Slicing Through Money's Mysteries
Desperate times often lead to desperate measures. I’ve noticed several money scams during COVID-19 we should all be aware of. If you know of more money scams, please share them in the comments section below.
It makes me so mad that there are scammers out there. I’ve been scammed before, and it felt terrible. But at least when I was scammed I was younger and it wasn’t for a lot of money. After I was scammed, I became much more vigilant.
Opportunity cost is a spender’s greatest enemy. Given America has a spending problem, our country will constantly be in grave danger without adopting better financial habits.
Back in 2018, I decided to join a Meetup softball league in San Francisco. I was one year into being a stay at home father and I needed to get out of the house more. Tennis had always been my sport, but I thought it would be nice to mix things up.
The softball league turned out to be a great outlet. I met people from various parts of the Bay Area from different socioeconomic backgrounds. The person I developed the best relationship with was with the organizer named Bob.
Bob is a preschool teacher who helps manage some of his parents’ properties. As a property fanatic myself we talked about various investment opportunities.
Of course, I shared my enthusiasm for ocean view properties in San Francisco. Then I mentioned my heartland of America investment thesis. Who knew that today’s global pandemic would accelerate the demographic migration towards lower-cost areas of the country.
On July 15, 2009, I introduced the Go Broke To Win Big budgeting system to help readers better manage their money. Today, having a strong budgeting system is more important than ever.
The Go Broke To Win Big budgeting system enabled me to leave the rat race in 2012. It also enabled my wife and I to remain disciplined financially, despite a raging bull market that ensued.
Now that economic uncertainty has returned, the budgeting system has provided us much-needed calm. Perhaps this budgeting system will help you boost your finances over the years as well.
One of the reasons why I continue to save so much is that I’m a perpetual failure. I’ve made so many mistakes in my life that I need a financial buffer to constantly bail me out.
Even after negotiating a severance and leaving Corporate America in 2012, I still save most of my passive income and online income each month. It feels like eventually, this early retirement dreamworld my wife and I have been living in will come crashing down on us.
Whenever things are going well for an extended period of time, I begin to worry. Where did all the bad luck go? Something must be wrong. I’m not sure why life has turned out OK when there are plenty of smarter, more deserving people out there who still struggle. Maybe the exhausted fumes of good karma from a past life?
The longer you live, the longer you realize nothing good lasts forever. Something bad is bound to happen – a break of an ankle, a bad investment, a friend who disappoints, a boss who lies, a disease that debilitates, a coronavirus pandemic.
Instead of waiting for disappointment, I sometimes like to seek out failure to knock some reality back into my life. Getting rejected is also a great way of keeping the ego under control.
I believe most of our wealth is mainly due to luck. To start thinking our wealth was mostly due to hard work and skill will set you up for failure.
There are plenty of positives that have come out of the coronavirus pandemic: better health, less pollution, more time with family, an acceleration in the work from home trend, and the chance to buy stocks at large discounts, to name a few. The U.S. personal saving rate could be the most interest positive.
Thanks to the lockdowns, the U.S. personal saving rate surged to an incredible 33% in April! Although it has declined to about 22% in May, it’s nice to see the personal saving rate go up.
The personal saving rate is defined as savings as a share of personal disposable income. Personal disposable income is defined as income less taxes.
If your income stays the same, the higher your personal saving rate, the stronger your household balance sheet. The stronger your household balance sheet, the more financially secure you will feel. The more you save, the quicker you will achieve financial independence. Love it!
Our household plan has been to cut our spending by 32%. The cut is to match the 32% decline in the stock market from peak to trough. If the stock market and our income rebounds, we will have increased our cash flow and our wealth. If the stock market and our income stay depressed, then we will have continued to protect our financial freedom.
As evidenced by the latest personal saving rate data, I’m pleased to see tens of millions of Americans do the same.
Let me tell you a sad story about who households need to earn multiple-six figures to live a middle class lifestyle today.
In order to comfortably raise a family in an expensive coastal city like San Francisco or New York, you’ve got to make at least $300,000 a year.
You can certainly raise a family earning less as many do, but it won’t be easy if your goal is to save for retirement, save for your child’s education, own your own home instead of rent, and actually retire by a reasonable age.
Although $300,000 is a lot compared to the median household income in the United States of ~$65,000 in 2020, it’s not an outrageous sum of money once you look at the realistic income statement I’ve put together for this article.
