The great thing about a 401k is that you are contributing with pre-tax money. The higher the tax bracket you are in, the more tax savings you will have. If you can start withdrawing from your 401k when you’re in a lower income tax bracket, then you’ve successfully conducted some tax engineering to boost your wealth.
The problem with the 401k is the 10% early withdrawal penalty before age 59.5. If the government gets desperate, they can raise the early withdrawal penalty percentage or increase the age limit. I ascribe a 75% chance one of these two things will occur over the next 30 years.
It’s easy to understand why saving for retirement is difficult. The value proposition is that you put your money away in an institution like Fidelity, which operates under the confines of the omnipotent government, who punishes you if you err from their rules, all for the chance that your money will grow decades down the road.
With no assurances from your money manager or the government that your money will be there in retirement, spending money now on instant gratification makes perfect sense. Give me the latest iPhone vs. the potential to have $25,000 more in retirement! Therein lies the dilemma of the 401k contributor who can’t max out his or her account every year, and who therefore doesn’t have excessive after tax savings for liquidity and other purchases.
Previously, I had written about my struggling friend Jabir who was unemployed for a couple years before he discovered Uber. He drove for Uber for a year before switching over to be a dedicated hotel driver. In this post, my other friend Harry shares why he drives for Uber even though he’s financially thriving. Enjoy!
Normally when I’m out putting around in my SUV driving people around for Uber (or Lyft – I do both), the first question they ask is: “So do you do this full time?” Reluctantly, I usually tell them, “No, I also work for an engineering company as an aerospace engineer.” (odds are, if you’ve ever flown, you’ve been on one of our planes). It’s not that I’m embarrassed to be a full time engineer/part time Uber driver, but it always elicits a very strange reaction from my passengers.
Why would anyone who has a perfectly good job want to drive around a bunch of jokers during his free time? They don’t outright say it, but I’m sure that’s what they’re thinking. But there are actually a lot of reasons why I enjoy it and as you may have guessed, it’s not just about the money. Well a big part of it is about the money, so let’s explore that a little more first:
For 10 years, Rachel dedicated her life to working for Up Yours Inc. She rose through the ranks from analyst to senior manager. But her path wasn’t smooth. I told her to find another job many times before because they weren’t treating her well. When it was time for her to get a promotion two years ago, she was passed over for another male colleague. The guy was qualified, but she was more qualified. Unfortunately, she had to wait another 6 months before being considered again.
The great kick in the pants is that the guy who got promoted quit six months later to take some other job. For managers out there, this is your worst nightmare because those employees who you didn’t promote will not only secretly laugh at your poor managerial decision, they will also make you regret your choice as well.
Two months after being passed over, Rachel walked into her manager’s office and demanded not only the promotion she should have gotten earlier, but an even higher raise than she should have received.
“If you don’t like my term, unfortunately it’s time for us to say good-bye,” she told her boss firmly.
Her boss was taken aback by quiet, little, loyal Rachel. He apologized about the situation and promised her a promotion during mid-year. Rachel not only got that promotion, but also a retroactive raise as well. It’s unfortunate meritocracy doesn’t work on its own.
My parents came to visit me for only three short days recently and I miss them already. One of the reasons why I wanted to leave my stressful job in finance was to spend more time with them. I flew back to Hawaii four times in 2012 and three times in 2013 to visit for two-to-five weeks at a time. But our first meeting of 2014 was in September.
Totally my fault. Life seems to always get in the way.
Ever since going to college, I’ve longed to make my parents proud. My goal was to do well in school so I could earn enough money to support myself, a family, and them. They took care of me for the first 22 years, it’s only right I take care of them.
Some children have no problem accepting financial help from their parents as adults. That’s probably because they weren’t bad like me. I got in a lot of trouble as a teenager, and I really feel guilty for giving my mother so much heartache. I wanted to make up for all the money they spent on me by proving they didn’t raise a dead beat, but someone who could be independent as soon as he graduated college.
I also suffer from money guilt because I grew up in developing countries for the first 13 years of my life (Philippines, Zambia, Malaysia, Taiwan), and frequently went to China and India for work. Every time I’m about to buy something I don’t need, I think back to the times when I witnessed destitution. Every time I eat, I try and eat more slowly in order to be mindful of the starving.
Developing countries are full of hope and growth, but the juxtaposition between the haves and the have-nots is very stark. The poor are extremely poor and the rich are obnoxiously rich. You want to help, but after a while of helping, you come to the realization that the poverty is endless – like trying to catch a rain drop moments before a monsoon washes you over.
I have been everywhere, and it is clear to me that San Francisco is one of the cheapest cities in the world based on its wealth creating potential. So many of my friends who live in New York City or around the country like to say that the median rent and home price in San Francisco are our country’s highest. It’s simply not true. Rent and property prices in Manhattan are the highest AND they only get to enjoy the outside for six months a year! Related: East Coast Living: Is It Really That Horrendous?
If I had to pay $2,500 a square foot for a condo in Greenwich Village, I’d be a little bitter too about equally amazing SF property costing 40% less. Heck, you can even get panoramic ocean view properties in San Francisco for under $800 a square foot. There’s no other city in the world that can boast such value.
The media have a great way of misleading the public because they like to take averages and extrapolate. I am in the trenches, actually visiting open houses in NYC and SF and bidding on places. I’m also a landlord who is very in-tune with market rents and wages for the 22-35 year old crowd. Based on the rents and incomes I’ve seen, San Francisco is affordable if you can land one of the many tech, internet, software, healthcare, consulting, and finance jobs.
I was just in London for Wimbledon, and places in Knightsbridge and Chelsea make Pacific Heights in San Francisco feel like Costco prices!
Ever since I was in the 4th grade, I’ve had this mild obsession with staying in shape. There was this girl I liked in gym class that I so wanted to impress, but I already had a gut as a nine year old! So imagine my dread when it was swim season and I had to sit down next to her in only my trunks. I couldn’t wait for the teacher to blow her whistle so I could jump into the pool and exhale. I was always so envious of the bony kids who didn’t have to suck in their guts.
I never did get the girl. I blamed genetics and my lack of courage to say, “Wanna get an ice cream sandwich during recess?” All throughout secondary school I decided to get into better shape because I knew I couldn’t be poor and out of shape at the same time. That would be a disaster.
