Financial Samurai

For two decades I’ve been managing my own money. It all started when I saved up $3,000 from random minimum wage jobs to open up an online trading account under my father’s guidance. This was in the early 90′s when Charles Schwab first came out. One time I bought a company which I thought sold software, but was actually a bank! Clearly, I had no idea what I was doing. Thankfully, when you start off with only $3,000, the most you can lose is $3,000.

When it takes you several summers at $4 an hour to squirrel away $3,000 only to see half of it vanish in a matter of months due to poor investment decisions, you kind of curse the world. But, you also learn from your mistakes so you can minimize the experience of feeling that dull knife slicing through your financial security. Losing money early on taught me the importance of managing money.

Although the financial crisis of 2008-2009 certainly gave my net worth a massive uppercut to the chin, I didn’t panic. I just started this site and have more than doubled my net worth since then as everything has more than recovered as well. I credit net worth diversification to surviving the crisis and not jumping off a bridge when the S&P 500 hit 666. I also credit my childhood stupidity.

In this article, I want to provide the best advice on how to manage your own money. We will talk about fundamental principles as well as mental states you should accept if you want to continue growing your wealth over the long term.

THE RIGHT MONEY MENTALITY Read more…

What the duck!

First Republic is one of four banks I do business with. They are a boutique bank known for their quality of service. When you go into one of their branches you don’t stand in line and wait for a teller to serve you behind a bullet proof window. Instead, you actually sit at a bank officer’s desk to deposit a check, open up a CD, or pay your mortgage. It’s quite an intimate experience. The fresh baked all you can eat cookies are a nice touch too.

Back in 2009, First Republic ran a 5-year CD special at 4.15%. With extra cash on hand, I locked in a good chunk of change in order to protect my money from further risk. In retrospect, I should have dumped everything in the stock markets. But I’ve been following my system of allocating 30% of all savings in long duration CDs since 1999 and it’s worked out well through the previous downturns so there was no desire to change.

In addition to opening up a couple CDs I also opened up a savings account given their savings account interest rate was also higher than the competition. Over the next year I ended up drawing down my savings account to the point where there was only $33.25 left. I had multiple accounts open with four banks and wanted to simplify my financial life. Carrying around four ATM cards (I hate ATM fees) and keeping track of more than five money market savings accounts was a big pain so I stopped using First Republic for anything other than a CD depository.

SURPRISE BANKING “SERVICE” FEE Read more…

One of the most popular posts on Financial Samurai with over 250 comments is The Average Net Worth For The Above Average Person. The “above average person” is loosely defined as someone who graduated from college (35% of the American population), works hard, plays well with others, takes full advantage of their pre-tax retirement plans, saves additional disposable income, stays on top of their finances, expects nothing from their parents or the government and is not delusional. If you were a “C student” and expect to live an “A lifestyle,” you are definitely not the above average person!

Take a moment to study the above average person’s net worth chart again. Somewhere between the ages of 45-50, the above average person’s net worth reaches over one million dollars. We can all agree that thanks to inflation, easy monetary policy, a roaring bull market and a recovery in real estate, becoming a millionaire by the time we retire is fast becoming the rule, rather than the exception.

It’s important to note the figures in my chart are for individuals and not for couples. For those of you who combined your household net worth to see where you stand, so sorry. That’s cheating. At the same time, not everybody can find someone they love hence why I initially created a per person chart. It would be presumptuous to assume we can all live in marital bliss. Not everybody is even allowed to get married thanks to the government telling us who we can and cannot be with. For simplicity’s sake, I will refer to “married couples” as anybody who is in a long term relationship.

This article will come up with reasonable “above average couple net worth” charts based on what I think, what the government thinks, what you think, and the realities of life. One can also define “above average” as one standard deviation beyond the midpoint of the normal distribution curve (top 16%). Not every couple can be above average. But every couple can certainly try.

THE AVERAGE NET WORTH OF THE ABOVE AVERAGE COUPLE Read more…

When I read Sam’s post on how to make a six-figure salary, I had a strong (negative) reaction to the advice given. I’ve done just about everything wrong according to his advice, and at 29 have a six-figure salary and $200k in net worth. While I’ve experienced enough privilege in my life to go through college with my tuition paid by my parents, I’m also not a trust fund baby.

I grew up in a pretty average middle class household, went to public school all my life, and assumed that the business world was for people not like myself. I’ve also always excelled in the arts, being accepted into prestigious programs for painting, drama and writing, but due to a combination of ADD, depression and anxiety, my academic performance never quite reflected my intellectual potential. With that, I didn’t graduate from an Ivy League School. I finished four years at large private college with a degree in the arts. When I graduated college in 2005, I had no idea what to do, or how to make money, let alone save it and invest for retirement.

Sam explains that the best way to get a six-figure income is to do well in high school, get into a top-tier college, and then be the best in any one of a large number of professions (medicine, law finance, high tech, public servant etc). I wouldn’t say this is terrible advice, as this strategy clearly helps many people get ahead, but not having Harvard or Berkeley on your diploma doesn’t mean that you’ll always be stuck earning $50k a year, or that you should ignore putting money away for old age before it’s too late.

