First and foremost, THANK YOU for all of the encouraging texts, e-mails, and DM's on instagram with feedback on my first post! It is very motivating that you are reading this and sharing it with your friends and family, so please keep the feedback coming and let me know what topics you would like to see covered next on the blog!
Y’all know that I love to read, and read I do. We are almost at the 30 book mark for 2018 and I’m reading more than I can possibly share with you all in one blog post per week. Given this, and if I continue to receive positive feedback on these, I may start writing twice a week. Send me your 2 cents, and if there is enough demand I will definitely put in the time to do that. Moving onto this week's book!The lessons from THIS book really stuck with me. Not just because of how well written it is, but also because I can’t believe more people don’t follow the simple advice that it preaches. Save 10% of every single dollar that comes your way. That’s it. A great book built on the most STRAIGHTFORWARD advice anyone could give. But let’s be honest with ourselves, most of us really love spending our money on STUFF, and we are terrible at controlling ourselves. Whether you’re a car guy, a makeup girl, or an athleisure aficionado donating hundreds to Nike every month, we all have that THING or that STUFF that we spend way too much money on.
And I say GO FOR IT! Spending money on something that makes you truly (emphasis on the truly) happy is an incredible investment. It really is. However, you know there is a gigantic but coming in real hot:
You can only do this if you save 30%+ of your NET. MONTHLY. INCOME. or more. Meaning the money that actually goes into your bank account after taxes. And I would go so far as to say that you should be saving up to 50%. On this blog, we’re going to kick all of the advice from these books up a notch. Let me explain.
Let’s say you make something near the average pay in the good ole United States of America, around $50,000/year. Net of taxes, were gonna take home about 40 grand because Uncle Sammy usually shaves 20-25% right off the top. We might get some of this back during tax time, but let’s keep it conservative. Now our bank account is theoretically growing by nearly $3,500 every month! Awesome! Except we have to take out our monthly expenses. DOH! So, like the average American, let’s go buy those lattes, a car that’s worth 1.5-2x our ANNUAL take home pay (cuz that sounds logical?!), rent, food, traveling, WHATEVER you spend your money on. I’m not going to tell you what you can and can’t do, but I will let you see where my heads at in terms of the mathematics behind it. All in all, we might save $100 bucks at the end of the month. At the end of the year, we saved $1200 out of our total take home $40k, for a savings rate (money saved or invested divided by total money made) of around 3-4%, meaning that we would have to work for 70+ years to retire at our current standard of living.
(assumes a very conservative return on investment of 5% annually, just investing in the stock market yields 7% net of taxes and inflation over time)
If we were to bump that savings rate to 10% like George Clason preaches in his book, we could retire in 51 years.
Let’s go further and save 30%, we could retire at our current standard of living in 28 YEARS! Starting to sound exciting?
And finally, if we save HALF of every single dollar we make net of taxes, we could retire at our current standard of living in just 16 years. Now I know you’re thinking:
“Bro, you’re nuts. Nobody retires in 16 years except for hippies going on their sabbatical backpacking trip across Asia.”
And to that I counter with this; Even you can be completely financially free, meaning that your investments make you so much in interest every year that it covers your cost of living. There are basically two ways to accomplish this:
1) Make a lot more
2) Spend a lot less
I would wager that number 2 is much easier to pull off by the majority of us than number 1 is, so we should focus on bringing DOWN our cost of living through common sense practices that will help us all reach financial freedom, retirement, “F-U money”, whatever it is that you want to call it. In addition, if we work hard and grow our take home pay while keeping our expenses constant, our savings rate will naturally grow. I have met some people with savings rates of OVER 75% because of a combination of hard work and sensible spending. I have also met some people who have enough money to retire and live off of forever without ever making another dollar in their life. Interested? It really is not as complicated as many make it seem.
I hope to cover investing in much greater detail on this blog in the time to come, but if you only ever read this far and never come back, take this notion with you:
It is easier to cover a small amount of expenses than it is to cover a large amount. So the amount of money you need to save in cash, even if it isn’t growing very fast, is lower. This means it is easier to do, which sounds like a win-win to me!
Wan't to get started investing now? Pretty easy, open a brokerage account and start funding it and buying a stock market index fund like the ticker "VTI". It is a total stock market fund that is completely diversified across large companies, small companies, and everything in between. Literally anyone can get started this way while they take some time to learn more. The best part is that now anyone can invest for FREE with Robinhood! No more commissions every time you buy and sell a stock.
If the stock market is too volatile for you, throw in some bonds with the ticker "AGG", the total aggregate bond market. A common formula used to calculate what percentage of your portfolio should be invested in stocks versus bonds is 120 - your age. So if you are 20 years old, you should be invested 100% in stocks. However, it all comes down to how comfortable you are and what your personal risk tolerance is! Throw in some Gold with the ticker "GLD" if you're really pessimistic about the outlook of the economy. It is all up to you to decide how aggressive you want to be!
Wanna try 33.3333% stocks, 33.3333% bonds, 33.3333% gold? More power to ya! Use ETF Replay to see how your model portfolio would have done in the past. Over the last 3 years, this example portfolio would have returned about 5% annually with a fraction of the stock market's risk during tough times. So it is a great choice for you safety lovers! Go ahead and try it out at Robinhood.com
To break the numbers down: If your expenses are less than 30k/yr, you would need approximately $750,000 invested to cover your annual expenses FOREVER. So start saving and investing!***
That’s it. A pretty simple message with actionable advice that I believe can help some people really change the course of their life. The sad reality is that many people cant even begin to save because their consumeristic mentality has already drenched them neck deep in credit card debt (which is a whole blog post in and of itself).
If you thought this was helpful, terrible, or somewhere in the middle, please leave me feedback in the form of a Direct Message on instagram @MakeDollarsAndSense, or feel free to send me an e-mail/text to the information on my Home Page. I truly appreciate constructive criticism and opposing views, so bring em on!
If your expenses are 30k/yr and you have $750,000 earning you 5% interest annually (remember the stock market has an average growth rate of 7% per year net of taxes and inflation), you will never go broke. This is because 5% of 750k is about $38,000. That is enough to cover your annual expenses while also growing your portfolio year after year. Sometimes you will do much better (the market was up over 20% in 2017!) and sometimes you will do worse, but the important part is understanding the averages and using that math to your advantage with conservative estimates leaving us a nice fat margin of safety.
P.S. New blog posts coming your way every Monday!
I love books, so it is probably a natural progression that I have come to LOVE AUDIOBOOKS! Here is a link to a 30-day free trial to Audible, along with TWO free audiobooks of your choice. Don't like the service? No problem, they will let you cancel and you'll even get to keep the books you chose to try. Enjoy!