Inflation Ate My Paycheck 105: From Broke to Saver to Investor

As inflation rages across the nation and the world, there has never been a better time to become an investor. Gas prices are soaring, and the housing market is scary for anyone looking to enter.

If you are broke, there is no relief in sight. No more stimulus checks or pay raises. You’ll have to make do with what you have. You know that you need to be saving and investing; however, you don’t have a path to get there.

Welcome back to the Inflation Ate My Paycheck series (101, 102, 103, 104), where I try to help you during these times of duress. 

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1) Why are you broke? Step one of this process is determining why you are broke. First, let’s define what being broke means.

Cash flow is the difference between your income and expenses. Let’s say you have a monthly income of $5,000 and your expenses total $3,500; thus, your cash flow is $1,500/month.

Being broke is having a negative or zero cash flow. This means that every month your net worth stays the same or decreases. Living like this is not good and leads to massive amounts of stress, anxiety, and poor relationships. 

Overcome being broke. You’ll need to do whatever it takes to get out of debt and create positive cash flow during inflationary times. It won’t be pretty, but it’s not supposed to be a cakewalk.

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First, determine where you are burning money. I like to recommend the 50/20/30 budget that Elizabeth Warren talks about in the book “All Your Worth.” Take the time to determine what expenses and extras are dragging down your finances.

Then, you’ll have to take drastic measures like getting a roommate, a second job, or moving in with your parents. Again, getting out of debt is a monumental task that most people will never accomplish. 

You’ll have to decide “why” you want to get out of debt. You’ll fail without a mission statement as things get more demanding and require more effort. 

2) Become a saver. Once you get a handle on your debt, you’ll see small amounts of positive cash flow. Keep in mind that this may take a year to accomplish. Always think of these processes in years. However, with the right mindset, you can move much faster. 

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With these pockets of cash flow, you’ll want to become a saver and begin building your emergency fund. Why is an emergency fund necessary?

An emergency fund keeps you from going back into debt. Along the path of becoming an investor, there will be financial roadblocks. 

Your parents may become sick, you may lose your job, or your car may need maintenance. You don’t want to constantly use a credit card every time something gets on your radar. 

Build a high yield emergency fund. Your emergency fund does not have to be a savings account in your credit union. With inflation sitting at 8.5% annually, you’ll be losing a lot of money keeping your savings there. 

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I like to get a nice amount of yield on my emergency fund. Not only does it help me fight inflation, but it’s also just freaking cool to see your money grow. This is how I structure my emergency fund:

1. High Yield Savings account (10% of an emergency fund)
2. Savings “I” Bonds (20% of an emergency fund)
3. 30-Year Treasury Bonds (20% of an emergency fund)
4. USDC Stable Coin (50% of an emergency fund)

Your allocation percentages will vary by age and risk tolerance. The general concept is to keep your money growing at all times. Getting some cash from USDC and treasury bonds can help out in a pinch.

In fact, I received some interest from my 30-year treasuries yesterday. It’s nice to see your bank account increase without putting money there yourself. 

3) Become an investor. Once you have a handle on debt, produce cash flow, and build an emergency fund, it’s time to start investing. 

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Why is investing vital to the process? Think of investing as creating a garden. When you first look at the ground, it is full of weeds and uneven land (debt).

You first want to smooth out the land and add soil and compost (savings). Once you have a nice flat surface and excellent soil, it is time to plant your crops (investing). 

Your crops are what feed you and your family. Having flat land is great, but it doesn’t produce fruit. Investing gives you the fruits of life. Even better, your children can eat the fruits you plant today.

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Ways to invest. There are many ways to invest, even if you don’t have much money. I like to say you can buy, build, or create assets. Depending on your risk tolerance, time, and creativity, you may want to use all of these methods. 

1. Buy investments. Dividends, interests, rental income
2. Build investments. Automated business income (i.e., passive Airbnb business)
3. Create investments. Royalties (from video, writing, podcasts, etc.)

You have to find the best investing strategy for you. However, investing for dividends is a great way to start. 

With your free cash flow, you can invest in a dividends portfolio that will generate more free cash flow. Yes, the more you invest, the more money you will have to invest. It’s crazy how the process works.

Whatever investing method you choose, you will harass the power of compounding. “The Compound Effect” details how compounding plays a special role in our lives (either good or bad).

Conclusion. This article is short because it is not supposed to be the end-all-be-all of becoming an investor. There is no one-size-fits-all method to getting to the final stages of investing. 

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The most important part of the process is understanding that a) you need to start investing and b) no one is coming to save you.

Many people blame their circumstances on things that are out of their control. This leads to Struggle-Mania or the endless cycle of debt. The problem with struggling is that we pass this mindset down to our children.

You can get ahead of the financial power curve by living below your means, paying off debt, saving an emergency fund, and investing in income-producing assets. 

My wife and I paid off debt in 22 months, and now we can pass along those lessons to our children. They won’t need to struggle. We overcame our ignorance of the process of wealth building. What lessons do you want to pass down to your children? 

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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it.  I have no business relationship with any company whose stock is mentioned in this article. All Right Reserved Military Family Investing