Nowadays, I no longer care as much about being in good shape because I’ve usually got my clothes on. Women don’t seem to care for hunky dory guys anymore. A nice smile, an engaging personality, a job, a car, a stack of Benjies, and a two bedroom condo with a view of jumping dolphins in the horizon will do. Can you really blame single 40-year old guys who are still having the time of their lives?
“Even if I don’t need him to take care of me, I’d like to know he can provide the life I want to lead,” mentioned a couple female friends who are 8’s, but settled for 6’s.
If we men can’t stay fit, then we must be able to at least generate enough wealth to provide. Being unfit in wallet and in wealth leads to loneliness. This is our curse from society, which I’ll discuss more in an upcoming podcast.
“No money, no honey,” as the saying goes.
One of my favorite investment strategies is the barbell strategy where I invest in lower risk companies or indices to hit singles and doubles while concurrently investing in more speculative companies to hit potential home runs. I’ve structured my after-tax investments to be more low-risk through structured notes, and my pre-tax investments in my rollover IRA, SEP IRA, and Solo 401k to be more high risk. Given my pre-tax investments can’t be touched until 59.5 without penalty, I find it easier to take more risks with such funds.
My investments are solely a mixture of equity and fixed income to keep things as simple and straightforward as possible. My main goal is to come up with an appropriate asset allocation for my age and risk-tolerance, and let the investments perform as they may. Spending energy trying to beat the S&P 500 is a fool’s game. I’d much rather be traveling, playing tennis, building my online business, or writing with my spare time.
I’ve recently invested into a new investment vehicle I’m very excited about. It’s called venture debt. For those of you who are accredited investors who like the barbell investment strategy as well, I think you will appreciate learning about venture debt in this article.
You might have heard about all the Google bus protestors in the Mission District as techies move in and cause rents to rise. Long-time residents are displaced by landlords who want to evict and sell their buildings to buyers who turn around and rent the same units for market prices. Multi-unit buildings are under rent control, which allows for rents to rise by no more than a small percentage a year, usually under 2%.
On the one hand, the landlord should be able to sell their building and maximize profits if they so choose. On the other hand, how do we take care of the residents, especially older and disabled residents who might not have anywhere to go because market rents are double their existing price? It’s a messy, messy situation that is causing a lot of strife.
I’m a landlord, but I’ve never faced this problem before because I’m just buying property to live in. Only after living in the property for many years (10 years as is the case with my latest rental) will I put the property up for rent because I don’t ever want to sell. I would feel terrible buying in an up-and-coming neighborhood with the idea of booting out long-time tenants for profit. Forget that. There are much more harmonious ways to make money than disrupting other people’s lives.
Here’s a video that is causing a lot of uproar in San Francisco that I’d like for you to watch. This altercation is a prime example of what happens when money, entitlement, and poor etiquette come into play. Notice the racial divide as well. Having tact and better communication skills can go a long way to avoiding conflict.
The one thing I wondered when reading that 100% of people who make over $500,000 are very happy is whether rich and powerful people WANT the middle class to stay poor. Popular media loves to report that money doesn’t buy happiness beyond a very average level of income. But it’s clear that the rich have successfully manipulated the gullible media into making us believe the rich are not safe and happy with their wealth, when they really are.
Part of the reason why I write is to highlight so many of the absurdities that go on in this crazy world. And for some reason, a lot of the absurdities have to deal with government-funded policies e.g. Have a $1,000 child tax credit per child if you make below a certain income level despite our reports saying that it costs $250,000+ to raise a child into adulthood. Thanks to conflicting signals, can we really blame some families for having five children and staying on welfare their entire lives?
The happiness and income survey is anonymous and provides no incentives for participants to vote differently from how they feel. Therefore, it’s highly likely that a large majority of people who do make over $500,000 a year are much happier than those who make less. The only people who say money doesn’t buy happiness are those with no money to make themselves feel better, and those who have a boatload of money and don’t care about money anymore.
In order to feel rich, you must make or have more than the average. Even if you earn only $30,000 a year, you’ll feel rich if the average person earns $20,000 a year. But if the middle class grows more wealthy, then the rich won’t feel as rich anymore.
Given the rich and powerful like to mingle within their own circles, it becomes extremely difficult for the rest of us to get ahead in society because everybody just takes care of each other. A middle class person has to be an exceptionally brilliant, hard working, or lucky to move into the rich class where hopefully they’ll stay for a couple generations until the third generation wastes it all because they don’t understand what it takes to get ahead.
Dollar cost averaging is the act of consistently investing in a particularly security over a set interval of time. Most like to invest every two weeks or every month since that’s when most get paychecks. For example, let’s say you’ve got $2,000 left a month after you contribute to your 401k and pay your basic living expenses. You invest $1,000 every single month into the S&P 500 ETF, SPY, regardless of whether it’s reaching record highs or going into the crapper. That’s dollar cost averaging.
The great thing about dollar cost averaging is that you don’t have to think too much. All you have to do is not forget to invest, and eventually your financial nut will grow so large you’ll achieve make it rain status. Growing your wealth is all about practicing good financial habits that last over the long run. Sticking with a system of saving and investing will do way more than trying to uncover than unicorn stock for most.
At some point in your life you will either have a financial windfall (year-end bonus, inheritance, gift). There might also be violent corrections in the stock market as you’ll see in a chart below. Given the stock market trajectory over the long-term is up and to the right, you should come up with a framework on how to best take advantage of opportunities in a methodical way.
Here’s how I think about how much to dollar cost average. It’s kind of an oxymoron to “figure out” how much to dollar cost average, but hear me out. Hopefully my framework will help you better deploy your cash.
A reader asked on my post, The Average Savings Rates By Income, whether I consider paying down debt part of my personal savings rate calculation. My immediate thought was yes, but I realized I haven’t been including debt pay down at all when I discuss my after-tax savings rate of 50%+ in various posts on Financial Samurai.
Here is the outline of today’s 17 minute podcast.
Why I Don’t Include Paying Down Debt In My Personal Savings Rate
1) Be conservative. Don’t rely on anybody or any organization to survive. There are a lot of broken promises out there.
2) You don’t reward yourself for doing something bad. Punish yourself instead.
3) Compartmentalize your money. No co-mingling of funds.
By the time you retire, if your property is paid off and you get social security and your 401k then fantastic. If not, then you’re still OK, because you never expected anything from anyone in the first place.
