Imagine having the freedom to live life on your own terms—traveling, buying your dream home, or starting that passion project. But do you know the key to unlocking that freedom? It’s called financial literacy. It’s not just about numbers; it’s about knowing how to make your money work for you so you can focus on what truly matters.
Financial literacy is about knowing how to handle money smartly—like budgeting, saving, and investing. It’s understanding how your money choices impact your life now and in the future, and figuring out things like credit cards, taxes, and loans.
Being financially literate empowers you to make informed decisions rather than simply going with the flow or relying on others to make decisions for you.
The earlier you gain this knowledge the better it is for you. It is surprising to know that high earners and highly educated people also lack important financial literacy when it comes to managing their money.
As an Indian immigrant who studied economics at USC, I’ve learned that financial literacy is more than just numbers—it’s a tool for taking control of your life. It’s about mastering everyday skills like budgeting, saving, and investing while understanding how your money decisions shape your future. For me, figuring out things like compound interest and insurance options in the US was a game-changer, and it’s empowering to make choices with confidence instead of just going with the flow or relying on others to decide for you.
Key Concepts of Financial Literacy:
Budgeting: Creating a plan for your money, including income and expenses. You become aware of where your money goes.
Saving and Investing: Learning the difference between saving (short-term goals) and investing (long-term growth).
Debt Management: Knowing how to use debt wisely and avoid common mistakes.
Understanding Financial Products: Understanding how credit cards, loans, and savings accounts work.
Setting Financial Goals: Learning how to plan for major life events like buying a car, choosing between renting or buying a house, or paying for college.
Retirement planning: Using tax-advantaged accounts to save and invest for your golden years.
Why is Financial Literacy Important?
Financial literacy isn’t just about managing your paycheck; it’s about building a foundation for your future. Here are a few reasons why it’s essential to be financially literate from the start:
Informed Decision-Making Every day, we make choices that impact our finances, from where we buy coffee to how we save for future goals. When you are financially literate, you can evaluate options and choose what’s best for you, and thus avoid costly mistakes and improve your financial security.
Avoiding Debt Traps Many young adults fall into debt quickly because they’re unaware of how interest works or the consequences of only making minimum payments on credit cards. Learning to manage debt early can save you thousands of dollars in interest and prevent unnecessary stress.
Building Good Financial Habits The habits you form now—like saving regularly, budgeting, and avoiding impulsive spending—will serve you for years to come. Developing these habits early means they become second nature, and this will make it easier for you to reach your goals.
Preparing for the Unexpected Life is unpredictable, and having an emergency fund can protect you during challenging times, like losing a job or facing unexpected medical expenses. Financial literacy teaches you how to build and manage this safety net.
Conclusion
Financial literacy involves smart money management skills like budgeting, saving, and understanding financial products. It empowers individuals to make informed choices that affect their present and future financial well-being. Being financially literate helps avoid debt, fosters good financial habits, and prepares for unexpected situations, ultimately leading to stronger financial security.
In this post, I want to convince people in their early 20s to start investing, even if they have a limited income. I will highlight the power of compounding, the accessibility of small investments, and long-term wealth growth backed by historical data to support my argument.
1. The Power of Compounding
If a 22-year-old invests just $100/month into an index fund with an average annual return of 8%, they’ll have over $383,000 by age 62. In contrast, if they start investing at 32 and contribute the same amount, they’ll only have $174,000 by age 62. Takeaway: Starting 10 years earlier results in $209,000 more, even with the same contributions.
So, as we saw compounding works better with time, the earlier they start, the longer their money grows exponentially. Also, it doesn’t matter how little you start with, even a small amount invested early often beats larger amounts invested later.
2. Investing Doesn’t Require Huge Income
A common belief people have is that they need to earn 100k or more to start investing. This is far from being true. Many brokerage apps like Robinhood, Fidelity, or Vanguard allow people to invest with as little as $1. ETFs like Vanguard’s VOO (S&P 500 tracker) have no minimum investment if purchased fractionally.
One of the ways to do that is by reallocating small expenses like $5 daily coffee runs:
$5/day × 30 days = $150/month.
Investing this monthly could grow to $575,000 in 40 years (assuming an 8% annual return). So, as we saw, even tiny sacrifices can snowball into a significant nest egg.
3. Opportunity Cost of Waiting
The economist in me has to bring this up – opportunity cost, which means the best use sacrificed. Do you know that if you wait 10 years to invest, you would have to contribute 3x more monthly to catch up?
When you Invest at 22, $100/month for 40 years, you get $383,000.
However, if you wait and start investing at 32, $300/month for 30 years, you will only get $379,000
Skipping investing early means people can lose the “free growth” from compounding during their 20s.
4. Risk Appetite in Their 20s
Another big reason to start early is that most young investors can afford to take risks because they have decades to recover from market downturns. This is the best time to invest in higher-growth assets like stocks, as opposed to bonds or savings accounts, which pay less returns.
