I vividly remember coming home from school and seeing envelopes scattered around the table.
Anytime I saw that, it meant that I would be avoiding the house for the next three days. Bills were due and shit was about to go down. I would grab my skateboard and disappear.
My parents taught me everything. They are strong and determined and the reason I am the man I am today. The problem was that my parents didn’t know much about how money works. It wasn’t their fault, no one taught them how to do it either.
Luckily, the Universe put best friend and partner Bryan into my life. He comes from a family that understands money and he gave me the confidence boost to learn about money without being intimidated.
It has been one of the best decisions I have ever made. I remember hearing about stocks and bonds and mutual funds and feeling so overwhelmed.
I find that most people feel this way about money. It makes us feel uncomfortable so we avoid it. Starting today, we are going to work on getting past these hurdles.
Money is important. Stop acting like “money doesn’t mean anything to you.” Whether you want to be rich or not, you still need to accept that money plays a huge role is your quality of life. So don’t undermine it by pretending like it doesn’t bother you. Being poor bothers everyone, I don’t care who you are. Having enough money to live is way better than not. So take this shit seriously and let’s build some real improvements in our behavior.
Over time we will break down how to properly invest, save, buy and use money to enjoy your life. For now, let’s just address the fact that there is a problem and point out ways that you’re being foolish with your finances.
This is going to be fun.
Mistake # 1 – You Still Don’t Have an Investment Portfolio
I started investing when I was 27. I wish so badly that I started when I was 14.
Most of my friends are in their late 20’s or 30’s, and most of my friends still don’t have an investment account.
You need to understand that investing does not mean gambling. Idiots who invest in “hot stocks” and try to time the market make investing seem like a volatile mine field.
Look, there is risk to investing. Of course there is, but there is more risk in not investing. Saving money or saving up a few hundred bucks a month to buy a house (without also starting an investment account) is stupid as fuck. Your money is literally losing value every day due to inflation. That’s just the way it works.
You need to get comfortable with using your money to make more money and there are many options that allow you to safely invest your money.
So listen up and listen good.
I don’t care how old you are. If you don’t already have an investment account, then set one up asap. Here are your basic options…
A 401k – if your employer offers a 401k program, then speak to your boss and find out how to set one up. Don’t do it tomorrow, don’t do it later this week. Get your ass up and walk over and get that shit done right this second.
A ROTH IRA or a SEP IRA – There are some important differences in how these accounts are taxed. We can talk about that later but if your employer does not have a 401k program you probably want a ROTH IRA.
I am self employed so it made more sense for me to open a SEP IRA. You can find a financial institution to help you with this with a simple Google search. I use Vanguard and highly recommend them, especially because you can call them any time and talk to them about questions or ideas or whatever.
Also, avoid Wells Fargo at all costs because they are worthless.
Please guys, please please please do this. Just get started by setting up your account. We can work on the details later but this first step is an important mental and psychological victory.
Mistake #2 – You Have a Lot of Bills and You Buy Dumb Shit
I am always happy for people when they start making more money.
I love it when my friends get raises and promotions. I feel that if you want to succeed, you should root on other people to succeed, but that’s besides the point.
The point is that 99% of the time I see someone come into a position where they make more money, I instantly see them spending more money.
The American Dream has tricked us. Status symbols and ideas of happiness have us convinced that nice clothes and new watches are the ticket to feeling good about yourself.
Look, I own a nice car and I like to spend money on good meals. There is nothing wrong with spending your money on things that you enjoy. I am simply suggesting that you not shoot yourself in the leg by being stupid and impulsive.
I read a book a few years ago called #Girlboss by Sofia Amorusa. She is the founder of NastyGal and a pretty bad ass woman. In the book there was a quote about spending money. She said “would you rather that $900 be on your feet or in your bank account?”
The answer is different for everyone, but I highly highly suggest you do the math before you start buying shit.
If you get a $5000 a year raise, but you increase your monthly expenses by $200 a month (which is entirely plausible) then you only pocket an extra $216 a month. After taxes its closer to $150. So now your extra $5000 turned into $1800. Then consider the fact that you’re not investing that money, you’re right back where you started. Often times, people are worse off than before.
