The ULTIMATE simple guide to your wealth empire;
Stocks, “savings”, 401k, debt, personal finance, credit, portfolio; explanations and strategies for all that sh*t financial institutions confuse you with
It’s not about how much money you make, it’s about how much you keep
At the bottom of the post is a picture from Reddit’s r/personalfinance which gives a very basic flowchart of spending.
“I want to get into stocks, what do I do?”
A friend of mine asked me this the other day. I wanted to word vomit the last few years of personal finance research I’ve done all over her, which I can’t imagine she’d enjoy.
Financial institutions do a great job of confusing the sh*t out of people who don’t have time to spend years hunched over dry money books, and for some reason, the school system hasn’t decided it’s important enough to teach yet. So maybe you’re asking things like “What’s a 401k? Should I invest in Bitcoin? Is Robinhood good?”
These are all questions I’m going to answer below, as well as help YOU set up your WEALTH EMPIRE. A few pointers before we get started:
1. “Savings” is a boring term captured by the retail industry
“Save money. Live better”. You can hear the lady say this in the back of your head. This is the Walmart slogan.
“Savings” is a term the retail industry has reclaimed as a marketing ploy to get you to think you are saving money with them… and get you to spend your money on them. It’s not sexy to say “Oh man, I just saved $100 on my October pay stub by putting it in my bank account”- so we are going to refer to this process as building our f****** wealth empire. If that’s too much and you want something a little more mild-mannered, you can refer to it as giving future you the time of their life.
We are NOT going to let confusing bullsh*t stop us from our financial gains, or let them run over us with wack fees. We are not even going to let OURSELVES get in our way of building our wealth empires, and we know that ANYONE can do this. Someone who makes a million dollars a year and doesn’t know how to build their empire won’t even COME CLOSE to what a middle/low-income person can do with the right strategy.
Now THAT sounds pretty sexy, and that’s exactly what you’re going to do when you take control of your finances.
You may be thinking “I’m just a wee human, I don’t know if I can build a wealth empire”. The good news is that ANYONE can start building their empire TODAY. The even better news is that it’s really easy! And the even better better news is that EVERYONE should start building their empire.
There really isn’t any bad news here.
2. Doing even as little as 80% of what is suggested here is perfect.
People often get paralyzed with the amount of choices they have. So just do something that is suggested here. Anything. Really. If you want to do everything here, even better, but just setting up MOST of your wealth empire will put you on a MASSIVELY MORE BENEFICIAL trajectory than doing nothing. You are literally shooting yourself in the foot by not doing anything.
Can’t decide on a bank? Close your eyes and pick one. Just pick something. It matters more that you do something than you do it 100% correctly. Most are going to be fine. You can check back in a year to see if you were off.
3. You do not have to do this all in one day.
Make a calendar appointment each week to read one of the steps, and do the TODO actions. Actually make calendar appointments and do the steps. Otherwise, why are you even reading this?
Let’s get to it
Great. Did I entice those of you that really want to be empowered? And scare off those who want to get run over by the financial system? Perfect. Now we can get down to business.
Feel free to skip over parts that you feel you’ve already completed, like if you’re already debt-free, move to step 2.
Step 1: Get rid of high-interest debt
Debt is the same as losing weight. You can talk about transfats, keto diet, sleep routines or whatever, but at the end of the day the equation for losing weight is just:
Eat less, workout more
That’s it. When it comes to debt, it’s no different. Spend less, pay down more.
Debt will beat you up and tie you down, and then kick you and be a thorn in your side if you don’t take hold of it. This should be your #1 priority, if you have “high-interest debt”. Don’t bother moving on to any other steps if you have debt that’s over 8% interest (8% interest = high-interest debt).
Not sure if you have 8% interest or not? If you have credit card debt, you’re over 8%.
You literally cannot move on if you have high-interest debt. If you invest in stocks and somehow get 10% in returns, and you have a credit card debt of 18%, guess what, you are losing money.