Historically, the S&P 500 has returned 10% annually on average. Even with the short-term volatility, long-term investors consistently benefit as seen from the upward slope of the S&P 500 index from its inception till date. If you look at any 8-year window picking any two data points, it has always gone up.
In the following section I will give you a step-by-step breakdown of how to start investing in your early 20s:
Step 1: Open an Investment Account
First, you need a platform to start investing. The two most beginner-friendly options are:
Roth IRA: A retirement account with tax-free growth and withdrawals (best if you qualify based on income).
Brokerage Account: A general investment account without restrictions on withdrawals.
How to do it:
Research platforms like Vanguard, Fidelity, or apps like Robinhood or M1 Finance.
Sign up online, which would take 10-15 minutes.
Link your bank account to transfer money.
Pro Tip: Choose platforms with no account minimums and low fees.
Step 2: Start Small (Even $10 a Week)
Small, consistent contributions add up over time due to compounding. You don’t need a lot of money to begin.
How to do it:
Determine an amount you can comfortably set aside. For Example, you can start with $10/week or $50/month.
Use the platform’s fractional investing option to buy partial shares of ETFs or index funds (like Vanguard’s VOO or SPY).
Pro Tip: Here is a real-life example, if you spend $10 weekly on streaming services, consider cutting back slightly to reallocate this toward investing.
Step 3: Invest in Low-Cost Index Funds or ETFs
These funds spread your money across many companies, lowering risk and giving reliable long-term growth.
How to do it:
Search for funds like S&P 500 ETFs (e.g., VOO, SPY) or Total Stock Market Index Funds (e.g., VTI).
Click “Buy” on your app and input the amount you want to invest (e.g., $10).
Confirm your purchase.
Pro Tip: Look for funds with low expense ratios (fees below 0.1% are good options).
Step 4: Automate Your Investments
Automation ensures consistency, making investing a habit without needing effort.
How to do it:
Set up recurring deposits from your bank to your investment account (e.g., $50/month).
Enable auto-invest for specific funds to keep investing the same amount regularly.
Example: You won’t even notice $10 disappearing each week, but your portfolio will grow quietly over time. Dollar-cost averaging is an investing technique, where you invest a fixed amount every week or month without worrying about market movements.
Step 5: Track Progress & Stay Consistent
Seeing growth (even small) will motivate you to stick with investing. But remember, it is investing and is done for the long term. Don’t let the short-term market fluctuations affect you emotionally.
How to do it:
Check your account monthly or quarterly—not daily! Markets fluctuate over the short term and some months or years you will see a dip in your investments. But if you have invested in a diversified group of companies, significant growth starts happening after 5 years of investing consistently. The longer the better.
Increase contributions as your income grows. For example, you can gradually contribute more. Go from $50/month to $100/month when you get a raise.
Final Note:
If you follow these steps:
Investing $10 a week with an 8% annual return can grow to $87,000 in 30 years.
But gradually increasing your contributions will multiply this amount significantly.
The key is starting now—every year you wait, you lose out on making compound interest work in your maximum favor. Time in the market makes a big difference!
When I moved to the U.S. from India 20 years ago, I had big dreams but little money. After earning a degree in economics from USC and working in consulting in Los Angeles, I realized something critical: making money isn’t just about hard work—it’s about strategy. So, if I had to start over today and wanted to become a millionaire in the next 20 years, here’s exactly what I’d do.”
Step 1: Define a Clear Goal and Timeline
First, I’d calculate my target. To hit $1 million in net worth in 18-20 years, I’d break it down:
We’re assuming you’re starting at age 22, straight out of college you landed your first job, with $0 saved. You’ll have 18 years to invest, aiming for an 8% average annual return, the historical return of a diversified stock portfolio like the S&P 500 net of inflation.
How Much Do You Need to Save?
To hit that $1 million mark, you’d need to save $1,300 per month.
This is based on the math of compound interest:
So you have a $1M goal (future value)
8% annual return (that’s 0.667% monthly)
And you have 216 months (18 years)
So, start putting away $1,300 a month consistently. I know it seems like a lot, especially in the first few years but read this post till the end as we will go over the steps to do that.
Graph Growth Development Improvement Profit Success Concept
Here’s what your journey looks like:
Annual savings: $1,300 × 12 = $15,600
Over 18 years, you’ll contribute a total of $280,800.
Investment growth through compounding adds $719,200.
That’s how your money grows to hit $1 million!
If you are starting later?
Let’s say you start at 25 and have 15 years instead. You’d need to save about $1,800 per month to reach the goal.
If you are Saving less?
If you can only save $500/month, you’ll need higher returns, around 12%. But be cautious—higher returns mean higher risk! So don’t invest all or most of your money in very high-risk assets like individual stocks or crypto. Even though crypto is at an all-time high, I still stay away from it.
Let’s say you save $1,000/month for 18 years:
So your Contributions: are $216,000
Investment growth at 8%: will make it $577,000
So Total is: $793,000
To close the gap to $ 1 million, either increase your savings later in your life or aim for slightly higher returns, like 10%.
