Let's do money

Hi, guys. So lately, I’ve been thinking about money. Because frankly, money is more important than women. You can buy a lot more happiness than you can fuck. Women figured that out a long time ago, hence their dating/marriage strategy, and it’s time to catch up.

 

First off, if you’re young, don’t have a job, have a shitty job, and so forth, real financial advice isn’t for you. The advice you need is obvious: get a job. A good one. A post about what degrees or credentials to pursue, how to get into certain fields, how to network, how to write a resume, how to interview – that’s beyond the scope of the bullshit I’m writing today, which is more about what to do with the money you’re earning and how to prioritize your financial endeavors.

 

The very first thing you need to do with your paychecks is to save money. Make a budget and figure out what you’re spending each month. As an aside, keep your monthly expenditures low. You need a place to live, a used car that you preferably buy with cash to get you to work, an old non-state-of-the-art computer that connects to the internet, an old non-state-of-the-art cell phone, a cheap gym membership, clothes for work and the gym (depending on your job, work clothes can double as clothes for going out), food and water, and if you really want to splurge, a television. You don’t want to go insane, so you can go out from time to time, have hobbies, and so on, but if you’re spending a hundred bucks a weekend drinking and trying to pick up girls, you’re wasting something valuable for something mostly worthless.

 

Anyway, figure out how much you spend each month, and save money to build up a reserve. You want to have a minimum of 3 months of your expenses in the bank, preferably 6. Not 3-6 months of paychecks (we’re not buying an engagement ring!) - your expenses times 3-6.  Your paycheck should far exceed your expenses. If not, you need budgeting advice, not financial advice. Or a less shitty job.

 

Why do this first? Because the very first step toward financial independence is having some security. Knowing that you could lose your job tomorrow, or even make the conscious choice to quit your job and pursue other avenues, or get sick or injured or something, and continue your life exactly the same – same stuff, same quality of life, same everything – for six months. If you’re planning on doing something extra risky or likely to fail, or more long-term, like starting a business, maybe you want to have 9-12 months in reserve. But when you can quit your job tomorrow and go do something else, and still live exactly as you’re living right now for six months, that’s your first taste of independence.

 

Once you have six months of living stashed away in the bank (put this in a separate account if you don’t have the discipline to not touch it when it’s in your general savings account), you have the freedom to be more aggressive with the rest of your money. After all, if you lose it all, then lose your job the very next day, see above. You can go right on living for half a year.

 

But the saving doesn’t stop once you get to six months of costs. From that point on, you should be saving 10% of your gross income, minimum. 12-15% is a better goal. 20% if you can afford it, but that requires some serious quality-of-life sacrifices. In this context, “saving” doesn’t mean a bank account. At this point, you should be moving on to investment vehicles, retirement accounts, and so on. You can still keep extra cash, set aside in a separate account for projects you want to save for, like getting a house, building something, buying something, going somewhere. But try to stash at least 10% of your income somewhere it can grow. And start this young. Because time is your most valuable asset. Women figured that out a long time ago, too. That’s why they’re always after your time.

 

There was a post that touched on this, actually: That bedroom set you bought your wife? Don’t think of it as a $11,000 check. Think of it as four months you slaved away in the office that you’ll never get back. But it’s not just those four months you worked. That four months of income you didn’t save today will turn into several years of extra working before you can retire. That bedroom set your wife wanted extended your period of slavery for years. And she probably complained about it once you had it anyway, and fucked her boyfriend on the bed instead of you, and got the bedroom set in the divorce even though she hates it, so you had to buy a new bed at your new place and set yourself even farther behind, not to mention the checks you have to write your wife each month. But I digress.

 

Time is your most valuable asset. A lot of people will write an extra check to their bank every month toward their mortgage, because we’re all told that this adds up. You’ll pay off your house sooner, and just think what you’ll be able to do in 20 years instead of 30 when you have an extra $2000 a month! You can bank that! But look at it this way: saving 500$ every month today, in your 20s or 30s, and just paying the minimum to avoid getting foreclosed on, will net you far, far more money than paying off your house, then saving $2000 a month starting in your 50s.  Mortgage interest rates are low today, so you can get away with this and come out ahead.

