This month, I started reflecting on the money habits I have developed over the years.

It actually wasn’t until I started working at my first job out of college that someone actually took me aside and gave me solid money advice that would help me build wealth.

One of the money lessons I got very early on was from my boss Joe on the power of compounding. Joe, took out a spreadsheet and showed me how just the help of time, a small amount of money could grow into small fortune.

That quick lesson that he took the time to share helped change the trajectory of my finances.

​Because of the impact that lesson/Joe had on my life, I want to try to pay it forward.

WHAT YOU'RE ABOUT TO DISCOVER...

Understand your true risk tolerance

I started working on Wall Street in 2000, it was towards the end of dot com boom. My desk was right next to one of the managers in the group.

Everyday, he would check his investments and complain of how much money he was losing in the market. He would say, “I bought it at such a good price, it went up so much and now it’s basically worthless!”

By listening to him on a daily basis, it was easy to tell that he was miserable and full of regret.

After I started seriously learning about investing, I realized my manager’s real problem.

He hadn’t taken the time to understand his true risk tolerance.

At a high level, your true risk tolerance is how well you can handle losing money. Many people tend to ignore their risk tolerance. They only truly become aware of it when their investment is going down.

Knowing your risk tolerance helps ensure your investment choices align with your comfort level regarding potential losses. This alignment is crucial for maintaining peace of mind and avoiding stress about market fluctuations.

By investing within your risk tolerance, you're also less likely to encounter financial hardships due to market changes.

​Takeaway: Do yourself and everyone around you a favor, don’t invest beyond your risk tolerance. It will just provoke anxiety, lead to impulsive selling and make you not that fun to be around.

Awareness of How Banks Operate

Working in Money Markets gave me an opportunity to get a closer look into how banks actually work.

Did you know a bank’s primary function is not just to save your money, but to use it as a tool for its own profit generation?

Banks earn more money on your deposits than you do. They invest and lend your money to others at a higher interest and then give you a portion of the returns.

By understanding the role and motives of banks, you can make more informed decisions about where to keep your money and how to manage it, such as using different financial instruments for different purposes.

Checking accounts are best used for daily transactions

High yield savings accounts are good for emergency funds and short term (under 3 years) savings goals.

Investing in stocks, bonds, and funds offer higher yields and are better for long term growth.

​Takeaway: Don’t just settle for a low-interest savings account, explore other options for better returns.

Building the Habit of Saving

Pearl was my first co worker and first mentor. She was an older lady that wanted to ensure I would save some of the money I was making.

She told me, “Nicole for every dollar you make, save a dime.” From that day on, I did. That rule instilled in me a fundamental habit of saving.

The power of this lesson lies in its simplicity and its profound long-term impact on your financial stability and growth. It's simple and achievable, which means you're more likely to stick with it.

This saving rule also encourages financial discipline. It teaches you to live within or below your means, ensuring that you're always saving a portion of your income, regardless of how much you earn. This discipline is a cornerstone of good financial health and can help prevent overspending and debt accumulation.

​Takeaway: Why not use the “make a dollar save a dime” rule as a foundational step towards building wealth and achieving financial independence?

Closing Thoughts

​In wrapping up, these lessons are more than just tips; they are pillars of a sound financial mindset. So, please take these insights, apply them to your life and see how they impact your finances.