If this is not possible, then Here’s how to adjust your savings strategy
Start Small, Increase Over Time Begin with $500/month, which grows to approximately $146,000 in 18 years at an 8% return.
To reach $1M, increase your savings by 10% yearly as income grows (e.g., from raises or promotions).
Year 1-4: you save $500/month
Year 5-9: you can manage to save $732/month (a 10% annual increase)
Year 10: you save $1,175/month and gradually increase as much as possible
This gradual increase allows you to build momentum without straining your budget.
Also, Invest in high-growth, diversified assets (e.g., index funds) during the early years to maximize compound returns.
Make sure to Plan for Major Lifestyle Changes
If you get Married: You can Combine finances and align saving goals with your partner. Joint contributions can reduce individual pressure.
If you have Children: You will need to Prioritize family needs but maintain consistent savings. Use tax-advantaged accounts like 529 plans for education while preserving long-term investments.
Also, make sure to revisit your plan yearly to adjust for income, expenses, or life changes. Even minor increases (e.g., $50/month) compound significantly over time.
“If you save aggressively, invest wisely, and create multiple income streams, this is achievable. Let’s move to step two.”
3. Step 2: Learn a High-Income Skill
“Consulting taught me one thing: people pay for specialized skills. If I were starting fresh, I’d pick a high-demand skill—like coding, digital marketing, or even financial consulting—and master it in 3-6 months. In my industry, the mid-level people make $300K a year.
So, I can talk about my industry but it applies to whatever your industry may be in, I’d learn AI-powered financial analysis tools and position myself as an expert for small businesses needing strategic advice.”
4. Step 3: Create a Scalable Income Stream
“Next, I’d focus on something scalable. In addition to my day job. Like freelancing over the weekends or at night, if possible, launching an online course, or starting a YouTube channel, just like this one.”
For Example:
“If I taught personal finance or shared my journey from $0 to $1 million, I could monetize through ads, sponsorships, and affiliate links.”
Step 4: Save and Invest Relentlessly
“Making money is one part, but growing it is another. I’d adopt the ‘pay yourself first’ rule, saving 50% of my income if possible. Then, I’d invest aggressively in low-cost index funds, rental properties, or high-growth sectors like AI.”
The formula is simple: Start early, save consistently, and let compound interest do the heavy lifting. Even if life throws you curveballs, you adjust your savings and investments to stay on track.
Step 5: Network Like a Millionaire
Opportunities don’t knock—they’re created. I’d attend local entrepreneur meetups, connect on LinkedIn, and offer my expertise to build relationships with like-minded
“Sometimes talking with the right person could lead to a profitable partnership or even seed funding for a business idea.”
Step 6: Avoid Lifestyle Inflation
“Lastly, I’d resist the temptation to upgrade my lifestyle too soon. Drive a reliable car, live modestly, and focus on reinvesting profits into building wealth.” the key is to achieve financial freedom where my passive income becomes almost equal to my active income.
“Instead of splurging on a new $1,000 phone, I’d invest that money—it could turn into $2,000 or more in a few years.”
Some of you might have heard in the news about a janitor in the US, who had millions of dollars of net worth after he passed away. It was not about how much he made, but it was how he managed the money. Some highly educated people also don’t know how to manage their money.
So “Here’s the truth: becoming a millionaire isn’t easy, but it’s possible. With the right skills, smart investments, and disciplined habits, you can build the life you want, you can achieve financial freedom where you don’t have to work to support your living, you can work on following your passions.
So, if I can do it at age 42, starting as an immigrant with a dream, so can you.”
Today, I am answering the top 10 most Googled personal finance questions. Whether you’re just starting or need a refresher, these are the questions everyone is asking—and I am giving you the answers!” So make sure to read till the end, you will learn something new.
Question 1: “What is a debit card?”
A debit card is a card linked directly to your checking account. Money is immediately deducted from your account balance every time you swipe it. Unlike credit cards, there’s no borrowing involved, which means no interest payments!
Question 2: “How much money do you need to open a savings account?”
The amount you need to open a savings account varies by bank, but typically, you can open one with as little as $25 to $100. Some banks even let you start with no minimum balance, so be sure to shop around!”
Question 3: “How do you use a line of credit?”
“A line of credit is a flexible loan you can access when you need it, up to a certain limit. You only pay interest on what you borrow, and you can draw from it as many times as needed. It’s great for emergencies or large expenses, like home repairs!”
Question 4: “What is a budget?”
“A budget is a plan for your money. It helps you track your income and expenses so you can make sure you’re not overspending. The goal is to allocate your money effectively—some for savings, some for bills, and a little for fun!”
Question 5: “What is an APR?”
“APR stands for Annual Percentage Rate. It’s the interest rate you pay on loans or credit cards, expressed annually. This includes not just the interest but also any other fees or costs involved, helping you compare the true cost of borrowing.”
