F**k You, Pay Me!

bank-notes-cash-currency-210748F**k you, pay me!  A great line from Goodfellas.   This is the mindset you have to have for yourself.  You need to pay yourself first.  If you don’t pay yourself first, and you wait until the end of the month to pay yourself what is leftover then you eventually won’t have anything left.  You will end up spending that money on something that doesn’t matter and isn’t important.  This is another reason to have a budget.  By having your budget, and having your monthly income and expenses already planned out, you can figure out how much you can pay yourself.

What do I mean by “pay yourself?”  This is the money you set aside for things you need such as paying down debt or putting into savings or investing.  This is important.  Number one priority is to fund your emergency fund.  You need a thousand dollar emergency fund.  Why you ask?  Because something is always going to come up that is not in your budget.  I’m not talking about that new shiny object that you want…new watch, a new purse, new clothes, that video game you have been waiting to come out.  I’m talking about actual emergencies.  The unexpected big thing that happens, like needing a new tire because you had a blowout, or your dishwasher broke and needs to be replaced.

Second priority after your emergency fund is to pay off your debt.  Debt is the killer.  You are paying someone else your hard earned money instead of putting that away for yourself.  So pay down your debt, smallest to largest, paying the most you can every month towards the smallest debt you have.  Once you pay that one off, move to next smallest.  This method is the called the debt snowball.  I will go into more detail on this in another post.

So after you are debt free, then what?  You need to drop the hammer, punch it on your savings.  I would suggest bumping up your emergency fund to 3 – 6 months of expenses.  This will be your buffer for any major issues that might arise.  Once you have that set-aside, now it’s time to have laser focus on really throwing everything you can towards your retirement accounts.  Max out your 401k or whatever company retirement account you have.  Start and max out a Roth IRA account.  If you are married, open one for each spouse.  The sooner you can get these accounts starting and really throwing any extra dollar you can at this, this faster your money is going to grow…EXPONENTIALLY!  You can also look at other avenues to invest in your retirement portfolio.  Real estate is a great way to go as well.  Buy a rental property to add to your portfolio, just do some homework first.  If you are interested in learning more about real estate investing, check out The Bigger Pockets podcast here, https://www.biggerpockets.com/podcast.

The takeaway, pay yourself first.  Set aside how much you have left every month after paying your monthly expenses, and any debt.  Get on a budget so you know how much you have available to pay yourself.  Be intentional with your money!  Get after it!!!!

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(FINANCIAL) “DISCIPLINE EQUALS FREEDOM”

20180604_211833Sadie and Emma,

To quote Jocko Willink, “Discipline equals Freedom.”  This applies in all walks of life, especially finance.  Having self-discipline in your finances is being responsible and not spending money frivolously, or on things you don’t need.

First part of financial discipline is to be on a budget.  You need to do this so you tell your money where to go, and not spending more than you make.  Look back over Budgeting Will Set You Free, for more in depth info on budgeting.

Next part of financial discipline is to stay out of debt.  By not going into debt, you are FREE.  Any extra money left after paying your bills can be saved, and invested.  This is key to get your retirement fund (FIRE fund) kickstarted.  Keep the discipline going by investing a certain amount (ex. 100 or 500) per month, every month, no matter what the market is doing.

The most important part is that you don’t just blow your hard earned money on things that don’t give you a return.  Be smart with your money.  Save.  Invest.  Give.

In the end, remember…Financial “Discipline Equals Freedom!”

Budgeting Will Set You Free

Sadie and Emma,

Do you want to win with money?  Yes, would be your answer 🙂  The way you win with money is getting on a budget!  By being on a budget, you are telling your money where to go!

If you don’t track your spending and plan out your month and every dollar of income for that month then that money will just disappear.  When you first start a budget, you will be amazed at how much you spend on different categories.  It can be mind-blowing in fact.  If you eat out five nights a week, you might not realize how much you are actually spending every month.

To start your budget, you need to figure out your monthly expenses.  Track every dollar you spend.  Update your spending once a week.  Every week when you add in your weekly spending, you might need to update certain areas of your budget.  Maybe you went over on your eating out expense, so that extra money to cover that category is going to have to come from somewhere else. Your budget is a fluid object, it changes constantly.

After a few months of budgeting, you will start to really get a feel for it.  This is when you can really start optimizing your spending.  Look at places where you can trim the fat, and cut back on excess spending.  Do you really need to go spend that $20 a month at the coffee store?  No, make your coffee at home and save that money.  This is where you can make your changes.

The goal here is to limit your spending so you can save as much as you can.  The more you save, the more you can invest.  The more you invest, the sooner you can “retire”, or more so really do what you want to do.  Find a passion, and go after it!  This all starts with budgeting and getting your expenses under control.  Start a budget.  Update the budget every week.  This is how you WIN!

The Path to FI, and Why

My sweet girls,

Why I am writing these letters to you?  What is the point in all this?  Why should you care about personal finance?  I am going to tell you why it is important to me, and hopefully, that will help you understand why it should be important to you.

Let’s start with “What is FI?”  FI, or financial independence, to me, is having enough money that you don’t have to be a slave to a job you don’t like.  It is being able to not have to do what everyone else thinks is normal, work a job you don’t like, Monday through Friday, 8-5, until you are 65!  It is having “F U money!”  It is being able to live on your terms.  This is the path your Mom and I are working our way towards.  My goal is to empower you with the knowledge so that you can start early so it won’t take you as long as it will us.