The only time I would consider including paying down debt as part of my personal savings rate is when I pay extra principal down on my primary mortgage. The extra principal pay down could have been used for other wealth-building activities, so including it should be OK. The thing you want to be careful about is being house rich, and cash poor. There’s a balance you’ve got to carefully work out over the years.
Readers, Do you include paying down debt in your personal savings rate? If so, what are the reasons why?
Speaking notes: I appreciate everybody’s feedback from my first podcast entitled, Genesis. About 60% of you seem to want shorter podcasts, so I’ve decided to produce a much shorter 12 minute podcast and see how it goes. In terms of speed, pitch, and tone it doesn’t look like I have a problem based on your comments. But I’ve sped up my speaking speed in this podcast to test. A couple of you mentioned I should be more enthusiastic in delivery and not be afraid of laughing at my jokes. The style I’d like to emulate are the shows from NPR where no matter how crazy the subject, the speaker stays within his zone. I like NPR’s style, so that’s what I plan to go with for now.
To listen to the podcast, click Play to have it play within the post. You can also download the podcast onto your computer or phone by clicking Download. If you don’t see the options in e-mail, click the title of this post to come to my site.
My general contractor, who is also my tennis teammate, was making fun of me for spending $6,000 for replacing my 40 year old gravity furnace that was lined with asbestos. I needed to replace all my ducts and vacuum seal my house for a day to prevent any asbestos from escaping as part of the replacement and permit process.
“I could have done it for $2,000!” he said as he tried to make me feel bad about my decision.
So when my general contractor came back to me with a bid of $9,000 to paint the interior of my house, patch, tape, and sand all holes in the walls, I almost threw up in amazement. My house has some nice crown moldings and standard baseboards, but everything else is pretty normal. “$9,000 is a great price,” he said with a serious face.
Because I thought $9,000 was ludicrously expensive, I declined his bid and found another fella I worked with in the past for $7,000. After he discovered I was going with another fella, my general contractor then came back to me and said I was wasting my money because these new guys he knows can paint my interior for only $5,800!
What the HELL! How is it possible that he honestly thought $9,000 was a good initial price when he now says he can do it for $3,200 less (36%) after I found someone else? Once again, he’s trying to make me feel bad for spending more than I should. He was hoping I’d take his bait at $9,000, and was gambling that I had no other resources. Little did he know that I’m the most resourceful person ever. If I am wronged, I will go to any length to fix the situation.
Everything began to unravel after this incident.
At some point or another, you will be passed over for a raise or promotion. The goal is to actually start strategizing about your future BEFORE this unfortunate event occurs.
Perhaps part of the reason why some men make more than some women is because men are more aggressive in having the compensation talk with management. Back when I was working on Wall Street, I made sure I had a very serious heart-to-heart talk every two years with my bosses about compensation and promotion. I very clearly laid out my goals about when I wanted to get promoted, and how much I was looking to make, in a respectful way of course.
Before each sit down, I made sure my performance to date was solid. I included a short five-to-eight page powerpoint presentation to demonstrate the progress of the business under my leadership. The goal was to make it easy for them to pay and promote me, and it worked. By 27 I was promoted to VP and then to Director by 31 where I stayed for three years until I left to focus on writing.
Towards the end of my career I knew that I would never reach Managing Director. I would have needed to relocate to Hong Kong or New York, and then prove myself for another three years before getting the nod. My manager was at least five years older than me based in NY and wasn’t even an MD. How the heck was I ever going to get ahead? I wasn’t. Once we realize our limitations, we must be happy with what we have or do something. I always like taking action, so I negotiated a severance.
Welcome to The Financial Samurai Podcast! I decided to start a podcast to try and connect with readers in a new way. I’ve been writing online since 2009 and I feel very comfortable whipping out any sort of writing fairly easily. I thought it would be fun to mix things up and good practice since I hardly ever speak in a public setting. Things will probably be a little rough at first, but I’m sure the podcasts will get better through practice over time.
The initial goals of this podcast are to:
1) Provide a new medium of communication for those who prefer listening, rather than reading.
2) Provide a new way to convey ideas that aren’t as easily captured in my writing.
3) Improve as a speaker.
4) Be a friendly voice when you’re feeling confused, lost or down.
5) To go on a new adventure. It feels great to do new things.
For the past several years, I’ve seen Uber grow from a scrappy startup to an enormous success based right here in San Francisco. In the Fall of 2013, the company was “only” valued at $3.5 billion. A year later, the latest round of fund-raising puts the company’s value at $18 billion! Instead of driving for them, the best way to get rich would have been to work for Uber when it first started in March 2009.
Jabir, the “richest poorest person I know” actually became an Uber driver a couple years ago. He was unemployed for almost three years with a wife and daughter to support. It didn’t matter what time of day it was, he was always available to play tennis. We’d also drive all around the Bay Area to watch struggling professional players battle up the ATP points ladder for eight hours a day sometimes. As tennis junkies, we were in heaven!
Then one day Jabir stopped being available. No longer could he play pick-up tennis at Golden Gate Park at 2pm. No longer could he be my pal when everybody else had to work, so I had to find a new friend to pass the time after my morning writing was done. When I asked him what was up, he responded that he decided to drive for Uber.
For the next 12 months, I didn’t see Jabir at all. He drove ~10 hours a day for six days a week like a mad man. It was as if he was making up for lost time. When I asked him how much he was pulling in, he said well over $7,000 a month. Not bad coming from $0.
Uber allowed my friend and many other unemployed or underemployed people to find a way to earn some money and improve the inefficient taxi system in San Francisco. The disruption has been huge. I was even considering driving for them during my spare time, but Moose was too old as a 2000 Land Rover Discovery.
Starting in early 2014, Jabir began to come out and play again. When I asked him how were things going, he said that he was no longer driving for Uber, but driving a black SUV for a specific hotel instead. “Sam, I was getting too tired driving all those hours. Hotel driving is so much easier. Also, Uber kept cutting its prices so I was only making like $3,500 a month. It wasn’t worth it to me anymore.”
Jabir actually started outsourcing his car to his brother to drive for Uber so he could start collecting a percentage of his earnings and free up time for him to drive for the hotel. Smart man. There’s passive income opportunities everywhere!
The decision to pay off debt or invest is a personal one that depends on a lot of factors: risk tolerance, your number of income streams, liquidity needs, family expenses, job security, investing acumen, retirement age, inflation forecasts, and bullishness about your future in general. I’ve had hundreds of people ask me this question over the years, and I’ve also struggled to figure out a good guideline for myself. As a result, I’ve been racking my brain to figure out a viable solution that can be used by many.