Question: 6“How to invest?” Start with low-cost index funds or ETFs. Diversify your money across stocks, bonds, and other assets. Make consistent contributions and hold long-term for growth.
Question 7: “How to make money?” Pick up a side hustle, start freelancing, or invest in stocks. You can also create digital products or start a small business.
Question 8: “Should I pay off my credit card or save?” If your credit card has high interest, pay it off first. If your interest is low, balance paying off debt with saving for emergencies.
Question 9: “What size mortgage can I afford?” A good rule is that your mortgage should be no more than 28% of your monthly income. Factor in taxes, insurance, and other costs too.
Question 10: “What is a W9 form?” A W9 form gives your Taxpayer Identification Number (TIN) to a business or person so they can report payments to the IRS. It’s commonly used for freelancers and independent contractors
Today, we will explore a common dilemma for car buyers: whether to buy, finance, or lease a car. We will also evaluate each of these options using some numbers so make sure to read this entire post so you have a better understanding of each option.
Scenario 1: Buy in full
Let’s start with buying a car in full using your own money. The advantage of buying in full is that you own the car outright. If you have the funds available, this can save you a lot of money in interest over time, and you’ll have complete ownership of the vehicle. However, buying in full might not always be the best option for some, as it requires a large upfront payment, which can possibly drain your savings. And especially if you need to preserve that cash for other things, like for emergencies or investments.
Scenario 2: Financing
Now, let’s look at the second option which is to finance your car through a loan. This option will have you make monthly payments over a set period of time. So you basically take out a car loan from a bank or a financial institution to pay for it over time.
This can be a good option if you don’t have all the cash upfront but still want to own the car eventually. Just be mindful of the interest rate and the monthly payments to make sure they fit within your budget. Also, keep in mind that interest rates can vary based on the market and your credit score, which can affect the overall cost.
Scenario 3: Leasing
Lastly, we will evaluate leasing as the third option, which is like renting a car for a set period of time. Just like how you rent a house, when you lease a car, you basically rent it for typically 2 to 4 years. Leasing can be a great option if you want to drive a new car every few years without the hassle of selling or trading in your current one.
However, keep in mind that you won’t own the car at the end of the lease term unless you decide to buy it at the end of the lease term for a set amount of money.
Also, you should consider your mileage needs and any potential penalties for exceeding the agreed-upon limit, as those can add up quickly. So the pros of Leasing are that it requires lower monthly payments compared to financing or buying.
It also allows you to drive a more luxurious vehicle than you might otherwise be able to afford. But as I said you don’t own the car and may face mileage restrictions and additional fees if you exceed that limit. So, If you like long road trips, leasing might not be right for you.
Math-Math baby
Now, Let’s compare the three scenarios using some actual numbers. For example, let’s say the car you want to buy costs $30,000.
Scenario 1: If you decide to buy in full, you’ll have to pay the full $30,000 upfront. You won’t be paying any interest on it, but there is an opportunity cost of it that is you won’t be able to earn any interest if you were to invest that money somewhere else like in a CD or stock market.
So if I need to decide this and the nominal interest rates are low (less than 3%), then buying in full may not be a good idea for me. This is because the opportunity cost of $30,000 is a lot. You could possibly earn a higher return of 7%-8% by investing in a broad-based index fund like these.
Scenario 2: If you finance the car with a loan and a 4% interest rate over 60 months, your monthly payment would be $552. After 60 months, you’ll have paid a total of $33,120. This is greater than $30,000 but spread across 5 years.
Scenario 3: Now, let’s look at leasing. If the lease is for 36 months and you pay $300 per month, the total cost would be $10,800. As you can see, leasing has a lower immediate cost, but you don’t own the car.
Are there any additional costs?
Insurance
Besides the purchase price in Scenario 1, you need to consider insurance, which on average costs around $150 per month. Financing in Scenario 2 demands insurance coverage as well, with no significant difference from the previous scenario. Leasing in Scenario 3 also requires insurance, but it may be slightly higher due to lease requirements.
Maintenance and repairs
Routine maintenance and repairs must be factored in for all scenarios, with an average annual cost of $1,000 to $2,000. In Scenario 1, you have complete control over the quality and cost of maintenance, Financing in Scenario 2 offers no significant difference in terms of maintenance and repair expenses. while leasing in Scenario 3 often includes warranty coverage.
Depreciation
Depreciation plays a significant role in owning a car, with an average yearly depreciation cost of 30%. In Scenario 1, the vehicle’s depreciation impacts you directly, Financing in Scenario 2 shares a similar depreciation impact with ownership. whereas in Scenario 3, the leasing company absorbs this cost.
Resale value
Resale value is another consideration. In Scenario 1, you can sell the car to recoup some costs. In Scenario 2, your car’s value decreases over time, but once the loan is paid off, you have equity in the vehicle. but in Scenario 3, you have no equity. At the end of the lease agreement in Scenario 3, you must return the car, with potentially additional fees for exceeding mileage or wear and tear.
