How To Fix Your Finances

If you’re super stressed about your money situation, which, according to CNBC is pretty common, you’ve got two options:

Option 1: tighten your budget and stick to it at all costs. This option is not a lot of fun, but it’s still very important. The basic principle of personal finances is to live within your means. This means that if you don’t have money for something, you don’t purchase it, instead, you save some money over time until you can afford it. It’s common sense, but it’s not commonly practiced. SNL is an authority on the topic: Don’t Buy Stuff You Cannot Afford. Though this definitely isn’t the fun option, it might be the more important option. Sticking to a good budget and living within your means teaches you to think differently about money. If you’re a subscriber to the ‘I want it and my credit card isn’t maxed out yet’ line of thinking, this budget thing won’t be easy, but it will change your life.

Option 2: make more money. This is much more fun. Instead of holding back, you’re increasing. You can be creative, start a side-hustle, work towards a promotion. The options aren’t exactly endless, but they’re pretty broad. Do something that is exciting, something that you love, or something with a loved one! The only rule is that your idea has to make some money (and also stay within the bounds of federal law).

Here’s the twist, you don’t have to pick just one option. Ideally, you’ll work on both simultaneously. If you only tightened the budget, you would confine yourself to a workable, but boring financial existence. If you only earned more money, you would spend it as soon as you earn it since you would never have learned the discipline and benefits of saving. Neither option, by itself, is likely to get you where you’re hoping to go. But together, these two strategies can create a real and lasting fix to your finances.

Be Wary of Investing Apps

Investing today is easier than it’s ever been. One hundred years ago investing options were limited, there were no mutual funds, no ETFs, it was basically banks and single stocks. And even those few options were expensive and difficult to obtain. For most people, investing wasn’t a viable option. Today we’re drowning in all the investment options. It’s become so easy, so normal, you can download an app and own thousands of equities within minutes. The ease is good, and it’s good that more people are able to own equities (equities are the best passive wealth building tool in history) but there are also good and bad ways to own equities, and the ease seems to more often promote the bad ways.

Active investing is essentially gambling, even for professionals. We know the stock market moves relative to news and emotion, neither of which is consistently predictable. We also know that the current price of a stock is the best indication of its current value, stocks aren’t ever ‘on sale’ or ‘overpriced.’ So when an active investor buys or sells a stock share it’s just a bet, a bet that a specific company will either increase in value (in which case you’d buy) or decrease in value (in which case you’d sell). Successfully buying and selling stocks is tough, and no one can consistently do it well enough to beat the market over time, not even professionals. Research shows that the outcome of this active investing style is overwhelmingly negative. That’s part of the reason why we’ve seen a seismic shift toward more passive investment strategies over the last 20 years.

However, we’ve also seen the growth of in-app investing. I’m all for cool apps, and investing apps are among the coolest, but there’s an inherent problem in using an app as an envoy for your retirement. The fact that they are so easy to use is a temptation to actively use them. The fact that they look so nice gives the illusion that we’re doing something responsible with our money. Some offer worthless, even contradictory, commentary on market predictions. Some even promote super risky options (puts and calls) accompanied by incomplete (at best) information concerning the risk involved, and even how they work. Essentially, these apps promote a sort of sophisticated gambling, which is really fun, and really bad for your return probabilities. Apps that have claimed to stand for passive investing seem to be slowly moving toward an active style as well or at least offering it.

It’s probably best to treat investing apps like gambling apps since that’s effectively what they are. Don’t be duped by the bells and whistles, they offer an adrenaline rush and a lot of downsides. Most of us wouldn’t take our retirement fund over to the roulette table and put it all on red (talk about a rush!), so don’t dump your life savings into an app.

