Make your money work for you, and your close ones

Photo by Bethany Newman

The monster of Lifestyle Creep

After a year of earning a salary, I started feeling prosperous, and with this feeling came an unexpected change of behavior — I was more willing to spend money. It took some introspection to realize the cause is a phenomenon known as 'lifestyle inflation.'

Checking my transaction history brought light to this reality and revealed it had been affecting me for longer than expected. I decided to take the spending trend under control, which meant taking both immediate and medium-term measures.

First, I set up a savings account to store the extra cash, following the adage: Out of sight, out of mind. Now, a feeling of emergency arose every time I sighted that lower figure on the balance sheet. To ensure my checking account would only be used for recurring expenses (nothing more!), I set up an automatic monthly transfer to my savings account.

I intended to keep my purchasing power, so the next logical step was deciding on an investment strategy. Stacking the savings account forever is out of the question. The after-tax interest can barely keep up with inflation.

Start before you're ready!

It took a few months to build enough confidence to make my first trade. Although I studied a dozen books, read numerous articles, and watched countless videos on the topic, what made me take the first step was receiving my very first interest earnings. The amount was still humble, but the feeling was intense. Like magic, that money arrived without demanding my labor.

Until today, receiving any dividend or interest payment prompts happy sentiments within me, regardless of the amount.

Going safe and easy

I found all the knowledge I needed in the book 'The Intelligent Investor' by Benjamin Graham. In it, I discovered the asset allocation for my portfolio — equal parts of domestic equity, international equity, and low-risk bonds.

The author also lays out how index funds represent a good option for each of the three portions of this portfolio structure. It requires less time, effort, and expertise spent with market research and tax optimization while keeping a decent return on investment.

Building a brighter tomorrow

Katherine Collins, in her book 'Nature of Investing,' goes into the role of investing in our lives and communities. It exposes how a process based on connection and mutual benefit is handled now as a mechanized iteration of finance.

Over the year, the value of community has become clear to me, and because of it, I intend to gradually shift from index funds to investment projects, which align with my principles.

This strategy has greater exposure to risk, so I understand why many will skip it. I favor supporting projects that I approve of, even if it means ditching funds comprised of likely more profitable but misfit institutions.