Conclusion
So, when it comes to hidden costs, each scenario has its own factors to consider, such as insurance, maintenance, depreciation, and resale value. Ultimately, you should evaluate which option aligns with your budget, lifestyle, and long-term goals. If you value long-term ownership and have the means to buy in full, it may be your best option. On the other hand, if you prefer lower monthly payments and don’t mind not owning the car, leasing might be more suitable.
Now that you have a better understanding of the pros and cons, hopefully, you can make an informed decision.
In this post, we’re going to talk about the top 5 money mistakes you should avoid in your 20s, and I will also share what you should do instead😁. So, let’s dive right in.
Not saving enough. It’s important to start building an emergency fund as early as possible. many people in their 20s would rather spend all their income, and take loans than save for an emergency fund.
2. Overspending on unnecessary luxuries. A lot of people, especially those in their 20s try to keep up with their rich peers and end up spending beyond their capacity on designer handbags, luxury cars, etc, more than what they can afford. So Try to prioritize your expenses and avoid going into debt for non-essential items. add data
3. Not investing in your future. At the very least, you should contribute to a retirement account or start an investment portfolio. This can be done through your employer if they provide 401 K, I have a separate video explaining this so that you can check it out here.
4. Neglecting to budget. Creating a budget will help you track your expenses and ensure you’re living within your means. There are many apps you can use to budget, I personally use Mint and I made another video where I give several other options, so feel free to download one of those Apps and see how this helps you stick to a budget.
But, If you don’t like to do that through an app, you can also track your expenses using a spreadsheet. The basic idea is not to neglect to budget.
5. Relying too heavily on credit cards. While credit cards can be convenient, make sure you pay off your balance in full each month to avoid high interest charges. As of the second quarter of 2023, The U.S. credit card debt has exceeded $1 trillion, marking an all-time high. In 2021, approximately 60% of people had credit card debt.
Remember, it’s essential to learn from these mistakes to set yourself up for financial success.
So, what should you do instead?
Start by setting specific financial goals, such as saving a certain amount each month or paying off your student loans early.
Educate yourself about personal finance through books, podcasts, or my YouTube videos, 😀 there are so many online resources available free of cost.
You can even consider seeking advice from a financial advisor if you are interested in developing a personalized plan for your financial future.
Another very useful tip is to automate your savings by setting up automatic transfers from your checking to your savings account each month.
Cut back on unnecessary expenses, such as eating out or subscribing to multiple streaming services.
I can’t emphasize enough, that if you are carrying any credit card debt, please pay off that high-interest debt first, so you can save money in the long run.
I will totally recommend opening a high-yield savings account to earn more interest on your money. Capital One and Ally Bank are the two online banks I use. As of today, Ally Bank gives you a 4.5% to 5% interest rate on a CD, much higher than traditional banks. Also, CapitalOne is paying a 4.3% interest rate. These can change with the Fed’s decisions so don’t delay and open a high-yield savings account to earn more interest.
Increase your income through side hustles or by pursuing professional growth opportunities.
Finally, surround yourself with like-minded individuals who share your financial goals and can provide support and accountability.
That’s a wrap for today’s post! Don’t forget to hit that like button and subscribe to my YouTube channel for more money-saving tips. Don’t wait to take control of your financial future, start taking action now!
In my previous post, I mentioned how the time duration of your investment and regular contributions are the two main reasons for your investment growth. In this post, I will explain this point with the help of a simple example.
Scenario 1
Let’s assume person A invests $1000 at age 20 and contributes $100 a month until she is 60. When we do the math, she will have over $763,000 at age 60, assuming the annual return is 11% and annual compounding. On average, the stock market gives you a 10-11% return over a long period.
I calculated the numbers using this excellent investment growth calculator here. You can see how your investment will change by playing with different number combinations. It is fun, try it.
In the chart below, you can see her total contributions (in green) are less than $60K, while her future value of the investment has grown to over $760K. Her investment grew by a whopping 12.7 times!!! Isn’t this just awesome?
See how the red line goes way above the green line, esp. towards the end. This shows the power of compounding or exponential growth as the time duration increases.
Scenario 2: Changing the time duration of Scenario 1
Now, let’s assume she starts investing at age 40, and not at 20 but still contributes $100 monthly with the same 11% return. At 60, she will only have around $85,000 and her total contributions would be around $24000. So her total investment grew by 3.5 times compared to 12.7 times in the first scenario. You see the difference!
Scenario 3: Changing the monthly contribution amount of Scenario 1
If I change her monthly contribution to $200 (leaving everything else the same as in scenario 1), the total investment will grow to $1.4 million after 40 years. Isn’t this even more awesome?
Scenario 4: Changing the initial investment amount and reducing the time of Scenario 1
But what if she starts with a bigger initial investment of $50,000? In 20 years, with monthly contributions of $100, the money will grow to $480 K, which is still less than $760 K above.
