As someone who experienced a couple years of the early retirement movement, I’ve noticed a growing trend to forsake owning for renting. Commonly cited reasons are cost, flexibility to move and potentially higher returns elsewhere. Goodness forbid owning a house as a startup founder. Egad!
While all these reasons for renting are completely valid, if you are renting and hardly ever travel, aren’t investing your disposable income, aren’t running a lean startup, or staying at the same job for years, you’re actually negating all the benefits of renting. You might as well own!
Being neutral the property market by owning a primary residence allows you to sidestep inflation’s never ending beating. Most of your costs are fixed, and if you ever decide to rent out your property, you’ll begin to capture the benefits of inflation.
Do you really know how much you need to retire? A lot of people like to throw out random numbers without really doing the math. One million dollars is a nice round number that often gets brought up for retirement. Unfortunately, $3 million is the new $1 million thanks to inflation in rent, property prices, tuition, automobiles, and food.
Even if you come up with a retirement number, chances are high that your number will change due to unanticipated life events. Maybe you’ll become unemployed for a year and draw down most of your savings. Or maybe you’ll find an amazing new job with a 50% pay raise. Maybe you’ll end up having triplets due to the latest $20,000 IVF procedure when you were hoping for just one baby. Who knows? Life has a great way of keeping us on our toes.
What we need is an interactive retirement calculator that is dynamic, has multiple adjustable variables, and also incorporates real data. Let’s first have a look at some current retirement concerns by the public at large.
A 15% stock market drop in a week should have shaken everybody into developing a financial game plan. Doing nothing is considered one game plan. But doing nothing because you couldn’t be bothered to think about how scenarios might play out is really lazy. It’s better to be lucky, than good. However, what if you’re neither?
Since writing the post, Stock Market Meltdown Implications For Everyone, many of you have asked for specific advice on how to deploy your capital into the markets. Given everybody’s financial situation is different, I’m just going to suggest a five step framework, and use myself as an example.
I’ve lost a ton of money in the markets before, having invested during the Asian financial crisis of 1997, the dotcom bubble of 2000, and the economic collapse of 2008-2009. What has helped me get through difficult investing periods is simply coming up with an investing game plan to account for different scenarios. The fear of investing gets minimized, and rational action takes over.
In early 2012, I made it a goal to try and achieve $200,000 a year in passive income by 2H 2015. The idea was to somehow make a large enough sum of money to comfortably provide for a family of three or four in Honolulu or San Francisco. With $200,000 a year, I wouldn’t have to go back to work ever again. Instead, I’d rest easy working on building Financial Samurai into a lifestyle business.
Creating a lifestyle business has always been a dream of mine because it helps mix entrepreneurial passion with the ultimate end goal: living a better life. Killing myself for the next 10 years to try to make something huge in order to live a nice life sounds a little backwards. Why not live a nice life now?
Growing passive to semi-passive income from ~$78,000 in 2012 to $200,000 is a daunting task, especially given our low interest rate environment. But when we write out our goals, I firmly believe we’ll figure out ways to eventually get there. Let’s see if I made it or not!
Do you know what one of the first things an employer does before interviewing a prospective employee? They Google your name to learn all about you. If they happen to forget searching your name beforehand, if you’ve made a good impression, they’ll certainly search afterwards.
Sites like LinkedIn and Facebook flourish because people have decided to provide these sites massive amounts of content for free. Unlike Financial Samurai, where I’m the main creator of content.
If you don’t have a LinkedIn account and are interested in employment opportunities, you best open one up ASAP. LinkedIn has become the defacto source for all employers today. You can look for jobs, login to various applications with your LinkedIn profile, and so forth.
A good resume is still standard to go along with any employment application. But I’m going to argue that in addition to a LinkedIn profile, you should also register your own domain name and create a dynamic site.
There’s nothing better than being free to do whatever you want. However, unless you’re born with a multi-million dollar trust fund, you’ll unfortunately have to work for your freedom.