All expenses in my example use current prices. I’ve also cross checked the expenses with my family’s monthly expenses now that we have a son to make sure they are within reason.
I use $300,000 in this post because I also believe it is close to the ideal income for up to a family of four to experience maximum happiness.
At $300,000, you aren’t paying an egregious amount in taxes, you probably aren’t killing yourself at work if both parents are working, but you’re still earning enough to live a comfortable lifestyle anywhere in the world.
Half the US population lives on the coasts, therefore, this post is directly targeted at folks who need to live on the coasts because of their jobs, schools, or families.
Finally, this post should also provide insights to non-coastal city residents on how good you’ve got it if you enjoy living where you are. $100,000 – $150,000 is a rough non-coastal city household income equivalent.
Are you looking for some great things to buy with your massive investment gains? This article will provide some good ideas thanks to an extraordinary rebound in the stock market since its March 2020 sell-off.
With the NASDAQ up over 20% during the middle of a pandemic, many people are feeling richer and looking for great things to buy. Coming close to the edge and surviving does that to people!
After about 13 years of diligently saving 50% – 75% of my income, I started to lose steam. No longer was I obsessed with growing my wealth as large as possible. Instead, I wanted to find ways to start spending money for a better life. I was 35 years old in 2013 and tired of living so frugally.
It’s hard to spend money when you’re so used to saving and investing aggressively for so many years. In a big way, growing your money pot gets addicting, especially since the estate tax exclusion amount is now $11.58 million per person for 2020. But it’s important to consumption smooth, otherwise, you’ll likely die with way too much.
The main way I’ve forced myself to increase my spending is to review my investment gains for the year and take some profits on positions I think have limited upside potential. I then use these profits to pay for a better life.
One idea is to follow my 10X Investment Consumption Rule, which states that if you want the latest $1,000 iPhone, then you best make at least a $10,000 return on an investment to pay for that unnecessary item.
Another way to go about spending your money is to take 10% of your annual investment returns and blow it on whatever you want. This way, you’ve still got 90% of your investments hopefully working for you, you’re not paying a lot of taxes, you’re rebalancing your portfolio, and you’re actively using your money for a better life.
If you tether consumption to investment returns you will never go broke. You will also likely eradicate any money guilt you have for spending money. Finally, if you want to spend more money, you will be motivated to invest more money for hopefully greater returns.
Trust funds are becoming more popular given the massive amount of wealth the Baby Boomers have created. I was speaking to Bob, a 42 year old acquaintance who told me he received a trust fund when he was 35. His parents sold his grandparent’s company for around a hundred million dollars.
Can you imagine getting a phone call from dad one day after busting your butt in high school, college, and work for 21 years to find out you just inherited $10 million bucks? What’s more, you learn that your seven year old son also inherited $3 million dollars with a trust of his own. Time to kick back and do nothing!
I asked Bob why he was still working.
He said, “For pride. I want to see what I can do on my own. I never want to touch my grandparents’ money because I would feel a lot of shame. What business do I have using their money to pay for a first class plane ticket when he bent over backwards building his own company.”
Bob said he would never touch his trust fund for as long as he lives. Sounds like an honorable thing to say, but I have my doubts.
On the contrary, I’m pretty sure most of us would tap our trust fund in some way. I’m looking to buy a house in San Francisco, for example. What’s withdrawing $1,000,000 for a downpayment when there is still $9 million left? At least I’m not buying a mega-mansion for $8 million.
When I was still working in finance, I was planning on going to Wimbledon for a week to watch the tennis tournament. Instead of going back home in the middle of the tennis tournament due to work, I’d just stay through to the end and spend $1,500/day on tickets and another $2,000/night at a luxurious hotel!
Maybe I’m being dishonorable with my grandparents’ money, but gosh darn it. I’m telling you guys the truth! Can you handle it?
Paying down debt is quite satisfying. Having no money can actually be quite addicting and thrilling. Let me explain.
When you have no money, your body’s survival instincts are triggered. Without money, your risk of starvation and being homeless increases. Therefore, you tend to do everything you can to make more money.
Debt puts you into this financial hole that makes you try to get out. With each debt payment, you get a little closer to the surface. The thrill of debt is partially why taking on a mortgage to buy a home is so rewarding.
Debt enables you to buy a nicer home than you can afford with cash. Every time you pay your mortgage, you’re building more equity until you one day own the home outright. Further, the home has the potential to appreciate. No wonder why mortgage is considered the best type of debt to have.