This simple example teaches a fundamental concept in investing. Time and regular contribution are the two most important factors in making your investment grow!
In all the charts above, you will notice a steep increase towards the latter years.
Just keep in mind that these numbers are in nominal dollars, not adjusted for inflation. Since money loses its value over time due to inflation. Your real return is always less than the nominal return, by the inflation rate. On average after adjusting for inflation, the return in the stock market has been close to 7-8%.
So guys, hopefully, this post convinced you enough, so you can start investing for your future without further delay. Small contributions done regularly and starting early can make your investment grow to an astounding number.
Disclaimer: The information presented here is for educational purposes only. I am not a financial advisor and do not provide investment advice individually.
Taxes are a fact of life, but there are ways to reduce your tax liability without breaking the law. In this post, I’ll cover several strategies that you can use to minimize your taxes and keep more of your hard-earned money.
Contributing to tax-deferred retirement accounts: One of the most effective ways to reduce your taxes is by contributing to tax-deferred retirement accounts. For example, if you have a 401(k) (in the United States) plan through your employer, you can contribute up to $19,500 per year. These contributions are made on a pre-tax basis, which means that they reduce your taxable income. For example, if you earn $50,000 per year and contribute $5,000 to your 401(k), your taxable income would be reduced to $45,000. This can result in significant tax savings.
Claiming deductions and credits: Another way to reduce your taxes is by claiming deductions and credits. For example, if you donate money to a charity, you can deduct the amount of your donation from your taxable income. Let’s say you donated $1,000 to a qualified charity and your marginal tax rate is 22%. You would save $220 on your taxes.
Utilizing tax-advantaged investment accounts: Investing in tax-advantaged accounts like Health Savings Accounts (HSAs) or 529 college savings plans can also provide tax benefits. For example, if you have an HSA, you can contribute up to $3,650 per year if you have individual coverage or $7,300 per year if you have family coverage. These contributions are tax-deductible and can be used to pay for qualified medical expenses tax-free.
Timing capital gains and losses: If you have investments that have appreciated in value, consider selling them at a time when you have losses to offset the gains. For example, let’s say you bought a stock for $1,000 and it has increased in value to $1,500. If you sell the stock, you would realize a capital gain of $500. However, if you also have another investment that has lost $500, you could sell that investment to offset the gain, resulting in no tax liability.
Starting a business: Owning a business can provide tax deductions for expenses such as home office space, travel, and equipment. For example, if you work from home, you may be able to deduct a portion of your home expenses, such as rent or mortgage interest, property taxes, and utilities, as a business expense.
Taking advantage of tax-efficient investments: Some investments, like municipal bonds or index funds, are more tax-efficient and can help reduce your overall tax liability. For example, if you invest in a municipal bond, the interest you earn is generally tax-free at the federal level, and may also be tax-free at the state level if you live in the state where the bond was issued. Also, index funds are also more tax-efficient compared to mutual funds. This is because index funds tend to have lower portfolio turnover, which can result in lower capital gains distributions and tax liabilities.
Hiring a tax professional: Finally, it’s always a good idea to consult a tax professional who can help you identify additional tax-saving opportunities and ensure that you are taking advantage of all available deductions and credits.
Conclusion: In conclusion, reducing your taxes can help you keep more of your hard-earned money. By using strategies like contributing to tax-deferred retirement accounts, claiming deductions and credits, and taking advantage of tax-efficient investments, you can minimize your tax liability and maximize your savings.
As an investor, there are various topics and questions that you might find yourself searching for. Here are some of the most common and searchable issues and questions:
What are the pros and cons of active vs. passive investing?
Risk Management:
How to assess and manage investment risk?
What are the different types of investment risks?
How to protect investments during market downturns?
Investment Analysis:
How to evaluate a company’s financial statements?
What are key financial ratios for investment analysis?
How to perform the fundamental analysis?
How to analyze stocks for value investing?
Investment Vehicles:
What is the difference between stocks and bonds?
How do mutual funds and exchange-traded funds (ETFs) work?
What are the benefits of real estate investing?
How to invest in cryptocurrencies?
Retirement Planning:
How much money do I need to retire?
What are the best retirement savings accounts?
How to plan for retirement income?
What are the different types of retirement plans?
Taxation and Investment:
How are investment gains and dividends taxed?
What are the tax implications of different investment vehicles?
How to minimize taxes on investments?
Market Analysis and Trends:
What are the current market trends and forecasts?
How to analyze technical indicators in stock trading?
What are the factors that impact the stock market?
Investment Psychology and Emotional Intelligence:
How to control emotions when investing?
What are common investment biases to be aware of?
How to maintain discipline in investment decision-making?
Investment Tools and Resources:
What are the best online brokerage platforms?
Are there reliable investment research websites or apps?
How to use investment calculators and portfolio trackers?
I plan to cover these topics in my future posts, some I have already covered, so you can check those on my blog. Also, follow my youtube channel if you prefer listening to or watching the same content.
