Some may be wondering how this applies to the community. 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.
So who the hell am I and why should you care? Think of me as being a bit like Trump from the perspective of the loudmouth "amateur" who kicked in the door and accomplished what the "experts" who've been at this their entire lives said wasn't possible. Now I'm not exactly new to investing having been in the game for about 15 years, but last year I absolutely crushed the market getting over 60% growth (as well as 50% growth in my dividend portfolio). This inevitably gives CPAs, CFPs, CFAs, fund managers a healthy dose of cognative dissonance because Average Joes like me aren't supposed to do that, which is why you're going to see crab bucket mentality in this very thread, I guarantee it. They'll tell you my advice is no good, blah blah blah. Mmmhmm. The proof is in the pudding. Remember the joke of the woman telling the man if he'd saved all the money he spent on beer he could have bought a Ferrari by now? His retort... Where is your Ferrari then?
Why am I here telling you all of this? Part of making your mission yourself is ensuring you have your personal finances in order. I've been through the ringer and have a lifetime of experience, both good and bad, that anyone can learn from. Even if you don't build a monumental empire or sell a software company for millions, and I want to impart those life lessons to the community. While money doesn't buy happiness it does pay for your healthcare and peace of mind, especially once you have "F-U 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 great lifestyle well into old age, then frankly you are going to need to be wealthy. Pensions are largely a thing of the past and so it's incumbent on YOU to build wealth and safe for retirement. This is just the way the world works now. Even a military retirement and social security won't cut it. They're good starts, but IMO you should strive for more. Especially wrt social security. You younger guys may not even get it, and those of us who will, it's just not nearly enough.
Building your empire and developing multiple streams of passive income through entrepreneurship, investing, etc. is where it's at. Again, the moonshot goal is to wind up like Hugh Hefner and Gianluca Vacchi, who should be a role model for all of us, but even if you fall short and "only" wind up with 2 or 3 million dollars saved up for retirement, you'll still be in great financial shape.
The sad fact is that 57% of Americans don't even have $1000 saved up, and 39% have zero savings at all. Younger Millennials have it even worse with 67% not having $1000 saved, and 46% having no savings whatsoever.
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.
- Intelligent Investor by Benjamin Graham
- Rule 1 Investing by Phil Town
- The Snowball by Warren Buffett
- Rich Dad Poor Dad by Robert Kiyosaki <-- 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
- Margin of Safety by Seth Klarman (you can find the PDF online)
- The Little Book That Still Beats The Market by Joel Greenblatt <-- his "Magic Formula" is pretty damn good and probably a lot easier to do long-term for most people compared to straight value investing like Warren Buffett, Seth Klarman, and Charlie Munger
Intelligent Investor and Rule 1 Investing above are largely what 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. When people ask me about finances my first question is usually "what are your goals?"
If you don't know why you're saving, then I can't really help you. I'ts like pulling over and asking, "Could you give me directions?" "Sure, where you headed?", and you say, "I have no idea." Don't be that guy. Have an idea of what your long-term plans are.
As for the budget itself, you need to know where your money is going every month. Track your expenses in exquisite detail for 1 or 2 months. Every single dollar needs to be accounted for. THEN and only then can you really start carving out money to save by either getting a side hustle or pay increase to increase how much you can save, or trimming the fat from your expenses to free up some extra money to put away. In some cases you may have to do both if you aren't hitting your goals for how much you want to be able to save every month.
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 the process of investing. 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, Schwab, and almost all of the other big brokerages now offer free trades and fractional shares, or will soon enough. You're a fool not to take advantage of the opportunities this creates. Especially with M1 Finance as they're offering double referral bonuses until Jan 31st!
To wit, the typical millionaire has several income streams, most of which are passive. The most common income streams are Interest, Dividends, Capital Gains, Royalties, Rental Income (from real estate), and Business Income (from startups they created). Other viable options today are courses you put together and sell on Udemy, a YouTube channel. The most accessible income stream with the best ROI for Joe Sixpack is probably going to real estate combined with active or passive investing in the stock market.
I mentioned value investing above. What you need to know about that is that it's how Warren Buffett became a billionaire, which interestingly enough he didn't become a billionaire until he was in his 50s. Just something to think about when it comes to playing the long game.
The core principles of value investing are finding good companies that are:
- In your circle of competence
- Have a big "moat", aka competitive advantage
- Provide a 50% margin of safety
- They have good management
- 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? $880.85 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. Their dumbass losses 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):
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/
1. Deductibles Covered: You need to have enough money saved to cover basic emergencies
2. Match from Employer: Everyone who has access to a retirement plan that provides a match should work to take advantage of that “free money”
3. 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.
4. 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, for 2020 you’re allowed to save $6000 in an IRA (Roth is preferred) if you’re under 50, and if you’re 50+ you can save up to $7000
5. 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
6. Hyper-Accumulation: You should aspire to reach hyper-saver status by saving 15-20% of your gross annual income
7. 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
8. 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.
8. Debt Repayment: My preferred take on the last point... 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, so only do this once the above steps are fully funded.
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
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.