One of my clients was concerned about her financial future. As an entrepreneur now, instead of working for an organization, she’s no longer building up her pension. Now it’s up to her to create her own retirement plan.
This is making her susceptible to the hype of marketers who are promising 7 figure incomes. Maybe some of you can relate.
I say it all the time — be wary of signing up for any program that tempts you with high income possibilities. They’re usually expensive, and are often a bad investment.
Also, it’s not healthy to be in an environment that keeps prioritizing the dream of huge external rewards: it’s important to understand your own extrinsic vs. intrinsic motivations in business.
Still, it is wise to plan for one’s financial future…
However, instead of dreaming of huge returns from get-rich-quick schemes, what can we do to make sustainable and realistic progress towards for retirement?
My basic rules of personal finance:
- Spend less than you earn, but I’d give an exception if you’re only working on your business and not in a job. Still, don’t violate the next rule…
- Always keep a buffer of money for living expenses… basically giving yourself enough time to get a job if needed. For example, if you’re confident that you can get an acceptable job within 3 months that will pay all your bills, then you just need 3 months of buffer.
- With any extra money beyond the buffer, pay off your highest-interest debt first. Because not having to pay high-interest debt is your most secure and reliable financial investment.
- Never borrow money, unless the interest is extremely low. (My personal rule: never more than 3% debt interest… see below.)
Besides these rules, what else can you do to secure your financial future? I have an unusual recommendation…
Build your online audience.
Having a loyal and growing fan base is the smartest investment in your financial future.
When you have an audience that genuinely cares about you, you can sell anything that you believe is truly worthwhile for them, and they will trust you enough to consider it. They believe in you and your recommendations.
With a genuine following of loyal fans, you will never be in want. You will be able to use one or more of these options:
- Create and sell your own products
- Recommend and sell someone else’s product
- Or simply ask your audience for financial support
These options become more viable for you, the more that you grow a genuine fan base. This is why I often encourage you, with articles about authentic content marketing, to build an audience.
Start with this one: How To Build an Audience from Scratch.
In the distant past, we humans found long-term security in our tribe. As long as we earned the respect of our tribe, we would always be taken care of. Now, in our contemporary individualistic society, we each have to create our own tribes.
With the internet, we have the opportunity to be found by true kindred spirits from all over the world. We can create a global tribe of people who deeply resonate with our authentic self. This is how we create long-term security in modern times.
How I build such an audience, and what I recommend for everyone, is to create consistent, authentic, relevant content.
Yet, that content still needs to be distributed for enough people to see it. My favorite way of distribution is through Facebook Ads.
In the past few years, my Facebook Ads has returned me an average of 90% ROI (the lowest in any given month has been 40% and the highest has been close to 200%). Even the low range of 40% is a far higher return than investing in any credible financial fund. Increasingly, FB Ads is where I’ve been putting extra money.
You can learn my comprehensive system in my Facebook Ads Course.
The bottom line is to look at the process of growing a genuine audience as your most secure retirement — to have lots of people who care about you, because you cared enough to serve them for years.
A Low-Maintenance, High-Security Financial Investment: Index Funds
For an article about secure investments, I have to mention the most common-sense advice: index funds.
Once you have only low-interest debt (under 3% in my opinion), then just continue paying the monthly minimums on those. Instead of trying to quickly pay off the low-interest debt, it is usually a better deal to put extra money into a stock market index fund, which is a basket of all the stocks in the market.
Never try to pick specific stocks because you’ll almost certainly lose in the long-term.
You can even use a socially responsible fund as long as it encompasses a wide variety of securities (the average mutual fund has 90–230 stocks), to even out the risk from any specific industry or company. The more securities in your basket, the lower your risk.
The historical ROI for the stock market has been conservatively estimated at 7% annual. So, before you decide on an index fund, look at their historical returns and see if it is likely to continue 7% annual ROI or more.
You’ll also need to account for your tax rate (in the USA, capital gains tax is 15%), as well as inflation rate which in the US has historically been about 3%, although past 20 years has averaged 2.14%.
Be sure to also account for the ongoing fees of your fund. Let’s say it’s 0.25%.
Therefore, an inflation-adjusted ROI for a stock market index fund would net you about 3.1% after fees and US taxes.
This is why I have a personal rule of 3% being the threshhold for what I consider a low-interest debt. Having debt is like having a negative-investment. A debt at 5% interest is like having an investment that nets you -5% per year! So if you have such a debt, and yet are earning 7% in the stock market (which we now know is more like 3% after taxes and fees), you’re still losing 2% per year.
I’m not a financial advisor, so what I share here is my own personal musings. My advice could be drastically wrong for your financial situation, so be sure to check with a qualified financial advisor before making your own decisions.
What I do know is that creating and growing you own audience of true fans is the modern equivalent of having long-term security of a tribe that cares about you.
Originally published at www.georgekao.com.