You can follow my savings guide to increase your chances of a wonderful retirement by 50-65. But, what if you want to retire earlier? Say at the age of 40 or 45? You’re in luck, because I have a very simple, yet effective plan for you. This is something I’ve been following for the past 13 years to allow myself the option to retire as early as 35-4-. I think you’ll like the option as well!
What’s important is recognizing your inner frugality, your Herculean discipline, the government’s generosity, and your enormous hustle. There’s nothing better than taking action with your finances and seeing results!
After spending 13 years in equities on Wall Street, I’ve been able to personally speak to some of the most successful institutional investors around on how to invest and manage money. The one consistent piece of advice I always hear is to invest in long-term trends and forget about the day-to-day minutiae. For example, shorting/underweighting Japanese equities since the late 1980s and going overweight commodities in the 1990s have been great winning decisions.
As a result of my experience working with successful fund managers, I weaned myself off of trying to constantly trade around the market after the NASDAQ burst and have been focused on long-term, idea-driven investing ever since. I’ll always have a Unicorn Fund to punt around for the next multi-bagger stock, but the fund is always less than 5% of my net worth or 10% of my entire equity exposure.
Motif Investing is a fascinating company based right here in the San Francisco Bay Area. I’ve been following them for the past couple of years after they raised a $25 million round of funding led by Goldman Sachs in 2013, won the Finovate Fall 2013 and Finovate Spring 2014 “Best In Show,” and raised another $35 million round in 2014 led by JP Morgan. Motif Investing makes most of its money off transactions (trades) when you buy or sell one of their “motifs” based on an investment idea you have. They might also expand into the money management business as well.
A motif is essentially a basket of 30 stocks you can invest in, which are aimed to profit from a specific idea or underlying theme. Let’s say you think new housing construction is going to quicken in the US next year. You could buy a housing motif which might contains Lennar, KBH, Home Depot, Bed, Bath, and Beyond, Zillow, and more in various weightings. Given my focus on buying winning long-term ideas and ignoring the short-term volatility, I really like Motif’s value proposition for retail investors.
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.
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.
After a 13% rise in the S&P 500 in 2014 and a steady 2015 so far, surely the average net worth has increased even further.
In my post, “Suck It Up Already! Suffering Is A Rite Of Passage,” I discussed how going to the media to rat out your company is a dishonorable thing to do. If I was a manager, I’d never hire someone who couldn’t resolve his/her differences in private. What I didn’t expect was for a reader to comment that I had done the same!
See Virginia’s comment below,
“I kind of feel like you ratted out your company because you are constantly saying how awful it was working on Wall Street.”
Before this comment, I never believed I ratted out the companies I worked for. Discussing an industry is much different from bagging on a specific company. I shared stories about how it was tough work coming in at 5:30am and leaving after 7:30pm almost every day in NYC. The pressure to perform was immense. But not once have I ever spoken poorly about either of my two employers. How could I, when they took a chance on me for 13 years?
Yes, working on Wall Street is an ass-kicking, but there’s a lot of good as well. To dispel any perception that I didn’t appreciate my time there, I’m going to talk about the benefits of working in finance. I realize it’s much more popular to crap on Wall Street. But it’s good to see the other side.
I know plenty of people with money, lots of money. Me, I’ve got just enough to not work full-time, which makes me happy. I know far fewer people with power, lots of power. For those with power, their lives seem quite fascinating.
Given we tend to want more of what is less common, is it safe to say that power is a more desirable asset than money? I’ve never thought so, although I’m someone who likes to stay in the shadows. I don’t even have the power to require angry commenters to at least share where they are coming from. Ah, but I do have the power to press the DELETE button, which I sometimes do with an ascending evil laugh!
Recently, something happened that made me appreciate power over money. This event will also make you realize that behind all the glam and glitter, billionaires are just like you and me.
“富不过三代 (fu bu guo san dai) = Wealth does not go beyond three generations”- Chinese proverb.
