Hey guys, how is everyone today? Well after reading this article you will be much better off than before and in fact it could greatly change your life for the better! You see, since we were young and indoctrinated in our youth the way to financial independence is to get good grades, get a good job, save 10% of our pay and we will be golden.
Well turns out this is pretty much bullshit. If you are in your 20’s, chances are you went to school and came out with a shitload of debt. It is damn near impossible to save because your tens of thousands of dollars in student loans just keep building in interest. The job economy is just about as unstable as it has ever been… Oh and that “save 10% for retirement” – well take into account that with inflation and a terrible economy we will be lucky to see any social security at all.
So what is one to do?
Well if you are reading this blog you are already in great shape. The first thing we need to do is adopt what I call the Producer Paradigm. This means that instead of being a typical consumer, we turn into producers. It sounds simple and it really is, but execution isn’t quite so simple. Every day there is a war going on with folks trying to force money out of us. We are bombarded by advertising, commercials, billboards, pop up ads, social media advertising etc. It is the goal of other to get us to buy their stuff. Now capitalism is not the problem – the problem is being on the wrong end of capitalism, which is the typical American whom is in debt up to their eyeballs. Why are we in debt? Because we buy shit we don’t need. Prime examples are excessively expensive degrees (do you use them?), new cars, large houses etc. Tyler Durden sums it up quite nicely with:
“Man, I see in Fight Club the strongest and smartest men who’ve ever lived. I see all this potential, and I see it squandered. God damn it, an entire generation pumping gas, waiting tables – slaves with white collars. Advertising has us chasing cars and clothes, working jobs we hate so we can buy shit we don’t need. We’re the middle children of history, man. No purpose or place. We have no Great War. No Great Depression. Our great war is a spiritual war. Our great depression is our lives. We’ve all been raised on television to believe that one day we’d all be millionaires, and movie gods, and rock stars, but we won’t. And we’re slowly learning that fact. And we’re very, very pissed off.”
Tyler has a very valid point here, we tend to get trapped in this cycle of consumerism and ultimately is causes debt, depression and anxiety. Real wealth comes from what the stellar author/entrepreneur MJ DeMarco calls the wealth trinity: Family (and friends, Freedom and Fitness (good health). Now these days freedom costs money – however do not confuse freedom with consumer excess. There are always studies that come out every year saying how happiness doesn’t increase exponentially after peoples basic needs are met. But allow me to let you in on a little secret here, very little people actually understand this. We need to look at our dollars as freedom, rather than just money. When you want to buy something ask yourself “How many hours of life did this cost me?” AND “Will buying this make me money” If you can’t come up with a good answer, don’t do it.
You want to know how to be really freaking happy? Exercise regularly doing what you want to do, maintain solid friendships with real people you enjoy and add value to others lives via whatever industry you prefer and/or are good at. If you do these things, your life will be incredibly rewarding and as a producer you will find yourself less apt to be trying to fill a void in your life because you are already adding so much value to others lives. This may sound blunt, but it is the truth… What the fuck do we need a huge collection of bullshit for? It is clutter and distracts us from the real wealth trinity as defined by MJ DeMarco. So with that said let us touch upon freedom.
One of the biggest stressors in ones life – is financial stress. Let me repeat that again for you: One of the biggest stressors in ones life – is financial stress. Let’s take a look at the most popular book of all time The Bible and what it has to say about debt:
Proverbs 22:7 says: “The rich rule over the poor, and the borrower is servant to the lender.”
If we owe money, we are owned. Student loans? You are property of Sallie Mae. Does your brand new Honda Civic and the payments own you? Are you a slave to your house? I think you get the point, so let’s turn this thing around and get onto of our finances rather than the other way around. It is okay if you are in debt right now, in fact you are expected to be. The average student now graduates with debt to the tune of around $30,0000!!! What do you think Tyler Durden or Jesus would have to say about that… No bueno folks. Please keep on reading and let’s do this:
10 Simple Money Management Hacks:
1. Pay off student loan debt. This may seem daunting at first, but any extra money you have I want you to give it to Sallie Mae. The interest rates are around 6.8% so if you don’t pay off your loans ASAP you are basically saying it is okay to bleed money.
2. Pay cash for everything. Some people will advocate never using credit cards but they help build credit, the key is to never pay the absurd interest fees and pay them off every month. In short – if you don’t have the cash in your bank account, do not use the card. Credit cards can be a real slippery slope and the average credit card interest rate is a WHOPPING 15.68%. So getting yourself in credit card debt is a great way to bleed money. Don’t worry if you have credit card debt, just pay it off ASAP.
3. Pay off miscellaneous debts like car payments, clothes or whatever stuff you have. Now stay out of debt. Congratulations on becoming debt free and getting over the mountain, you are now on your way to the fun part of finance. This means when you make money – aside from tax, YOU get to keep it. It is really a great feeling.
4. Save 50% of your income. That is right, save half of what you make AFTER TAX. How is that possible you ask? Well you need to make more money if it isn’t. If you are making $100k, that is about $70k if you are taxed at 30%. You can keep a little more if you are in a state like Florida that has no state income tax. So when you make this $70k you should definitely be able to live off $35k, if you can’t you have to ask what you are spending your money on and budget accordingly.