The solution I’ve come up with is called, “Financial Samurai’s DAIR” or “FS DAIR” for short. The idea is to come up with something easy to remember, challenging, logical, and effective, much like the 1/10th rule for car buying to help folks maximize their wealth. Even though plenty of people have objected to my 1/10th rule for being too restrictive, I strongly believe the rule has helped people minimize financial regret and boost the incredible feeling of progress and financial security.
Since we are all CFOs of our finances, we need to figure out the most efficient use of capital. My goal is to make personal finance simple so ACTION can be taken. All talk and no action leads to nothing. I’d like to “DAIR” you to follow my debt pay down rule to achieve financial freedom sooner, rather than later.
After buying my latest primary residence, I now have four mortgages. Three mortgages felt OK since one was a primary home mortgage, the other is a vacation home mortgage that produces income, and the last one is a rental property mortgage that is cash flowing nicely. But four mortgages feels like too much, and I plan on doing something about it by paying one off!
I’m sure only a small minority of you think having four mortgages is OK. Even though being leveraged in a rising real estate market is good for building net worth, eventually the good times will end.
What’s interesting about personal finance is that we all have different levels of risk tolerance. Some people aren’t comfortable with any debt, hence they don’t borrow anything. I admire such people for their ability to live thoroughly within their means. Other people let lifestyle inflation get the best of them and take out massive debt that is not comfortably supported by their income. Obtaining credit is so easy in America. The only people who annoy me are those who expect others to constantly bail them out.
One of the curiosities about debt is the joyous process of getting into and out of debt. There’s a certain thrill of buying things with debt. Everybody wants something they can’t have or fully afford, including myself. Then once we reach a maximum debt limit, it’s almost equally as fun getting out of debt. Each $1 that is paid down feels like a victory. We tell our friends about our progress and look like heroes. It’s a win both ways!
This post will review my thoughts on the ideal mortgage amount based off the ideal income amount, discuss the history of my first mortgage, share more reasons why I’m paying down that mortgage, and my new mortgage pay down strategy.
Income and net worth amounts are intricately linked. However, I’m going to argue that building a sizable net worth is more vital for early retirement/financial independence than generating a high income. Creating passive income is definitely a very good endeavor as well. Unfortunately, there’s a lot of uncertainty involved in the viability of your passive income. For example, my 4.2% CDs eventually came due, but nothing matches such a risk-free return any longer.
There’s even more uncertainty involved with your day job income. We all think our income will continue to grow to the sky for decades, but one day it’ll likely stop growing. We might get a new boss who doesn’t like us. Our company might get sold or go bankrupt. Departments might shutdown. We might absolutely burn out. All sorts of things could happen that will assail our income growth.
I thought my income was going to keep on growing to “make it rain” status by the year 2017 (age 40), but my income was slashed in half during the 2008-2009 downturn. It recovered in 2010 and 2011 before getting completely cut in 2012 after I left the finance industry. Only after two and a half years of working online has my income finally got back to my day job income days. Needless to say, my income is highly volatile and should not to be counted on at all! The only thing I have counted on is my consistent discipline to put away at least 50% of my after tax income every year, no matter what.
At the end of this post, let me know if you agree or disagree that focusing on building net worth is more important than growing income.
In an amazing Gallup poll highlighted by the Wall Street Journal, it says that 100% of those who make more than $500,000 are “very happy”! That’s right. Not 98%. Not 99%. But a pure 100%.
This is a breakthrough research finding that has amazingly received little publicity. When you find perfection, it must be revealed! Surely this study is more earth-shattering than a University of Alabama PhD finding that those who ate more fried chicken had a higher chance of a stroke. More money, more delirious happiness, not more problems, silly Biggy. Read: Evidence Making Money Has Never Been Easier
Hence, the simple solution to eliminating wars and eradicating all levels of sadness is to make over $500,000. Folks like Bill Gates, Larry Ellison, Mark Zuckerberg, Michael Bloomberg, Li Ka Shing, The Walmart clan, Ray Dalio, and anybody who just inherited a bunch of money can make a difference in the lives of so many. All they have to do is donate $449,000 a year to median families given the median household income is roughly $51,000.
I want to see a tag-team cage match between Princeton economist Angus Deaton and Princeton psychologist Daniel Kahneman who say that $75,000 is the ideal income for maximum happiness vs. Michigan Public Policy professor Betsey Stevenson (currently serving as a Member of the Council Of Economic Advisers) and Michigan economist Justin Wolfers who conclude that $500,000 is the magic number. Don’t you?
During the summer of 2014, Personal Capital had the luxury of hosting three MBA interns in the marketing department where I consult part-time. One was actually a Harvard JD/MBA, which is darn impressive because she has to get into both schools separately. The other two were from Stanford. They did a great job brainstorming and executing fantastic ideas.
In addition to our summer MBA interns, our head of business development (Stanford), our head of client engagement (Stanford), our digital marketing executive (Michigan), our CMO (Cornell), and our CEO (Harvard) also have MBAs . Then there’s me, a Berkeley MBA grad. In other words, the marketing department is a majority MBAs. But having an MBA isn’t a requirement for joining. Relevant experience is much more important.
Most MBA graduates will probably say that an MBA is money and time well spent. It’s kind of like spending big bucks on a fancy dinner. To justify the extravagant expense, of course you’re going to tell yourself and all your friends, how incredibly amazing the dinner was. But we all know that spending $250 per person at Jean Georges isn’t worth 100X more than a tasty In N’ Out cheeseburger for $2.5.
For similar reasons why going to private university without a scholarship is probably not the best use of your money unless you have plenty of it, getting an MBA is also becoming a tougher choice today.
For those of you with MBAs, be forewarned. This is not a cuddly, feel-good post on why getting an MBA is a no-brainer. There are a lot of hard truths from what I witnessed as a manager who consistently interviewed MBAs during multiple bull and bear markets. I’m also providing the perspective as an MBA eight years after graduating. Readers trust me to speak candidly, so that is what I will do.
What is Capitalism but a way of life for many who want to get rich. Communism gets a bad rap for its ability to stifle innovation and effort. However, when you look at Communist China, growing at 7-9% GDP per year, do you really think its citizens have no desire to improve their living standards beyond what is generally proposed?
