011, Enough Already

How much is enough?  Since a home and vehicles can be such a large part of your expenses, especially when you are young, let’s address that first. You surely don’t need the excessive stuff above. You may want it, but you don’t need it.

How much house is enough? Warren Buffet is a extremely rich guy. If you don’t know him, take a few minutes on google and check him out. He lives in house that’s .001 Percent of his Net Worth. Think about that for a second to let it sink in. For some perspective, if your net worth was $1,000,000 your house would be $10 ($1,000,000 X .00001). Yep, that’s ten dollars. The $10 represents how difficult it would be to purchase the house from your cash or investments. This house he bought in the 1950s is an insignificant part of his wealth. He could afford a way more expensive house if he wanted. He’s said he’s happy where he lives. If he felt he could be happier in another house, he would move. But he’s content. There’s no need for him to spend any more to chase a bigger house to keep up with others. He has what he needs and wants.

Granted, he’s worth $60-80 billion, so he’d need a massive house to even begin to approach 1% of his net worth. But that’s not the point necessarily. When you have enough, you don’t need more. When you are content, you don’t need more. When you are happy, you don’t need more. That’s my point.

You’ve often heard things like “your home is your biggest investment”. While your house is an appreciating asset, it doesn’t generate any income. Money is tied up in your house where you can’t spend it or truly invest it. Practically, that means that if your home is your biggest investment, more than half of your net worth isn’t going to generate income. Having that much of your net worth inaccessible and tied up means that you can’t spend it. It also means that it’s not generating income. So, you’ll have to work longer to build assets that can actually generate cash either now or in retirement. That’s the classic house rich, money poor scenario. You have an expensive house, but you don’t have much money for other things like properly investing for your future. Being house rich can severely limit your flexibility to get ahead financially.

This is really amplified when you are young. Your young years can have the most impact on your wealth in retirement when you invest efficiently. When you neglect your retirement in your early years, it’s much harder to catch up due to the time that has passed. The compounding interest from these early years really help to build up an investment nest egg of investments to carry you through your retirement years. Don’t become house rich and cash poor.

Here’s a great article looking at home ownership in total. Avoid the Dream House Trap. It talks about how an expensive house can strap you with large expenses. Those expenses, if not properly balanced against your income, will be felt financially a lot more. It will limit your ability to have flexibility to properly invest in other income generating assets to help you through retirement. The Average people in America frequently overlook how a house can trap you in the rat race just to stay afloat.

You need a roof over your head to shelter yourself from the elements. People do live in grass huts, modest homes and mansions. They all provide the basic requirements of shelter to keep you alive. People are also happy in each of those examples. Each example is also more costly. Grass huts are cheap, modest homes are reasonable, and mansions are extremely expensive. So, choose your housing carefully without overestimating your needs.

Next, let’s talk about cars.  We’ve touched on those before.  This is likely the second biggest expense that can cost lots of money if not done smartly. Since I’ve been into Choose FI a lot lately, here is an article about new cars and here’s a podcast if you listen to those.  The bottom line is that your transportation costs can eat up quite a bit of your income.

Over the course of your, at least 40 years of driving, decisions you make can literally cost you hundreds of thousands of dollars if you are not wise in your choices.  Those hundreds of thousands of dollars can either boost your income during retirement or drag you down.  The choice is yours. If you haven’t read my article about the brand new car I bought, please go back and read my post.  Buying a new car was not a good financial move for me.

You do need transportation. Most will drive cars or trucks versus mopeds or bicycles. Just as in houses, the choices vary widely. They will impact your finances one way or another. Make well informed decision on how your choices will impact your finances. A cheap used car can get you from point A to point B just as well as a brand new high dollar sports car. So, it’s truly up to you which path you choose. Choose wisely and position yourself for success in retirement.

These two major expenses can make or break your finances in the long run. They are the Big Rocks. So, make wise decisions based on facts and solid information that will meet your financial goals. Don’t overestimate your needs and max out your wants. Find the sweet spot that can work for you. If you have to have the cat’s pajamas, you’ll pay more for things at the expense of your financial security in your later years.

Make finding contentment a goal with whatever you have.

006, Always “Bee” Learning

In the first five blog posts we’ve covered the basics. As was mentioned you can literally get advanced degrees on this stuff. The degrees don’t guarantee that you’ll be successful. Nothing really does. However, once you have a solid understanding of the basics, continue to learn. Strive to learn new things throughout your life. The more you know, the more likely you’ll make a well informed decision. The more you make well informed decisions, the higher your chances of success will be.

In today’s fast paced environment continuously learning is more accessible than ever before. Frequently, that learning doesn’t even have the high cost of a college education. There are websites for almost any topic you can think of to learn about. Granted, not all are great. But a website that doesn’t deliver will quickly be left in the dust by good ones. With the advancements in equipment and the ease of publishing something on the internet, a crowd of followers will point out any mistakes or poorly supported ideas presented as facts quickly. So, if you search for educational based websites that have a large following you’ll generally wind up with sound advice. When something is presented, you can cross check facts with another website quickly as well. Sitting in uncomfortable chairs listening to an instructor is not the only way to get educated today.

Podcasts are another development in recent years. Yes, I’ve been learning before podcasts were available. But you don’t have to even read websites if reading isn’t your thing. Some people learn from reading and some from listening. Many of the websites out there on financial independence and personal finance have both websites and podcasts. The podcasts range from just the host’s opinion, experiences, or advice to discussions among a group of people. Often times the guest hosts will either be someone who has achieved success or are well on their way. The guest could also be the authors of books, other podcasts, or other experts in the topic of the day.

Audio Books are another option to learn. While websites and podcasts can be very educational, the author needs a little more room to explore or explain the topics. Podcasts and websites tend to be more focused on a particular topic in a format that’s a quick read or listen. But a book isn’t limited to those formats. They can be as detailed as necessary to fully explain complex topics, stories, or ideas.

By now, you may be questioning the amount of time required to actually learn personal finance and financial independence. Everyone is working these days. Generally married couples both work too. So, how can you get to advance your education? When will you find the time?

My morning commute is about 45 minutes. During that time, I’m usually listening to a podcast of some kind to learn something new. Over the years there have been many topics I’ve leaned about on this commute. Dave Ramsey Podcasts about how to get out of debt when in debt. Choose FI and the Mad FIentist are podcasts about personal finance. Bigger Pockets is about real estate investing. I’ve also listened to many podcasts about deer hunting, turkey hunting, and even cooking. So, rather than just listen to the latest song by a random artist, I’m learning new stuff on the podcasts. If you can think of a topic, chances are there is a podcast about it.

Podcasts can also be listened to during other times. Anytime you can wear headphones, you can learn. Instead of being that person bobbing his head up and down in ignorance, learn something. You can learn while exercising, while your partner is watching TV, or even sneak in a quick topic in a waiting room. You may even be able to listen to a podcast in a deer stand! Just make sure you download it first if there’s no cell coverage in the woods.

I’m also an early riser. Maybe you’re a night owl. Whatever your schedule is, carve some time out to better yourself either before the kids or wife get up or after he or she goes to bed. If you are going to get ahead in life, you need to spend some time educating yourself. Early or late in the day is generally a good time to sit alone and learn.

Almost all of this information is available for free, in many formats, and pretty much hassle free. Just as you want your finances to be efficient, so should your learning. It isn’t necessary to lock yourself in a classroom, office, or basement to learn. Don’t be stung by wasting your time being idle, learn something. Look for opportunities to be efficient with your time and always be learning.