Finance-Book | Haobin Tan

I will Teach You to Be Rich

Thu, 21 Aug 2025 00:00:00 +0000

- I will teach you to be rich
- Optimize credit cards
- Credit report and credit score are important.
- Getting a new card
- Commandments of Credit Cards
- Pay off your credit card regularly.
- Get all fees waived on your card.
- Negotiate a lower APR.
- Keep your cards for a long time and keep them active.
- Get more credit.
- Use your rewards!
- Mistakes to avoid
- Avoid closing your accounts (usually).
- Manage debt to avoid damaging your credit score.
- Think ahead before closing accounts.
- Don’t play the zero percent transfer game.
- Avoid getting sucked in by “Apply Now and Save - 10 Percent in Just Five Minutes!” offers.
- Don’t make the mistake of paying for your friends with your credit card and keeping the cash—and then spending it all.
- Debt
- Beat the bank
- Checking accounts
- Saving accounts
- Account setup
- Optimize bank accounts
- Get ready to invest
- Conscious spending
- Conscious spending plan
- Fixed costs (50 - 60%)
- Investments (10%)
- Savings (5 - 10%)
- Guilt-free spending money (20 -35%)
- Optimize your conscious spending plan
- Go for big wins
- Set realistic goals
- Negotiate a raise
- Maintain your spending plan
- Handle unexpected and irregular expenses
- Handle extra income
- Save while sleeping
- Create automatic money flow
- Review your credit card bill
- The myth of financial expertise
- Experts can NOT guess where the market is going.
- How Financial Experts Hide Poor Performance
- Most (young) people don't need a financial adviser
- Active vs. passive management
- Investing is not just for rich people
- Automatic investing
- Building blocks of investing
- Stocks / Bonds / Cash
- Mutual funds / Index funds
- Target date funds
- Other kinds of investments
- Real estate
- Art
- High-risk, high-potential-reward investments
- Crypto
- Maintain and grow your system
- Get honest about why you want more
- Accumulate more and grow faster: feed the system
- Rebalancing your investments
- Stop worrying about taxes
- The annual financial checklist
- Know when to sell your investments
- Live a riuch life
- Love and money
- Ignore the noise of money advice
- How to help parents who are in debt
- Should you tell your parents and friends how much money you have?
- Talking money with your significant other
- Work and money
- Negotiating your salary
- Don’ts in a negotiation
- Save thousands on big-ticket items
- Car
- Budgeting
- Pick a car
- Negotiate
- Maintain your car
- House
- The truth: Real estate is a POOR investment for most individual investors
- Practical advice
- Tips for buying your new house
- large purchases
- Giving back

Would You Rather Be Sexy or Rich?

Thu, 21 Aug 2025 00:00:00 +0000

Money and Food are Similar

When it comes to food, we…	When it comes to personal finance, we…
do NOT track calorie intake	do NOT track spending
eat more than we know	spend more than we realize - or admit
debate minutiae about calories, diets, and workouts	debate minutiae about interest rates and hot stocks
value anecdotal advice over research	listen to friends, our parents, and TV talking heads instead of reading a few good personal-finance books

One of the main reasons we fail is that we love to debate minutiae - Focusing on these details is the easiest way to get nothing done.

You don’t have to know everything about personal finance to be rich. You don’t have to be an expert to get rich.

Why Is Managing Money So Hard?

Info glut
The media is partially to blame

Too many of us are paralyzed by the thought that we have to get every single part of our personal finances in order before truly getting started managing our money! The single most important factor to getting rich is getting started, not being the smartest person in the room.

Put the Excuses Aside

Instead of blaming “the economy” and corporate America for your financial situation, you need to focus on what you can change yourself.

The Key Messages of I Will Teach You to Be Rich

It’s more important to get started than to spend an exhaustive amount of time researching the best fund in the universe.

This book is about taking the first step

understanding the barriers that keep us from managing our money
tearing them down and putting our money in the right places so we can achieve our goals.

Your goal should be to live your life and let money serve you, instead of to becoming a financial expert.

Essential messages

The 85 Percent Solution: Getting started is more important than becoming an expert.

The easiest way to manage your money is to take it one step at a time—and not worry about being perfect
It’s okay to make mistakes.

It’s better to make them together now, with a little bit of money, so that when you have more, you’ll know what to avoid.
Ordinary actions get ordinary results.

To be extraordinary, you don’t have to be a genius, but you do need to take some different steps than your folks did (like starting to manage your money and investing early).
There’s a difference between being sexy and being rich.

Investment isn’t about being sexy—it’s about making money, and when you look at investment literature, buy-and-hold investing wins over the long term, every time.
Spend extravagantly on the things you love, and cut costs mercilessly on the things you don’t.

It’s about being able to actually spend more on the things you love by not spending money on all the knucklehead things you don’t care about.

There aren’t any secrets to getting rich—it just takes small steps and some discipline, and you can do it with just a little bit of work.

Optimize Your Credit Cards

Thu, 21 Aug 2025 00:00:00 +0000

Establishing good credit is the first step in building an infrastructure for getting rich.

Our largest purchases are almost always made on credit, and people with good credit save tens of thousands of dollars on these purchases.

Credit Score Vs. Credit Report

Your credit report

gives potential lenders—the people who are considering lending you money for a car or home—basic information about you, your accounts, and your payment history.
tracks all credit-related activities, although recent activities are given higher weight.

Your credit score

is a single, easy-to-read number between 300 and 850 that represents your credit risk to lenders.
The lenders take this number (higher is better) and, with a few other pieces of information, such as your salary and age, decide if they’ll lend you money for credit like a credit card, mortgage, or car loan. They’ll charge you more or less for the loan, depending on the score, which signifies how risky you are.

Why are your credit report and credit score important?

Because a good credit score can save you hundreds of thousands of dollars in interest charges!

If you have good credit, it makes you less risky to lenders, meaning they can offer you a better interest rate on loans

Example: Assuming you borrowed $200,000 for a 30-year mortgage, look at the differences in what you’d pay based on your credit score.

Building Credit with Credit Cards

One of the biggest problems with credit cards is the hidden cost of using them. Credit card charges are some of the largest unnecessary fees you’ll ever pay (although they are not obvious).

To get the most out of using credit, you need to optimize your credit card(s) and use them as a spearhead to improve your overall credit.

Getting a New Card

Avoid those credit card offers you receive in the mail.
- Taking a credit card offer you get in the mail is like marrying the first person who touches your arm—99 percent of the time it’s the easy decision, not the right one
Avoid cash-back cards, which don’t actually pay you much cash.
Compare cards online.
- The best way to find a card that is right for you is by researching different offers online
- In most cases, the simplest credit cards are offered by your bank
Rewards are important.

If you’re getting a rewards card, find one that gives you something you value.
Don’t go card crazy.
- There’s no magic number of cards you should have. But each additional card you get means added complexity for your personal-finance system.
- Good rule of thumb: two or three

The Six Commandments of Credit Cards

Pay off your credit card regularly.

The single most important thing you can do to improve your credit is to pay your bills on time.

Do NOT give your credit card company the opportunity to raise your rates and lower your credit score by being a few days late with your payment.

Get all fees waived on your card.

This is a great, easy way to optimize your credit cards because your credit card company will do all the work for you. Just call them using the phone number on the back of the card and ask if you’re paying any fees, including annual fees or service charges.

Negotiate a lower APR.

APR, or annual percentage rate, is the interest rate your credit card company charges you.

You want to avoid the black hole of credit card interest payments so you can earn money, not give it to the credit card companies. Call your credit card company and ask them to lower your APR.

If they ask why, tell them you’ve been paying the full amount of your bill on time for the last few months, and you know there are a number of credit cards offering better rates than you’re currently getting.

Your APR doesn’t technically matter if you’re paying your bills in full every month.

Keep your cards for a long time and keep them active.

Don’t get suckered by introductory offers and low APRs. If you’re happy with your card, keep it.
If you’re getting a new credit card, don’t close the account on your old one. → That can negatively affect your credit score. As long as there are no fees, keep it open and use it occasionally. To avoid having your account shut down, set up an automatic payment on any card that is not your primary card.

Good practice: If you have a credit card, keep it active using an automatic payment at least once every three months.

Get more credit.

Warning: This tip is only for people who have no credit card debt and pay their bills in full each month. It’s not for anyone else.

It involves getting more credit to improve something called your credit utilization rate, which is simply how much you owe divided by your available credit. This makes up 30 percent of your credit score.

Example

If you owe $4,000 and have $4,000 in total available credit, your ratio is 100 percent (4,000 ÷ 4,000 × 100), which is bad. If, however, you owe only $1,000 but have $4,000 in available credit, your credit utilization rate is a much better 25 percent ($1,000 ÷ $4,000 × 100).

Lower credit utilization rate is preferred because lenders don’t want you regularly spending all the money you have available through credit—it’s too likely that you’ll default and not pay them anything.

Improve the credit utilization rate

Stop carrying so much debt on your credit cards (even if you pay it off each month) or
Increase your total available credit.

Use your rewards!

You can get great deals on your credit when you’re a responsible customer.

→ You should call your credit cards and lenders once per year to ask them what advantages you’re eligible for. Often, they can waive fees, extend credit, and give you private promotions that others don’t have access to.

Mistakes to Avoid

Avoid closing your accounts (usually).

Although closing an account doesn’t technically harm your credit score, it means you then have less available credit —with the same amount of debt.
People with zero debt get a free pass. If you have no debt, close as many accounts as you want. It won’t affect your credit utilization score.

Manage debt to avoid damaging your credit score.

If you want to close an account, pay off enough debt first to keep your credit utilization score the same.

Think ahead before closing accounts.

If you’re applying for a major loan—for a car, home, or education—don’t close any accounts within six months of filing the loan application. You want as much credit as possible when you apply.
However, if you know that an open account will entice you to spend, and you want to close your credit card to prevent that, you should do it. You may take a slight hit on your credit score, but over time, it will recover—and that’s better than overspending.

Don’t play the zero percent transfer game.