I struggle with my job right now.  It isn’t terrible by any means, but it is not what I want to be doing.  It is not what I am passionate about.  It was a great opportunity when it fell into my lap.  It got me out of the restaurant industry, and the crazy hours that go with it.  It gave me the opportunity to be home with our family on the weekends finally!  That is important to me.  But now, I don’t just want the weekends.  I want to make my own schedule.  I want to be my own boss.  I want to be able to spend more time with you girls.  This is what FI can provide for us.  It can let me work on my passion.  Let me let you in on a little secret girls, if you like what you do you will never work a day in your life!

So, start early!  Stay away from debt, get on budget, have an emergency fund, maintain a high savings rate, and invest, invest, invest!  Your best friend is time and compound interest.  If you start young, you can be one of these people who “retire” in their 30’s.  Some people look at it as FI/RE, or financially independent, retire early.  I look at it as financially independent so I can work doing what I love.  Get on the path!

Debt, the Wealth killer

Sadie and Emma,

 

Dad here.  I want to teach you girls about personal finance.  I want you know at a young age, what it took me years to learn.  I had to figure some out on my own but also learned quite a bit through seeking knowledge.  So, my first nugget of wisdom is that debt is bad.  Debt is the biggest obstacle to building wealth.

 

What is debt you ask?  Well, according to www.dictionary.com debt is, something that is owed or that one is bound to pay to or perform for another; a liability or obligation to pay or render something; the condition of being under such an obligation.  Or in other words, you spend money you don’t have now, and pay it back later, with interest…usually very high interest.  The average credit card interest rate today is 15.07%.  One of the biggest epidemics in our country today is student loans.  The average person graduates with $28,950 in student loan debt.  Think about that for a minute…you just finished college, getting ready to start your career, and you already have a negative net worth.  It is terrible!!

 

When you have debt, you are giving away your hard earned money every month to someone else.  Imagine if all that money you are giving away every month to pay off debt was staying in your bank account!  If you are debt free, then you are on your way to FI (financial independence), which is the goal.  I will talk more about FI later.

 

If you are debt free then you can save all that money.  Put that money into an emergency fund.  After your emergency fund is done, then you start investing that money.  If you can start investing as soon as you get out of college, then you are on the path.  The two biggest keys to investing are time and compound interest!

 

So, don’t do like Dad & Mom did and get into debt because then you have to spend all this time and effort to get out of debt.  You have to sacrifice just to get back to a zero net worth.  Instead, stay out of debt, and start building your wealth.  Let’s give you an example to show you how powerful it is to start early.

 

At age 21, you have $0 in retirement.  You start contributing $1,000 per month to invest.  If you get an annual return of 8% (S&P has an average return over 30 years has been 11%), then by the time you are 65, you will have….drum roll please….$4,626,067.

 

Now, let’s say you didn’t take Dad’s advice, and you go into debt.  Let’s say you also put off investing any money because you are trying to pay off your debt and become debt free. Now you don’t start investing until you are 30.  Let’s take the same scenario.  At age 30, you start contributing $1,000 per month to invest, and you are still getting 8% annual return.  At age 65, you now have…$2,233,225.

 

See the power of starting to invest as early as you can?!?!?  Stay out of debt, and invest!

Introduction

This is going to be a series of letters that I write to my two daughters, Sadie and Emma. Through these letters I am going to share what I know about personal finance, to try and share with them the knowledge that I was never given. I think personal finance should be a mandatory high school class. There is so much that you are not taught in high school or college and go throughout life learning as you go and making mistakes. Well, I would like to share my mistakes so they don’t make the same ones. Hopefully, as my girls get older, they can look back and read these letters, and learn some basic knowledge.

My Brother-in-Law is going off to College…

So this week my brother-in-law is going off to college.  I want to empower him with all my financial knowledge to help him from making the mistakes I did.

First thing first, debt is bad!!!!  Debt is the number one thing that will keep you from being wealthy.  Stay away from the credit card offers that give you a free shirt for signing up!  Lol, ignore the shiny objects!  You don’t need to get a credit card to start building your credit.  Stay away from debt and be debt free when you graduate.  This is easier for him than most because he has a full ride.  For most kids, student loan debt is the norm.  The average person graduates college with $37k in student loan debt.  This is the biggest financial epidemic in our country today, but I will dive deeper into that in a later post.  Long story short, graduate with as little debt as possible.

My second suggestion would be to live like a college student as long as you can.  Live on little while your income keeps growing.  Maximize your savings rate.  Don’t fall into lifestyle increase with every raise you get.  The typical thing to do, “I just got a raise, I should go get a new car.”  Don’t try to keep up with the Joneses, and to impress people you don’t like.  If you can maintain a high savings rate, 40% or higher, then you can really put away a lot of money to invest!

My next piece of advice, and in my opinion the most important, is to invest early and often.  Your best friend in investing is compound interest and TIME. Invest, invest, invest!  Max out your 401k and Roth IRA every year.  My suggestion for him would be to stay away from single stocks and invest in low-cost index funds.  By doing so you keep your fees at a minimum.  Don’t try and time the market because you will lose!  The key is dollar cost averaging, investing the same amount on a regular schedule regardless of share price.

John, if you can follow this advice, you will be well on your way to #FIRE!