Remember, the investment landscape is vast and ever-evolving, so it’s essential to conduct thorough research and stay updated on relevant topics and trends in order to make informed investment decisions.
Are you tired of trading your time for money? Then it’s time to explore the world of passive income! It can be a great addition to your active earned income.
But first, let’s understand what it takes to generate passive income and what passive income really means.
Passive income is the money you earn with little ongoing effort or active involvement. It’s like having your money work for you while you sleep or enjoy your life. In other words, it is income that continues to be earned even when a person is not actively working or trading their time for money.
Today, I’ll cover my list of passive income sources that can earn you money while you sleep. From rental properties to affiliate marketing, we’ll take a deep dive into these opportunities and give you the tools to start generating passive income for yourself.
But before we look into these different options, I want to tell you that what may work for one person may not work for another depending on their skills, interests, and financial situation.
The ideas I am going to share have varying degrees of passivity. Some may require more upfront money than your time commitment, while others may require more of your time than money. However, all of these options will provide you with passive income in the coming years after the initial few months of time, effort, and investment. So let’s dive in.
1. Dividend-paying stocks:
Dividend-paying stocks are a type of investment that pay you a portion of the company’s earnings as dividends on a regular basis. For example, if you own 100 shares of a company that pays a $1 per share dividend each year, you’ll earn $100 per year in passive income.
Graph Growth Development Improvement Profit Success Concept
Of course, investing in the stock market always carries some risk, so it’s important to do your research and diversify your portfolio. One way to do that is to invest in index funds or ETFs: Index funds are investments that track a market index, such as the S&P 500.
Investing in an index fund can earn passive income from the dividends paid by the companies in the index. How much money you make from dividends, obviously depends on the amount you invest and which type of index funds you chose.
Many index funds and ETFs track dividend indexes, which are comprised of stocks that pay dividends. For example, the iShares Select Dividend ETF (DVY) tracks the Dow Jones U.S. Select Dividend Index, which is made up of 100 high dividend-paying stocks.
On their website, it says “The iShares Select Dividend ETF seeks to track the investment results of an index composed of relatively high dividend paying U.S. equities.”
By investing in an index fund or ETF, you can get exposure to a diversified portfolio of dividend-paying stocks with lower risk than investing in individual stocks. Additionally, many index funds and ETFs offer relatively low expenses, making them a cost-effective way to invest in dividend-paying stocks.
I have written several posts explaining what index funds are, so you can check those out here.
2. Rental Properties:
Rental properties are another popular form of passive income. By owning a rental property, you’ll earn rental income each month from tenants. You can also build equity in the property over time, which can increase its value and your passive income.
While rental properties can be a great source of passive income, there are also some disadvantages to consider like high upfront costs. Investing in a rental property often requires a large amount of upfront capital, which can be a significant barrier to entry for some investors.
Also, Rental properties require ongoing maintenance and management, which can be time-consuming and expensive. This includes routine repairs, handling tenant complaints, and managing rental payments.
In addition, there is always a risk of tenant problems, such as non-payment of rent, property damage, or legal disputes. These issues can be stressful and time-consuming to resolve.
Also If a rental property is not occupied, the owner may not generate any rental income. Turnover is also a common issue, as tenants may choose to move out at the end of their lease.
So, It’s important to carefully consider these potential disadvantages before investing in rental properties as a form of passive income. However, with proper management and a long-term investment mindset, rental properties can still be a lucrative source of passive income for many investors.
3. High-Yield Savings accounts:
3rd option is saving your money in a High yield savings account than saving your money in a traditional savings account. High-yield savings accounts are designed to help customers earn more interest on their savings while still having the flexibility to withdraw their money when they need it. So if it is paying 4% and you have $10,000 saved in it, you will get $400 as interest income at the end of one year vs getting $25 in a traditional saving account that pays 0.25 percent.
One of the primary advantages of high-yield savings accounts is that they typically have lower costs because they are online banks and not brick-and-mortar banks so they can pass those cost savings to their customers through higher annual percentage yield or APY this means that customers can earn more interest on their deposits over time which can help their money grow fast.
Marcus by Goldman Sachs, Capital One, Sofi, Lending Club, and Ally Bank are a few banks that offer high-yield savings accounts. You can check their website, but the interest rate they currently offer ranges from 3.75% to around 5% as of May 18, 2023.
Just keep in mind that Some, high-yield savings accounts may have certain requirements or restrictions, such as minimum balance requirements or limits on the number of withdrawals allowed each month, so you can check those out at their website.
Also, remember the interest rates on these accounts can fluctuate over time, so it’s important to monitor them regularly. But usually, they are a better option than traditional savings accounts as they also have atm services.
4. Create an online course:
This can be a great way to earn passive income from your expertise. Once you create the course, you can sell it on platforms like Skillshare, Udemy, or Teachable and earn passive income from each sale.