If you’re in debt, you probably already know this, and it can be daunting to start. Don’t worry. There are plenty of tools out there to help you get started. Take pride in knowing that today is the day you are going to take control of your finances. You start TODAY.
There are many strategies we can use to get out of debt, but the two we are going to focus on are the “snowball” and “avalanche” methods. Just pick one, plug it into the calculator below, and go. You should be able to make automatic payments on your debts, DO THIS WHENEVER YOU CAN. I’m a hard worker, but if I can be lazy somewhere I do it. I call this being efficient.
Snowball
The snowball method is the methodology of paying for whatever has the lowest balance, and paying the minimum on everything else.
For example, if you have 3 debts.
- Car loan $1,000:5%
- Student loan $50,000:10%
- Credit Card Debt: $3,000:18%
You’d pay the minimums for everything except the car loan, which you’d pay off more aggressively. Once you finish paying off the car loan, you’d move to the credit card debt, since that’s the next largest. This is for someone who wants to get the psychological wins of every debt they pay off. If you’re someone who feels the burden of a lot of different loans, this method is for you.
Avalanche
This method is the most efficient of them all for saving you money. You pay minimums on everything, except whatever has the highest interest rate.
In the example above, which one would you pay off first there? The credit card debt. This is for people who want the most effective way to save them the most money.
If you have high-interest debt, I’d recommend you do the avalanche method to get rid of that FIRST, and THEN you can move onto whichever strategy you like better.
TODO: Make a calendar appointment NOW
- Open up your calendar.
2. Pick a day where you have about an hour of time. If you’re married, dating, or want to include an SO (they can hold you accountable a little too)
3. Copy this and post this in the event:
RECLAIM MY FINANCIAL EMPIRE PLANNING SESSION
4. Open up the chart below
This is a tool to help you plan out your debt exit strategy. Just plugin your debts, pick your strategy, and figure out when you will be debt-free.
After entering your debts at the top, if you scroll down, you’ll see a “Month Paid Off” section.
5. Add a calendar event with the latest month paid off titled “DEBT FREE PARTY”. Do it NOW.
6. For the first few weeks, make a calendar appointment to check to see how you’re doing.
You may have to adjust this date as you progress, but stay diligent! You want to look forward to inviting a bunch of people over to help you celebrate your financial freedom! Invite me. Seriously. I’d love to help you celebrate your debt freeness. Hate other people? Well that’s too bad, but do SOMETHING to celebrate. Don’t just curl up with wine and watch reruns of Friends…. Again.
So the next question you’re asking is probably “how do I make sure I have enough to pay for food?” That’s a question we will get to in a bit. Before we do that, we have to get familiar with some tools.
Step 2: Get a credit card that won’t destroy you
Especially if you came from step 1, credit cards can be dangerous, getting you to spend money that you don’t have. This is what the credit card companies want you to do. However, it’s important to have a credit card so that you build up credit over time. This may not seem important if you’re just starting out, but if you want to make a big purchase in the future (house, car, college), it can be the difference between a 3% loan and a 7% loan.
Here are the factors that determine your credit.
- Payment history: This is by far the most important factor of your credit report. It’s essential to pay your bills on time, every single time. DO NOT MISS PAYMENTS. The best way to avoid this is to set your credit card to pay off the whole thing every month.
- Utilization: how much debt you have vs how high your credit limit is.
- Length of credit history: how long you’ve had an active credit card/loan. It’s important to have at least a subscription keep billing your card so it stays active.
- Recent activity: Have you applied for 99 cards in the past 6 months? Yeah, that’s a bad sign.
- Overall debt.
You can check your credit with just about any credit card you have, for free. Generally, you can just go to your credit card website, and look for something that says “check my credit score”.
CREDIT CAN BE REALLY EASY TO SPEND MONEY YOU DON’T HAVE. And even though you can get “points” and “percent back” I just save the headache by having a small subscription (my CrossFit gym membership) on my credit card and use my debit card envelop strategy on everything else. More on that later.
