Tag: Frugality
Top 3 Do’s and Don’ts for Building Wealth
Jason 0 Comments Retire Wealthy
[Music] welcome in coming up on today's program top three do's and don'ts for Building Wealth I hear folks say I'm good at the don'ts of Building Wealth or the dues don't they require money don't they wealth how to get it how to keep it and how to avoid the trip wires that could blow it when it comes to wealth what are you experiencing with the do's and don'ts we've had many viewers ask about that let us know what you think in the comments section you're watching what's next with money a program that holds a promise of second chances for growth and financial empowerment with wealth three critical principles and advice saving for wealth how to keep wealth what not to do when you're on your way to wealth but also when you are wealthy we're going to reference a lot of great Insight from the psychology of money book by Morgan Hansel and have a link to it in the comments section now we're talking about that top three do's and don'ts for Building Wealth here's number one you saving your way to wealth this is how to get it Building Wealth has little to do with your income or investment returns but it's got a lot to do with your saving rate Morgan talks about that savings rate wealth is the accumulated leftovers after you spend what you take in now this is actually pretty easy to control if you latch onto this idea learning to be happy with less money creates a gap between what you have and what you want it's kind of like that Gap created if you've got a growing paycheck your savings goes further and can get bigger as that income Rises but savings without a spending goal attached gives you options and flexibility now folks I want to actually repeat this this is the core idea of wealth building savings without a spending goal attached gives you options and flexibility this is the concept of saving just to save but you get time to think and set your actions and intentions on your own terms a great writer and business advisor Dan Sullivan who wrote the Strategic coach calls this a walk away fund and we've talked about this in some of our other videos this is if you've got enough savings you've had it with your job or there's something unethical happening there you can walk away and do okay and reset your career path by Saving in this manner your financial Independence grows and folks I have personally lived this flexibility gives you the ability to wait for good opportunities in your career small business and especially your Investments the hardest Financial skill is getting the goal posts to stop moving according to Morgan it gets to the classic case of more versus enough and a quick example the real estate business my wife and I started we could have kept going to develop and acquire more properties but at some point we stopped we met our goals and we paid our debts early and completely all out of rants with no outside partners yet we're still actively investing in other forms of assets and Equity markets but I had to stop and think who or what was I trying to impress if I kept making the real estate business bigger would it be other people who don't know me or don't care you know we reached a Target that was very good and it's still growing in value and wealth we did not need to move the goal posts and we didn't generating wealth is often linked to generating Envy they seem like they're on Parallel slopes on a graph in other words it's a form of social comparison and we're talking about the top three do's and don'ts for building well here's number two getting wealthy and staying wealthy this is how to keep it bottom line strive to consistently not screw up we have to hold in our minds and our attitude some combination of frugality and paranoia now this is a very unique tension but it's very profitable with frugality we live below our means with paranoia we're questioning am I doing the right thing and am I doing that right thing well but by keeping on learning and getting professional advice we can do this so getting money is one thing keeping it is another getting money requires taking risks being optimistic putting yourself out there keeping money is kind of the opposite of taking risks it requires humility back to that frugality and it requires a little bit of fear paranoia the idea that what you have made and achieved can be taken away and that some of your financial investing success and I would add real estate success you've got to admit some of this is attributable to luck the time you're in the markets or you're buying them I could list probably five examples of luck during real estate and other types of investing bottom line here past success can't be relied upon to be repeated indefinitely external events markets family needs change and we change the ability to stick around for a long time without wiping out or being forced to give up staying in the game not capitulating is financial endurance it's a key to Building Wealth powering through recessions and downturns smartly we have many videos that help you do this on our what's next with money Channel swinging for the fences and investing for home runs or grand slams can put your portfolio at risk so strive with investing to hit singles and doubles and obviously don't put all your eggs in one basket a friend of mine years ago said if you had an investment if it doubles sell half and this is really about stocks if it triples sell it all it's pretty good advice I don't always follow that some to my regret we have another set of videos they're actually too called investing in what you know where I talk about letting your winners run compounding only works if you can give assets years and years to grow Warren Buffett we've got several of his books here hasn't always been one of the richest men in the world as of this taping this guy is age 92.
Warren Buffett didn't even become a billionaire until he was 50 years old in fact this blew my mind 99 of Warren Buffett's net worth was earned after that 50th birthday I have seen this pattern and dimension of net worth growth first hand and we've got a fantastic video called net worth equals net wealth so if you're getting value from this video be sure to hit that subscribe button and the like button and share it with folks it's free and non-commercial we're talking about the top three do's and don'ts for Building Wealth and here is number three wealth what not to do this is avoiding the tripwires Warren Buffett's what not to-do list is really interesting he's not loaded with debt no he didn't panic and sell during the 15 recessions he's lived through as an active investor he does not jump into excessive Trading he's generally very tax sensitive and he pays for good advice to help you he's kept a sterling business reputation with his ethics he's not locked into one strategy world view or trend he did not use other people's money but he does use Insurance floats and we explained that in some of our videos how Berkshire Hathaway is structured he did not quit he kept going he is still going and I take great excitement from this as an investor small business owner and media influencer I can keep going you can keep going Warren Buffett and his partner Charlie Munger have stayed wealthy they had an edge and survived to stay wealthy requires that margin of safety he talks about so much reserves and to not put all of your assets at Great risk think about this concept and it comes from Morgan's psychology of money book that having cash buckets to prevent you from selling during a bear Market or a downturn if you need to pull money for your household or in retirement you take it out of the cash bucket you don't sell stocks or mutual funds when when they're under pressure or low and you might think wait a minute I'm only earning an interest rate of one or two percent on that cash actually you have avoided a loser return you've avoided much more negativity by having not to have to sell that stock at a low price you didn't sell equities at low prices so that return on that cash is higher than one or two percent now what about compounding compounding means good returns uninterrupted over long periods of time and that's what Berkshire Hathaway does now returns won't be up every year only Bernie Madoff claimed that and you know how that turned out so be sure to hit that subscribe and like button and don't forget to share new episodes of what's next with money or posted on Thursdays I'm Bretton Eiser looking to see you next time on what's next with money [Music] thank you
Read MoreCan You Really Retire in Your 30s?