The initial work of creating the course and setting up the platform will require significant time and effort, but once the course is created and available online, it can generate income with minimal ongoing maintenance. So that’s when you will start earning passively.
Of course, the success of the course will depend on various factors such as the demand for the topic, the quality of the course material, the marketing strategies you use, and the competition in the market for that subject. However, if the course is well-made and marketed effectively, it can attract a large audience and generate a consistent stream of income.
Overall, creating an online course can be a viable passive income option for those willing to put in the initial effort and have expertise in a particular area.
5. Create a blog:
By creating a blog and attracting a large audience, you can earn passive income from advertising, affiliate marketing, or sponsored posts.
This can be a good passive income option for those with a passion for writing and a willingness to put in consistent effort over time. Starting a blog requires setting up a website, creating quality content, and marketing the blog to attract readers.
Once the blog gains a following, it can generate income through various channels such as affiliate marketing, sponsored posts, and advertising revenue. However, it may take a while for the blog to gain traction and generate substantial income, so you have to be patient about that. I do have a blog called your everyday economics. I enjoy writing and sharing my knowledge with others, so this was something I started doing exactly and year ago.
Again, like online courses, the success of the blog depends on various factors such as the quality and relevance of the content, the audience size and engagement, and the marketing strategies you use. Also, it’s essential to keep the blog updated with fresh and relevant content to maintain the readers’ interest.
So you can give it a try if you enjoy writing, and like keeping yourself updated about the topic, and most importantly you are willing to spend a couple of hours on the blog each week to keep it running. You will start earning on previous posts that you have written, and it can be a great source of income. In fact, Several bloggers have quit their full time and made blogging their full-time profession once they saw good results.
6. Renting out your unused space (such as a spare room or parking space):
This is another option for passive income but can only work for some individuals who have the space to rent. But if you have that extra space you are not using, it won’t harm to advertise it for renting purposes.
7. Investing in rental storage units:
This can be another good way to earn passive income. Once the units are built, you’ll earn rental income each month without having to actively manage them.
This option can be a viable passive income option, especially if the investor can acquire the units at a reasonable cost and in a prime location. Rental storage units can generate steady rental income with relatively low maintenance costs compared to other types of rental properties.
However, there are a few drawbacks to investing in rental storage units. The demand for rental storage units can fluctuate depending on the economy and season, which can impact the occupancy rate and rental income. Also, investing in rental storage units requires significant upfront capital, including the cost of acquiring the property, property taxes, insurance, and maintenance costs.
Investing in rental storage units can be a viable passive income option if done correctly, but it requires significant upfront capital and ongoing effort to maintain profitability.
8. Sell digital products:
Selling digital products can be another good option to get passive income: If you have skills in design, photography, or writing, you can create digital products like e-books, templates, or stock photos to sell online.
There are several online marketplaces where you can sell your e-books, templates, and stock photos. I will share Some of the most popular options, one of which I have used myself.
When choosing a platform to sell your digital products, you should consider factors like fees, payment options, and audience reach. You may want to try out a few different platforms to see which one works best for you and your products.
Amazon Kindle Direct Publishing – This is a platform that allows you to self-publish and sell your e-books on Amazon.
Etsy – This is an online marketplace for handmade and vintage items, including digital products like templates. I myself have an Etsy shop for handmade high-end fashion clothing. I will put its link in the description below. I have seen many shops selling digital products like templates, themed birthday party supplies, and party games that you can download and print.
Creative Market – This is a platform that sells a variety of digital products, including templates and stock photos.
Shutterstock, Stock, and Adobe Stock – These are platforms where you can sell your stock photos and earn royalties each time someone downloads your image.
Sellfy – This platform allows you to sell digital products directly to your audience, including features like payment processing and marketing tools.
When choosing a platform to sell your digital products, you should consider factors like fees, payment options, and audience reach. You may want to try a few different platforms to see which works best for you and your products.
9. Royalties:
If you’ve written a book, recorded music, or created other types of intellectual property, you can earn passive income through royalties. These are payments you receive based on the sales or usage of your work.
10. Make a Youtube channel
I would rate starting a YouTube channel for passive income as a good option, but it requires a lot of effort and time to be successful. The competition on the platform is high, and it can take time to build an audience and generate consistent income.
However, if you have a passion for creating content, and are willing to put in the work, it can be a rewarding way to earn passive income. The channel should fulfill one of two criteria, it should be either entertaining or educational.
YouTube’s Partner Program allows creators to earn revenue through advertising and other monetization strategies like affiliate marketing and sponsored videos where the creator is promoting a specific product.
As for me, right now my channel is not monetized, and I can’t reap any rewards of passive income yet, but hopefully, in the future, I will. I know many other successful YouTubers do it as a full-time job earning hundreds of thousands of dollars.
Conclusion:
So these are all the options, hope you find something you like and can make it work. Just remember that while passive income may not require constant active effort, it often requires initial setup, sometimes money investment, ongoing management, and occasional maintenance to keep it sustainable and growing.