5. Put the money where it makes the most. As entrepreneurs, our primary money making vehicle is often our business. However if you don’t need to dump more into your business for COG, advertising, patents etc. Consider dumping that cash into your 401k and/or IRA. In this way you are maxing these tax-free accounts and saving money.
6. When you buy a car use the 10% rule. The 10% rule is a wonderful rule proposed by Sam over at Financial Samurai which simply says to spend no more than 10% of your gross income on a car. WAYYY too many folks overextend in this area where they feel they need and/or deserve a new car. Do yourself a favor and purchase a reliable used or preowned vehicle like a Honda, Toyota etc. Using the 10% rule, you should be paying for your car in cash and never have the PITA that is a car loan payment.
7. When it is time to buy a house use the 2x rule. The 2x rule should be the golden standard in purchasing housing – it could have saved folks a whole lot of grief in the housing crisis and allowed people the freedom they deserve. This is like the car rule, do not spend over 2x your gross income on a house. Please keep in mind there are many variables in housing and they cost a lot of money, time and life. When making what is likely to be the largest purchase of your life, please do so frugally and you will thank yourself down the line.
8. Pay off your house ASAP. Can you imagine how good it will feel to own a roof over your head free and clear? This is important for retirement or selling your house as well as peace of mind. Real estate is not always a good investment and market conditions can quickly change, however with 0 debt you can easily weather storms. Mortgage rates are currently very good at around 4% if you have a credit score >760. However that 4% is still a drain on finances, you can calculate if it is better to invest your extra cash or pay off your house ASAP… At any rate, paying off your house sooner is generally a good thing unless money is very tight.
9. Diversify your investments. Ahhh diversification, this could have saved a lot of folks in the 2008 crisis. So you have stocks – great, do you have bonds? Do you own income properties? Do you own precious metals? How about fine artwork? I think you get the point, I won’t get into the fine details of investment diversification – one could dedicate a whole blog to it but ensure that you have some diversity for added safety.
10. Make more money. We are entrepreneurs, just as we diversify our investments – we believe in income diversification. If you have an internet eCom business, how about adding some products. What about a joint venture with another company or some affiliate partnerships? If you write in a freelance fashion, try your hand a book and/or a blog. The key is to not spread yourself too thinly and concentrate heavily on what you are doing at the moment. According to Sam the Financial Samurai – the maximum happiness lies around $200k annual income per year. Sam is really an amazing guy with a wonderful blog and if you need help breaking six figures, simply read his post How to Make Six Figures A Year At Almost Any Age. Both these posts are fantastic and Sam is great with interacting with his audience.
Bonus Money Hacks:
Well sometimes it is possible to stumble across financial windfalls or accelerate wealth growth. The following are some means:
- Be born to a wealthy family (these spoiled folks usually have no student debt and a ton of help from mommy/daddy for housing and extras)
- The middle class trust fund (live with your folks until you are debt free and purchase your own abode)
- Don’t have kids, they cost a quarter million dollars per child – NOT including college
- Be in a dual income household
- Relocate to an area with lower cost of living while making the same income (DING DING – Internet entrepreneurship, this one is HUGE) Think of a different state or even country!
- Sell your business for a windfall sum of cash
- Work for a family/friends business
- Live frugally and below your means (Easy to attempt, hard to master)
- Have your work and/or skill set become popular (As per MJ DeMarco, fame can accelerate fortune)
- If you aren’t an entrepreneur full time the fields Sam mentions can help double your cash
- Realize and believe you can make as much as you can or want
- Keep doing what you enjoy and/or are good at and you will get good
- Know when enough is enough
Your wants/needs in life may change as you grow older. Some people are born and crave lamborghinis and lavish housing. Others just want a little piece of land in a rural area and some piece of mind. Some folks are after waterfront property. You need to ask yourself what you want and to define your goal or what it takes to make YOU happy. Chances are that is different than what most people are after as you are unique and your own person. In short if you live frugally and allocate your money only to things that make you money or truly happy – you will live a more stress free and happy life. Please remember the wealth trinity of Family, Freedom and Fitness. Entrepreneurship is about FREEDOM. You don’t need a job, a nagging boss or 9-5 you dislike if you move confidently in providing value to others lives. If you provide immense value to others, it will come back to you in the form of compensation. Passive income from business and/or investments is where real freedom lies. Ask yourself this, do you love money – or love the freedom that money buys you?
What do you want?
So ask yourself what you want in life? Aside from helping and adding value to others lives, this is what we do this entrepreneurship thing for. For me, I’d be happy in a median priced house somewhere reasonably close to my family in New England. I’d like to drive a Tesla model S because I’m a nerd and they are badass tech whips. I’d like my house and car to be 100% paid for and to accrue 2 million in my bank account. A return of 5% per year on investments would make for $100k in passive income. I really don’t know what I’d do with more money. I’m 27 and like to live simply. I enjoy training Brazilian Jiu Jitsu, technology, hiking with my dog and gardening. Tell us about yourself in the comments below… Who are you, how will you utilize what you’ve learned in this article and what do you want?