You can make a few bucks a year, or maybe even a few hundred, but the waste of time, risk of mismanaging the process, and possibility of screwing up your credit score just aren’t worth it.
Most important, this is a distraction that gets you only short-term results! You’re much better off building a personal-finance infrastructure that focuses on long-term growth, not on getting a few bucks here or there.

Avoid getting sucked in by “Apply Now and Save 10 Percent in Just Five Minutes!” offers.

Stay away from these cards issued by every single retail store!

Don’t make the mistake of paying for your friends with your credit card and keeping the cash—and then spending it all.

Debt

When credit cards go bad

Just like with gaining weight, most people don’t get into serious credit card debt overnight. Instead, things go wrong little by little until they realize they’ve got a serious problem. The good news is that credit card debt is almost always manageable if you have a plan and take disciplined steps to reduce it. Yes, it’s hard, but you can get out of debt.

The key to using credit cards effectively is to pay off your credit card in full every month.

Pay your debt off aggressively

If you’ve found yourself in credit card debt—whether it’s a lot or a little—you have a triple whammy working against you:

You’re paying tons of high interest on the balance you’re carrying.
Your credit score suffers—30 percent of your credit score is based on how much debt you have—putting you into a downward spiral of trying to get credit to get a house, car, or apartment, and having to pay even more because of your poor credit.
potentially most damaging, debt can affect you emotionally. It can overwhelm you, leading you to avoid opening your bills, causing more late payments and more debt, in a downward spiral of doom.

Make sacrifices to pay off your debt quickly. Otherwise, you’re costing yourself more and more every day.

If you set up automatic payments and work your debt down, you won’t pay fees anymore. You won’t pay finance charges. You’ll be free to grow your money by looking ahead.

Steps to ridding yourself of credit card debt

1. Figure out how much debt you have.

You can’t make a plan to pay off your debt until you know exactly how much you owe. It might be painful to learn the truth, but you have to bite the bullet.
Then you’ll see that it’s not hard to end this bad habit.

2. Decide what to pay off first.

Standard method: you pay the minimums on all cards, but pay more money to the card with the highest APR, because it’s costing you the most.
Dave Ramsey Snowball method: you pay the minimums on all cards, but pay more money to the card with the lowest balance first—the one that will allow you to pay it off first. (Not the most efficient approach, but on a psychological level, it’s enormously rewarding to see one credit card paid off, which in turn can motivate you to pay off others more quickly. )

Bottom line: Don’t spend more than five minutes deciding. Just pick one method and do it. 💪

3. Negotiate down the APR.

Try negotiating down your APR. It works surprisingly often and if it doesn’t, so what?

4. Decide where the money to pay off your credit cards will come from.

Balance transfer is just a “Band-Aid” for a larger problem (usually your spending behavior). It is a confusing process fraught with tricks by credit card companies to trap you into paying more, and the people who do this usually end up spending more time researching the best balance transfers than actually paying their debt off.
Better option: call and negotiate the APR down on your current accounts.

How to get Out of Your credit card debt in a right way

First, you need the cash flow.

You need to have enough income every month to meet your regular obligations like groceries, utilities, your mortgage, and the minimum payments on your credit cards, plus enough to throw toward putting that debt away for good.

If you do not have enough income to cover more than your minimum payments, you have to clear that hurdle by earning more money, negotiating with your credit card issuers to lower your minimum payments, or working with a legitimate, nonprofit debt consolidation organization that negotiates with creditors on your behalf, not one that provides you with a loan.
Next, prioritize your credit cards.
- List your debts from highest interest rate to lowest.
Pay the minimum on everything except the top card
- Once your credit cards are ranked properly, pay the minimum amount due listed on the statement for every card except the one at the top of the list. Dedicate all the extra funds you have to paying it off.
- Do this every month until that first credit card balance disappears. Then move to the second card on the list.
Stop using your cards.

Don’t cancel your cards, but stop using them.

Beat the Bank

Sat, 23 Aug 2025 00:00:00 +0000

How Banks Rake It In

Banks earn money by lending the money you deposit to other people.

For example, if you deposit $1,000, a Big Bank will pay you 0.5 percent to hold on to that money, and then they’ll turn around and lend it out at 7 percent for a home loan.
Fees
- Overdraft fee

The Nuts and Bolts

Checking Accounts

Checking accounts let you deposit money and withdraw money using debit cards, checks, and online transfers (a.k.a. Girokonto in Germany).

Traditionally, banks paid no interest on checking accounts, but this is changing. Most online banks now offer checking accounts with interest, blurring the line between checking and savings accounts.

Savings Accounts

Key difference between checking accounts and savings account:

Savings accounts pay interest (although, as we saw, the lines are being blurred with new interest-bearing checking accounts).
You withdraw money regularly from your checking account—but you rarely withdraw from your savings account. Your savings account is really a “goals” account, where every dollar is assigned to a specific item you’re saving up for.

Online banks usually pay a higher interest rate for savings accounts—about 2.5 to 5 percent, which would produce $25 to $50 interest per year on that $1,000, compared with $5 per year on the Big Bank savings account. One downside: It can take a few business days to access your money.

Why You Need Both Savings a Savings Account and a Checking Account

Having your money in two separate accounts makes money management easy.

Finding the Perfect Account Setup

Basic option

A checking account and a savings account at any local bank
Basic option + small optimization (recommended for most people).

Open accounts at two separate institutions:
- a no-fee checking account at your local bank (immediate access to your money and the ability to transfer cash to your high-interest online savings account for free)
- a high-yield online savings account.
Advanced setup + full optimization

Consists of several checking accounts and savings accounts at different banks, usually to eke out the most interest and services that various banks have to offer.

Optimizing Your Bank Accounts

You shouldn’t be paying fees or minimums. The key to optimizing an account is talking to an actual customer- service rep, either in person or on the phone.

Avoiding monthly fees
Almost all bank fees are negotiable

Get Ready to Invest

Sat, 23 Aug 2025 00:00:00 +0000

You need a way to put that money to work for you so it earns more than even the highest-yielding savings account, and la is the first and best way to do it.

Investing is the Single Most Effective Way to Get Rich

By opening an investment account, you give yourself access to the biggest moneymaking vehicle in the history of the world: the stock market.

Setting up an account is an excellent first step toward actually investing.

The Ladder of Personal Finance

These are the five systematic steps you should take to invest. Each step builds on the previous one.

If your employer offers a 401(k) match, invest to take full advantage of it and contribute just enough to get 100 percent of the match.
Pay off your credit card and any other debt.
Open up a Roth IRA
If you have money left over, go back to your 401(k) and contribute as much as possible to it (this time above and beyond your employer match).
If you still have money left to invest, open a regular nonretirement account and put as much as possible there.

Conscious Spending

Sat, 23 Aug 2025 00:00:00 +0000

Create a Conscious Spending Plan.

By planning where you want your money to go ahead of time, you could make sure you were saving and investing enough money each month, and then use the rest of your money guilt-free for whatever you want.

The Difference Between Cheap and Frugal

Spend on what you love, cut ruthlessly elsewhere

It’s okay to spend on things like travel, dining out, etc.
What matters is that it’s intentional and within your plan, not mindless or to impress others.

Frugality ≠ cheapness

Choosing not to spend $2.50 on soda so you can watch a movie isn’t “cheap”—it’s smart, value-based spending.
Most people confuse frugality with being stingy and give up altogether.

Spending is socially contagious

“Sex and the City effect”: People tend to mimic their friends’ spending habits, even if their incomes differ.
Research shows friends influence each other’s behavior, like gaining weight or overspending.

Cheap people vs. Frugal people

Spend on What You Love

Frugality isn’t about cutting your spending on everything!

Frugality is about choosing the things you love enough to spend extravagantly on—and then cutting costs mercilessly on the things you don’t love. In other words, it’s about making your own decisions about what’s important enough to spend a lot on, and what’s not, rather than blindly spending on *everything.*

Use Psychology Against Yourself to Save

THE À LA CARTE METHOD

How to implement? (take subscription as example)

Idea: Instead of subscribing and paying regularly for services, you pay only when you actually use them.
1. Calculate how much you’ve spent over the last month on any discretionary subscriptions you have (for example, music subscriptions, Netflix, and the gym).
2. Cancel those subscriptions and begin buying these things à la carte. (But don’t let losing the gym membership be your excuse to become a fat ass.)
3. In exactly one month, check and calculate how much you spent on these items over the last month. That’s the descriptive part.
4. Now, get prescriptive. If you spent $100, try to cut it down to $90. Then $75. Not too low—you want your spending to be sustainable, and you don’t want to totally lose touch with what’s going on in the world. But you can control exactly how many movies you rent or how many magazines you buy, because each one comes out of your pocket.
Why it works
- You’re probably overpaying already.
- You’re forced to be conscious about your spending.
- You value what you pay for.
Downside: requires you to de-automate your life.

Conscious Spending Plan

Conscious spending means you decide exactly where you’re going to spend your money—for going out, for saving, for investing, for rent—and you free yourself from feeling guilty about your spending. Along with making you feel comfortable with your spending, a plan keeps you moving toward your goals instead of just treading water.

A Conscious Spending Plan involves four major buckets where your money will go:

Category	Percentage of take-home pay
Fixed costs (Rent, utilities, debt, etc)	50-60%
Investments	10%
Savings (Vacations, gifts, house down payment, unexpected expenses)	5 - 10%
Guilt-free spending money (Dining out, drinking, movies, clothes, shoes)	20 - 35%

Fixed Costs

The amounts you must pay, like your rent/mortgage, utilities, cell phone, and student loans.
Good rule of thumb: 50– 60% of your take-home pay

Step by step

Fill out the chart with common basic expense.

Do Not include “eating out” or “entertainment,” as those come out of the guilt-free spending category.
You’ll need to look at your past spending to fill in all the amounts, and to make sure you’ve covered every category. Limit this to the past month to keep things simple. The easiest way to get an idea of what you’ve spent where is to look at your credit card and banking statements.

