/u/TheRedPillFinance remade this for us, which is now part of the sidebar:
Introduction: Some may be wondering how this applies to TRP. My answer to that is to consider guys like Hugh Hefner and Gainluca Vacchi. They built empires for themselves that created lifestyles most guys can only dream of having. Yes women find powerful men attractive, but that's more of a side benefit of having a killer lifestyle, and it's wealth that unlocks it.
Part of making your mission yourself is ensuring you have your personal finances in order. Even if you don't build a monumental empire or sell a software company for millions, while money doesn't buy happiness it does pay for your healthcare and peace of mind, especially once you have "Fuck You Money". And to paraphrase a line from Bruce Lee, money helps you live a life worth remembering, which is the key to immortality. Guys like Hugh Hefner and Vacchi will never be forgotten, especially by those they influenced, and for good reason.
Similarly, if you want to have a playboy lifestyle well into old age, then frankly you are going to need to be wealthy. This is just the way the world works. Good game, being fit, and all that is great for those of you who are younger, but once you get over a certain age it's not that simple anymore. Celebrities being the exception to the rule of course.
Building your empire and developing multiple streams of passive income through entrepreneurship, investing, etc. could potentially cause guys to fall into beta bucks mode, but that's not the intention. Again, the goal is to wind up like Hugh Hefner and Gianluca Vacchi, who should be a role model for all of us IMO and avoid becoming rich beta bucks like Jeff Bezos and Bill Gates.
Step 1: The Reading List
IMO the "must reads" are:
* Bachelor Pad Economics by Aaron Clarey. This is THE book for single guys just getting started on their own. * Rich Dad Poor Dad This and the following were eye openers to what's possible with personal finance, regular day jobs, and why side hustles are so critical for long-term passive income. * The Millionaire Next Door * Intelligent Investor * Rule 1 Investing
The latter 2 above educated me on what's known as "value investing". More on that later...
Step 2: The Budget
Why is this important? Well, you need to know where your money is going to minimize waste to enhance your savings. This will ultimately keep you out of trouble and help you stay focused on what's important.
Step 3: Building Wealth
This is when you take that budget you've created and start putting that excess cash to work for you. 74% of building wealth with investments is simply starting to invest. If you're more than 10 years out from retirement, then time in market > timing the market. Fees, returns, all of that is secondary to actually starting the process of investing. And it's never been easier! The best time to invest was yesterday. The second best time to invest is today! As Einstein famously once said, compounding interest is the 8th wonder of the world. Those who don't understand interst pay it, and those who do, earn it.
M1 Finance, Robinhood, and almost all of the other big boy brokerages now offer free trades and fractional shares. You're a fool not to take advantage of the opportunities this creates.
To wit, the typical millionaire has on average 7 passive income streams. This could be dividends form investments, a course you put together and sell on Udemy, a YouTube channel, or real-estate a la Robert Kiyosaki or Graham Stephan. You name it, the sky is the limit.
I mentioned value investing above. What you need to know about that is that it's how Warren Buffett became a billionaire. The core principles of value investing are finding wonderful companies that are:
* In your circle of competence * Have a big "moat", aka competitive advantage * Provide a 50% margin of safety * You're comfortable holding onto them for 10 years or more
Regarding "margin of safety", it just means the company's price is currently about half of what they should be valued. This happens frequently because the market is emotional. Some companies core functions, values, and performance may not change, but an external event could push down their price making them a good buy. An example of this was when Chipotle was getting people sick a few years back because of a supply chain issue or the market as a whole taking a giant dump like it did during Q4 2018.
Re: Chipotle, what happened was a couple of their suppliers sourced them tainted ingredients which got people sick and the news knocked their price down from about $750 a share to a low of about $250 in January 2018. You know what they're worth today? $828.29 at the time of this writing. The company itself didn't change, it was just a couple of shady suppliers that they quickly replaced and were back to business as usual. But... people are emotional and sold their stock that drove prices down lower and lower. Well their loss could have been your gain.