If you’re just starting out, you’ll want a card from discover or capital one, and then you can upgrade to “better” cards once you have some credit history. Just be sure they don’t charge you an annual fee!
One other major note, credit cards offer percentage points back. Please please please please please do NOT be one of those who chases rates, otherwise known as churning. Sure, you can upgrade from a card with 2.1% points to 2.3% by constantly scouring the internet for the small hikes. If you have fun doing this…. Great… Have fun… but you can probably do something better with your time to make more money… Like learn how to be a chainlink node operator — they are awesome.
TODO: Empower your credit
- Get a no annual fee, credit card, you will have to apply, from maybe discover or capital one.
- Check your credit score -PUT IT ON YOUR CALENDAR. Maybe like a credit score reveal party with your SO. Make it a game. I love celebrations. If you get the discover card, you can check it right from their site.
- Set up autopay, and maybe a small recurring subscription. Treat yourself to something like Netflix, or Spotify. Spotify is currently doing a feature where you get a free google home with a premium subscription. Spend $10 to get a $50 google home — that checks out in my head.
Step 3: Checkings and Savings? More like “daily use money” and “goal/padding money”
Your checking accounts are for what you want to spend your money on (and if you’re me, your “envelopes” more on that later, and your saving accounts are for 3–6month padding and smaller goals.
If your car breaks down, or you lose your job, or life happens (which, it does) you want to have some money in case. Savings accounts will generally give you a better return than a checking account, but they give less liquidity. This is a term that finance people throw around a lot, and it basically means “How easy it is to get the money”.
For example, if you own a car that you’re going to sell for $5,000, and you have $200 in your pocket, it’s a lot easier for you to do stuff with the $200 in your pocket than the $5,000 you’re going to eventually get for your car.
Quick recap:
- Checking accounts are for day to day activities, and should be easy to move money around
- Savings accounts give more interest back, but usually they are limited to about 6 transactions a month.
If you have a saving account, open it up right now. Look at the interest rate. If it’s anything less than 1%, switch banks as soon as you can. Your hometown small bank is costing you money. Here is a list of better alternatives. Again, I use Ally for my savings account.
You should be able to bank on your phone. Get their app if they have one. If they don’t, take all your money out, and move it to a bank that actually has an app for your phone or at least some sort of online presence. This is 2019. Really. Get with it. You are taking way too much time to do anything if you’re not already online. You want to automate everything, I cannot emphasize this enough. I don’t want to have to log on to move money every month. I want my money to just go to the same places each time I make money.
Unless you’re a wizard, don’t pick a bank with yearly fees or other weird shit. Just pick one you can drop money into, and get a debit card for. You can always call them up (yes, actually do this) and just pepper them with questions if you are unsure. Ask “Does my account have monthly or yearly fees?”.
If you can opt-out of overdraft fees as well, DO IT! Getting hit with tons of $35 charges can ADD UP over time. And if you run into the embarrassing moment when your card is declined, you can just proudly boast “I’m glad my wealth empire is protected, even from myself”
TODO: Banking lvl +1
- Check your savings account interest, if it’s less than 1.5%, check out this list, and switch banks.
If you’re tempted to blow your savings, it might be good to have your checking and savings with different banks. I like having them from the same for convenience sake.
2. Download your bank’s mobile apps and log on.
Step 4: Set up your long term investing
If you’re like most people, you don’t want to spend every day watching charts and waiting for Elon Musk to say something awesome and buy a bunch of Tesla, and then sell it all when he smokes some other drug with a different celebrity.
You just want to take advantage of whatever this stock craze is. Here is a fun fact that you should know.
The stock market on average goes up 10% every year
Yes, you read that right, the stock market goes up 10% every year. Wow, that’s awesome! This is why we consider about 8% interest on debt is “high interest”, because below 10%, we can make more money investing than paying down their debt (sometimes).
“But what if I invest in Microsoft and the windows phone is a bust and the company dies? How do I take advantage of that 10% increase every year?”
