money | The Caleb Barney Collection

What to do with your money

First of all, let me say that I’m NOT a financial advisor. I’m not an expert with personal finances. I just like reading and learning about finances. The below “strategy” is not financial advise to anyone. It is only my current way of thinking about how I want to save and invest my money.

In The Richest Man in Babylon, they say that all people should pay themselves first and save 10% of any income they earn. I say, why not more? If you can optimize your life, it’s very possible to save more money without feeling deprived.

It all starts with having the right mindset (being grateful for what you have and not feeling like you have to “keep up with the Joneses”). You aren’t depriving yourself when you save at least 10% of your paycheck. You’re paying yourself and investing in your future. The first part of the saving should go towards your emergency fund. Once you have that, the savings should be invested (see where I like to diversify my portfolio below).

Second, you need to be intentional with where your money goes. It’s very easy to let your lifestyle creep up to the amount that you make. I remember when I got my first job out of college. I really didn’t make much. It was probably the equivalent of $35,000 for a year. But I felt RICH! After increasing my income, it would have been easy to increase my expenses too. But if I could live happily off of $35k per year, why should I not be able to bank the balance of the money when I make $50k, 80k, or more than $100k? Control your expenses and aggressively pay off all of your debts (with the possible exception being your mortgage).

Third, you need to beef up your investments. Have real, liquid cash for your emergency fund. Obtain credit lines if you don’t have a 3-6 month emergency fund, but keep in mind that credit lines are more like fake liquidity and can be removed at anytime. As far as investing is concerned, if you’re not an expert in a field (where you have a leg up on the competition), I think it is wise to diversify…

1. Some money in the bank (money market accounts, CDs, high interest savings accounts, no fee checking accounts)…this is your “emergency fund” and your everyday spending money. Don’t worry about optimizing your returns here. This is about convenience/accessibility.

2. Keep some money in stocks (primarily index funds…and cover different spectrums of aggression/conservatism, different countries- U.S. vs Europe vs developing nations, different categories – tech vs medical vs natural energy, different timelines, S&P 500, etc.).

3. Keep some money in real estate (your home and rental properties)…this is tangible. People always need to live somewhere. It would be nice to own these free and clear, but as long as they are cash flowing after all expenses are paid (including paying the principal, interest, taxes, insurance, and withholding money for capital expenditures, repairs/maintenance, vacancy, and property management).

4. Keep some money in bonds if you are more risk averse or getting closer to retirement (only in governments that you feel are strong and can repay the debt)…have a lower percentage of your money here.

5. Some money in a small business that you own/partially own (self storage, laundry mat, car wash, pizza chain, property management company, blog, or other “side hustle”).

Finally, after you’ve controlled your expenses, and invested what you can, try to increase your income by earning a raise at your current job, changing jobs/careers, or earning income off of a side hustle.

You’re not going to win

“It’s hard to win an argument with a smart person, but it’s damn near impossible to win an argument with a stupid person.” – Bill Murray

When you’re in an argument or when you disagree with someone (especially about their opinion or in “gray” matters), how often do you ever actually say something that gets them to change their minds? It’s hard enough to convince them that you’re right using logic and facts, but when you are debating over something that doesn’t have a factually correct/incorrect answer yet and is based on speculation, you most likely aren’t going to “win” that argument.

This is why people say to not talk about sex, politics, religion, or money. Those topics are too emotionally charged. And what is right for one person may not be right for you. How they view the subject will likely be different than you, and discussing it leaves you open to having huge disagreements and arguments over something in which you won’t change their mind.

That being said, if you do get caught up in a debate, don’t take it personally. They believe what they believe and you believe what you believe. Don’t take offense to their opinion, which more often than not, have no bearing on your life. Why would you choose to get worked up over something that doesn’t actually affect you?

What are we teaching people and why it’s good to be different

When there is no consequence for poor work ethic, and no reward for good work ethic, there is no motivation.

If your home, your work, or your government does not have consequences (natural or imposed) for bad behavior, what is that teaching the individual with the bad behavior? Likewise, if there are no rewards to encourage the good behaviors, will people continue to do those good behaviors?

If you want more of something, give them encouragement. If you want people to stop doing something, you have to discourage it. This is a pretty simple idea that everyone understands.

So why is it different with the government? Whether they bail out banks for profiting off the sub-prime mortgage loans before it imploded, the car industry, or individual people (adding an extra $300 for unemployment)…it’s all the same. If there are no negative repercussions to mishandling your money, why should you stop? Be risky with your money to make a huge profit when things are going well and you get rewarded with huge paydays. Don’t worry about when things go sideways because the government will bail you out.

Most people don’t think of themselves as a business, but they should. You need to operate your finances in a way where you can survive (on your own) in good times and in bad.

It’s simple, but not easy for most people. They know they should set a budget, they should stick to them budget, they should try to work hard to increase their income (through pay raises or side hustles), they should decrease their frivolous spending habits, they should be in the black every month, they should invest towards their retirement, they should…they should…they should…

But how many people do what they should?

…

Not that many.

Be different than most people. If it means that you’re weird for having your finances together, then be weird. Who cares what other people think – about the house you live in, the car you drive, or the clothes you wear. Usually, they’re too busy thinking about their own situation to really notice yours anyways.

How to be financially prepared when things go sideways

The difference between an emergency fund and a sinking fund, as illustrated by The FI Guy.

Most financial experts recommend having at least 3-6 months of expenses set aside as an emergency fund. This is used for true emergencies/things that you weren’t expecting (like a job loss or car accident). Hopefully these things never happen, but if they do, at least you’ll be covered. If you have to dip into your emergency fund, re-supply it as soon as you can to get it back to where it needs to be.

The “sinking fund” is something not as many people know or talk about. This is for known future expenses. For example, if you’re a 1099 self-employed individual, you better be setting aside money for taxes, because the tax man comes around every year to collect. And guess what? The car you drive? It will need an oil change and new tires every so often. Christmas and birthdays? They come at the same time every year, so if you plan on giving gifts, you should put money away in a sinking fund to cover those expenses.

Less, but better

Focus more on quality (of experiences and of items), not quantity.

Why do you want a bunch of junk? Just because you’re getting more of something doesn’t make it better. In fact, having a surplus of worthless items creates more clutter, more stress, and more work for you.

Even is you consider a less extreme example, why would you want many mediocre items to manage or care for when you can gain more time back and improve your experience by having higher quality items?

Sometimes, less is more. Focus on having less material items to care for, but making sure that the ones you do have bring joy to you, serve a purpose, and are of the best quality you can reasonably afford.