Category	Monthly Cost
Rent/mortgage
Utilities
Cell phone
Medical insurance, bills
Car payment
Public transportation
Loans
Groceries
Clothes
Internet/cable
…

Once you’ve gotten all your expenses filled in, add 15% for expenditures you haven’t counted yet. (A flat 15% will cover you for things you haven’t figured in, and you can get more accurate as time goes on.)
Once you’ve got a fairly accurate number here, subtract it from your take-home pay. Now you’ll know how much you’ll have left over to spend in other categories like investing, saving, and guilt-free spending.

Investments
- This bucket includes the amount you’ll send to your 401(k) and Roth IRA each month.
- A good rule of thumb is to invest 10 percent of your take-home pay (after taxes, or the amount on your monthly paycheck) for the long term.
Savings
- This bucket includes
  - short-term savings goals (like Christmas gifts and vacation)
  - midterm savings goals (a wedding in a few years)
  - larger, longer- term goals (like a down payment on a house).
Guilt-free Spending Money
- This bucket contains the fun money —the stuff you can use for anything you want, guilt-free, like going out to restaurants and bars, taxis, movies, and vacations.
- Good rule of thumb: 20 to 35 percent of your take-home income

Optimizing Your Conscious Spending Plan

Go for BIG wins
- Focus on big wins, not tiny cuts – Use the 80/20 rule: 80% of overspending often comes from 20% of expenses.
- Big changes in a few high-impact areas create significant results. Small cuts like skipping soda or generic cookies have minimal long-term effect - They serve more to make people feel good about themselves, which lasts only a few weeks once they realize they still don’t have any more money.
- Identify your big wins, expenses you admit you overspend on and feel guilty about (often eating out and drinking), and focus on just 1-2 each month.
Set realistic goals
- Sustainability is the core to personal finance.
- When a person goes from one extreme to another, the behavioral change rarely lasts.

Use the Envelope System to Target Your Big Wins

Envelope system

You allocate money for certain categories like eating out, shopping, rent, and so on.
Once you spend the money for that month, that’s it: You can’t spend more.
If it’s really an emergency, you can dip into other envelopes —like your “eating out” envelope—but you’ll have to cut back until you replenish that envelope. (You can transfer from one envelope to another . . . but that money is coming out of another category, so your total spending doesn’t actually increase.)

Negotiate a Raise

Remember that getting a raise is not about you. It’s about you demonstrating your value to your employer.

You can’t tell them you need more money because your expenses are higher. Nobody cares.
You can, however, show how your work has been contributing to the company’s success and ask to be compensated fairly.

What you need to do:

Three to six months before you ask for a raise, sit down with your boss and ask what it would take to be a top performer at your company. Get crystal clear about what you’d need to deliver. And ask how being a top performer would affect your compensation.
Three to six months before your review: Become a top performer by collaboratively setting expectations with your boss, then exceeding those expectations in every way possible.
One to two months before your review: Prepare a “briefcase” of evidence to support the exact reasons why you should be given a raise.
One to two weeks before your review: Extensively practice the conversation you’ll have with your boss, experimenting with the right tactics and scripts.

Maintaining Your Spending Plan

Once you’ve done what you can to design and implement a Conscious Spending Plan that you’re comfortable with, give yourself some time to settle into a rhythm with it.

As you go along from month to month with this new system, you’ll discover some surprises you hadn’t anticipated.

How to handle unexpected and irregular expenses

Known irregular events

Under savings goals, allocate money toward goals where you have a general idea of how much it will cost. It doesn’t have to be exact, but try to get a ballpark figure and then save every month toward that goal.
Unknown irregular events
- Starting by allocating $50/month for unexpected expenses
- If luckily there is money left over in the account by the end of the year: save half of it—and spend half on something fun.

With each month that goes by, you’ll get a more accurate picture of your spending. After about a year or two, you’ll have a very accurate understanding of how to project. The beginning is hard, but it only gets easier.

The “problem” of extra income

Unexpected one-time income
- Use 50 percent of it for fun —usually buying something I’ve been eyeing for a long time
- The other half goes to the investing account
Raises
- Key thing to remember: It’s okay to increase your standard of living a little—but bank the rest. It’s too easy to think a single raise lets you move up to a totally different financial level in a single step!
- Treat yourself to something nice that you’ve been wanting for a long time, and make it something you’ll remember. After that, save and invest as much of it as possible!

The Beauty of a Conscious Spending Plan

The best part about setting up a strategic Conscious Spending Plan

It guides your decisions, letting you say no much more easily—“Sorry, it’s not in my plan this month”.
It frees you up to enjoy what you do spend on.

Save while Sleeping

Sat, 23 Aug 2025 00:00:00 +0000

Do More Before Doing Less

The Curve of Doing More Before Doing Less:

It would be easier to do nothing—but that would mean you’d have to manage your money constantly for the rest of your life.
Setting up an Automatic Money Flow will take you a few hours up front, but you’ll end up saving huge amounts of time over the long term.

→ Your money flow will be automatic, and each dollar that comes in will be routed to the right account in your Conscious Spending Plan

The Power of Defaults

The key to taking action is simply making your decisions automatic.

How to Spend Only 90 Minutes a Month Managing Your Money

Let’s take your Conscious Spending Plan and make it automatic. 💪

Use a concept called the Next $100

Allocate the next $100 according to your Conscious Spending Plan (e.g.,$50 to fixed costs, $10 to investment, $10 to savings, $20 to guilt-free spending)

Create Your Automatic Money Flow

Start by linking all your accounts together
Set up automatic transfers to happen on various days

Example:

Tweaking the System for You

If you’re paid twice a month
- Replicate the above system on the first and the fifteenth—with half the money each time
- Save a “buffer” of money, which you can use to simulate getting paid once a month.
If you have irregular income

In months where you make a lot, you’re going to save and build a buffer for the slow months. Over time, you’ll build enough of a buffer that you can simulate a stable income, letting you use this system as designed.

Review Your Credit Card Bill

When Do I Get to Spend My Money?

Once you’ve gotten your money under control and you’re hitting your targets, you absolutely should spend your leftover money.

Living only for tomorrow is no way to live. Consider one investment that most people overlook: yourself. If you invest in yourself, the potential return is limitless.

If you’re meeting your goals, another route you could take is to start saving less and increase the amount you allocate to your guilt- free spending money.

Advantage of Automatic Money Flow/System

The beauty of this system is that it works without your involvement and it’s flexible enough to add or remove accounts anytime. You’re accumulating money by default.

Your automated money flow takes advantage of human psychology.
Your system will grow with you.
Your system lets you go from “hot” to “cool.”

The Myth of Financial Expertise

Sat, 23 Aug 2025 00:00:00 +0000

Being rich is within your control, not some expert’s. How rich you are depends on the amount you’re able to save and on your investment plan.

Experts Can NOT Guess Where the Market is Going.

The only long-term solution is to invest regularly, putting as much money as possible into low-cost, diversified funds, even in an economic downturn. This is why long-term investors have a phrase they use: Focus on time in the market, not timing the market

How Financial Experts Hide Poor Performance

Experts rarely admit mistakes → Many advisory firms still gave “buy/hold” ratings to companies right up to (and even on) the day they went bankrupt.
Many company’s five-star ratings are misleading
- Low-star ratings predict poor performance.
- High-star ratings do not reliably predict future success.
Survivorship bias hides failures
- Fund companies launch many funds; the poorly performing ones get closed and erased from history.
Only the successful funds remain visible, creating a false impression of strong overall performance.

Although a fund manager might be lucky for one, two, or even three years, it’s mathematically unlikely he’ll continue beating the market. Don’t trust purported financial expertise just because of a few impressive stats.

I Bet You Don’t Need a Financial Adviser

Most young people do NOT need a financial adviser.

We have such simple needs that with a little bit of time (a few hours a week over the course of, say, six weeks) we can get an automatic personal finance infrastructure working for us.
Financial advisers don’t always look out for your interests. They’re supposed to help you make the right decisions about your money, but keep in mind that they’re actually not obligated to do what’s best for you. If they’re paid on commission, they usually will direct you to expensive, bloated funds to earn their commissions.

If you’re currently working with a financial adviser, I encourage you to ask them if they are a fiduciary (i.e., if they’re required to put your financial interests first). → If you discover that your adviser is not a fiduciary, you should switch. Don’t be worried about the variety of emotional tactics they’ll use to get you to stay. Keep your eye on the prize and put your financial returns first.

If you really want to look into hiring a financial adviser

Ask at least these three questions for your first meeting with the financial adviser
- Are you a fiduciary? How do you make your money? Is it through commission or strictly fee-only? Are there any other fees? (You want a fee-only adviser who is a fiduciary, meaning they put your financial interests first. Any response to this question other than a clear “yes” is an instant no-hire.)
- Have you worked with people in similar situations? What general solutions did you recommend? (Get references and call them.)
- What’s your working style? Do we talk regularly, or do I work with an assistant? (You want to know what to expect in the first thirty, sixty, and ninety days.)

Do NOT simply ignore the “nominal” 1% fee!!!

Overtime a 1% fee can reduce your return by around 30%! (Fees compound!)
- If I invested $100,000 with them, their fees would reduce my $2.1 million to $1.5 million—which they would pocket! → One percent can cost you 28 percent of your returns. A 2 percent fee can cost you 63 percent of your returns.
- The average person doesn’t understand how crushing these fees really are because the math is extremely counterintuitive.

You should ideally be paying 0.1 to 0.3 percent.

Active vs. Passive Management

When it comes to investing, fees are a huge drag on your returns.

Mutual funds use something called “active management.”

But even with all the fancy analysts and technology they employ, portfolio managers still make fundamentally human mistakes, like selling too quickly, trading too much, and making rash guesses
Not only do they usually fail to beat the market, but they charge a fee to do this.
Although sometimes they do extraordinarily well and far outperform index funds, but in a long run, the safe assumption is that actively managed funds will too often fail to beat or match the market.