 

The same applies to all of your debts.  If you have a debt with an interest rate of 8% or higher, pay it off. Maybe pay off your 7% debts, too.  It’s hard to get a solid 7-8% rate of return on most things today. But anything lower than that and you’re better off just making your regular minimum monthly payment and saving the money you’re thinking about paying toward a debt. Because when you pay extra money on that debt, your creditor takes that money, invests it, loans it out, gets interest on it, makes money on it – that could be your money. You’re better off making that money. You can still pay off your house in 20 years instead of 30 if you want, but do that by making shit tons of money today, then writing a big check in 19 years and 11 months. Not by paying an extra $500 a month to the bank. Because when that house is finally yours and all of your other debts are paid off, you won’t have shit saved away to retire, and you’ll already be 50.

 

Further, when you give money to your mortgagor or another creditor, that’s money you can’t access. Sure, you feel good about having more equity in your house, but you can’t do anything with that equity unless you want to sell your house, incurring closing costs, moving costs, etc. And let’s say you sell your house and turn a profit. What do you get with all of that equity you bought? The exact amount of money you put in back again. No growth. You pay your mortgage off, you get your profit, and you get your equity back. As an aside, you get a federal income tax deduction for paying interest on a home mortgage, so paying extra toward your principal can also make you have more taxable income.

 

So you should be saving for retirement, right? Better dump all that money in your company’s 401(k) plan! Nope. 401(k)s are a scam. You should definitely put money into a 401(k), though. Exactly as much money as your employer matches, then not a penny more. Because that employer matching is free money – an instant 100% rate of return. But after that, pre-tax retirement accounts are a losing affair. Taxes never go down. They go up. When you’re in your 60s (assuming the government doesn’t keep raising the age when you can access a 401k), do you seriously think taxes are going to be lower than they are today? Or that dollars will be worth more?

 

Let’s say you do some math, and to live comfortably at retirement, you’re going to want $8000 per month. So $96,000 per year. When you pull that out of a 401k, you have to pay taxes on that money. So you don’t get 96k a year. To get that 96k you need, you actually have to pull about 120k out of your account. And that’s assuming taxes aren’t boatloads higher by then. It’s just a bad investment. An inefficient use of your money.

 

On the flip-side, a Roth IRA (or some companies offer a Roth 401k) can be a great vehicle. Roth accounts are actually such a good vehicle that the government is probably going to shit-can them before I get to retire. If your company doesn’t offer a good retirement plan or you’re self-employed or a contractor or something, and your income is below the legal cap, you should be saving the maximum in a Roth IRA every year, and putting the money with a good financial guy.

 

When you finally get around to choosing stocks or mutual funds, pay attention to dividends (look for the word “value” in the title of the mutual fund, or do some research on a company’s stock history). Most financial guys focus on growth alone, which is a crap shoot. You buy something today and hope that years from now when you sell it, it’s worth more. You diversify what you’re buying so that if something tanks, you can offset the loss with gains from other things. Not a horrible strategy, but no growth. If you focus on things that pay dividends, that dividend money can be banked, spent, used to invest in other things, or even automatically reinvested in whatever’s generating the dividends (which leads to more dividends next quarter).

 

Companies that pay dividends have to keep doing it. If they pay their shareholder dividends this quarter, then next quarter decide not to, their shareholders get pissed, a lot of them sell some stock off, the stock price goes down, and all of those fat cat CEOs lose money. Companies will bend over backward, and even borrow money, to make sure they get those dividends out every quarter, because that’s how the people in charge keep the stock price from tanking. So dividends are like free money that helps to cushion you somewhat if stock prices go down.

 

The not-quite-accurate thing financial advisors will tell you, that still serves as a good illustration of how you should be thinking is the 3 20s approach: If you save 20% of your income for 20 years straight, you can retire in 20 years.  That’s not really accurate for a lot of reasons, but the overarching premise is a good one: Time is valuable. More valuable than money. So young guys in their 20s and 30s ought to be getting their shit together now, so they can retire in their 40s and 50s instead of slaving away for women until the day they die.