Managing your money isn’t always intuitive, and it can present significant challenges, especially if you’re just starting out. But no matter where you are in your financial journey, a few words of sound advice can never hurt. When it comes to financial wisdom, you could do a lot worse than listen to someone like Tony Robbins.
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Over the years, the financial guru and motivational speaker has offered a lot of practical advice that can help just about anyone, regardless of their current situation, set and achieve their financial goals. Keep reading for four essential tips from Robbins that you can use to move toward your own financial success, one step at a time.
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Harness the Power of Compound Interest
When it comes to long-term objectives like retirement savings or saving for a child’s college education, compound interest can be your most powerful financial ally — in fact, Robbins wrote in a blog post that it gives you an “unsurmountable edge” in making your investments grow.
The amount you need to set aside for these kinds of goals can sometimes seem too large to be realistic, but relying on the power of compound interest can make a huge difference.
If you know how to leverage compound interest, major goals become much less intimidating and a lot more doable. In a nutshell, by reinvesting the interest you earn on the initial amount of money you put in (the principal), you increase your total savings, as well as the amount you earn in additional interest over time.
This compounding effect isn’t linear, and it can exponentially increase the amount of money you’re able to save over long periods. Whether you have your money in a high-yield savings account, bonds or mutual funds, the key is to start early, stay consistent and be patient enough to let time and compound interest work their magic.
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Know the Difference Between Pretax and Post-Tax Retirement Plans
Choosing the right retirement plan is especially important, and Robbins emphasizes the need to understand how pretax and post-tax retirement plans differ, and which might be best for you. He wrote on his blog, “While millions of Americans have a retirement account in place, the scary truth is, they have not considered the impact of taxes in retirement.”
With a pretax retirement plan — like a 401(k) or traditional IRA — you contribute a portion of your earnings before any taxes are taken out, which effectively lowers your taxable income for that year. Though you’ll still have to pay taxes on the withdrawals you make during retirement, you’ll be able to set more aside during your working years.
Another approach is a post-tax retirement plan, like a Roth IRA, which means paying the taxes up front while you’re still earning. Though this means you’ll take home less of your current paycheck, the withdrawals you make after retirement will be tax-free. Robbins recommended a Roth account if you think taxes will be higher when you’re retired.
He wrote, “You must learn how to protect your money from unforeseen taxes in retirement.” To do that, you’ll need to make sure you understand your options and invest strategically.
Commit to Consistent Savings
No matter how much money you earn, Robbins wrote in a Facebook post that saving a portion of every paycheck “makes sense” for financial security. He recommended setting aside a fixed amount to save and invest each time you get paid.
This kind of steady effort can make a huge difference over time — especially if you put his advice about compound interest to use.
This practice can also help you nurture a more disciplined approach to savings that aligns with both your present-day financial reality and your long-term goals. Determine an amount that you feel you can reasonably save from each paycheck and put it into a high-yield savings account or an investment account. Stick with it, and you can see significant returns over time. As Robbins wrote, “It’s better to start small than not start at all.”
Broaden Your Financial Knowledge
Robbins wrote on his blog that financial literacy “can feel like learning a new language,” but that doesn’t mean you should give up on learning. He stressed that a solid understanding of basic financial concepts, like common vocabulary and how to read a financial statement, is vital. And if you want true financial freedom, he wrote, learning how to invest is the next step.
Studying finance-related books, attending online courses, participating in webinars and reading online articles about personal finance can all significantly improve your financial literacy.
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This article originally appeared on GOBankingRates.com: 4 Genius and Practical Money Tips From Tony Robbins