We all have an inherent nature of wanting to do better. Not only do we want to continue improving, we also want to one-up our peers! After all, what’s the point of making $100,000 dollars a year if everybody else makes the same?
We learned a good amount about how the happiest people on Earth live after my 2.5 week trip to Scandinavia. So, I decided to take a trip to Chongqing, one of the fastest growing cities in China to learn more.
THE CHONGQING FIREBALL
Welcome to my annual passive income update. I don’t do these updates more often because nothing changes too much on a month-to-month or quarter-to-quarter basis. Do you really want to see that I increased or decreased my passive income by $1,000 from the month before? I think not.
Here are some immediate reasons I can think of for why building passive income is a good idea:
1) You likely won’t want to work forever, no matter how much of an eager beaver you now are.
2) Unfortunately bad things happen all the time e.g. layoffs, financial meltdowns, theft, etc.
3) It’s nice to provide as solid a financial foundation as possible for your family and loved ones.
4) You broaden your knowledge and expertise across various topics so you can seem erudite but remain a little dumb.
5) You’ll reduce financial stress and feel happier that not all your income is tied to one main source.
6) You will decrease your chances, your spouse’s chances, and your children’s chances of ever having to depend on the government to survive.
7) You will have more freedom to do things you truly want to do. This feeling becomes more intense as you grow older given you become more aware of the finality of life.
8) You can push yourself financially beyond what you think could ever be possible. Who doesn’t love a good challenge except for the people who have everything handed to them?
This is my third annual passive income report where I have a goal of making $200,000 in relatively passive income by mid-2015 after leaving my job in early 2012. I started off with roughly $78,000 a year and I’m currently up to a projected ~$150,000 a year if all goes well after renting out my old primary residence. Life is uncertain, and I’m sure things will change.
To clarify the meaning of passive income, I do not include income from consulting, freelancing, asset sales (stocks, bonds, real estate, baseball cards etc), and business income. I’ve got other targets for these revenue streams that I might discuss in a future post, but probably not. The goal of passive income is to have the income largely come in without doing much work at all. But in order to not do much work for money, we’ve first got to work very hard for our money!
One thing to note is that I started my passive income journey before writing about Stealth Wealth. $78,000 a year is roughly the median income in SF, so it wasn’t a big deal. But I promise that if I ever breach $200,000, I will go dark and never write any specific figures again. If I do, you’ll know that I’m lying to blend in because that’s what Stealth Wealth is all about.
When I bought my previous home 10 years ago my 68 year old neighbor stopped by to say “hello.” He was the godfather of the block, having bought his building back in the early 70s. He gave me the inside scoop on all the neighbors, and one neighbor stood out in particular.
He said the house across the street was purchased a year before mine by a family who wanted some place for their son to live as he attended UC Hastings School Of Law. The purchase price? $1.45 million for a 2,100 square foot three bedroom, three bathroom house. The son would host at least one fraternity-like party every year, but other than that, the house was pretty tame. The son continued to live in the house after law school and now it looks like they might sell.
For 10 years, the son not only lived for free, but he probably made rental income as well thanks to his two roommates. His $120,000+ law school tuition was also probably full paid for by Bank of Mom and Dad and I’m not sure how he paid for his $60,000 Audi S4 unless you make a lot of money as a law student? If the house ever sells, I wouldn’t be surprised if he gets to keep the $1 million+ in profits.
It’s clear to me that my neighbor is going to be quite alright, even if he doesn’t work for the rest of his life. If you’re willing to accept so much assistance that’s beyond what you can afford, then why bother working at all? Just mooch off your parents forever!
My Other Neighbor
About two years ago my 32 year old next door neighbor came home in a brand new, $48,000 Toyota 4Runner Limited. I thought it was a quizzical purchase because the car couldn’t easily fit in his garage. I saw him struggle for five minutes just to get the beast in.
Even so, I was intrigued and wrote a post about it called, “Dealing With Money Envy” because I was jealous. He’s lived in his parent’s flat for the past 11 years since college while his parents lived in their other home in the South Bay. With the average SF rent for a two bedroom at $3,800 a month, of course he could afford a new 4Runner. He’s saved $400,000 in after-tax money by not paying rent for 11 years.
My neighbor is a nice fella who now works in real estate with his father. For 2.5 years he got to travel around the world in his 20s without holding down a job because he could. His mother would stop by and share with me how his son was having so much fun. Meanwhile, I worked my ass off all throughout my 20s just so I could be able to afford the house at age 27. His carefree lifestyle is what made me the most envious. The car was just an extra kick in the nuts.
When I was moving out he asked whether I’d like to sell my house to him (to the family really). If he could really afford my house, then his finances must be in great shape because valuations have gone a little nuts as you can see in this chart.
The following is a guest post from long-time reader, Samurai Marco.
When Sam first mentioned that he was accepting guest posts from his readers, it made me wonder what, from my financial journey, I could share. After all, you’re already all a bunch of financial samurai’s yourselves, right? Is my journey interesting enough? At 43 years old, have I made enough mistakes?
I grew up a spoiled rich kid in Cupertino, California, about an hour south of San Francisco. My father was a one of those, and I hate to use this term, “Serial entrepreneurs.” He started a lot of technology companies, a couple went public, some were acquired and, of course, a few failed. I remember my Dad, back in the early 80’s, bringing home the first prototypes of the Macintosh and Compaq computers and even the first cell phones.
His summer parties were filled with the “who’s who” of Silicon Valley. I remember, in particular, one Christmas party in 1997, Gil Amelio and Steve Jobs made the deal for Apple to buy NEXT that night at my Dad’s house. The Forbes reporter, who was there, leaked it the next day I’ve gone flying with my Dad and Larry Ellison. I’ve talked stocks in the swimming pool with Eric Schmidt. So yes, I was surrounded by a lot of money and power and got a lot of attention for being my father’s child.
To say I grew up spoiled really is an understatement It’s taken me a long time to realize how “out of touch” my reality was back then. We flew first class to Italy every summer, sometimes twice a year, to visit family. We lived in a big house with a swimming pool in a “safe” neighborhood. My parents bought us whatever we wanted.
Earlier in the year, I had a nice conversation with a well-known San Francisco angel investor about risk and reward. I had a chunk of money coming due from an expiring 5-year CD and I wanted to get some advice on what to do with it. I asked him whether he would be leveraging up or paying down debt in this bull market. He responded, “Sam, I always like leveraging up. It’s how I made my fortune.” This angel investor is worth between $50 – $100 million dollars.