Wouldn’t it be nice if we could just invest in the entire stock market? And get that 10%? Well guess what, that’s where index funds come in.
And index fund is an account that invests in an index. An index is a collection of stocks that supposedly represent the market. Does that definition bore you? Rephrased: An index fund is your ticket to getting in on that sweet, sweet 10% stock increase, while not having to deal with it when one stock crashes.
These are what you want to invest in… But how? Well, there are 2 investment vehicles that we should look at first….
- Roth 401k
- Roth IRA
You’ve probably heard about a 401k before, but you probably don’t know what it means.
Fun anecdote: I worked at a hedge fund for a couple years, and had always been into personal finance and had done my research on what everything was, so I knew what a 401k was. We had a meeting where Fidelity came in to explain some things, and one C suite employees (like the heads of the company) was chiming in about how a Roth 401k works, and was completely wrong! So don’t feel bad as of now, it doesn’t need to be confusing.
401k
This is a retirement investment account through your employer. Whoever manages your money puts it in the stock market in some way. This is literally the building blocks of your wealth empire. A solid base of powerfully growing money, that literally grows in value while you sleep.
A lot of these money managers have a lot of weird funds and think they know how to get a better return than the stock market as a whole.
Over the last 15 years, 92.2% of large-cap funds lagged a simple S&P 500 index fund.
This means that 92.2% of investment professionals, people who dedicate their lives to making money on the stock market, would have been better off just investing in an index fund. So how are they still in business? That’s a LONGER explanation, but basically a lot of people think they can win, because sometimes, sure, they get lucky.
So when you sign up (and you should, and I’ll tell you why below) it’s up to YOU to say “hey, I don’t want a target-date fund or whatever other weird shit you have. What do you have for index funds?”
A 401k is “tax-deferred” which means taxes won’t be paid on it until you take the money out. Which means that extra money can sit in there and compound.
A lot of companies have a “401k match” program where they put in as much money as you put in. This is them being nice and giving away free money, take it! If you DON’T hit the threshold that they offer it’s like you’re saying “Thanks for the offer, but I’d rather not take free money. I’m going to go buy a red bull or something and lose out on thousands of compounding dollars”
A “Roth 401k” is just a 401k, but the taxes are taken out before you put in the money as opposed to when you take it out. This is highly advantageous, because when you get older and go to take your money out, you’ll probably be in a higher tax bracket, and wish that you were taxed based on your starting pay rather than where you are then.
You can only put in a certain limit into your 401k each year. As of now, it’s $19,000, plus $6,000 if you’re over 50. I’d try to maximize every dollar into your 401k or IRA before you start doing individual investing (more on that later).
Roth IRA
IRA stands for “Individual retirement account” and it’s basically the same as a 401k, but it’s not through your company. The “Roth” part again is the same as a Roth 401k. You want to max this out after your 401k is maxed out, again for the tax reasons.
As of 2019, you can contribute $6,000 a year to it, and $7,000 if you’re 50 or older.
And when you contribute here, again, you want to avoid weird mutual funds (although an index fund is technically a mutual fund… just with less fees and is invested in the index), and just invest in an index fund.
Some good sources for this are Vanguard, Ally, or if you want to jump onto some of the newer platforms, Wealthfront, Acorns, or Stash are some of the more modern ways to invest, and each have IRA plans. These last three are not free, but for sure offer some interesting choices. If you’re confused though, just go with Vanguard or Ally.
Wealthfront, Acorns, and Stash are “robo-advisors” which means that an algorithm is investing for you in the background, instead of a human. Which is pretty cool. I think that eventually everyone will be on something like this… But it’s a bit of a ways off.
Summary
Mutual funds are run by professional investors, and 90% of those professional investors will get you less money than if you just invested in the index. A 401k and IRA are long term growth plans that will be the BEDROCK of your wealth empire.
The best part about both of these is that once it’s automated to automatically deposit money, you don’t have to do anything! You can go back to trying to find “The Office” episodes since they took it off Netflix.
