60 Days of Dread: Finances

**I AM NOT A FINANCIAL PROFESSIONAL AND THE BELOW ADVICE IS NOT MEANT TO BE CONSIDERED PROFESSIONAL INVESTMENT OR TAX ADVICE. PLEASE CONSULT WITH A PROFESSIONAL BEFORE MAKING ANY CHANGES**

I grew up in a family that did not understand financial planning. When I was young, my parents divorced and I lived in a single-parent home for several years. I knew two things: I was poor, and I was not going to stay that way. I remember reading my first personal finance book, Rich Dad, Poor Dad. Although 90% of that book is fluff, it opened my mind to the possibilities of financial freedom.

Like fitness, there is a lot of analysis paralysis in personal finance. Developing financial literacy is less complicated than most think.

TL;DR version: Increase your income, reduce your expenses, pay down debt and invest extra money each month into a low-cost index fund that follows the overall performance of the stock market. Over time, you will become wealthy.

• Investing: Here is the fun part. Investing is the most important aspect of financial literacy. Some people think investing is complicated. Like fat loss, the formula is really simple. **Be wary of people who sell you complicated investing products.** To borrow a quote from Warren Buffet, "Beware geeks bearing spreadsheets." With investing, simple almost always beats complex.
  • Consistency Beats Complicated: There are thousands of people in the investment management industry who tell customers investing is complicated. The truth is, 70% majority of hedge fund managers underperform the market in any 10 year time period. Over a 30 year period, that number increases to over 98%. This is why Jack Bogle, the deceased founder of Vanguard, recommended people invest in a low-cost index fund that follows the performance of the stock market. Not only are the fees lower, but you will consistently beat the most educated and hard-working investment advisors.
  • Compound Interest: Einstein called compound interest the 8th wonder of the world. If you invested $12,000 in 1975, you would have over $1M by 2015 based on the performance of the market. This does not take into account inflation, but it does demonstrate how small choices can add up over time. Instead of asking how much something costs, start looking at purchases through the lens of opportunity cost. How much does that $10,000 diamond ring really cost? After 20 years, it is really $40,000 if you are earning 10% annually. Not to mention, diamonds are one of the most abundant resources on the planet. But you already knew that. You're not the type of guy who buys a $10,000 ring hoping to get decent sex.
  • 401(k): If you get a 401(k) match at work through your employer, you need to use it. A standard match is 5%. You are not going to notice a major difference in your paycheck by contributing 5%. However, you will soon notice the balance growing with 10% of your income invested each month (5 from you and 5 from your company). Your 401(k) should be invested in a low-cost fund. Look for two numbers: Load Fee and Expense Ratio. A load fee charges you X% on your contribution. The expense ratio is the annual expense that is paid to the fund for management. There are funds with No load fees and expense ratios below 0.10%. Vanguard offers dozens of investment funds that track the performance of the stock market. I personally use the ticker symbol VTSAX. You can contribute $19,000 to a 401(k) each year. This does not include the company match.
  • Roth IRA: You should also consider taking advantage of a Roth IRA. For most people, you can invest $6,000 a year (There are income limits for qualifying, most people do not make enough money to worry about this). This means $12,000 total between you and your wife. Contributions to a Roth IRA can be withdrawn without tax penalties, and the compounded growth is not taxed. Think of this as a liquid savings account that is earning substantial interest each year.
  • Real Estate: Some people believe that real estate is a path to wealth. In my area, real estate prices are so inflated that the numbers do not make sense. However, if you are from certain areas of the country, you may have more success with finding low-cost homes. Bigger Pockets is an excellent resource for people interested in investing. I am not an expert in this area, and I really can offer little advice for people interested in this subject. There is a lot of smoke coming from "gurus" in this space. People who become wealthy through Real Estate Investing take the slow road. Beware of people promising fast gains.
• Expenses
  • Americans suck at saving money. This is unacceptable. Are you the type of man who has to ask his wife permission to spend money? 69% of Americans recently reported having less than $1,000 in savings. I had $1,000 saved when I was in high school. You need to track your expenses. Use a free tool like You Need a Budget. Your biggest opportunities will come from three areas: Housing, Transportation and Food. Living in a McMansion you can't afford to impress your wife? Move. Drive a $50,000 truck with a massive payment each month? Buy a used car from a reliable company (Toyota). Go out to eat every day? Start cooking at home. You will save money and be leaner. Most people can get much faster results from cutting expenses than increasing their income.
• Income
  • Better posts than mine have been written on career goals. Read those posts. Anyone who can fog a mirror can get a decent job right now. Maybe you need two jobs to reach your financial goals in the short-term. Do whatever it takes to provide for yourself and your family.

Final Thoughts: Notice I did not say anything about having strong finances will improve your sex life. Many men have a giant covert contract surrounding their finances: If I am a good provider, my wife will sleep with me more. Wrong. You need to build wealth to make your life better and to change your family's trajectory. Follow some of the steps above, and you will soon find yourself with a net worth above six figures. When you have a solid financial foundation, you are able to take more risks in your career and investing. Boss makes you mad at work? With $100,000 at your disposal, you have the leverage to leave. It will also reduce stress in your personal life. Stop worrying about how building wealth will make your wife feel. Stay in your own frame. Be your own judge. Build wealth like a man.

• Podcasts: Here are some financial podcasts I enjoy listening to.
  • ChooseFI
  • Afford Anything
  • Motley Fool
  • Bigger Pockets Money
• Books
  • The Simple Path to Wealth
  • Playing with FIRE
  • Total Money Makeover
  • The Millionaire Next Door
  • Set For Life
  • Your Money or Your Life

PS - I am not on Reddit much, but will try to be on more often for a few days to answer any questions.