Tag: personal finance

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.

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.

What to think about when setting New Years resolutions

January 1st is here, which means many of you have already set (or will be looking to set) New Years resolutions. Resolutions get a bad reputation sometimes, but they shouldn’t. You should always strive to improve your life. What gets mocked though is how many yearly goals not only don’t get achieved, but are discarded/forgotten by the time February 1st rolls around.

So how do you avoid becoming a cliche by actually keeping your resolutions? Follow these 5 steps to have a greater chance at hitting your goals…

1. Figure out what your goal is in the 7 major categories of life. These categories are: family, relationships, physical, mental, spiritual, financial, and career.

2. After figuring out what your goals are, ask yourself when each goal should be realistically accomplished. Is it something that can actually be accomplished this year? Maybe it will only take 90 days or maybe it will take 3 years. Either way, if it’s important to you, don’t scrap the idea just because it doesn’t fit into a “yearly” goal timeline. Instead, break the goal down into milestones…in order to achieve Z, you need to get to Y by this date. But in order to achieve Y, you need to get to X by this date. Continue doing this until you have broken it down to what you need to do TODAY.

When each goal is broken down into manageable chunks of what needs to be done, always set a timeline for when you should hit each milestone as well (not just the overarching goal). This will let you know if you’re on track to hitting your yearly goal. If you reach a milestone date and haven’t achieved that milestone yet, it allows you to pivot early enough to still (hopefully) complete your big goal.

3. After figuring out what your goals (and milestones) are and when they can be realistically accomplished, the next thing you need is to have a powerful “why” behind them. Why are you resolving to achieve that thing? Why is that important to you? Will it make you feel better (intrinsic motivation) or is it to impress other people (extrinsic motivation)? Did you come up with it yourself or are you following along with what you think your spouse or your boss wants you to do?

You should be excited to get started, but as you begin to struggle, or when you don’t see results right away, you will be tempted to quit. The voice inside your head will begin to tell you that you didn’t really want that in the first place or that whatever your goal was isn’t really important. That’s just you giving yourself an out. But if you have a “why” behind the “what,” you will be more likely to keep at it when the times get tough. Your “why” should excite you and it should improve your life in some way.

4. Now that you know what your goal is, when you need to achieve it by, and why it is important to you, you need to figure out how you’re going to do it. Once again, it is best to figure this out by breaking it down.

First, you need to have a clearly defined time of day to work on your goals. Look at your goals daily and figure out the time you will work on your goal every single day. Will it be every morning when you wake up, as soon as you get off of work, or right before bed every night? Stay consistent with what time you work on your goals. Make this a habit!

Secondly, you’ll be more effective when you have a dedicated place to work on your goals. Where you will work on achieving your most important next action step for the day? Will your “sacred place” be at the gym, your office, a coffee shop, the basement, etc.? You need to define your work space. Especially now, with so many people working from home, you don’t want to blur the lines between when you’re supposed to be working and when you’re supposed to be spending quality time with your family. If you blur the lines, it will be too easy to not be truly focused on anything (making all aspects of your life suffer).

The last part of the “how” to achieve your goal is to understand what is the ONE thing you need to do today to get you closer to your milestone goal. I discussed this earlier when I mentioned breaking down each goal to the point of what you need to do TODAY to get you to where you need to be for the next milestone…What actions (leading measurements) are important to track every day that predict success for your achievement goals (lagging result)? What is the ONE thing you have to do that day to move you closer to achieving your next milestone? Remember, every journey of 1000 miles starts with a single step. You have to take small, consistent action to get to where you want to go.

5. Finally, you need to determine who can help you achieve your goals. This will probably take multiple people (probably at least one person for each goal). Is it a loved one who cares about that particular goal just as much as you do? Is it a friend or co-worker with a similar goal? Or maybe you find a group/community online to help encourage you when you’re down, but hold you accountable as well? No matter what the case, share your goals with others. Saying it out loud and writing it down means that you can’t hide it when you don’t achieve your goals. Take ownership of your goals, of your successes when you hit them, and of your failures if you don’t. The only person who can make you do this is you, but it always helps to have support along the way.

Keep these five things in mind when setting goals/resolutions. Of course, try to make them S.M.A.R.T.E.R. (specific, measurable, actionable, risky, time-keyed, exciting, and relevant) and, again, focus on WHY it is important to you. You need to have a deep intrinsic motivation to do something in order to keep pushing through the tough times.

Good luck and happy new year!