Jason 0 Comments Career after Retirement Retire Wealthy
When the Social Security Act was passed in
1935, retirement officially began at 65. And the life expectancy at the time was 58. So from the very outset, “retirement”
wasn’t exactly considered a universal experience. But over the last century as life expectancies
have climbed, the concept of retirement has become synonymous with the final chapter in
a person’s life. Then, the book “Your Money or Your Life”
came out in the 90’s and introduced a radical concept The author, Vicki Robin, proposed that by
living with extreme frugality for a few years, younger people could essentially become “retired”
long before old age. She claimed to have achieved financial independence…
in her 20’s! Today, the phenomenon of financial independence
at a young age goes by the acronym “FIRE”. It stands for “Financial Independence; Retire
Early”. And it’s no fringe movement – FIRE has been
covered by the New York Times, Market Watch, and Forbes.
And it’s got more and more millenials wondering
“could I quit my day-job too?” This isn’t about dropping out of society
or living in a cave… necessarily. FIRE practitioners work extremely hard while
living far below their means for years to amass enough savings to leave the workforce. And it doesn’t mean you’ll spend your
newfound freedom just hanging out in bowling alleys like Jeff Lebowski. Many people who manage to retire early continue
to work–but only on projects they’re passionate about. But the question remains… is it possible
to achieve through savings alone? Peter Adeney, aka “Mr. Money Mustache”,
might be considered the modern FIRE movement’s founding father. Adeney was working as a software engineer
while living dramatically below his means during his 20’s. He took his savings and paid off debt and
invested it it in stock-index funds. By 2005 and in his early-30’s, Adeney and
his wife had amassed around $600,000 and a paid-for home. He calculated he had enough to leave the work-force-permanently.
Adeney suggests that Early-Retirement is possible
through three fundamental concepts: Frugality, Investing, and the “4% Rule” of withdrawals. Let’s face it – unless you luck into a large
windfall of cash, you’ll have to save up a serious nest egg to retire. And the simplest way to do that is to slash
your lifestyle. Normally, financial advisors suggest a 10-15%
savings rate to retire at a normal age of 65 or so. Want to retire ahead of schedule? Then you’ll have to level that up. Most early-retirees adopt a 50% to 75% savings
rate… or more! It’s not uncommon for them to cut restaurants
& bars, buy cheap cars, bike to work, make do with a smaller house, and avoid luxuries
like gyms, fancy vacations, and expensive hobbies. Simply stashing cash into a bank account is
a good start. But the FIRE proponents rely on the power
of the markets to boost their savings rates. Assuming you saved your money into a general
stock-market index fund, you might expect 7-10% rate of return, based on historical
averages.
Any experienced investor will tell you that
year-to-year returns will swing wildly, maybe even crash! So that’s where the third rule comes in… A 1998 study by Trinity University concluded
that a 4% annual withdrawal rate of your money in retirement should allow you to never out-live
your money – even in a bad economy. This means that even with the dramatic ups
and downs of the stock and bond market, as long as your yearly expenses stay below 4%
of your total savings, you should be able to live off them for… well, theoretically,
forever. Put another way: you take your annual spending
needs, then multiply it by 25. That’s the amount you need to become financially
independent. By now I imagine you’re wondering what it
would take if YOU wanted to to retire early. I think it’s time to… RUN THE NUMBERS! Let’s imagine you have a household income
of $85,000, but you live way below your means and only need $35,000/yr to be happy.
According to our rule of 4%, you’ll need
$875,000 in the bank in order to be financially independent. Through extreme thrift and aggressive cost-cutting,
you’re able to save $50,000/yr, which comes to 59% of your annual income. At that rate of savings, and assuming your
stock-index funds got an average return of 7%, you’ll have hit your goal in… 12 years. A good income, frugal living, and compound
interest are a powerful wealth-building combination. You might be wondering “What if I don’t
make a ton of money? Is this realistic?” A common critique of the Early Retirement
movement is that Adeney and other leaders of the movement had high-paying jobs in medicine
or engineering. Making big bucks can certainly speed up the
process. But it’s not a requirement. Take Jillian Johnsrud. She began working towards financial independence
at age 19. Her husband served in the armed forces and
she worked in customer service and sales. Over the next 13 years they made an average
household income of $60,000, with no year over six-figures. And by 32 Jillian had saved enough to be completely
financially independent. All while raising adopted & biological children
and climbing out of $52,000 of debt. She uses her freed-up time to travel the country,
write, and raise her children.
Today she does some work as a writer and coach,
but it’s on her terms. If you think that “early retirement” is
all about lounging around and avoiding work, you’ve missed the point. Instead, it’s about taking an active step
to replace a job you hate with work you love… and often finances are the biggest hurdle. As Adeney says about the FIRE phenomenon:
“Early retirement means quitting any job you wouldn’t do for free – but then
continuing right ahead with work in something that works for you, even when you don’t
need the money.” And if you’ve already got a fulfilling job
you love– congratulations, you already have the benefits of early retirement without having
to save up for it! So whether or not you want to sprint toward
early retirement, the mindset of reducing your lifestyle, living simpler, and building
a more rewarding work-life is something we should all be aiming for. And that’s our Two Cents! If you were to retire today, what would you do with your newfound freedom? Tell us about it in the comments.
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