Passive management - Index fund

These funds work by replacing portfolio managers with computers. The computers don’t attempt to find the hottest stock. They simply and methodically pick the same stocks that an index holds
Most index funds stay close to the market (or to the segment of the market they represent)
The big difference is in fees: Index funds have lower fees than mutual funds, because there’s no expensive staff to pay.

Comparison example:

Example

John Bogle, the Vanguard founder, once shared a shocking example with PBS documentary series Frontline. Let’s assume you and your friend Michelle each invested in funds with identical performance over fifty years. The only difference is that you paid 2 percent lower fees than she did. So your investment returned 7 percent annually, while hers returned 5 percent. What would the difference be?

On the surface, 2 percent in fees doesn’t seem like much. It’s natural to guess that your returns might differ by 2 percent or even 5 percent. But the math of compounding will shock you.

“Assuming a fifty-year horizon, the second portfolio would have lost 63 percent of its potential returns to fees,” Mr. Bogle said.

Think about that. A simple 2 percent in fees can cost you over half of your investment returns.

In investing, fees are your enemy!!!

Bottom line: There’s no reason to pay exorbitant fees for active management when you could do better, for cheaper, on your own.

This is your money. → Learning the fundamentals will be the most profitable decision you ever make.

Don’t wish it was easier, wish you were better. Don’t wish for less problems, wish for more skills.” — Jim Rohn

Investing is not Just for Rich People

Sat, 23 Aug 2025 00:00:00 +0000

Choose your own investments, pay less in fees, and get superior performance

Determine your investing style by asking yourself some key questions:

Do you need your money next year, or can you let it grow for a while?
Are you saving up for a house?
Can you withstand big day-to-day changes in the stock market, or do they make you queasy?

Goal: pick the simplest investment to get started— and to make your portfolio easy to maintain.

A Better Way to Invest: Automatic Investing

Automatic investing involves

spending most of your time choosing how your money will be distributed in your portfolio,
then picking the investments (this actually takes the least amount of time), and
finally automating your regular investments so you can sit and watch TV while growing your money.

Automatic investing works for two reasons

Lower expenses

With automatic investing, you invest in low-cost funds—which replace worthless, expensive portfolio managers—and you save tens of thousands of dollars in trading fees, taxes incurred by frenetic trading, and overall investment expenses, thereby outperforming most investors.
It’s automatic
- Frees you from having to pay attention to the latest “hot stock” or micro-change in the market
- You pick a simple investment plan that doesn’t involve any sexy stocks or guessing whether the market is going up or down, and then you set up automatic contributions to your investment accounts. → This means you can focus on living your life instead of worrying about your money.

The test of a real automatic investor is not when things are going up, but when they are going down. It takes strength to know that you’re basically getting shares on sale — and, if you’re investing for the long term, the best time to make money is when everyone else is getting out of the market.

With headlines like “Market Correction” and “Stock Drops 10% Overnight.”, it’s easy to practice the “DNA” style of investing — the Do Nothing Approach.

“Be fearful when others are greedy and greedy when others are fearful.” — Warren Buffett

The Magic of Financial Independence

Financial Independence (FI): Money makes money, and at a certain point, your money is generating so much new money that all of your expenses are covered

(your investments were generating so much money that your money was actually producing more money than your salary)

Retire Early (RE) (often in your thirties or forties)

FIRE: Financial Independence + Retiring Early

“LeanFire”: people who’ve decided they can live on a “lean” amount of money— often $30,000 to $50,000 a year in perpetuity. They reject materialism and embrace simplicity, often in an extreme way.
“FatFire”: people who want to live an extravagant life at the highest levels of spending

How to reach FIRE？

Cut your monthly expenses
Raise your income
Combination of both - Earn more, spend less!

When chasing FIRE: Remember that life is lived outside the spreadsheet. Be as aggressive as you want with your goals—dream bigger than you ever thought!—but remember that money is just a small part of a Rich Life.

Investing Is Not About Picking Stocks

You can NOT reliably pick stocks that will outperform the market over the long term. It’s way too easy to make mistakes, such as being overconfident about choices or panicking when your investments drop even a little.

The major predictor of your portfolio’s volatility doesn’t stem from the individual stocks you pick, as most people think, but instead from your mix of stocks and bonds (i.e., your assert allocation).

Asset allocation is your plan for investing, the way you distribute the investments in your portfolio between stocks, bonds, and cash.

In other words, by diversifying your investments across different asset classes (like stocks and bonds or, better yet, stock funds and bond funds), you can control the risk in your portfolio—and therefore control how much money, on average, you’ll lose due to volatility.
Asset allocation is the most significant part of your portfolio that you can control.
Your investment plan is more important than your actual investments!

The Building Blocks of Investing

First layer: Stocks / Bonds / Cash

Stocks

When you buy stock, you buy shares of a company.
When people talk about “the market,” they’re usually referring to an index of stocks like the Dow Jones (thirty large-cap stocks) or the S&P 500 (500 companies with large market capitalization).
On average the stock market returns about 8 percent per year.
- In fact, you can do significantly better than the market if you pick a winning stock— or significantly worse if you pick a loser.
- Although stocks as a whole provide generally excellent returns over time, individual stocks are less clear.
The tricky thing about stocks is you never know what will happen. → It is extremely difficult to choose winning stocks on your own, even professionals.

Bonds

Advantages
- You can choose the term, or length of time, you want the loan to last, and you know exactly how much you’ll get when they “mature” or pay out.
- Bonds, especially government bonds, are generally stable and let you decrease the risk in your portfolio. The only way you’d lose money on a government bond is if the government defaulted on its loans—and it doesn’t do that.
Disadvantages
- As bonds are such a safe, low-risk investment, the return— even on a highly rated bond—is much lower than it would be on an excellent stock.
- Investing in bonds also renders your money illiquid, meaning it’s locked away and inaccessible for a set period of time.
In general, rich people and old people like bonds.

Cash

Money that’s sitting on the sidelines, uninvested and earning only a little money in interest from money market accounts, which are basically high-interest savings accounts.
You want to have totally liquid cash on hand for emergencies, and as a hedge if the market tanks.
- Price for this security: Cash is the safest part of your portfolio, but it offers the lowest reward. In fact, you actually lose money by holding cash once you factor inflation in.
As long as you’re contributing toward your savings goals and have enough to cover emergencies and ideally more, you’re fine.

Asset Allocation: The critical factor that most investors miss

It is important to diversify within stocks, but it’s even more important to allocate across the different asset classes—like stocks and bonds.

Diversification is D for going deep into a category (for example, buying different types of stocks: large-cap, small-cap, international, and so on)
Asset allocation is A for going across all categories (for example, stocks and bonds).

Why Asset Allocation Matters

Determines the majority of your portfolio’s risk and return.
More important than picking individual stocks.
Could mean a difference of hundreds of thousands or millions of dollars over time.
Stocks vs. Bonds
- Stocks = higher long-term returns, but much higher volatility. (Higher risk generally equals higher potential for reward.)
- Bonds = safer, often rise when stocks fall, reduce overall risk with only slightly lower returns.
  - Although it may seem counterintuitive, your portfolio will actually have better overall performance if you add bonds to the mix.
Age and Risk Tolerance
- 20s: Mostly stocks (long time horizon, can handle risk).
- 30s–50s: Start adding bonds to balance risk.
- 60+: Significant bond allocation to protect capital.

The Importance of Being Diversified

Diversification is about safety in the long term.

Typical asset allocations by age

If we’re in our twenties and thirties, we can afford to be aggressive about investing in stocks and stock funds—even if they drop temporarily—because time is on our side.
- If you’re nervous about investing and just starting out, your biggest danger isn’t having a portfolio that’s too risky. It’s being lazy and overwhelmed and not doing any investing at all.

Second layer: Mutual funds / Index funds

Mutual Funds

Mutual Funds Overview

Invented in 1924 to simplify investing for average investors.
Definition: Baskets of different investments (usually stocks).
Purpose: Avoid picking individual stocks; provide instant diversification.

Types of Mutual Funds

Large-cap, mid-cap, small-cap stock funds.
Sector-focused funds (e.g., biotechnology, communication).
Region-focused funds (e.g., European or Asian stocks).

Advantages

Hands-off approach: expert manager handles investments.
Diversified: reduces risk if one company performs poorly.
Better than doing nothing—encourages investing for average Americans.

Disadvantages

High fees: expense ratios, front-end/back-end loads can cost tens of thousands over a lifetime.
Overlap risk: multiple funds may hold the same stocks, reducing true diversification.
Performance: 75% of active managers do not beat the market.
Cost vs. value: paying for expert management often adds little to returns.

Mutual funds are convenient and popular, but actively managed funds are expensive and often underperform.

→ Better alternatives today: low-cost, passive index funds.

Index Funds

Index fund buys stocks and match the market.

Traditional mutual fund, which employs an expensive staff of “experts” who try to predict which stocks will perform well, trade frequently, incur taxes in the process, and charge you fees.

Index fund characteristics:

No experts needed
No attempt to beat the market. Goal: match a market index.
Low cost and tax-efficient
Minimal maintenance required

→ Index funds discard active management, offering a simple, efficient, long-term investment method.

Market volatility still exists: investing fully in stocks in your 20s and 30s will see ups and downs, but the stock market rises in the long term.

Advantages: Extremely low cost, easy to maintain, and tax efficient.

Disadvantages

When you’re investing in index funds, you typically have to invest in multiple funds to create a comprehensive asset allocation.
If you do purchase multiple index funds, you’ll have to rebalance (or adjust your investments to maintain your target asset allocation) regularly, usually every twelve to eighteen months
Each fund typically requires a minimum investment, although this is often waived with automatic monthly investments.

index funds are clearly far superior to buying either individual stocks and bonds or mutual funds. 👍

Target Date Funds

Target date funds are the easiest investment choice you’ll ever need to make - not exactly perfect, but easy enough for anyone to get started—and they work just fine。

Target date funds are simple funds that automatically diversify your investments for you based on when you plan to retire.
Instead of you having to rebalance stocks and bonds, target date funds do it for you.
Target date funds are actually “funds of funds,” or collections made up of other funds, which offer automatic diversification. Your target date fund will own many funds, all of which own stocks and bonds. → This actually makes things simple for you, because you’ll have to own only one fund, and all the rest will be taken care of for you.
Target date funds automatically pick a blend of investments for you based on your approximate age. They start you off with aggressive investments in your twenties and then shift investments to become more conservative as you get older.
Target date funds aren’t perfect for everyone, because they work on one variable alone: when you plan to retire.
As a general rule, target date funds are low cost and tax efficient.

