. I couldn't find a budgeting system that I really liked, so I just built my own. I created the three E's rule for my budget, or as I like to call it, a spending plan, because it doesn't sound as scary. Here's how I broke it down. Of what I spent, I said 70% should be on essentials, so the stuff that you have to pay every month, your rent, your mortgage, your utilities, food, transportation, bills, insurances, loans, all that stuff, the basics. 15% should be on the end game.

So that's things that you think about for the future. A great trip, having a sweet retirement, buying a home or investment accounts or supporting a child or parent. And 15% should be on the extras. That's the fun stuff, the eating out, the ordering in, the price of your shoe, just because it's pretty and you want it. At the time, I was working in a busy newsroom, so I loved deadlines and structure. So having a blueprint for what my spending looked like really helped me stay disciplined and make sure all of my financial bases were covered. And speaking of endgame, it's time to talk about the final piece of this puzzle, investing. This is such an important part of your financial

independence plan because investing is how you get rich straight up. Before I started investing, I had to realize that my salary was never going to give me the financial flexibility and freedom that I wanted for my lifestyle. And the truth is, very few people make it big just off their salary alone. If you work at an amazing job, you might get a 3% raise year over year. But you know what the historical amount of inflation is year over year? 3%. So even if your job is offering these magical annual raises, and if you do have that hookup, please let me know because I would like to be your coworker, please and thank you. If you are getting that 3% boost every year, sure, inflation isn't knocking you backward, but you're still only running in place. The stock market, however,

has historically grown 8% to 10% year over year. So adjusted for inflation, that's 5% to 7% year over year. No job is going to give you that. So you have to give it to yourself by investing. So where do you start? Well, I just released an episode that's the deepest dive I've ever done for people who want to know exactly how to invest for the very first time. I'll link that episode in the show notes in case you missed it. And if you want to get a list of five stocks I invested in when I was getting my financial independence in order, I'll send that to you too. All you have to do is subscribe to my newsletter at moneyminute.co slash subscribe and it will be all yours in your inbox whenever you're ready. And that's it. And I'll be honest with you,

it sounds simple, but it's not easy, nor is it fast. But there are no shortcuts to true financial independence. The best thing you can do is to try to enjoy these steps along the way and take a moment to celebrate your wins as you earn them. For today's tip, you can take straight to the bank. When you're focusing on that savings pillar of your financial independence plan, create sub-savings accounts for your goals. A sub-savings account is just a little nest egg within your greater savings account that you can label with a specific goal, like vacation fund or new car fund or whatever your financial goals are, research has shown that actually labeling them helps us stay strategic and focused on reaching those financial goals.

One of the most stressful periods of my life was when I was in credit card debt. I got to a point where I just knew that I had to get it under control for my financial future and also for my mental health. We've all hit a point where we've realized it was time to make some serious money moves. So take control of your finances by using a Chime checking account with features like no maintenance fees, fee-free overdraft up to $200, or getting paid up to two days early with direct deposit. Learn more at Chime.com slash MNN. When you check out Chime, you'll see that you can overdraft up to $200 with no fees. If you're an OG listener, you know about my infamous $35 overdraft fee that I got from buying a $7 latte and how I am still very fired up about it. If I had Chime back then,

that wouldn't even be a story. Make your fall finances a little greener by working toward your financial goals with Chime. Open your account in just two minutes at Chime.com slash MNN. That's Chime.com slash MNN. Chime feels like progress. Banking services and debit card provided by the Bank Corp Bank N.A. or Stride Bank N.A. Members FDIC. SpotMe eligibility requirements and overdraft limits apply. Boosts are available to eligible Chime members enrolled in SpotMe and are subject to monthly limits. Terms and conditions apply. Go to Chime.com slash disclosures for details. I love hosting on Airbnb. It's a great way to bring in some extra cash. But I totally get it that it might sound overwhelming to start or even too complicated

if, say, you want to put your summer home in Maine on Airbnb, but you live full time in San Francisco and you can't go to Maine every time you need to change sheets for your guests or something like that. If thoughts like these have been holding you back, I have great news for you. Airbnb has launched a co-host network, which is a network of high quality local co-hosts with Airbnb experience that can take care of your home and your guests. Co-hosts can do what you don't have time for, like managing your reservations, messaging your guests, giving support at the property, or even create your listing for you.

I always want to line up a reservation for my house when I'm traveling for work, but sometimes I just don't get around to it because getting ready to travel always feels like a scramble, so I don't end up making time to make my house look guest-friendly. I guess that's the best way to put it. But I'm matching with a co-host so I can still make that extra cash while also making it easy on myself. Find a co-host at Airbnb.com slash host. Money Rehab is a production of Money News Network. I'm your host, Nicole Lappin. Money Rehab's executive producer is Morgan Lavoie. Our researcher is Emily Holmes.

Do you need some money rehab? And let's be honest, we all do. So email us your money questions, moneyrehab at moneynewsnetwork.com to potentially have your questions answered on the show or even have a one-on-one intervention with me. And follow us on Instagram at Money News and TikTok at Money News Network for exclusive video content. And lastly, thank you. No, seriously, thank you. Thank you for listening and for investing in yourself, which is the most important investment you can make. Thank you.