We humans are selfish, especially when it comes to money. Given the past 20 years has been pretty volatile in the financial world, it’s hard to know exactly when our money will run out. Exacerbating the situation further is we also don’t know when we’ll die. This is why I’ve proposed everyone retire by a certain age, rather than by a certain figure.
The end result of uncertainty is that we hoard as much wealth as possible and die with plenty left over. What a waste! A good goal is to try and amass roughly $5.43 million per person before we die and give away or spend the rest while living. As you’ve already paid taxes on your income while living, getting taxed roughly half your assets upon death seems outrageous.
I’ve come up with a way to develop more financial security for generations to come. It first takes a leap of faith from people with retired parents, but I know this can be done.
You’d think that after reaching an 800+ credit score, life would be all donuts and free coffee right? Well, I’ve got to admit, nobody taught me a secret handshake, or gave me a coupon for a free deep-tissue massage. Instead, life just went on like usual.
While you’ve probably heard of Fair Isaac Corporation’s FICO score before, you may not know there are actually over 60 different versions of FICO’s credit scores! Talk about overload.
In addition to 60+ different credit score versions, there are other “FAKO” scores from other distributors not affiliated with FICO such as VantageScore.
This post will go over:
* Why there are so many different credit scores
* The dominance of FICO and the new FICO 9 credit score calculation
* The three main credit bureaus
* A list of what does and what does not affect your credit score
* The three main “FAKO” scores
Fresh from an 11 day trip to the US Open in New York, the first thing I did after returning to San Francisco was text my fellow unemployed friend to play tennis. After you’ve watched tennis 10 hours a day, all you want to do is whack some balls!
I had gained a few pounds from eating one too many pastrami sandwiches and chocolate babkas. Zabar’s on the Upper West Side is a dangerous place. It was time to go on a healthy detox regiment of water, lettuce, protein shakes, and hours upon hours of running around the court!
For those of you who would like to join the Six Figure Club (SFC), it’s relatively straight forward. Charge $50 an hour for 40 hours a week for 52 weeks in a row and you’ll get the SFC invite in the mail! Of course, you’ve first got to develop some valuable skills, but that’s what college and all those extra hours side hustling were for.
If you make $100 an hour working 40 hours a week, you will make $17,333 a month and $208,000 a year. That’s when you’ll really be able to live comfortably in any expensive city in the world.
With my most recent Uber pay stub, I just might have found a way to get there after only three months of driving. The great thing is that if you have a car, a relatively clean record, a smartphone, and a willingness to hustle, you can probably earn six figures from Uber as well.
The following is a review post by my good friend Sydney, who’ve I’ve brought on board to write more frequently here on Financial Samurai.
We all love to have choices. Being able to choose our jobs, where we live, what cars to drive, and what we do with our money is empowering. But sometimes having too many different options makes decision-making overly complicated.
Perhaps you’ve experienced this sense of overwhelming choices when it comes to picking credit cards, insurance providers, and banks.
As a personal finance fan, I tend to read a lot about different ways to save money and am always looking for new solutions for selecting financial products. One such company I recently came across is Cinch Financial, started in 2012 by Sean Collins and Joe Ranft.
The secret to never feeling homesick while on vacation is to simply buy a property in each of your favorite vacation destinations. So clever right? Well, that was what I thought until I blew my finances up buying a Lake Tahoe condo a couple years before the financial meltdown in 2008 – 2010.
Ever since I was a kid, I’ve been a dreamer. Most dreams never came true, but it didn’t stop me from fantasizing what could be. After I discovered San Francisco in 1995 when I went with a childhood friend to visit UC Berkeley, I knew I had to go West at some point. Life felt so much better than in Virginia.
Soon after relocating from New York to San Francisco in 2001, I discovered Lake Tahoe and told myself, if I could spend six months in San Francisco, two months back home in Honolulu, two months in Lake Tahoe, and two months traveling internationally, how sweet that would be!