Of course you can’t just leverage up into any old investment. The investment has to be something you know fairly well and has a good risk/reward profile. The only thing I have confidence leveraging up on is property. Everything else seems a little bit like funny money.
Although I quit my job a couple years ago to try my hand at entrepreneurship, I’m a relatively risk-averse person because I’ve seen so many fortunes made and lost over the past 15 years. If I was risk-loving, I would have done what so many brave folks do nowadays and quit as soon as I had a business idea, instead of methodically moonlight before and after work for three years before negotiating a severance. The breakfast sandwich guy I used to go to for 10 years while I was working told me he was worth $3 million dollars during the dot com boom in 2000. I went back for old times sake last month and he is still there!
Despite my risk-aversion, I do believe money should be used to increase the quality of your life and the people you care about. As a result, I did something recently that might seem financially risky, but I think the move actually lowers my financial risk profile now that I’ve had a chance to fully process the situation.
I finally found my panoramic ocean view Golden Gate Heights home! A room with a view has been on my bucket list forever. But it never occurred to me to look in San Francisco, despite being so close to the ocean because I thought such homes would be unaffordable. San Francisco already has the highest median single family home price in the nation at $1 million. To add on a panoramic ocean view would make prices outrageous, or so I thought.
It’s the same curmudgeon as never asking out a super model because you think she or he will say no. You’ve just got to ask and I’m sure you’ll be delightfully surprised once you try.
After spending months aggressively looking for my next ideal property within my budget, I found a view home for less than half the cost of my existing home on a price/square foot basis. How is this possible you might ask? The farther west you go from downtown and the established neighborhoods, the cheaper prices are in general (see the graphic I created in The Best Place To Buy Property In San Francisco Today). But the farthest away you’ll ever be is 7 miles because San Francisco is 7 X 7 miles large. Given I’m only going into a downtown office two times a week, I don’t mind the extra 15 commute. To be able to watch the sun go into the ocean every day for the rest of my life is priceless.
The smartest people in the world are listeners, not speakers. If all you’re doing is speaking, how do you learn anything new?
There was once this portfolio manager I covered who had this uncanny ability to make you feel uncomfortable without saying anything at all. He had a poker face when you spoke to him, and when he felt like changing expressions, he’d go from solemn to smiles in a millisecond. We nicknamed him Crazy Eyes. It turns out that he was literally a genius with an IQ over 160. He also consistently beat his index benchmark for eight years in a row and made millions because of it.
The earliest examples of acting dumb to get ahead starts in grade school. You know what I’m talking about. Those kids who were too cool to study and too cool to sit still in class as they flicked spitballs from the back of the room. These kids weren’t just acting dumb, they really were dumb.
When you purposefully waste your opportunities growing up, you’re not only disrespecting your parents, but also the millions of other kids around the world who will never have the same opportunities.
This post will do the following:
1) Argue why acting dumb is a smart move to get ahead.
2) Provide some tips to help you look and seem a little dumber than you are.
3) Share three personal examples of how acting duhhh, has helped in work, stress management, and relationships.
We all know that Americans as a whole don’t save a lot of money. The latest savings statistics for 2014 shows that the average American only saves ~4% of their income a year. 4%! In other words, it takes the average American 25 years to save just one year’s worth of living expenses. That is a disaster.
When you’re 60-something years old and only have 1.6 years worth of living expenses to buttress your declining Social Security checks, life isn’t going to be very leisurely. You’ll probably be mad at the government for lying to you and mad at yourself for not saving more when you still had a chance.
The problem with averages is that averages distort reality. For example, the average household has a net worth of approximately $710,000. You and I know that this is impossible based on common sense. But simple math doesn’t lie. Take the total household wealth in the US of $81.8 trillion (according to the Fed) and divide by 115,226,802 US households (according to the Census Bureau) and you get $710,000. (Related: How Much Should My Net Worth Be By Income?)
I’m absolutely positive more than 90% of Financial Samurai readers save more than 4%. We are personal finance enthusiasts after all. Therefore, what’s the reality behind this ~4% national savings figure? The truth is that savings rates vary by income.
I realize not everybody lives in San Francisco, but there are insights into this article that can help you find the best area to buy property in your respective city as well. I’m just going to use San Francisco as an example since I live here.
If you want to buy real estate as an investment, it’s important the area not only has a strong domestic demand curve due to a robust labor market, but also a strong international demand curve as well. It’s the international demand curve that really lifts prices higher during good times.
Less than 0.5% of the housing stock is for sale at any given moment. It doesn’t take much to create a property bidding frenzy if you add international buyers to the mix of domestic buyers. Prices in London are being driven by Russian and Middle Eastern tycoons. Prices in Hong Kong are being driven by the wealthy Mainland Chinese. Prices in Singapore are being driven by wealthy Indonesians and expats. While prices in San Francisco are being driven by the tech boom, low interest rates, restrictive building codes, limited land and foreign buyers from China and Russia.
To sell property now is like selling Apple Inc. at $390 a while ago. Your property may have appreciated a lot since purchase, but there’s still a long ways to go if you can hold on. Thankfully for buyers, couples will always get divorced, homeowners will always want to upgrade or downgrade, and companies will always lay off or relocate their employees. There just isn’t enough supply to meet demand in San Francisco, and it’s unlikely there ever will be enough supply with the rise of tech powerhouses such as Facebook, Twitter, Google, and Apple.
Apple alone has gained more than $100 billion in market capitalization in 2014 and employs over 20,000 people in the San Francisco Bay Area. Now imagine what will happen to housing demand when Pinterest, Airbnb, Dropbox, and Uber go public in the next several years? They are hiring like crazy at $70,000 – $200,000 a pop and already have valuations in the $5 – $17 billion dollar range, each.
The middle class is the best social class in the world because nobody messes with the middle class. Politicians endlessly pander to the middle class in order to gain votes to stay in power. When you’re in the upper class, you become a target for hate groups who can’t stand success in the great USA. If you’re poor, well that just stinks.
But what about the mass affluent? You might have heard the term bounced around here and there on the TV, online, or on the radio. Surely including the words “mass” to signify a large population and “affluent” to signify wealth is an even better class than the middle class? As far as I can tell, the mass affluent are yet to be negatively targeted by hate groups.
In this post you’ll learn about the various financial definitions that aptly describe the mass affluent. Furthermore, we’ll discuss why being part of the mass affluent has its benefits.
