I was invited to join the TaxACT How I Save blog tour which shares ways to keep more money in your pocket. Last year, TaxACT saved America over $240 million on tax preparation.
One of my main goals for 2015 is to save $100,000 in new liquid cash after spending too much money on remodeling in 2014. I got down to around $25,000 in liquid savings towards the end of the year and it just didn’t feel enough for me. Each person’s desire for liquidity is different given our living expenses and risk tolerance levels are all different.
The reasons why I want to have roughly $100,000 liquid at all times is as follows:
1) Minimum private equity investments generally are around $50,000, at least all the ones that have been presented to me. The last thing I want to do is only have $25,000 and not be able to invest in the next Uber.
2) It’s always good to have cash on hand when the stock market throws up. The general long-term trend is up and to the right. I want to implement my own advice on how to better dollar cost average with $5,000 – $10,000 investment increments at a time.
3) I have a goal to pay down my first rental property mortgage within 12 months. There is roughly $85,000 left in principal from this 11.5 year old mortgage (started at $464,000), which is starting to annoy me. I will be averaging roughly $7,000 a month towards paying down extra principal along with my usual monthly mortgage payment that pays down $1,100 in principal in order to achieve my pay down goal. Having $100,000 allows me the flexibility to pay it all off in one go, or give me the confidence to keep on my $7,000 a month plan.
SAVE MONEY WITH A PURPOSE
If you’re saving money just for money’s sake, then eventually you will hit a wall and ask yourself, “What’s the point of working so hard and saving so much?” I hit that wall at 25, after only 2.5 years of killing myself at work. I received a financial windfall after one lucky stock pick, and saved 100% of my annual bonus plus another 30%-50% of my base salary.
I was so burnt out that I was *THIS CLOSE* to short-circuiting my career by moving back home to Hawaii to plant mangoes for a living. The 5:30am work start and 9pm departures were really beginning to warp my mind. I was even considering working at a Merrill Lynch brokerage branch in Honolulu for $40,000 a year, rather than keep my six figure job, just so I could see more sunshine (it was dark when I got to work, and dark when I left work for the majority of months).
Luckily, I escaped Manhattan and found a new job in the same industry in San Francisco that lasted for 11 more years. Living in San Francisco was like getting a massage by the most attractive woman on Earth. Manhattan was like getting my eyes gouged out by Golem with bad breath.
With renewed vigor, I set some new money saving goals while living in San Francisco as a 20-something year old:
* To save enough money to never have to return to Manhattan for work.
* To save enough money to not have to work in finance after age 35 (~11 years after coming out to SF).
* To save enough money to take care of my parents for the rest of their lives if needed.
* To save enough money so that I could afford $200,000 in ridiculous private school tuition for two kids if they aren’t smart enough to get into a world class public institution for 1/3rd the price.
* To save enough money to afford taking on a lower paying job that is more interesting.
* To save enough money to travel abroad comfortably for 10 weeks a year for two.
* To save enough money in order to minimize fighting about not having enough money.
* To save enough money to buy a variety of assets that will generate enough passive income to live a comfortable life.
SAVINGS EQUALS SECURITY AND FREEDOM
Saving money is delayed gratification. But is that really so bad when you’re working hard, learning a lot of great new things on the job, and testing out your passion project on the side? When we’re young, we don’t need much money to be happy. Life is simpler and we’re still in the incubation stage.
But eventually all of us will want to be free to do our own thing. It doesn’t matter how awesome your job is now, sooner or later you’ll get bored. The last thing you want to do is feel stuck doing something for money because you don’t have the savings to allow you to be free.
The secret to freedom is to come to grips early on that all things fade over time. I’ve spoken to many people in their 50s, 60s, and 70s about their perspectives on personal finances. The consistent theme that comes up is wishing they got their act together earlier on.
Personal finance starts with savings. Minimizing one’s tax liability is one of the biggest steps towards increasing savings. TaxACT has been kind enough to provide a software giveaway for those who are interested.
Manage Your Finances In One Place: One of the best way to become financially independent and protect yourself is to get a handle on your finances by signing up with Personal Capital. They are a free online platform which aggregates all your financial accounts in one place so you can see where you can optimize your money. Before Personal Capital, I had to log into eight different systems to track 25+ difference accounts (brokerage, multiple banks, 401K, etc) to manage my finances on an Excel spreadsheet. Now, I can just log into Personal Capital to see how all my accounts are doing, including my net worth. I can also see how much I’m spending and saving every month through their cash flow tool.
The best feature is their Portfolio Fee Analyzer, which runs your investment portfolio(s) through its software in a click of a button to see what you are paying. I found out I was paying $1,700 a year in portfolio fees I had no idea I was hemorrhaging! There is no better financial tool online that has helped me more to achieve financial freedom. It only takes a minute to sign up.
Finally, they recently launched their amazing Retirement Planning Calculator that pulls in your real data and runs a Monte Carlo simulation to give you deep insights into your financial future. Personal Capital is free, and less than one minute to sign up. It’s one of the most valuable tools I’ve found to help achieve financial freedom.
Updated for 2017 and beyond.