Opportunity

In a way, banks treat people so bad that it opens up a huge opportunity for other people to treat them well.  To tell them the truth.  To help them stop losing so much money to the banks.

Second thought — If you’re 20 and you have 60 years of your life left, a 5 year sacrifice is 8.3% of your remaining time on earth.  If I asked you to sacrifice just 8.3% of your spending time to be wealthy?  It’s only a single digit of percentage… it’s just happens to all the be stacked at the beginning.  Thinking about the giant blob of time rather than just tomorrow helps me a lot.

Good-bye Ju-ly

Paycheck arrived this morning. Made my second mortgage payment this morning. Also did the transfer for $800 of the $2000 that I will invest out of this paycheck. On track for $20k saved so far. Five months and $20k left to invest in 2014.

Kind of a fun calculation is how much an engineer vs. a doctor is able to make in their lifetime. Let’s say the engineer starts working at age 22 for $125k. And let’s say the doctor has $200k in medical school debt but makes $120k starting out at age 30, but it can rise a lot after that, much more than the engineer.

Both start investing when they enter the workforce.

The question is, at what point will the doctor get rid of his debt on average, so that his true “available cash” is more than the engineer? Further, at what point will the doctor’s net worth be greater than the engineer’s? Many times, the doctor will never be able to catch up. The long term capital gains taxed interest generated from the engineer’s 8 year + (debt pay off years) head start will be substantial and will match or exceed the 30%+ taxed $200k+ salary the doctor is able to achieve.

In other words, if you’re a doctor and you don’t aggressively plan and manage your money… the “big” money is fake. You could’ve just gone into engineering.

http://www.cbsnews.com/news/1-million-mistake-becoming-a-doctor/

I’m not saying this to knock doctors. My grandfather was a doctor. He worked hard, invested, and his wise use of money has made my life much easier. I only wanted to point out that these other factors (time entering the work force, debt, time value of money) can impact a person’s overall financial picture more than their income, even with a high income.

Two Articles

http://www.washingtonpost.com/blogs/wonkblog/wp/2014/07/29/the-middle-class-is-20-percent-poorer-than-it-was-in-1984/?tid=sm_fb

With a very fun graphic from the Sage Russell foundation showing how income inequality has increased.  That works in your favor if you are significantly above average now… so get your ass above address.  It’ll pay free gains in the future.

 

http://en.wikipedia.org/wiki/American_middle_class

Of particular interest, Leonard Beeghley‘s breakdown, which includes a “rich” category of net worth >$1M, seems similar to “the millionaire next door.”  I’ve always just wanted to be rich rather than rage against rich people.

Sound Familiar?

Dr. Ryan T. Howell: To maximize happiness, the very first thing you need to do is get out of credit card debt. You may get some momentary joy from making a purchase you really want, but the financial stress of debt will make you worse off—it’s pretty much the worst thing in the world for your happiness.

Second, we found that happy people follow a particular pattern when spending money after their essentials are paid for: They save or invest about 25% of it. They take about 12% and earmark it for charities, religious organizations or gifts for other people. And they spend about 40% on meaningful life experiences. Those are the three most salient characteristics of happy spenders.

 

http://www.learnvest.com/2014/07/secrets-of-a-psychologist-how-to-train-your-brain-to-make-smarter-money-moves/

Money Management, Exercise, and Alcohol

I can’t remember the number of times I bought something online while drunk.  Alcohol takes away a fear of social rejection, but it also takes away a fear of being broke or retiring poor.  I’ve never been an alcoholic, but there definitely have been a few weeks in my life where I drank more than I should.  It doesn’t take much, really, a single beer a night makes me feel like crap after three days.

I only started exercising regularly this year.  I’ve been walking about 8 miles a day since the beginning of 2014.  It takes up a lot of my free time — 2 hours a day.  But during that time I can listen to Dave Ramsey, or one of NPR’s shows (This American Life, Radiolab).

Where before I would often spend part of that time shopping around, and now I’m healthier.  The endorphins help me to not indulge in as much retail therapy.  I watch product reviews while I walk, but then I don’t buy anything.  When I want something, I know it will only be affordable in a few months because I have to integrate it with the rest of my budget if I want to stay on track with investment… which I really do.  That’s very important to me.

I went on a two week vacation and gained 6 pounds.  That’s a lot for me.  So when I got back to California, I decided to focus on diet and exercise.  Which means no alcohol and an increased focused on the non-walking parts of my exercise routine.

I feel a lot better on a daily basis since I started exercising.  But I haven’t really changed my diet much.  I’ve gained a little weight since I started, but my shape hasn’t change, so definitely part of that is muscle.   I’ve considered that maybe regular exercise is just as important to financially preparing for retirement as knowing about 401k or IRA details.  Not only will it decrease healthcare costs later, but the endorphins you get from it can help head off buying stuff you won’t have time to use.

Similar with alcohol.  Decreasing alcohol decreases healthcare costs and also the number of times you make a drunk purchase that’s really outside your budget (which you can only know if you do a budget in the first place).

Which brings me to another point, which really deserves its own blog post.  You don’t truly know the cost of an item or the impact of buying it until you do a budget.  Doing a budget makes it harder to buy things, because recognizing the long term costs naturally makes a person more cautious with spending.  But it also makes things easier to buy, because you can see the gold at the end of the rainbow.  If you’re reading this and you don’t have a budget or a retirement plan… work on it now.  Make it the top priority on your list.  Above laundry, above exercise, above the dishes.  Once you see how you’ll retire comfortably, you’ll be a lot more relaxed about it from now on.  It removes a ton of latent stress.