In cases of emergency, you can still access your funds in these accounts, but they SHOULD BE HARD TO WITHDRAW FROM. Since they have massive penalties if you take them out early, another reason for you to open one now.
TODO: Set up the BEDROCK of your EMPIRE
- Find out if your company has a 401k matching plan — and start auto-contributing a portion of your salary to it. You can always change the amount later!
Often you can talk to your HR department, and ask them how you can start sending your money to your account.
2. Open an IRA — start auto contributing to it
Vanguard and Ally are some platforms to get you started.
Step 5: Put your money where you want it, know where it’s going.
People often refer to this as “budgeting”, but hearing that word makes me want to gouge my eyes out. So we are not going to budget, we are going to “taking charge of where we put our money”.
The main thing to note is that you have to KNOW what you want, and spend money on things that you really want, and ignore things you don’t. Seems simple right? So maybe instead of that donut every day on your way to work, you REALLY want to be able to pay for gas. Priorities are important.
If you LOVE spending $300 a month on clothes, that’s great! Don’t judge the guy who spends $150 on Fortnite skins, if that’s what they REALLY want to spend on.
Let’s figure out how much money you spend each month, and how much you have leftover.
TODO:
- Take our cards and expenses, and add up all your expenses for the past month.
- Multiply that number by 15%
- Subtract that from your monthly take-home pay
This is how much money you are spending a month. If it’s a negative number it’s time to figure out where we can hone in on what we want, and drop the stuff that isn’t important to us. That excess dead weight spending we are carrying around.
When we look at dropping that dead weight, focus on the big wins. What are the main points that will give you the most benefit quickest.
TODO: Make a list of your must-haves
- Go through your expenses from the past month, and add up all those you HAVE to pay. These are your fixed expenses like rent, food, electricity.
- Set dates for when you’ll have x amount of money in your savings and retirement accounts, and have parties for them. Seriously.
If your fixed expenses cost more than 60% of your take-home pay, we need to cut down on fixed expenses or get you more take-home pay!
The other 40% should be broken down as follows:
10% long term goals — like a house, car etc
10% retirement-IRA, 401k
10% short term-Christmas gifts, laptop
10% fun money-guilt free money, blow all this every month
This is known as the 60% strategy. Another popular one is the 50/30/20. Which is the methodology of 50% of your income goes to fixed expenses, 30% your “wants”, and 20% savings.
You should automate your money to each one of these accounts.
Envelope strategy
It’s tricky to keep track of what percent of money you’ve spent on everything. An easy way for you to set up a strategy for spending is to create a new bank account for each of the different accounts, get a debit card, and label it with a sharpie.
For example, name a bank account “Fun Stuff!” and when you go out to the bar, you’re ONLY allowed to use your “Fun Stuff!” card. Once that card is empty, that’s it! You’re all done, and now you’re protected against overspending.
A really simple set up for this is:
- Checking account for fun stuff — send 10% of your money here
- Savings account for Short term goals-send 10% of your money here
- Savings account for long term goals-send 10% of your money here
- IRA/4010-Send 10% of your money here.
A quick note is that you should always have about 3–6 months in a savings account labeled “padding” or “emergency”.
A little more information on the envelope strategy here.
Step 5: Stock trading, property, and more
Once you have all the above set up, then you can proceed onto more fun and risky investment vehicles.
Yes, you want to have all your finances sorted out before you can move on. When you reach this stage, this is the riskier money, but it also can give more growth. These are opportunities like investing on Robinhood (a non-retirement investment account), or owning rental property, or anything else you think will make you money.
And that could be a whole article in itself.
Personal finance is a topic that we could write about for DAYS, but taking starting steps is THE BEST THING you can do. Doing something is better than doing nothing.
For extra reading, I’m a big fan of Ramit Sethi’s “I will teach you to be rich” and Tony Robbin’s “Money Master the Game”
Reddit’s guide:
There is a lot here, so feel free to ask any questions below. I hope it helped :)
Follow me on Twitter for more discussion @patrickalphav
