How To Rig the Economy In Your Favor

Bernie Sanders believes that there is a group of rich, international capitalists conspiring to rip off the poor and middle class. While that might be partly true, the poor and middle class do far more to rip themselves off. 62% of Americans do not have $1,000 in a bank account. A majority of college students carry credit card debt. The average millennial only has $16,500 in their 401k, and that figure includes workers all the way up to age 34! To use a biblical analogy, we have a lot of planks in our eyes that we need to clean up first before we blame millionaires and billionaires for our financial problems. Here are a few practical ways to rig the economy in your favor. 

Increase Your Retirement Savings to 15% of Your Pay

401k plans are an absolute giveaway for the average worker. While many of them have subpar investment choices, the tax deduction is what you should get excited about. Most under 30 college educated types will fall comfortably in the 25% tax bracket, plus whatever they pay in state income taxes. In most cases, you can put away money for retirement and avoid these taxes. Say you live in Georgia, make $75,000 a year, and save $11,250 to your retirement annually. That figure actually only costs you about $11,250 * (1-0.25-0.06) = $7,762.50 in take home pay.

Saving 15% of your pay is pretty much the minimum for anyone hoping to retire in their 50’s. However, most people limit their savings to whatever their employer matches. That is a fantastic idea to not leave any free money on the table, but you need to be more aggressive if you plan to quit before the typical 65 year age. I will be even bolder and suggest that many people could save 15% of their pay in their 20’s and completely skip all contributions in their 50’s and still be much better prepared financially for retirement.

If you are not sure how to do this, increase your contribution and watch how fast you run out of money. You will be forced to adjust your spending habits, and your 401k balance will grow and grow.

Carry No Personal Debt

If you come out of college with credit card or student loan debt, it’s a freaking emergency. Do not act like everyone else has it so you can too. If you engage in this mindless consumer behavior, you will be as broke as everyone else. Many professions like law, medicine, and business result in six figure debt loads after graduate study. That’s fine. Not everyone has rich parents to cover their student expenses, and that limitation should not prevent you from pursuing the career of your choice. That said, once you are out of school, if you are working in a private sector job you need to be paying that debt down with every dollar you have.

Prioritize paying down debt over almost everything. A heavy debt load can stop you from getting married, buying a house, taking a more fulfilling job, or even getting the girlfriend or boyfriend you want. There is nothing attractive about someone who let their debt build up rather than responsibly attempt to pay it down. For folks with extremely high debt loads, you should seek out a student loan counselor who can work with you on what your options are. If you work for a non-profit organization you should be very careful as to your student loan strategy so you get maximum benefits such as loan forgiveness. For anyone in the business world though, get your debt down fast.

A quick note about carrying debt on 0% credit cards. This is a gateway drug in my opinion. It is like using copious amounts of marijuana with the expectation that you will never try anything harder. For many people, that will be true. However, for a substantial minority, the 0% credit card is only the beginning. Just never run up credit card debt. If you cannot to afford to go to the ATM and pull out cash to pay for it, you do not need it. Plain and simple.

Maximize Your Income At Work

Many people are afraid to ask their boss for a raise or seek out another job opportunity. Remember that they call it work because you would not be there if they were not paying you. There are very good reasons to accept lower compensation. These can include family friendly working conditions, good benefits, vacation, feeling like you are making a difference, research opportunities, or friendly coworkers. I am not suggesting that work is all about money.

However, what I am saying is I have seen too many friends accept a fraction of what they are worth financially to not write about it. Especially female friends of mine seem to feel bad about asking for more pay. That should not be the case. It is 2016 and women deserve to make the same salary as men, but your employer will not get up and magically give this to you. You must ask for it. When asking your boss for a raise, show the positive impact to the business and the profits you have generated. Be polite and make a business case why it is important to increase your compensation. If your boss declines you, then you should look around at other opportunities just to make sure that you know your true worth in the marketplace.

Invest in the Stock Market Instead of Leaving Your Money in the Bank

An elderly man I know made a modest salary and ended up with millions of dollars in retirement. Another elderly woman I know ended up having hundreds of thousands of dollars in the bank, but she had a higher savings rate than the man. How did these two individuals end up with such different sums? Whenever the man had extra money laying around, he put it in the stock market. He would buy large company stocks that paid dividends and mutual funds with low expenses. The woman put way more than what she needed for emergency expenses into Certificates of Deposit. To gain access to her money, she must pay early withdrawal penalties.

Banks love it when risk averse workers place all their savings in savings accounts. The banks lend it out to individuals and businesses at higher interest rates and give you way less. Almost always, this interest rate is below the rate of inflation, especially in today’s low rate environment.

Another consideration is that dividends and capital gains are taxed at extremely low rates. Interest is taxed at the same rate as what you pay at work. I just prepared my 2016 taxes and my marginal rate on interest was around 30% and my capital gains rate was around 0%.

So not only can you make way more money if you invest in stocks long term, you can pay way less in taxes too. If you do not know where to start, you can open an account with Vanguard and invest in a Total Stock Market Index Fund with a few thousand bucks. Most responsible working people stack the deck against themselves by putting everything in the bank and watching taxes and inflation destroy the value of these savings over the years. Do not be one of them. When you buy stocks and they fall in value, hold on and do not sell anything. If you have more money coming in from work, buy more stocks. You will become extremely wealthy long term if you stick to this plan.

Stack the Deck and Rig the Economy in Your Favor

 I get why Bernie Sanders has so many supporters among the millennial generation. We have had to deal with skyrocketing student debt, a terrible job market, and the highest healthcare costs in history. On top of this, we carry credit card debt, do not ask for raises, and leave any savings we have earning 0.5% interest in a bank that charges us a monthly $29 service fee. We feel ripped off and the only way to strike back is to elect the guy that none of these rich people want. We feel like he will be able to attack these hostile corporate interests and balance the economic playing field again.

Here is a better prescription. Get out of debt completely. Do not buy a car, a house, or anything over $100 until your student loans are completely gone. After that, increase your personal contribution to your 401k to 15% of your salary. Work really hard wherever you are at, and then ask your boss for a raise and justify why. If he or she refuses or you receive less than you expect, look around for another job. When you get this job, ask your employer to match it. If they do not, take the other job. After paying off your debt and contributing to your 401k, if you have any money left over you should invest in the stock market instead of letting the money languish in a bank account.

There are plenty of reasons to be down on the current economic system that takes advantage of people who do not understand personal finance. You do not have to be one of those people. Get educated, get out of debt, get your retirement in order, get the most out of your job, and get invested. That is a far better way to rig the economy in your favor than entrust your financial well being to a politician.

Any other suggestions please feel free to add them below in the comments section.