Journal Entry 323 – Finance

The end of the year is approaching very quickly. I can’t believe the Holidays are almost here. Very busy year overall and I have spent more money this year than any year to date. A first house will do that to you. That being said my Net Worth is still looking pretty good. Similar to writing this blog, working out and eating well, personal finance is a huge topic of interest for me. My interest in personal finance is what led me to my current job to begin with. My current job has taught me a tremendous amount about finance.  I could compile all you would need to know into finance in a few simple tips:

  • Get out and stay out of debt. 
    • This one is probably the most important. If you understand this, then you likely have all your ducks in a row. Don’t get behind on credit card payments, don’t buy a car you can’t afford and have $300-500 a month payments with interest or any other instrument of debt. Many places offer financing on just about any expensive item and you want to be wary of this. Financing implies you will be paying interest and this means more money you have to pay beyond the initial cost of the purchase. BEWARE.
    • A mortgage is somewhat of an exception because paying off a house is unrealistic for most people.
    • I have talked to some very smart people and some of them still haven’t grasped this concept, which is shocking to me. Do you really need a $40000 SUV with huge tires and off-roading capabilities when all you do with it is commute to work or the store? – Probably not.
  • Invest in a 401(k) ESPECIALLY if you have company match (free money)
    • Be a loyal employee. It costs a lot of money to hire people and the longer you work somewhere, show up and do a great job, the more the company likes and invests in you.
  • Invest in a Taxable Account
    • Taxable accounts are the new savings accounts in my opinion. You can withdraw the cost basis (the after-tax money you put in the account) tax-free and the money will grow far more investment earnings than it would sitting in a checking/savings account.
    • While you do have to file earnings on your taxes from these accounts each year. The tax is far lower than the amount you earned. Example – You earn $1000 in earnings and have to pay $100 of tax on those earnings. Still coming out $900 ahead.
    • Look into “Robo-Advisor” sites such as Betterment. Robo-advisors charge much lower fees, diverses your money in exchange trade funds and invests your money to match the market’s performance without you having to do anything except deposit your money.
  • Keep 3-6 months of savings in your checking and savings and move the rest to a taxable account or other savings account
    • The value of your money in checking and savings accounts actually loses money each year due to inflation. Keep an amount that feels comfortable to you here, but invest the rest.
  • Beware Lifestyle Inflation
    • This is a tough one, because it kind of happens automatically. Lifestyle inflation is basically earning more and spending more to match it. For example, say I got a $25000 annual raise. Most people would go “Hell Yeah” and spend it all by getting a bigger house and a nicer car even though they were fine with what they had before. Some of this is just the way society is set up as it is highly materialistic. Smart people take this money, pay off debt, invest it (which essentially means you will earn more money down the road) and live the same way they were living before. Quality of life is the same before the raise, but their wealth would increase tremendously.
    • Image result for fight club you are not the thing you own
  • Get rid of things you no longer use.
    • This is actually a very underrated tip for saving money. I shudder at the thought of hoarding. I’m possibly the only person in my family that is a minimalist or non-materialist. When your house becomes piled up so high with crap, you don’t even realize what you have any more. We don’t live in a third world country, therefore, we do not need to collect goods as if our life depended on it. Clean out your house and really go through everything you have to see if you truly need that item. Odds are if you don’t use it every day and haven’t seen it in years then you don’t need it. This doesn’t apply to pictures or family heirlooms, but mainly to excessive clothing that you don’t wear or any material goods and decorations that you would be better served getting rid of.
  • Buy Quality over Quantity
    • This may sound like I’m recommending never to buy anything. This is not so. I mainly recommend getting all of your debt paid off and your savings in place (investments or savings should be automatic. Set up savings like you would an automatic bill payment). When you do buy something, make sure it is a quality item. This is something you would use daily or use for a long time before replacing, but it is also something you can afford. Never use financing to pay for a small item. Obviously, I don’t recommend buying too much quantity of anything, unless you actually need the volume of what you are buying. Buy nice things within your means, not a lot of things.
  • Appreciate Money
    • At an early age, I learned to appreciate food. As a fat child, I learned that it was through food that I was grossly overweight for my age and height. From that day forward, I manipulated food to achieve my desired effect. Which for me was to be slim. I have gone through one hell of a learning curve with food and can honestly tell you that when I eat something I appreciate what it is doing for me. I look at cheat meals as something I have earned and the rest of the time I choose foods that I know are benefiting me.  I only learned to appreciate food after it became scarce, however. The same is true of money for most people. Most kids or people have no concept of what it means to appreciate money. Personal finance is not even a required class in school. (frightening thought) So when most kids graduate college in mountains of debt, then get a job that can barely pay the bills, money then becomes scarce. THEN they appreciate money. Unfortunately, it takes going through this for most people to “wake up” and truly appreciate what money is and how to manage it.
    • Other people that don’t follow the rules above are in the same boat. They could make plenty of money and still be broke because they are truly idiotic with their spending habits.
    • You also have people on the other side of the coin that are so rich, money is no longer appreciated. It just becomes what Leonardo DiCaprio coins “Fun Coupons” in Wolf of Wall Street. Something to waste on material goods. This mindset can lead you to ruin down the road if you’re not careful.

 

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