You Want to Do It on Your Own

Remember:

Most people who try to manage their own portfolios fail at even matching the market. They fail because they sell at the first sign of trouble, or because they buy and sell too often, thereby diminishing their returns with taxes and trading fees. The result is tens of thousands of dollars lost over a lifetime.
If you buy individual index funds, you’ll have to rebalance every year to make sure your asset allocation is still what you want it to be

If you want more control over your investments and you just know you’re disciplined enough to withstand market dips and to take the time to rebalance your asset allocation at least once a year → choosing your own portfolio of index funds is the right choice for you.

The key to constructing a portfolio is NOT picking killer stocks! It’s figuring out a balanced asset allocation that will let you ride out storms and slowly grow, over time, to gargantuan proportions.

David Swensen suggests allocating your money

30 percent—Domestic equities: US stock funds, including small-, mid-, and large-cap stocks
15 percent—Developed-world international equities: funds from developed foreign countries, including the United Kingdom, Germany, and France
5 percent—Emerging-market equities: funds from developing foreign countries, such as China, India, and Brazil. These are riskier than developed-world equities, so don’t go off buying these to fill 95 percent of your portfolio.
20 percent—Real estate investment trusts: also known as REITs. REITs invest in mortgages and residential and commercial real estate, both domestically and internationally.
15 percent—Government bonds: fixed-interest US securities, which provide predictable income and balance risk in your portfolio. As an asset class, bonds generally return less than stocks.
15 percent—Treasury inflation-protected securities: also known as TIPS, these treasury notes protect against inflation. Eventually you’ll want to own these, but they’d be the last ones I’d get after investing in all the better-returning options first.

Choosing your own index funds means you’ll need to dig around and identify the best index funds for you.

The first thing you want to do when picking index funds is to minimize fees. - Look for the management fees (“expense ratios”) to be low, around 0.2 percent
Make sure the fund fits into your asset allocation.
- Use David Swensen’s model as a baseline and tweak as necessary if you want to exclude certain funds or prioritize which are important to you.
- If you have limited money and you’re in your twenties, you’d probably want to buy the stock funds first so you could get their compounding power, whereas you could wait until you’re older and have more money to buy the bond funds to mitigate your risk.
When you look for various funds, make sure you’re being strategic about your domestic equities, international equities, bonds, and all the rest. You can NOT just pick random funds and expect to have a balanced asset allocation.
You should absolutely look at how well the fund has returned over the last ten or fifteen years. But remember that, as they say, past performance is no guarantee of future results!

Pick the number of funds that will let you get started, realizing that you can adjust it later on to get a balanced asset allocation. Spend time identifying the funds that will help you build a full, balanced asset allocation over time.

💡 Take Away

Low cost + Asset allocation alignment + Long-term diversification = The core principles of index fund investing.
You can gradually increase the number of funds and ultimately build a balanced portfolio.

Dollar-cost Averaging: Investing Slowly over Time

“Dollar-cost averaging” is a phrase that refers to investing regular amounts over time, rather than investing all your money in a fund at once.

By investing at regular intervals over time, you hedge against any drops in the price
You don’t try to time the market. You use time to your advantage. → This is the essence of automatic investing, which lets you consistently invest in a fund so you don’t have to guess when the market is up or down.
To set up automatic investing, configure your accounts to automatically pull a set amount of money from your checking account each month.

If you have a lump sum of money, most of the time you’ll get better returns by investing it all at once.

Vanguard research found that lump-sum investing actually beats dollar-cost averaging two-thirds of the time.

But investing isn’t just about math, but about the very real effects of your emotions on your investing behavior.

Buying into Individual Index Funds

Once you’ve got a list of index funds you want to own in your portfolio —usually three to seven funds—start buying them one by one. If you can afford to buy into all of the funds at once, go for it 💪.

Once you own all the funds you need, you can split the money across funds according to your asset allocation—but do NOT just split it evenly. Remember, your asset allocation determines how much money you invest in different areas.

If you opt for investing in your own index funds, you’ll have to rebalance about once a year, which will keep your funds in line with your target asset allocation.

Other Kinds of Investments

You can also invest in precious metals, real estate, private startups, cryptocurrency, or even art; just don’t expect very good returns.

Real Estate

The returns of real estate are generally poor, especially when you factor in costs like maintenance and property taxes —which renters don’t pay for, but homeowners do.

If you do buy real estate, regardless of whether it’s to live in or to invest in, be sure to keep funding the rest of your investment areas—whether that’s a target date fund or your own portfolio of index funds.

Art

“The returns of fine art have been significantly overestimated, and the risk, underestimated.”

— research done by Stanford analysts in 2013

The real annual return of art over the past four decades is closer to 6.5 percent versus the 10 percent that is claimed.

The main reason for the overestimation is due to selection bias
By choosing particular art pieces as investments, you’re doing essentially the same thing as trying to predict winning stocks, which is very difficult.

High-Risk, High-Potential-for-Reward Investments

Use a small part of your portfolio for “high risk” investing —but treat it as fun money, not as money you need.

Crypto

Easy Maintanence and Grow Your System

Sat, 23 Aug 2025 00:00:00 +0000

Get Honest About Why You Want More

Many people are raised to always be “the best,” but this can lead to blindly chasing more without asking why.
Financial advice often focuses on “more, more, more” instead of defining what’s enough.
Many people decide to take control of their finances (good), then change their lives to save money (good), then continue saving and become increasingly aggressive (not so good), and finally end up “living in the spreadsheet,” where they spend each day counting how much their money has grown (very bad).
The key question is: Why do you want more?
- High-level answers like “freedom” or “security” are too vague; they don’t motivate strongly.
- True motivation comes from street-level reasons—concrete, daily-life benefits.
  - Examples: Taking a taxi instead of sweating on the train, Paying for a friend to join a glamping trip, etc.
- Exercise: Bring your motivation “from the clouds to the street.” Define your specific reason

How to Accumulate More and Grow Faster: Feed Your System

Automated investing system is fueled by only one thing: the money you feed it.
After building the system, now the focus is: volume of contributions → more in, more out. 💪
Key driver: invest as much as possible, as early as possible, to maximize compounding.

How Rich Will I Be In ? Years

Verify the compounding effect yourself: Go to bankrate.com and open up one of their investment calculators. Enter in your monthly investment contribution, assuming an 8 percent return.

You’ll likely see that your current contributions will grow more slowly than you thought.
But by adding a small amount per month—even $100 or $200 more—the numbers will change dramatically!

Next step: go beyond the savings/investing percentages in your Conscious Spending Plan and invest as much as possible. 💪

Optimize spending plan to free more money for investments.
Negotiate major purchases (car, house) for better deals.
Cut expenses ruthlessly where possible.
Negotiate higher salary or find a higher-paying job.

Shovel as much as possible into your investment system each month.(The earlier and more you invest, the sooner you’ll reach your financial goals.)

Rebalancing Your Investments

While target date funds handle this automatically, self-managed portfolios require periodic rebalancing - Diversified portfolios have uneven growth and some assets outperform others (e.g., international stocks).

Goal: Maintain original asset allocation and avoid any sector dominating the portfolio.

Rebalancing steps:

If some assets outperform the others
- Stop contributing to the outperforming asset temporarily.
- Redirect contributions to underrepresented assets until allocation is back on target.
- Resume automatic contributions once balance is restored.
If a fund loses value -> pause other contributions and add money to the underperforming fund until its allocation returns to target.

Tools: personalcapital.com can help calculate and guide rebalancing.

Stop Worrying About Taxes

Tax Truth #1: People think getting a tax refund is bad. In reality, it’s great.

The Myth: Getting a tax refund is bad because you’ve given Uncle Sam an interest-free loan.
Reality: You would have spent that money. We know this because data shows that small tax refunds that are gradually added to your paycheck get spent. Big tax refunds get saved or used to pay off debt.
Surprising Fact: This is why politicians have a hard choice to make when it comes to tax cuts. Give people small tax refunds over the year and they’ll spend it, stimulating the economy . . . but they won’t realize they’re getting more money and give the politicians credit. Or, give them a big tax refund and your administration will get credit—but people will save it or pay off debt, not stimulate the economy.

Tax Truth #2: The US is not the highest-taxed nation in the world.

The Myth: America is the highest-taxed nation in the world.
Reality: Not even close.

Tax Truth #3: People actually think that it’s better to NOT make more money for tax reasons. They are wrong.

The Myth: Making more money will move you up in tax brackets, causing you to get taxed more and actually earn less.
Reality: “Marginal tax brackets.”: the “marginal” amount—or the money in the higher tax bracket—is taxed at a higher rate, not the entire amount you earn.

Tax Truth #4: People get really angry about how their taxes are spent but actually have no goddamn idea where the money goes.

The Myth: We spend a ton of money on foreign aid.
Reality: Out of every $100 in federal taxes you pay, around 1 percent goes toward foreign aid, which is dramatically lower than most people think.

Tax Truth #5: People think rich people just use loopholes to never pay taxes.

The Myth: There are a lot of loopholes for the rich.
Reality: There are a few legit ones—like tax efficiency in your investment accounts, maxing out your tax-advantaged accounts, and a few more—but not nearly as many as you think. In general, those loopholes are few and far between and largely available to the super-rich who earn millions via capital gains (not ordinary salaries or even the high salaries of lawyers and bankers).
Surprise: There are certain loopholes for the super-rich that you probably haven’t heard about. If you earn multiple six figures, go to my website for my course on advanced personal finance.

Tax Truth #6: Your politics cloud your rational judgment on taxes.

