3 Smart Money Moves That Can Help You Build Financial Stability

Effective ways to save, invest, and build wealth for your future

According to one report, over 53% of adults say that thinking about their financial situation makes them incredibly anxious. In contrast, 44% say that talking about their finances makes for an even more stressful situation.

What’s more concerning with these figures is that they were released in 2018 when the economy was experiencing growth and unemployment was declining. Take into consideration the negative impact that the global COVID-19 pandemic has had on people’s finances since 2020, and, likely, these figures have only grown worse.

It’s evident that for most people, the world of finance is an intricate maze that they can’t seem to ever find their way out of. Any path they seem to take has its fair share of twists and turns but only seems to lead them to dead ends.

But, like any maze, no matter how intricate it may seem, there’s always a solution. So when it comes to creating financial stability, here are three smart money moves you can make that will positively impact your finances in the future.

1. Understanding the “why” behind your spending

If you ask someone what “creating a budget” means, they’ll most likely respond that it includes a lot of number crunching, complicated excel sheets, and knowing the ins and outs of every dollar. People have this mindset because they’re attempting to create a budget that allows them to keep their current lifestyle unchanged while at the same time creating financial stability.

For example, one study found that the average person spends at least $74 on a night out with friends. Let’s say you go out four times per month; that would equal $296 spent per month on drinks, which is $3,552 per year. You can crunch all the numbers you want but trying to force this aspect of a lifestyle into a budget that realistically cannot support it is a recipe for disaster.

To simplify this process, you’ll want to know what you spend money on and, more importantly, the why behind it. It’s easy to say you spend x amount of money on entertainment per month, but it’s when you start analyzing the why behind your spending that you’ll begin to make smarter money moves.

For instance, one study found that the average person is subscribed to four streaming services — spending $48 per month and $576 per year. Defining what your spending money on here is easy, but it’s when you start asking yourself why you’re spending this much that you may notice things like:

• The last time you used one of your streaming services was weeks ago
• How yesterday you spent 30 minutes browsing but couldn’t find anything to watch on another streaming service

Understanding the why will allow you to prioritize things that give you value and get rid of the excess clutter. For instance, using the average figures from above, let’s say we did the following:

• Before: We were subscribed to four streaming services totaling $576 per year
• After: We kept only one streaming service (Netflix standard) which would cost us $13.99/month or $167.88/year
• Result: We would be saving $408.12 per year

Adopting this type of mindset will allow you to become smarter with your money by being more realistic about how your lifestyle fits your budget. Having four streaming services turns into one, eating out five times a week turns into eating out twice a week, shopping for new things every month turns into shopping for new things every three months.

Takeaway

Once you start asking yourself why you’re spending money on certain things, it’ll bring up more deep-rooted questions that will help you decide what’s important and what isn’t. You’ll notice a compounding effect start to take shape as you readily will find savings in more places than one.

2. Dividend reinvestment can automate savings

Most people usually view the stock market as a scary place. I’m sure many will reference scenes from the movie The Wolf of Wall Street, which depicts former Wall Street broker Jordan Belfort’s life, who used questionable sales tactics to scam millions out of investors by selling them useless penny stocks.

However, the stock market is more than penny stocks, Reddit forums, and Jordan Belfort-type scammers who just want to steal your money. It’s a legitimate place that can help you grow your money in more ways than one. In this instance, we’ll be focusing on dividends or, better yet, dividend reinvestment plans.

If you’re unfamiliar with what dividends are, a simple explanation is that they’re payments made by corporations to their shareholders as a type of profit sharing.

Here’s a dividend investment example:

Say you buy 1,000 shares of company XYZ for $10 each, and each share pays a $0.30 annual dividend. You would have invested $10,000, and over the next 12-months, receive $300 in dividend payments — a 3% growth on your investment.

Now, consider that Marcus, a high-yield online savings account offered by Goldman Sachs, has an APY of .50% (4X the national average), and that same $10,000 would only grow by $50 in the same 12-month timeframe — a pretty big difference.

The other benefit to this smart money move is the growth potential of enrolling in a dividend reinvestment plan — DRIP for short. Enrolling in a DRIP is not only easy, but it enables you to reinvest the money you made by purchasing more shares of the company that paid the dividend.

Here’s a DRIP example:

From the example above, we know that at the end of a 12-month cycle, we made $300. But instead of cashing out, we decide to enroll in a DRIP. Therefore, the $300 is reinvested to buy more shares of the company XYZ. If we say the share price is still at $10, the $300 will give us an additional 30 shares, and in the next 12-months, we would be earning $0.30 on 1,030 shares. This can open up significant opportunities to grow your money in the long term.

Takeaway

Dividend reinvestment plans are a great way of growing your money in a market that is becoming more complicated with each passing year. One recommendation I have is that you view a list of Dividend Kings, which are corporations that have proven their business models and products work by showing growth year-over-year. Investing in these types of corporations is one way of decreasing your investment risk due to their proven track record.

3. Reinvest what you save into yourself

One of the keys to creating financial stability is investing in yourself by learning a new skill, which you can then market to make money from in the future. The great thing is that developing these kinds of skills doesn’t require a fancy college degree as they did in the past. Thanks to guided learning websites like Udemy, you can learn new skills for under $10.

For example, about a year ago, I bought a Udemy course titled The Web Developer Bootcamp 2021 by Colt Steele, which cost me $9.99 and took me three weeks to complete. From then on, I’ve made a few hundred dollars per month, as a freelance developer, through websites like Toptal, where web developers charge anywhere from $50–150 an hour.

You can use Udemy to learn almost any type of skill that you have an interest in to then enter the freelance market, which according to one report, is growing at a rapid rate:

• 59 million Americans are now freelancing, accounting for 36% of the total workforce
• 36% are full-time freelancers, with some earning well over $200K per year
• 75% of freelancers say they make the same or more income than they did at their traditional job
• 2020 saw a 22% increase in total annual freelance earnings — $1.2 trillion.

According to another report, which comprised a list of the highest-paying freelance jobs of 2020, graphic designers made an average of $100,000 per year while copywriters charged a minimum of $50 per hour. These are pretty solid returns on an initial investment of $10 and a few weeks to learn a new skill.

Takeaway

Don’t count yourself out when it comes to learning something new. It can seem daunting at first, but things will start to click once you see some momentum. Set aside a specific timeframe where you’ll devote to learning, which will help you build consistency. Investing in yourself in this way is one of the best money moves that you can make.

One quick tip I have is if you’re planning on buying a Udemy course and see that it’s at full price, wait a few weeks, and Udemy will have a sale. They have sales frequently, and courses get discounted by up to 90% at times.

Final thought

While you don’t need to be a rocket scientist to create financial stability, you do need to stretch your thinking when making smarter money moves if you want to positively impact your future.

This means being honest with yourself when answering why you spend money on certain things, enabling you to declutter spending habits by keeping what brings you value and discarding the rest. It means forming a deeper understanding of the stock market, which will enable you to see its long-term wealth-building potential that you can take advantage of. It means understanding the importance of reinvesting what you save into yourself by learning new skills, which will allow you to profit years into the future.

P.S. I want to take a moment to thank you for taking the time to read my story; I hope you found it helpful as well as enjoyable, and until next time — I wish you all the best.