Step 4: Continuing Education
I'm a big fan of personal finance YouTube channels and the ones I watch the most frequently are (in no particular order):
* Ryan Scribner * Graham Stephan * Dave Ramsey * Andrei Jikh * Minority Mindset * Chris Hogan * Wealth Hacker * The Money Guy Show
Step 5: The Financial Order of Operations
This is right out of The Money Guy show on YouTube: https://www.moneyguy.com/2018/08/financial-order-of-operations-how-to-prioritize-your-financial-goals/
Deductibles Covered: You need to have enough money saved to cover basic emergencies Match from Employer: Everyone who has access to a retirement plan that provides a match should work to take advantage of that “free money.” Credit Card: The order of priority between employer match and credit card debt is a coin toss. Consumer credit card debt and punitive interest rates charged should be avoided if you are going to be on the path to financial independence. Emergency Reserves: You need to save three to six months of living expenses for a rainy day and the unexpected events that can make life scary. Roth and HSA Contributions: The thought of tax “free” growth is exciting. Currently, you’re allowed to save $5,500 per year in a ROTH IRA if you’re under 50. If you’re over 50, you can save up to $6,500. Max-Out Retirement Options: Retirement accounts are great for building wealth for the future. We share the max-out numbers for each type of account in this episode. Hyper-Accumulation: You should aspire to reach hyper-saver status by saving 15-20% of your gross annual income. Pre-paid future expenses: You need to make sure you have your retirement squared away FIRST and then prioritize the other financial goals you can prepay and fund. Debt Prepayment: The desire to be master of your financial life includes being completely debt-free. We share exactly how you can do this and how to prioritize which debts to pay off first.
If all this sounds familiar, it's probably because there's a flowchart similar to this over on another sub. https://i.imgur.com/lSoUQr2.jpg
Here's a down and dirty example based on my own income, savings, and debt situation...
- Home = $3145 for total coverage
- Car = $500 for collision
- Health = $1200
Total deductibles = $4845 if everything goes wrong all at once. Done.
Match from Employer:
- Mine gives 5% match so I need to contribute at least $7900/year ($329.17/pay period) to get this squared away.
- $5/mo paying off Spotify just to build up a good credit score by showing I pay on time every month, and only doing so with a monthly $5 charge ensures I keep my debt to income ratio and the amount of used credit as low as possible.
Emergency Reserves: They didn't go into details, but this means save up 3-6 months worth of expenses (for me that's $4000/mo) while working. Once you're retired you want to save up 18 to 36 months (to preserve capital during market downturns). This cash should be in high interest savings and NOT invested in the stock market.
- $24,000 done. I have it saved in a 1.5% Spend Plus account on M1 Finance. I could probably get higher elsewhere, but I like having my money in one place so I can use it to buy a major dip should the market crater.
Roth and HSA Contributions:
- HSA = In my case this is N/A as my HSA account is 100% fully funded by company to cover the deductible for our medical plan.
Max-Out Retirement Options:
- In progress. I'm converting $6,000 per year from my traditional IRA (that I rolled over a traditional 401K into a while back) and putting it into a Roth IRA. This is called a backdoor Roth conversion. I need to fund my Roth IRA this way because I make too much to contribute to one directly.
Hyper-Accumulation: Ideally the Roth, HSA, and 401K (with company match) will add up to what they call "hyper saving", which I personally choose to aim for 25% rather than their figures.
- Rest of Roth 401K is being funded up to the maximum $19,500/year (additional $483.33/pay period = $812.50/mo total). That's $19500 of my own savings, plus another $7900 from the company match for a grand total $27,400.
Note: If you have the option between a traditional 401K and a Roth 401K, IMO I'd choose the Roth like I did. You will pay a little bit more every year in taxes, but the long-term goal of building wealth will come out on the back-end as 100% tax-free.
Note 2: If you plan to join the FIRE movement, then you'll realistically need to be investing 50-70% of your monthly income for about a decade.
Pre-paid future expenses: This is saving up for a new car, your kid's 529 college plan, weddings, custodial accounts/trusts, etc. ~~ ~~- $1188/mo into my M1 Finance Capital Growth account. I intend to build a house in a few years, so I'm heavily investing trying to build up that nest egg.
Debt Repayment: Yes, I changed this. Now is the time to start pouring more money into those really long-term low interest debts like a home mortgage. Generally speaking you will get a far better bang for your buck by doing the above steps and investing than you will by paying off your mortgage early. - N/A; no additional debts since renting.
The intention of this thread was to give you a quick primer on personal finance and provide some critical food for thought as it's incumbent on each and every one of us to get our financial houses in order.