The Myth: There are a lot of loopholes for the rich.
Reality: Your personal psychology, along with your sources of information, play a huge role in your beliefs about taxes. As Psychology Today noted, “People have a number of general beliefs about what kinds of exchanges should be taxable, and they want tax law to fit with those beliefs. When tax law conflicts with those beliefs, then people think the tax is unfair.”

Don’t be distracted by nonsense about taxes; analyze critically and make your own decisions.

Use every legal tax advantage available (e.g., tax-advantaged accounts); this is practical and saves thousands.
Apply the 85 Percent Solution: do a few key things well (good enough), then move on—don’t chase perfection.
Most exotic-sounding tax schemes are BS; they rarely help ordinary people. Only ultra-high-net-worth individuals (earning millions, especially from capital gains) have access to meaningful advanced loopholes.
Focus first on growing your money and implementing basic, effective tax strategies rather than hunting obscure tricks.

The One Thing You Need to Know About Taxes and Investments

Invest as much as possible into tax-deferred accounts like your 401(k) and IRA.

Major benefits:
- Significant tax savings.
- No need to stress over tax-efficient funds.
- Avoid timing sales to dodge end-of-year tax distributions.
Investing through retirement accounts eliminates most tax worries.

This is the 85 Percent Solution for taxes: do this one big thing, then move on.

The Annual Financial Checklist

It’s important to maintain your automated financial system. Spend a few hours re- reviewing my system and making any changes necessary every year.

Evaluate your Conscious Spending Plan

Use these as general guidelines, but take them seriously: If your money is following these suggested percentages, that’s a Big Win toward a Rich Life.

Fixed costs (50–60%)
Investments (10%)
Savings (5–10%)
Guilt-Free Spending (20–35%)
Reassess current subscriptions (cut if necessary).
Renegotiate cable and internet bills.
Revisit spending goals: Are they accurate? Are you actively saving for them?
If your fixed costs are too high, it may be time to look at a cheaper rent (or AirBnB’ing a room out, or earning more).
If you aren’t investing at least 10 percent, it’s worth finding the money from somewhere else— usually guilt-free spending—and reallocating it to investments.

Negotiate any fees

Many companies will offer you introductory rates or lower your monthly fees if you ask. Use my word-for-word scripts at iwillteachyoutoberich.com/negotiate.

Cell phone bill
Car insurance
Cable and internet
Bank fees

Investments

Confirm you’re contributing the max to your 401(k), that your money is being invested (not just sent over and sitting there—for a cautionary tale), and that it’s being invested in the right fund(s).
Confirm you’re contributing the max to your Roth IRA, that your money is being invested (not just sent over and sitting there), and that it’s being invested in the right fund(s).
Be sure you’re taking advantage of all the tax-advantaged accounts you can

Debt

Revisit your debt payoff plan: Are you on track? Can you pay any of your debt off sooner?
Check your credit report and credit score.
Renegotiate your credit cards’ APRs.

Credit cards

Make a plan to use your credit card points! (Some might expire, some might not—but you earned them. Now have fun with them!)
Call to ask what other perks your credit card offers that you haven’t taken advantage of.
Confirm you’re not paying any unnecessary fees. If you are, try to negotiate them down.

Earn more

Negotiate a raise.
Make money on the side (visit iwillteachyoutoberich.com for ideas, examples, and courses).

Other

Review your insurance needs, including renters insurance and life insurance.
If you have dependents, create a will.

Knowing When to Sell Your Investments

Why you should think twice about selling

Short-term vs long-term taxes: Short-term tax (<1 year) could be much higher than long-term.
Why hold long term:
- Normal people can’t time the market.
- Buy-and-hold investing produces dramatically higher returns than frequent trading.
Best strategy:
- Use target date funds or index funds for a simple, tax-efficient portfolio.
- Invest via retirement accounts
- Hold your investments for the long term.

When should sell an investment

When you’re young, there are only three reasons to sell an investment:

You need the money for an emergency.

If you suddenly need money for an emergency, here’s your hierarchy of where to get it.

Use your savings account.
Earn additional money.
- Drive for Uber, sell old clothes, pick up tutoring.
- You might not be able to earn a huge amount in a short time, but selling some of your own goods is an important psychological step—it will let you prove how serious you are both to yourself and to your family (which will be useful if you’re asking them for help).
Ask your family if you can borrow the money from them. Note: This doesn’t work if your family is crazy.
Use the money in your retirement accounts.
- You can always withdraw the principal you contributed to your Roth IRA penalty-free, although you’ll be severely retarding your money’s ability to compound over time. With a 401(k), you can take money out for “hardship withdrawals,” which typically include medical expenses, buying a home, tuition, preventing foreclosure, and funeral expenses, but you’ll probably still pay early withdrawal fees.
- If it comes to this, consult your HR representative. But I urge you to avoid cashing out your retirement accounts because of the penalties and taxes involved.
Use your credit card only as a last resort. I can’t emphasize this enough: The chances are very good that your credit card will gouge you as you’re repaying it, so don’t do this unless you’re truly desperate!

You made a terrible investment that's consistently underperforming.

This point is largely moot if you invested in an index fund or series of index funds, because they reflect the entire index’s performance.
- If your “total market index fund” is going down, that means the entire market is down.
- If you believe the market will recover, that means investments are on sale for cheaper prices than before, meaning not only should you not sell, but you should keep investing and pick up shares at a cheaper price.
If you invest in individual stock, and it is currently having a poor performance (e.g., down by 35%)
- Just because they’re plunging doesn’t mean that you should sell immediately! Check the industry context before selling: Is it still viable? Are there competitors replacing it? etc.
  - If the entire industry is down → likely a cyclical downturn → hold and continue buying.
  - If the industry is obsolete → sell. (For example, if you own shares in a company that’s producing CD players, chances are that business is not coming back.)
  - If your stock is down but peers are performing well → problem is company-specific → consider selling.

You achieved your specific goal.

if your goal is less than five years away, you should set up a savings goal in your savings account.
But if you’ve invested money for a longer-term goal that you’ve achieved, sell and don’t think twice. That’s a great investing success, and you should use the money for whatever your original goal was.

Financial Options for Super Achievers: Make the Ten Year Plan That Few Others Do

Just ask people five to ten years older than you what they wish they had started earlier, then do that.

Create an emergency fund.

Set up an extra savings goal and then funnel money to it in the same way you would your other goals.
your emergency fund should contain 6 - 12 months of spending money (which includes everything: your mortgage, payments on other loans, food, transportation, taxes, gifts, and anything else you would conceivably spend on).

Insurance

Focus on necessary coverage.
As a young person, you likely don’t need to buy a bunch of insurance options right now, but you can certainly set up a savings goal so that when you do need them, you’ll have money to use.
Insurance is almost never a good investment. Use it as protection from downside risk—like for fires or accidental death when you have a family—but don’t think of it as a growth investment.

Children's education

Whether or not you have children yet, your first goal should be to excel financially for yourself.
First, get out of debt and save for your own retirement. Then you can worry about your kids.

The best way to prepare yourself is to talk to successful people who are somewhat older than you and have their act together. Their advice can be invaluable—and can give you an edge on planning for the next decade.

A Rich Life

Sat, 23 Aug 2025 00:00:00 +0000

Living a Rich Life happens outside the spreadsheet. After you have automated your money, now it just takes time, patience, and feeding the system.

The next layer of a Rich Life isn’t about recalculating your returns from compound interest. It’s about designing the lifestyle you want. And you should figure out what does being rich or rich life means to you.

Love and Money

After you know the basics of personal finance, it’s easy to live in the spreadsheet. What’s harder is knowing how to navigate money with the people around you: your friends, your parents, your partner.

Ignore the noise of money advice

Once you master personal finance basics, you’ll notice a lot of noise around money.

Noise from people around you
- Family’s “hot stock tips.”
- Friends mocking your approach or feeling insecure.
- Others reacting oddly because your financial progress disrupts old patterns.
Noise from the internet
- Advanced-sounding but often irrelevant tactics (tax-loss harvesting, crypto hype, etc.).
- Overwhelming opinions that make you feel you’re not doing enough.

Don’t take negative comments personally; just smile and move on.

Ignore the noise. Remember: investing shouldn’t be dramatic or even fun—it should be methodical, calm, and as fun as watching grass grow.

Log in to your investment account no more than once a month—that’s it. If you’ve set up your asset allocation and are consistently funding it, stick to your guns.
There are no tricks or hacks to long-term personal finance. Live your Rich Life outside the spreadsheet doing things that matter, instead of “living in the spreadsheet”.

How to help parents who are in debt

This is one of the most difficult situations you may face in your financial life: r**

Parents rarely admit financial problems. They might drop little clues here and there, saying things like “Money is tight right now.”
Discussing money with them is hard but necessary!

Approach:

Start conversations gently
Focus on asking, listening, and assessing if they want help.
Questions to ask
- Where did they learn about money? What did their parents teach them?
- If they could wave a magic wand and be in any financial situation, what would it be? (Let them dream here. If they say “win the lottery,” encourage them. What would that mean? What would they do? Then get more realistic: “Okay, let’s assume you can’t win the lottery. What would your ideal situation look like five years from now?” Most parents have pragmatic dreams.)
- How much do they make per month? How much do they spend?
- What percentage of their income are they saving? (Almost nobody knows this. Be reassuring, not judgmental.)
- Do they pay fees for their bank accounts and credit cards?
- What’s their average monthly credit card balance? Out of curiosity (use that phrase), why isn’t it zero? How could they get it there?
- Do they have any investments? If so, how did they choose them?
- Do they own a mutual fund or funds? How much are they paying in fees?
- Are they maximizing their 401(k)s, at least contributing as much as their company matches?
- What about other retirement vehicles, like a Roth IRA? Do they have one?
Respect their decision even if they don’t want help.
If they decide to receive your help
- Take the 85 Percent Solution approach and figure out one or two major actions they could take to improve their financial situation.
- Help them by breaking down overwhelming finance topics into small, manageable steps.