If you’ve been making $500,000 a year for a decade as a 40 year old but only have a $1 million net worth, you’re probably a donkey with some serious financial issues. If you’re making $80,000 as a 30 year old but have a $500,000 net worth I’d classify you as a hero who is on their way to bubbles and unicorns!
I’ve written about The Average Net Worth For The Above Average Person that provides charts on where highly motivated people who want to achieve financial independence should be. The only problem with my analysis is that it doesn’t tie income levels specifically in the charts. This post will bind the inextricably important link between income and wealth to ensure as high a chance of financial freedom as possible.
To create a good net worth guide based on income can be very tricky based on variables such as how long someone has been making X income, the return on investment, and the state of the economy. Hence, a more conservative assumption is to replace net worth with savings. Let’s first understand the current state of the world and break down our assumptions.
To start, there is no “correct” asset allocation by age. Your asset allocation between stocks and bonds depends on your risk tolerance. Are you risk averse, moderate, or risk loving? I’m personally risk loving or risk averse, and nothing in between. When I see “Neutral” ratings by research analysts, I want to slap them upside the head for having no conviction. Then the optimist in me thinks what a great world to have occupations that pay well for providing no opinion!
Your asset allocation also depends on the importance of your specific market portfolio. For example, most would probably treat their 401K or IRA as a vital part of their retirement strategy because it is or will become their largest portfolio. Meanwhile, you can have another portfolio in an after-tax brokerage account like E*Trade that is much smaller where you punt stocks. If you blow up your E*Trade account, you’ll survive. If you demolish your 401K, you might need to delay retirement for years.
I ran my current 401K through Personal Capital to see what they thought about my aggressive asset allocation. To no surprise, the below chart is what they came back with. I essentially have too much concentration risk in stocks and am underinvested in bonds based on the “conventional” asset allocation model for someone my age. To run the same analysis on Personal Capital, simply click the “Investment Checkup” link under the “Investing” tab.
I am going to provide you with five recommended asset allocation models to fit everyone’s investment risk profile: Conventional, New Life, Survival, Nothing To Lose, and Financial Samurai. We will talk through each model to see whether it fits your present financial situation. Your asset allocation will switch over time of course.
Before we look into each asset allocation model, we must first look at the historical returns for stocks and bonds. The goal of the charts is to give you basis for how to think about returns from both asset classes. Stocks have outperformed bonds in the long run as you will see. However, stocks are also much more volatile. Armed with historical knowledge, we can then make logical assumptions about the future.
Do you know how much in mutual fund fees you are paying a year? I didn’t, so I ran my 401K portfolio through Personal Capital’s 401k fee analyzer and I’m absolutely shocked by the results! I always figured that from a percentage point of view, my mutual fund fees were small. But, when you take a small percentage multiplied by a big enough number, the absolute dollar amount starts adding up.
As you can see in the picture above, I’m paying $1,748.34 a year in fees across four mutual funds. In 20 years, I will have paid roughly $84,000 in fees based on only this amount. The second portion of the above chart shines a light on the specific fund that costs the most. In my case, it is the Fidelity Blue Chip Growth Fund with a 0.74% expense ratio.
I’ve got another fund worth about $22,000 as part of my 401K which does not show a fee, because it is a hedge fund whose fees are baked into the performance. Typical hedge fund fees are 2% of assets under management and 20% of upside. This is called 2 and 20, which is egregiously high, but it’s the only way I can get short exposure to hedge my bets.
I’ve been wanting to do a 401k/mutual fund fee analysis for the longest time, but was too lazy to do the analysis until I realized I didn’t have to do the calculations myself. Every year I want my portfolio to be as optimized as possible.
With savings interest rates under 0.3%, the 10-year yield under 2%, and stock market dividend yields under 2.5%, investors are starving for yield. I’m looking for a relatively hands off investment class that can provide superior yields as my long term 4%+ CDs start rolling off in 2014. I think I’ve found it in peer-to-peer lending with Prosper.com. Many of you have asked about P2P lending forever and I’m pleased to embark on this new income stream.
I’ve known about San Francisco based Prosper for years, but I’ve never bothered to invest because the industry was still defining its own rules. P2P lenders sprang up in 2005 to provide needy borrowers with viable alternatives to normal commercial bank loans. The idea was to reduce borrowing costs by removing the bank intermediary, and utilize the internet to connect lenders and borrowers to make more and save more.
The concept is good, but default rates prior to 2008 were commonly as high as 20% vs. 1-5% default rates for traditional commercial bank loans. In response to higher default rates and a determination that P2P investing is a security asset class, The Securities And Exchange Commission (SEC) put stringent regulator oversight on the industry and forced P2P lenders to be more vigilant in screening their borrowers based on their credit histories and submitted information. Also, if a borrower’s loan becomes delinquent, P2P lenders will appoint a collection agency.
PEER-TO-PEER LENDING IS SAFER NOW
The 401k investment vehicle is woefully inadequate for retirement. With the government capping our pre-tax contributions at $17,500 a year for 2014, maxing out our 401K is the very minimum we can do.
In March, 2014 Vanguard then reported that the average 401(k) balance reached a record $101,650. For workers 55 years of age or older, the average balance is $143,300. These are terrible numbers. Oh, how nice it would be to have a pension for life instead!
NOBODY KNOWS THE FUTURE, BUT EVERYBODY CAN REBALANCE
It’s important to realize that nothing goes up or down forever. The general trajectory is up thanks to inflation, but there’s always a lot of volatility in between. It’s currently a bull market in equities, which should be a harbinger for a continued economic recovery. What you need to do is put your 401k’s performance in context. Always compare your year to date performance with the current 10-year bond yield. This is your risk free rate of return.
Historically, stocks have outperformed the risk free rate by around 4%. With the risk free rate currently at about 3%, you get an expected return of about 7%. With the S&P 500 up 30% in 2013, stocks crushed the historical average. Instead of rejoicing, you should think more carefully about mean reversion. The more we outperform historical averages, the higher the chance we run the risk of underperformer and vice versa.
Rebalancing your 401k is important because position sizes can change over time. It’s important to check in at least twice a year to make sure your investments correspond to your risk tolerance. Once you’ve accumulated a reasonable size nut, the number one commandment to remember is to NOT LOSE MONEY!