So you have nicer clothes and you have a higher car payment but you can’t actually travel or do shit with your life.
So what should you do instead?
DON’T SPEND MONEY ON STUPID SHIT JUST BECAUSE YOU HAVE MONEY TO SPEND ON STUPID SHIT!!!
Man this one really burns me up. It is the reason that the guy driving the new c-class Mercedes is actually $200,000 in debt. Don’t be that guy.
Bills are the enemy of prosperity so don’t get caught up in nonsense.
I always tell myself to “live below my means.” My small house works just fine. I have no problem buying jeans at Target and tee shirts from Next Level. I fly Southwest. I buy my groceries and I turn off the sink when I brush my teeth.
There is a book called “I will teach you to be rich” by Ramit Sethi. He designed an entire process in which you can automate your spending. This creates a system where you have a set amount of money each month to spend on whatever the hell you want. I recommend his approach because it allows you to live your life, spend money on things you enjoy and simultaneously plan for the future.
We will touch on that more in time.
Also, here is a book review I did on the book.
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Mistake #3 – You Pay Minimum Payments on Your Credit Card
OMG. Seriously, what is wrong with you?
Let’s just do the numbers real quick.
Let’s assume that you bought your first home. You are very excited about it. You saved up and you and your fiance plan on raising a family. It’s beautiful! Congratulations!
What happens next? Well you have to buy furniture of course. You shop around and you see an entire furniture set for the living room, dining room and even some kitchen items. It’s $10,000, a reasonable price considering that includes delivery. The problem is you’re saving up money for a wedding so you don’t have the cash at hand.
So you buy the furniture on a credit card. As long as you make the minimum payments every month, everything will be fine! WRRRONNNNGGGG!!!!
Assuming you’re credit card has a 14% interest rate, with a 4% minimum payment (all very reasonable and typical circumstances) it will take you 13 years and 3 months to pay off your bill and you will pay an additional $4,000 in interest.
Also, you got a new raise so you upgraded from a Honda Civic to an Audi A4 and added an extra $150 on your monthly payment.
For an extra kick in the nuts, all that money that you spent on a car payment and on credit card interest is money that you are not investing (this is called opportunity cost) which means you are missing out on the typical 8% growth and the compounding effect of investing.
It’s a vicious cycle. The shit just continues to spiral downhill until one day you wake up and your 37 and you and your kids don’t understand why mommy and daddy are fighting.
So what should you do instead?
Well this is entirely up to you. If you feel that you can build the discipline to spend on credit wisely and responsibly then you need to make some changes. However, I think a much better option is to automate the process. So here is what I do.
I try to spend 30% of my monthly balance because “utilization” is a moderately important factor in credit score. I have an $1800 a month balance on my AMEX card. So every month, my cable bill, my phone bill and my car insurance bill my credit card through automatic payments. At the end of the month, my credit card automatically pays its bill through ACH of my bank account.
After I set this all up, I locked my credit card in my safe and I never touch it.
So every month I spend about 30% of my balance on my credit card and I pay off the balance in full without every dealing with it or worrying about it. This is how you effectively build credit.
I increase my credit score, I keep my bills paid and I never ever roll over a balance from one month to the next. I never pay interest. I never pay anything extra at all. My balance is completely paid off at the end of the month and I never even think about it.
All in all, it took me about 25 minutes to set up.
Okay, I know I have been hard on you, but everything is going to be okay.
This is a subject that I am passionate about. It’s not that I want to make people feel bad, it’s just that this is so simple. With a few changes in your habits and your spending you can easily live the rest of your life completely stress free and financial argument free. Let’s be honest, nothing can induce a panic attack like financial problems. That sucks.
Money is important. It is so easy to see the frustration and overwhelm on people’s faces when you try to teach them about stocks, finance, credit and long term investing.
I promise, you don’t need to be a broker or a wall street exec to be wealthy and comfortable and live your life with stability. You just have to do some real simple stuff.
If you are making any of these mistakes, please reach out to me and I will help you. No charge, no fees or anything, I just really hate the idea of young people screwing up the rest of their lives because of some impulsive decisions that they made without properly understanding the consequences.
You can do this. I believe in you.
Please leave your comments below 🙂