Should you tell your parents and friends how much money you have?

Sharing exact financial numbers with parents/friends may not be necessary, because parents usually care more about security, happiness, and family values than bank account balances.
You can communicate financial stability through:
- Expressing gratitude for what they taught you.
- Reassuring them you’re doing well.
- Spending quality time with them.
Be aware: financial success can change relationships.
Ask yourself why you want to share numbers:
- If it’s for reassurance, you can do it without figures.
- If it’s for showing off, reconsider!!!
Numbers without context can come off as arrogant rather than comforting.

Talking money with your significant other

Talking money with your partner becomes essential when the relationship gets serious (e.g., moving in, marriage, joint finances).
Goal: To agree that money is important to both of you and that you want to work together to help each other with finances
Attitude > tactics
- Stay calm and nonjudmental
- Ask open-ended questions.
  Sample questions
  - “I’ve been thinking about my personal finances a lot and I’d love to get on the same page with you. Can we talk about it?”
  - “How do you think about money? Like some people like to spend more on rent and other people like to save a certain percentage. I think I overspend on eating out. Speaking broadly, what are your general thoughts about money?” (Notice that I started off broad, then offered examples, then offered a confession about an area I’m not great in. Start by being vulnerable with your own finances.)
  - “If you could wave a magic wand, what would you be doing with your money? For me, I know I should be investing in my 401(k), but to tell you the truth, I haven’t filled out the paperwork yet.” (Another admission—only if true, of course.)
  - “How should we use our money together? Have you thought about whether you’d want to change anything?” (This is where you can discuss how you share expenses, if you’re saving toward joint goals, or what fun things you want to use your money for.)

The big meeting

This is the big day when you both lay bare all your finances and work through them together.

Preparation (4 - 5 hours)

A list of your accounts and the amount in each
A list of debts and what the interest rates are
Monthly expenses (see table for details on how to determine this)
Your total income
Any money that is owed to you
Your short-term and long-term financial goals

Meeting

1. Start by talking about goals (from a financial perspective)

What do you want?
What kind of lifestyle do you expect?
What about vacations in the next year?
Does either of you need to support your parents?

2. Review monthly spending

Keep an open mind. Show yours first.

3. Talk about your attitudes toward money

How do you treat money?
Do you spend more than you make? Why?
How did your parents talk about money? How did they manage it?

Objectives

To normalize talking about money
Build a “baseline” of money management, making sure you’re each saving and investing and paying off debt (if applicable).

Keep it upbeat:

Set a few savings goals (short- & long-term).
Use automatic transfers for progress.
Avoid overwhelming big purchases at this stage.
Shared goals strengthen commitment and teamwork.

When one person earns more than the other

How to handle money on a daily basis — especially if one of you has a higher income than the other.

Option 1: 50/50 split — simple but may burden the lower earner.
Option 2: Split proportionally based on income (fairer approach, e.g., Suze Orman’s method).
Other options:
- Contribute proportionally to a joint household account.
- Divide expenses by category (one pays rent, the other groceries, etc.).

Discuss it, come to an agreement that feels fair. Then check in every six to twelve months to make sure your agreement is still working for both of you.

What to do if your partner spends money irresponsibly

Directly criticizing a partner’s spending usually backfires - People absolutely hate to be judged for their spending,
Shift focus from the person to the plan:
- Don’t argue about “too many shoes” → instead, agree on saving goals (e.g., vacation, car, holiday gifts).
Create a shared savings plan:
- Calculate goals, agree on contribution amounts.
- In future arguments, point to the plan, not the partner.
Be flexible:
- You and your partner will almost certainly have different approaches to reaching your savings and investing goals
- Different priorities are okay (e.g., one values organic food, the other travel).
- As long as the shared goals are met, individual spending choices can vary.

Wedding

Cutting guest count doesn’t reduce costs as much as expected: 50% fewer guests = only ~25% lower costs.
Major savings come from fixed costs. -> Strategies:
- Negotiate venue and catering.
- Look for cheaper alternatives in fixed costs (e.g., photographer, invitations).

Should you sign a prenup?

Who needs a prenup?
- Most people don’t (≈99%).
- Useful if one partner has much more assets/debt, owns a business, or expects inheritance.
Purpose
- Not about “planning divorce,” but about protecting premarital assets and debts.
- Creates clarity and prevents future disputes.
Hard to find reliable prenup templates online—each is custom and tied to significant financial stakes.
Communication
- Don’t let lawyers drive the process—partners must talk directly first.
- Normalize money conversations early, so discussing prenups isn’t awkward.

Work and Money

Negotiating your salary at a new job is the fastest legal way to make money. Your starting salary is even more important than you think, because it sets the bar for future raises and, in all likelihood, your starting salary at future jobs.

Negotiating your salary

The single best time to negotiate salary is when you’re starting a new job.
Negotiating is 90% about mindset and 10% about tactics.
- Most people don’t believe they should negotiate. They’re afraid of being “rude” or of having the employer rescind their offer. That almost never happens.
- If you negotiate, you explicitly communicate that you value yourself more highly than the average employee.

The basics of negotiating

Remember that nobody cares about you

When you’re negotiating, remember this: When it comes to you, your manager cares about two things—how you’re going to make him or her look better, and how you’re going to help the company do well.

Negotiating tactic:

Always frame your negotiation requests in a way that shows how the company will benefit.
- Don’t focus on the amount you’ll cost the company. Instead, illustrate how much value you can provide the company.
- Tie your work to the company’s strategic goals—and show the boss how you’ll make her look good.
- Highlight the ways you’ll make your boss’s life easier by being the go-to person she can hand anything to.
- Highlight the ways you’ll help your company hit its goals. Remind that your company will make much more off your work than they pay you
Use the key phrase: “Let’s find a fair number that works for both of us.”

Have another job offer—and use it.

When you have another job offer, your potential employers will have a newfound respect for your skills. People like others who are in demand.

Negotiating tactic:

Interview with multiple companies at once.
Be sure to let each company know when you get another job offer, but don’t reveal the amount of the exact offer

Come prepared

Don’t just pick a salary out of thin air!
Do research to get a median amount for the position (e.g., visit salary.com and pay scale.com)
Ask current or former employees for the real salary range.
Bring a plan of how you’ll hit your goals to the negotiating session.

Negotiating tactic:

Do the real work before the negotiation room
- Research
- Talk to contacts
- Define your target, realistic, and minimum acceptable salary.
Don’t just ask for money. Literally bring a strategic plan of what you want to do in the position and present it to your hiring manager.
Negotiate based on value you’ll bring, not just salary.

Have a toolbox of negotiating tricks up your sleeve

Think about your strong points and figure out ways you might be able to bring them to the hiring manager’s attention.

Negotiating tactic:

Have a repertoire of your accomplishments and aptitudes at your fingertips that you can include in your responses to commonly asked questions. These should include the following:

Stories about successes you’ve had at previous jobs that illustrate your key strengths
Questions to ask the negotiator if the conversation gets off track

Negotiate for more than money

Don’t forget to discuss whether or not the company offers a bonus, stock options, flexible commuting, or further education. You can also negotiate vacation and even job title.

Negotiating tactic:

Your line is “Let’s talk about total comp,” which refers to your total compensation.
Use the levers strategically: give up something less important to gain more of what matters.

Be cooperative, not adversarial.

It’s not about you demanding more or them screwing you for less. Negotiation is about finding a cooperative solution to creating a fair package that will work for both of you.
You should be confident, not cocky, and eager to find a deal that benefits you both.

Negotiating tactic:

The phrase to use here is “We’re pretty close . . . Now let’s see how we can make this work.”

Smile

This is one of the most effective techniques in negotiation. It’s a disarming technique to break up the tension and demonstrates that you’re a real person.

Negotiating tactic:

Smile!

Practice negotiating with multiple friends

If you practice out loud, you’ll be amazed at how fast you improve.

Negotiating tactic:

Call over your toughest, most grizzled friend and have them grill you.
Don’t laugh during the role play—treat it like it’s a real negotiation.
Videotape it if possible.

If it sounds ridiculous, think about the benefits of not only the additional money, but the respect you’ll get from your boss for a polished, professional negotiation.

If it doesn’t work, save face.

If negotiation fails, save face—either walk away or accept a lower offer temporarily.

If you accept, secure a written agreement to renegotiate after a set period

Negotiating tactic:

Your line here is “I understand you can’t offer me what I’m looking for right now. But let’s assume I do an excellent job over the next six months. Assuming my performance is just extraordinary, I’d like to talk about renegotiating then. I think that’s fair, right?” (Get the hiring manager to agree.) “Great. Let’s put that in writing and we’ll be good to go.”

Don’ts in a negotiation

Don't tell them your current salary.

Never reveal your current salary—companies use it to anchor their offer slightly above your existing pay.
If asked, respond: “I’m sure we can find a number that’s fair for both of us.”
If pressed, push back: “I’m not comfortable revealing my salary, so let’s move on. What else can I answer for you?” (Typically first-line recruiters will ask for these. If they won’t budge, ask to speak to the hiring manager.)

Don't make the first offer.

That’s their job. If they ask you to suggest a number, smile and say, “Now come on, that’s your job. What’s a fair number that we can both work from?”

If you've got another offer from a company that's generaly regarded to be mediocre, don't reveal the company's name.

When asked for the name, just say something general but true
If you say the name of the mediocre company, the negotiator is going to know that he’s got you. He will
- Undermine that company’s reputation (often with valid points).
- Shift focus away from salary negotiation to “why their company is better.”
That will weaken your leverage in the negotiation.

Don't ask 'yes' or 'no' questions.

Instead of “You offered me fifty thousand dollars. Can you do fifty-five thousand?” say, “Fifty thousand dollars is a great number to work from. We’re in the same ballpark, but how can we get to fifty- five thousand?”

Never lie.

You should always be truthful in negotiations.

Don’t say you have another offer when you don’t.
Don’t inflate your current salary.
Don’t promise things you can’t deliver.