On the flip side, my boyfriend followed all the “right” steps, graduating from a prestigious institution with high honors, yet has spent the past decade unemployed or underemployed. He has no savings and only a part-time job on his resume. I’ve built up my career from scratch and comparatively speaking am doing much better off with my 3.2 from an unknown school versus his 3.8 from a top-tier institution. Grades matter, but what also matters is drive, stamina, and motivation, and above all else, faith that the stars will align if you refuse to give up.

I’ve had my fair share of professional ups and downs in my career to date. But, regardless of the turbulence I try and save a significant portion of my income. I’m not frugal by any means (if you read my blog you’ll know that I also spend a significant chunk of change on shopping) but even so I’ve always focused on living under my means. I know many just-out-of-college or young professionals who buy a new car off the bat and then complain about their monthly car payments. It’s strange.

I argue that anyone can obtain a six-figure salary, but you have to be prepared to work hard, take risks, and shut out any fear you have of the unknown. It also helps not to have kids in your 20s as I understand that the cost and responsibility of taking care of kids makes this a lot more challenging. If you have a choice, I’d recommend to wait to have kids until you’re in your 30s if you want to earn financial security.

Can anyone become rich if they want to? Sam says, “There is No Monopoly on Being Rich.” He argues that if you work hard and believe that you can be wealthy, you can be “rich.” I don’t think anyone can be rich in the financial sense, but a good 75% of people have the ability to be doing better than they are. Where I live, where basic houses start at $700k, a $100k salary does not make you rich. The wealth comes from saving and spending smartly, and making the right financial decisions.

While not everyone can be a millionaire, anyone can improve their current networth by focusing on becoming really good at one thing that they’re passionate about and that is a marketable skill. With that, anyone can be financially secure and have enough for a solid retirement. This is my story of my life since graduation, from $15k to $100k in annual salary, and $8k to $200k in net worth before 30.

2005: Unemployed, Overwhelmed With $8k Savings Read more…

Only after publishing CD Investment Alternatives did I realize the article is irrelevant to those of you who don’t save or don’t save much. I’m always trying to make my articles as relevant and helpful to as many readers as possible, so I apologize for skipping over you non-savers.

This article is an attempt to help spenders spend more and not feel so guilty about blowing all their money. It’s sometimes hard coming up with new ideas on how to spend your entire paycheck every single month. Year end bonuses are meant to be spent in celebration, not tucked in some pathetic 2% CD.

Tax refunds are also a bonus too right? It’s not like you’re getting back your own money you lent to the government interest free all year. Gotta spend the financial windfall on something nice! I’m here to help you develop a spending mindset and make you feel great about blowing all your money. I’ll also provide you a great list of things to splurge on to increase the quality of your life!

HOW TO DEVELOP THE SPENDERS MINDSET Read more…

I never thought we’d go over the fiscal cliff, but it turns out the chances are now over 50% after Boehner’s Plan B can’t even get enough Republican support. Raising the absurdly low income threshold for tax increases from $250,000 per couple to $1 million per couple sounds like a fantastic compromise.

Nobody making over $1 million will ever publicly complain about their taxes going up unless they want to face the mob. Those making less than $1 million a year will get their moral victory of sticking it to the real rich, who are the millionaires and billionaires of America, not the couple making $350,000 living in San Francisco with two kids. They are well to do, but they aren’t rich when it costs $1.5 million for a starter home!

Since Obama proposed a $400,000 income level before taxes will go up, and Republicans can’t even agree on a $1 million income level until taxes go up, it’ll come to no surprise if a deal doesn’t happen before year end. I was really hoping for something in between $400,000 and $1 million so they could move on with the real issue, which is overspending! It’s baffling why the government can’t take steps to spend within its means.

It doesn’t sit well with me that our politicians went home for the holidays with such a huge issue still unresolved. We pay their salaries and huge pensions! I still have some hope for at least a “Fiscal Patch,” but just in case, here are some things to consider.

FINANCIAL MOVES TO MAKE BEFORE THE FISCAL CLIFF Read more…

Imagine learning how to cook from someone who only knows how to operate a microwave oven. Yum! Those frozen TV chicken dinners sure taste good!

Imagine learning about stock investing from someone who doesn’t know how to calculate a dividend discount model or a WACC. Psssst, I hear Zynga is a good buy! Why? Because I heard it on the news!

Imagine learning about real estate investing from someone who has never owned nor understands the concept of cap rates. Here are the keys Mr. Bank! I cannot pay my mortgage no more.

We call these scenarios, “Talking out of your a$$.” It’s a way of life for so many in the advisory business because we have to start somewhere and it’s a competitive world out there. Furthermore, I do believe most of us inherently want to help people. But, sometimes we end up hurting those we care about during the fake it, until you make it process.

I’ll be confirming a time for my free 30 minute consult with a Personal Capital dedicated advisor who reached out over e-mail. For those of you who wisely spent the one minute signing up with Personal Capital to get a hold of your finances, I’ll be providing some questions in this post that you should consider asking when it’s your turn to get an overview.

Only after you are satisfied with your advisor’s answers should you consider paying for financial advice. In fact, I recommend spending at least a couple months managing your finances on your own before making a decision. Who knows. You might discover your own financial guru inside after utilizing their tools!

Let’s start with an interesting situation between advisor and client in order to give them advice on how they can help us better.

SHOULD YOUR FINANCIAL ADVISOR BE WEALTHIER THAN YOU? Read more…