401K REBALANCING THOUGHT PROCESS
1) Ask yourself if you are bullish or bearish about the future. Then explain to someone why you think the way you do. If you can explain to someone your stance in a coherent manner, you might be onto something. Just know that the general trend is up.
2) Check the latest 10 year bond yield and add on a reasonable risk premium of 4-5% to get an expected return. Note the risk premium is the premium return required for you to hold a risky asset. Are there any recent events such as QE3, Euro debt crisis, a Presidential election which would change your risk premium?
3) Compare your year to date return to your expected return (step 2). If your year to date return is above your expected return, you should begin to think about rebalancing into bonds or cash. Remember your overall outlook on the future from step 1 and make a judgement call.
4) Always ask yourself what is your risk tolerance. Will you be comfortable losing 10%, 20%, 30%? Will you be able to buy on the dip? Does losing more than 20% really freak you out? Only you will know what you are comfortable with.
5) You can check out the latest stock market earnings estimates and calculate earnings multiples if you wish. Just know that these earnings estimates are always wrong and are just catching up to whatever trend at the moment. With the S&P 500 at 1,465, its estimated P/E ratio is at 16.6. Sold to you!
REBALANCE YOUR 401K AT LEAST TWICE A YEAR
It’s fine and dandy to just dollar cost average like a machine every time you get paid. Really, there is nothing wrong with that. The reason why I encourage everyone to rebalance twice a year is because it forces you to critically think about your portfolio and assess risk. If you can, inspect your portfolio every quarter.
You don’t have to make massive shifts like I did with my 401k portfolio from 80% equities down to 21% equities. You can just tweak your portfolio by a couple percentage points here and there. Maybe you might not make a big difference to your overall portfolio performance. However, what you will become is infinitely more aware about your assets, performance, and what is going on in the world if you rebalance. Enrich yourself with knowledge and opinions!
You can never lose if you lock in a gain. But, you can never win if you are never in the game either! Continue maxing out your 401K and investing in your retirement. Stay on track by following my 401K savings guide by age chart. Don’t forget that you can’t solely rely on your 401K in retirement. You’ve got to combine your 401K with your after tax savings, alternative income streams, and hopefully Social Security to have a chance at living a decent life after work. You deserve it!
Recommendation For Building Wealth And Managing Your 401K
The best way to build wealth is to get a handle on your finances by signing up with Personal Capital. They are a free online software which aggregates all your financial accounts in one place so you can see where you can optimize. Before Personal Capital, I had to log into eight different systems to track 28 different accounts (brokerage, multiple banks, 401K, etc) to manage my finances.
Now I can just log into Personal Capital to see how my stock accounts are doing, how my net worth is progressing, and whether or not I’m paying too much in 401K fees. Their “401K Fee Analyzer” is saving me over $1,000 a year due to its analysis. Personal Capital lets me see whether my 401K asset allocation matches my risk tolerance with their free Investment Checkup tool as well. The free online platform less than one minute to sign up and is the most valuable tool I’ve found that allowed me to achieve financial independence.
About the Author: Sam began investing his own money ever since he first opened a Charles Schwab brokerage account online in 1995. Sam loved investing so much that he decided to make a career out of investing by spending the next 13 years after college on Wall Street. During this time, Sam received his MBA from UC Berkeley with a focus on finance and real estate. He also became Series 7 and Series 63 registered. In 2012, Sam was able to retire at the age of 35 largely due to his investments that now generate over six figures a year in passive income. Sam now spends his time playing tennis, spending time with family, and writing online to help others achieve financial freedom.
Updated as of 10/14/2014. The markets are now down for 2014. Good thing you have been active in rebalancing your investments!
Everything is relative when it comes to money. If we all earn $1 million dollars a year and have $5 million in the bank at the age of 40, none of us are very wealthy given all our costs (housing, food, transportation, vacations) will be priced at levels that squeeze us to the very end. As such, we must first get an idea of what the real average net worth is in our respective countries, and then figure out the average net worth of the above average person!
According to CNN Money 2014, the average net worth for the following ages are: $9,000 for ages 25-34, $52,000 for ages 35-44, $100,000 for ages 45-54, $180,000 for ages 55-64, and $232,000+ for 65+. Seems very low, but that’s because we use averages and a large age range.
The Above Average Person is loosely defined as:
1) A person who went to college and believes that grades do matter.
2) Does not spend more than they make because that would be irrational.
3) Saves for the future because they realize at some point they no longer are willing or able to work.
4) Largely depends on themselves, as opposed to mom and dad or the government.
5) Takes responsibility for their own actions when things go wrong and learns from the situation to make things better.
6) Has an open mind and is willing to look at the merits of both sides of an argument.
7) Welcomes constructive criticism and is not overly sensitive from friends, loved ones, and strangers in order to keep improving.
8) Has a healthy amount of self-esteem to be able to lead change and believe in themselves.
9) Understands the mental to physical connection in everything we do so that that a healthy mind corresponds with a healthy body.
10) Enjoys empowering themselves through learning, whether it be through books, personal finance blogs, magazines, seminars, continuing education and so forth.
11) Has little-to-no student loan debt due to scholarships and part-time work.
Now that we have a rough definition of what “above average” means, we can take a look at the tables I’ve constructed based on the tens of thousands of past comments by you and posts I’ve written to highlight the average net worth of the above average person.
The 401k is one of the most woefully light retirement instruments ever invented. The worst is the IRA which limits you to contributing only $5,500 only for individuals making under $60,000 a year and married couples making under $116,000 a year. Meanwhile, you have to make less than $114,000 a year as a single or $181,000 as a married couple for the privilege of contributing after tax dollars to a Roth IRA, which I do not recommend before maxing out your 401k.
Give me a pension that pays 70% of my last year’s salary for the rest of my life over a 401(k) any time! With the government only allowing individuals to contribute $17,500 a year in pre-tax income into their 401ks in 2014, once again, our politicians fail us with their regulations.
The average 401k balance as of January 2014 is around $99,000 thanks to an incredible 30% rise in the S&P 500 in 2013. Even so, $99,000 is incredibly low given the median age of an American is 36.5. As an educated reader who is logical and believes saving for retirement is a must, I’ve proposed a table that shows how much each person should have saved in their 401ks at age 25, 30, 35, 40, 45, 50, 55, 60, and 65.
We stop at 65 because you are allowed to start withdrawing penalty free from your 401k at age 59 1/2. Meanwhile, I pray to goodness you don’t have to work much past 65 because you’ve had 40 years to save and investment already!