How to Save Thousands on Big-ticket Items

Big-ticket items like car and house, however, are where people most commonly make mistakes. They don’t comparison shop, they overpay because a salesperson cons them into spending too much, and worst of all, they then think they got a good deal.

Buying a car

From a financial perspective, the most important factor is how long you keep the car before you sell it.

You could get the best deal in the world, but if you sell the car after four years, you’ve lost money. 🤑
Instead, understand how much you can afford, pick a reliable car, maintain it well, and drive it for as long as humanly possible.

Steps

1. Budgeting

Ask yourself how buying a car fits into your spending and saving priorities
Look at your Conscious Spending Plan and decide what you’re willing to allocate toward your car each month
Knowing that there will be other expenses (insurance, gas, maintenance, etc.) involved in the total expense of having a car, you want to decide how much you want to spend on the car itself.
- Example: With a $500/month total budget → only $200–250 can go to the car payment → you can afford about a $12,000 car over 5 years.

2. Pick a car

Pick a good car - you’re not just buying the car for today— you’re buying it for the next ten-plus years.
Any car you evaluate must fit within your budget. This will eliminate most cars automatically. Do not even look at cars you can’t afford.
The car must be a good car
- Reliability: Avoid breakdowns; worth paying extra.
- A car you love: Since you’ll drive it for years, make sure you enjoy it.
- Resale value
- Insurance costs: Small monthly differences add up over time.
- Fuel efficiency: Critical for frequent drivers; affects long-term costs.
- Down payment: Lower for used cars; $0 down on new cars means higher interest.
- Interest rate: Depends on your credit; shop around and beware of dealership tricks.

Dos and Don’ts for buying a car

✅ Do
- Calculate Total Cost of Ownership (TCO): Factor in not only car price and loan interest but also maintenance, fuel, insurance, and resale value to avoid financial surprises.
- Buy for long-term use (10+ years): Prioritize durability and value over looks
❌ Don’t
- Leasing
  - Leasing nearly always benefits the dealer, not you.
  - The two exceptions are people who want the newest car and are willing to pay a lot for it, and the occasional business owner who leases a car for tax benefits.
  - Instead, you should buy a car and hold it for the long term.
- Sell your car in fewer than 7 years
  - The real savings come once you’ve paid off your car loan and driven it for as long as possible.
  - It’s much cheaper to maintain your car well and drive it into the ground.
- Assume you have to buy a used car
  - Run the numbers. Over the long term, a new car may end up saving you money if you pick the right new car, pay the right price, and drive it for a long time.
- Stretch your budget for a car
  - Set a realistic budget for your car and don’t go over it. Be honest with yourself.

3. Negotiate

Negotiate mercilessly with dealers
- If you’re not a hardball negotiator, take someone with you who is.
Timing matters: Best deals come at year-end when dealers are desperate to hit quotas.
Use information services (e.g., Fighting Chance) to arm yourself before you negotiate.
Create competition (“bidding war”) among dealers to get the lowest price for yourself.
Save time: Handle most negotiations remotely, only visit the winning dealer to finalize.

4. Maintain your car

Think long term: Take your car’s maintenance as seriously as your retirement savings: As soon as you buy your car, enter the major maintenance checkpoints into your calendar so you remember them.
Plan ahead: Log major service milestones based on manufacturer guidance and mileage.
Routine basics: Regular oil changes, tire pressure checks, and keeping the car clean.
Keep records: Maintain a service log with receipts and notes for higher resale value.

Buying a house

Buying a house is the most complicated and significant purchase you’ll make, so it pays to understand everything about it beforehand. And you should understand that houses are primarily for living in, not for making huge cash gains.

Who should buy a house?

Affordability first: Ensure you can pay at least 20% down and cover all monthly costs (mortgage, insurance, taxes, maintenance).
- Bottom line: If you don’t have enough money to make a down payment and cover your total monthly costs, you need to set up a savings goal and defer buying until you’ve proven that you can hit your goal consistently, month after month.
Consider total costs: Homeownership costs are 40-50% higher than rent once taxes, insurance, and repairs are included.
Buy within budget: Start with a “starter house” rather than your dream house; trade-offs are necessary.
Plan for long-term: Stay at least 10 years to offset high transaction and moving costs.

Buying a house changes your lifestyle forever.

No matter what, you have to make your monthly payment every month—or you’ll lose your house and watch your credit tank. -> This affects the kinds of jobs you can take and your level of risk tolerance.
It means you’ll need to save for a six-month emergency plan in case you lose your job and can’t pay your mortgage.

The truth: Real estate is a POOR investment for most individual investors

Real estate is a purchase first—a very expensive one—and an investment second.
If you’re thinking of your primary residence as an investment, real estate provides mediocre returns at best.
- High risk and poor diversification: Concentrating wealth in one property is risky
- Hidden costs reduce gains: Taxes, maintenance, interest, and opportunity cost matter! (We fool ourselves into thinking we’re making money when we’re simply not. 🤪) Over time, long-term stock market investments beat real estate returns.

Practical advice:

Treat buying a house as a purchase, not an investment;
Do homework, negotiate,
Hold long-term, and
Know your alternatives: e.g., consider renting as a viable alternative

Buying vs. renting

First, get rid of the idea that renters are “throwing away money” because they’re not building equity.
Buying has hidden costs beyond the sticker price.
Homeownership costs include mortgage interest, taxes, maintenance, renovations, and transaction fees, while renting frees up cash that can be invested for potentially higher returns.
Best choice depends on individual situation: city, income, long-term plans

Becoming a homeowner: Tips for buying your new house

No “secrets” to buying a house, but many underestimate true costs
Stick to tried-and-true rules: 20% down payment + 30-year fixed mortgage, total monthly payment ≤ 30% of gross income
- If you can’t do that, wait until you’ve saved more.
- It’s okay to stretch a little, but don’t stretch beyond what you can actually pay. If you make a poor financial decision up front, you’ll end up struggling—and it can compound and become a bigger problem throughout the life of your loan.
Good decisions give control over expenses and free up money for investments, vacations, and lifestyle choices

Things you’ll need to do to make a sound decision.

Check your credit score.

The higher your score, the better the interest rate on your mortgage will be. Good credit translates into not only a lower total cost, but lower monthly payments.
If your credit score is low, it might be a better decision to delay buying until you can improve your score.

Save as much money as possible for a down payment.

Traditionally, you have to put 20 percent down.
If you can’t save enough to put 20 percent down, you’ll have to get something called Private Mortgage Insurance (PMI), which serves as insurance against your defaulting on your monthly payments.
- PMI typically costs between 0.5 percent to 1 percent of the mortgage, plus an annual charge.
- The more you put down, the less PMI you’ll have to pay.
If you haven’t been able to save at least 10 percent to put down, stop thinking about buying a house.

Calculate the total amount of buying a new house.

Because the numbers are so big when purchasing a house, even small surprises will end up costing you a ton of money.
- The closing costs —including all administrative fees and expenses—are usually between 2 and 5 percent of the house price.
Ideally the total price shouldn’t be much more than three times your gross annual income. (It’s okay to stretch here a little if you don’t have any debt.)
Don’t forget to factor in insurance, taxes, maintenance, and renovations.

Get the most conservative, boring loan possible.

Choose a 30-year fixed-rate mortgage: safe, predictable, and flexible.
You can take the full thirty years to repay it or pay extra toward your loan and pay it off faster if you want. But you probably shouldn’t.
- Consumer Reports study: investing beat prepayment 100% of the time over 20 years.

Don’t forget to check for perks.

The government wants to make it easy for first-time home buyers to purchase a house. Many state and local governments offer benefits for first-time home buyers.
Don’t forget to check with any associations you belong to - you may get access to special lower mortgage rates.

Use online services to comparison shop.

Do research online, e.g.:
- Use Zillow, Redfin, Trulia to research homes
- Compare home insurance via Insure.com
Don’t forget to call your auto insurance company and ask them for a discounted rate if you give them your homeowner’s insurance business.

Myths about owning a home

Prices in real estate always go up” (or “the value of a house doubles every ten years”).

Not true. Net house prices haven’t increased when you factor in inflation, taxes, and other homeowner fees. They appear to be higher because the sticker price is higher, but you have to dig beneath the surface.

You can use leverage to increase your money.

Homeowners will often point to leverage as the key benefit of real estate. In other words, you can put $20,000 down for a $100,000 house, and if the house climbs to $120,000, you’ve effectively doubled your money. Unfortunately, leverage can also work against you if the price goes down. If your house declines by 10 percent, you don’t just lose 10 percent of your equity—it’s more like 20 percent once you factor in the 6 percent Realtor’s fees, the closing costs, new furniture, and other expenses.

I can deduct my mortgage interest from my taxes and save a bunch of money.

Be very careful here. Tax savings are great, but people forget that they’re saving money they ordinarily would never have spent. That’s because the amount you pay out owning a house is much higher than you would for any rental when you include maintenance, renovations, and higher insurance costs, to name a few. Furthermore, 2018 laws reduced the benefit of these tax deductions.

How to tackle future large purchases?

Acknowledge that you’re probably not being realistic about how much things will cost—then force yourself to be.

Having a head-in-the-sand approach is the worst thing you can do.
Bite the bullet, sit down, and make a realistic plan for how much your big purchases will cost you in the next ten years.

Set up an automatic savings plan.

Automatic savings plan is easier than budgeting.
Save automatically → build funds for big life events → avoid financial stress later.

You can’t have the best of everything, so use the P word.

Priorities matter: You can’t have the best of everything. -> Trade-offs are necessary
Write costs down: Helps you see trade-offs clearly and stay on budget.
Without planning, people ignore trade-offs → risk massive debt.

Giving Back: Elevating Your Goals Beyond the Day to Day

Move beyond day-to-day money issues: Automate finances to manage spending and saving without stress.
Set higher-level goals: Use money to pursue passions and long-term dreams, not just pay bills.
Give back to community: You don’t need to be rich to give back.
- Volunteering or small donations make an impact
- Time can be more valuable than money

Books

Thu, 21 Aug 2025 00:00:00 +0000