Keeping Your Eye On The Prize

Before last year I never really had a budget.  Starting in 2014 I started using YNAB.

I won't go so far as to say it changed my life but establishing an amount of money to spend each month for a category and then watching that allocation get adjusted multiple times per month has really helped me.  I really don't like seeing when I spend over my allocation (because I manually enter all my transactions) and the YNAB method puts it squarely in your face so you can be really aware that you went over.

Couple this with Loyal3 where I get to send any money for the month I didn't use there to buy more stock == double win.  This year I've been able to see and track my net worth grow and even though everyone's portfolios took massive hits this month, my net worth increased. It's really a good feeling.

Net worth tracking since May 14 via YNAB

Things I wish I knew in my 20's

Continuing on from my first post on things I wish I knew when I started working are things I wish I knew in my 20's.

At this point I was getting a steady paycheck and was in the military. Some topics I really had no clue about include:

1. The key to saving is living on less than you make.

To anyone that practices any sort of frugality you know this one already but I think it is lost on the majority of people in their 20's.  Now to be fair I had several bosses that told me to live on my previous salary and save the difference. I mostly heeded this advice but banked the cash only to piss it away on other things later.  Plus I was mostly brought up to equate stuff with caring/love. So buy all the things!

To be fair its suuuuuuuper difficult at that time in your life not to blow all your money on stuff.  Going out with friends, traveling, eating out, you can finally afford a nice-ish car, etc.  Happy to hear advice on how you bypass this stage to pass on to the little ones.

Either way, its true, the key to saving is living on less than you make.

http://www.successwithmoney.com/live-on-less-than-you-make/
http://www.thesimpledollar.com/rule-1-spend-less-than-you-earn/
http://www.mrmoneymustache.com/2012/06/01/raising-a-family-on-under-2000-per-year/

The part that's missing in that advice is to properly do something with that extra money. I touched on this in the previous post about wishing I knew something...anything...about retirement accounts but understanding the power of compounding is also key.  After a brief stint with FirstCommand where I was sold high load funds and life insurance I didn't need I eventually did end up with a Roth IRA in an S&P fund.  Unfortunately I put the financial education journey on pause there and really didn't pick it back up for 10+ years.

2. Avoid credit card debt at all costs.

This should be obvious but sometimes it is not.  In college everyone is throwing credit cards at you. You need to strike a serious balance between building credit and buying crap you don't need or have money for on credit.  It took me many many YEARS to finally get out of credit card debt.

Credit Cards are a tool that can be used to build credit and earn reward but they must be used appropriately and not as a way to buy things you don't have money for.


3. Establishing a budget

What the heck is a budget?! The key to #1 and avoiding #2 is the budget. AKA why I can't have any fun :-)

To be serious though, I never could understand why I made OK money in my 20's (and now good money) but never had any. It wasn't until I started tracking where it all went that I had my answers.  The One-Page Financial Plan by Carl Richards is an ok place to start. Its very simple, lay it out there and track the money just to see where it goes. Then go looking for things to cut out.  When I decided to try to meet with financial planners many of them asked if  I had a budget and the better ones would only see me after I had it to bring in with me :-)

 If you want some more ammo Dave Ramsey's books are ok as well.  Plus there are tons and tons of resources on this now on the interwebs.

I do this religiously now with YNAB. The manual part is what works for me but its ok to try a few tools to see what sticks and fills the need.


4. Understand Roth vs Traditional IRAs.

TLDR;
**Do the Roth until you make too much**

Reference: http://www.investopedia.com/articles/retirement/03/012203.asp

Where to put the money?

• No idea:  Target Date Funds via low fee mutal funds or ETFs
• Some idea: Proper mix of domestic, foreign stocks and bonds via low fee ETFs
• Lots of ideas: ETFs and dividend growth stocks (see below)

Also understand lower the management fees the better:

Reference: http://www.thesimpledollar.com/why-fees-matter/

5. If employers do any sort of matching, make sure you contribute enough to get that match no matter what.

You want that free money to accumulate as much as you can for as long as you can.

Relevant blog posts:
http://blog.mint.com/saving/goodbye-college-hello-future-why-retirement-savings-matters-in-your-20s-051215
http://www.bankrate.com/finance/retirement/5-retirement-savings-ideas-for-young-people-1.aspx
http://www.kiplinger.com/article/saving/T063-C006-S001-10-financial-commandments-for-your-20s.html
https://www.millersmoney.com/money-weekly/free-money-for-your-401k

6. Understand dividend growth investing or at least the buy and hold mentality.

-Learn basic stock analysis

-Learn what a trend is and wether a stock is in an uptrend and downtrend
-Learn about timeframes and how we care about Daily..really more  Weekly/ Monthly charts when it comes to investing.
-Learn about the Dividend Aristocrats and its ok to devote a portion of saving/investing to these Dividend Growth stocks
-Read A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing by Burton G. Malkiel
-Read The Intelligent Investor: The Definitive Book on Value Investing. by Benjamin Graham

Things I wish I knew when I started getting a paycheck

Things I wish I knew when I started getting a paycheck

1. I wish I knew retirement accounts existed and the power of compounding && time doing its magic

My first entrance into any sort of investing was in my military days with First Command (http://www.glassdoor.com/Reviews/First-Command-Reviews-E37701.htm). In retrospect it was better than nothing but if you do some Googling it wasn't a great service. They put you in high load mutual funds and sell whole life insurance (which i really didnt need with Army Life insurance). I got half the message that they were less than optimal advisors but decided "it was too hard" or "I didn't have time" to learn a better way to invest my money. I ended up purchasing a S&P 500 Roth IRA  but not putting nearly enough  in (aka the max every year).

What I plan to do about for my kids:
I've already started trying to educate my oldest on investing with her Motif. I also **plan** to initially fund her IRA once she starts working as well as do more education on the power of compounding. I should have some good ammo by that point with my own retirement accounts plus this blog. Hurray for fancy graphs and mad excel skillz.


2. I wish I knew that even saving $100 a month or per paycheck would have probably made me a millionaire now.

I started working at 14, so over the course of my life so far there were tons of opportunity to bank cash into an IRA for the future but I didn't.  I have little to show for it except for maybe some hazy  memories of nights out on the town.   There are many many resources on compounding both in IRA and with dividend growth investing. Here is one that is a decent example:  http://www.businessinsider.com/amazing-power-of-compound-interest-2014-7 and another http://www.getrichslowly.org/blog/2008/04/02/the-extraordinary-power-of-compound-interest/


What i plan to do about for my kids:
See above

3. I wish I knew/understood that buying stuff is really a waste of money.  Most of my life I spent every dollar I made mostly on stuff i didn't need instead of stashing it away.  This is mostly a result of upbringing and my parents views on money.

What I plan to do about for my kids:
Education when we are shopping, reminding grandparents to not equal love with **stuff**, tell stories about my shitty finance habits once they are old enough to understand better.