Vivian Tu, aka Your Rich BFF, believes it’s possible to get good with money and become rich by following a few simple steps.
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“My answer is pretty simple,” she said while speaking with Hello Sunshine. “All you have to do is STRIIP. STRIIP is an acronym and an easy-to-follow step by step on how to be really smart with your money.”
Here are the steps Tu said everyone who wants to get rich and stay rich should take.
Save
Tu’s first step is to build up your emergency savings fund.
“What I always say is the very first thing to do is to save three to six months’ of your living expenses in a high-yield savings account,” she said.
“Without an emergency fund, bad things can happen. If your roof caves in, or the wheel falls off your car, or you happen to break your arm … you want to make sure you have money to cover those last-minute expenses that you don’t plan for. Otherwise, it could put you in an even worse financial situation.”
Tu also emphasized the importance of keeping this money in a high-yield versus a traditional savings account.
“The reason we use a high-yield savings account is to make sure we are earning as much interest on our money as possible,” she said.
Learn More: 5 Rules Every Rich Person Uses To Make Money, According To Money Expert Ramit Sethi
Strategically Pay Down Your Debt
The “T” in Tu’s STRIIP method stands for “total debt.”
“We have to think about debt as a holistic picture,” she said. “My favorite thing to do is to rank your debt from highest to lowest interest rate and pay it down in that order.”
Continue to make the minimum payments across all of your debts, and then with any additional funds that you want to put toward debt, pay down the debt with the highest interest rate.
“When you tackle your debt in this formation, not only are you paying your debt down in the fastest timeline possible, you are paying the least in interest,” Tu said.
Plan For Retirement
The “R” in STRIIP stands for “retirement.”
“It’s not enough to have a good time today — you want today you to take care of future you, and one of the easiest ways to do that is to plan for retirement,” Tu said. “I highly recommend tapping into tax-advantaged accounts, like your 401(k) through your employer or a Roth IRA, which you can get as an individual. These are really great ways to not only save on taxes, but invest for the future.”
Invest
If you want to build real wealth, Tu said that you have to invest in the market in addition to investing in your retirement accounts.
“A major mistake that people make is putting their cash in those investment accounts [or] just letting it sit in cash,” Tu said. “That cash is not going to grow. You actually have to buy stuff and by stuff, I mean investments.”
She recommends investing in index funds that track the S&P 500 or the total stock market, or mutual funds like a target date retirement fund.
“People get confused about this one, but all you have to do is calculate the year where you personally turn 60, and then see which of the target date retirement funds is most closely related to the year that you turn 60,” Tu said. “Once you buy that, it’ll actually change over time as you get older to become a good fit for you at a specific age and those needed investments.”
Another option is to choose a brokerage that has a robo-advisor.
“Essentially, what you’ll do is take a quick quiz about your money goals, your retirement age, how much you make [and] where you live, and then they’ll build a diversified portfolio for you,” Tu said. “It’s super easy, and that way you get to be a lazy investor.”
Prioritize Increasing Your Income
The second “I” in STRIIP stands for “income.”
“I’m sure you’ve heard a trope about how millennials can’t afford homes because we love avocado toast,” Tu said. “Sure, scrimping and saving is important, but it’s a lot easier to make $5,000 more each year through asking for a raise than it is to cut out $5,000 worth of discretionary expenses.”
When you make more money, you can make discretionary expenditures without feeling the guilt.
“I want to make sure that you are still enjoying your life while being financially responsible, so it’s so important to prioritize income,” Tu said. “Ask for a 10% to 15% raise every single year. Am I saying you’re going to get it? Not always, but it’s really important to be asking, because if you don’t ask, you don’t get.
“By doing so, you are making sure that your manager understands what you want, how you want to be compensated and your expectations for your career goals.”
Plan
The final step in Tu’s STRIIP method is to have a holistic financial plan based on your own personal goals.
“You do not get to ride off into the sunset on your happily ever after if you don’t have a plan, and it doesn’t need to look like everybody else’s,” Tu said. “For some folks, the happily ever after means retiring at 30 and living in an Airstream. For other people, it’s retiring at 60 and making sure that they can help their kids with expenses and have a vacation home and always make sure they can take care of their Golden Retriever named Fido.”
Whatever your personal goal is, Tu said to calculate how much that will cost each year and how much money you would need to have saved and invested to be able to back into that via interest or capital gains.
Bonus: Collaborate With Others Who Can Help You Reach Your Goals
Tu’s final step is to seek collaboration, not competition.
“Don’t consider other people’s success your downfall,” Tu said. “In my early 20s, I felt that somebody else’s win was my loss, that there wasn’t enough to go around, that if someone else got the promotion, I was never going to get one. … I think a lot of the … taboos around money stem from that feeling of not being good enough.”
Tu believes that everyone has the potential to be rich and stay rich — but you need to surround yourself with the right people.
“You deserve richness in your life, and it’s going to be so much easier to do if all the people around you are supporting each other versus tearing each other down,” she said. “Yes, I know this might sound a little soft, but at the end of the day, you’re not trying to go fast, you’re trying to go far, and it is always easy to go far in your life with friends by your side.”
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This article originally appeared on GOBankingRates.com: 7 Steps To Get Rich and Stay Rich, According to Money Expert Vivian Tu
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