2018 Book Recommendations

I would say that reading, specifically reading books, is the single most important method of self-improvement that a person can engage in. A few years ago, in a desire to improve myself and my circumstances, I decided to read more books, and the payoff has been overwhelmingly positive. Probably the main benefit reading has imparted to me these last few years is to change the way I think. My goals and ideas and aspirations are bigger, my concept of what’s possible has grown. This change in thinking has also affected my behavior, my actions have been more consistent and more ambitious, I even waste (a little) less time with TV and on my phone. Basically, reading books can have a transformational effect. So, I want to share some of the best books I read last year (2018) in the hope you can reap some similar benefits from them. The list is broad, ranging from self-help and productivity to history to fiction and anything in between. Dig in!

The Three Laws of Performance is top shelf coaching material. Steve Zaffron delves into what actually causes transformation in people’s lives and organizations, how to really induce change. It’s not the typical rah-rah motivational material, this is real, strategic, transformative coaching. It’s also filled with real-life examples and stories, which makes it very accessible.

What’s Best Next is an incredible guide to greater personal productivity. Matt Perman is a confessed productivity junky who has gathered and distilled some of the best productivity literature available, conducted interviews with accomplished subjects, and drawn from his own experience to build his best strategies for increased effectiveness. It’s organized, well-researched, very practical, I even found it inspiring. The structure of my entire week is based on things I gleaned from What’s Best Next.

The Marks of a Spiritual Leader is not simply for pasters and Bible-study leaders. This little book is packed with practical and helpful advice for anyone in any type of leadership role. It’s clear, concise, practical, and at less than an hour total read time, it is well worth the investment.

The One Thing may be the best book on setting and achieving goals that I’ve come across. The title is a giveaway, but Keller stresses the need to determine your most important one thing and focus on that one thing tenaciously. It’s full of practical, actionable advise presented in a fun and engaging way.

Tim Keller is a leading Christian apologetic. Making Sense of God builds upon his previous popular work The Reason For God. Whether or not you’re a Christian, this inquisition into foundations and defenses of Christianity is remarkably insightful.

Reset is a type of self-help book, but instead of pushing readers to do and be more and more, David Murray encourages us to understand our limits and work within the bounds. Humans tend towards arrogance, limitations are seen as an inconvenience, but our unwillingness to acknowledge them leads to burnout. Through his concept of ‘Repair Bays,’ Murray encourages us to slow down and live consistently with reality.

I started reading Earnie Pyle during my WW2 phase in high-school. I still remember the day I finished Pyle’s Brave Menit was the most visceral, funny, and affecting account of war I had, and probably still have encountered. Ernie Pyle in England is his first collection of essays during WW2 (Brave Men is his third collection). Before the U.S. had joined the effort Pyle spent several months in England observing and reporting for an American newspaper.

In the Garden of Beasts is a look at the rise of Hitler’s regime through the eyes of the American ambassador’s family in the 1930s. It’s fascinating. Larson is a historian, but In the Garden of Beasts is not like the college history textbooks that may have put you to sleep, it reads almost like a novel, very accessible.

The Last Kingdom is the first installment of a multi-book series called The Last Kingdom Series (Cornwell just published the 11th book of the series in 2018). The genre is historical fiction, the setting is 9th and 10th century Britain, the story features protagonist Uthred of Bebbanburg fighting the Danish invasion. Cornwell is simply a great story-teller. I’ve gladly resolved to read the entire series after finishing The Last Kingdom.

I picked up The Richest Man in Babylon on a whim a few months ago. The book is a series of parables, all taking place in the context of ancient Babylon, and all dealing with a point of wisdom surrounding life and work. It’s surprisingly compelling. Clason weaves the stories around wisdom in such a unique and interesting way, and it sticks.

The Call of the Wild is an old classic that my sister encouraged me to revisit last year. Jack London’s brilliant use of language and word pictures are on full display. It’s short and profound, well worth the read.

You Need a Budget is another little gem. Jesse Mecham is the founder and CEO of YNAB, the best personal online budgeting tool out there. But the book is not a sales pitch, he digs into the nuts and bolts of building and operating a successful, zero-sum budget. This look book is packed with valuable guidance for your personal finances.

Sometimes you need to kick back and read something for the pure enjoyment of it. Ready Player One was that for me, I could hardly set it down. It’s certainly not perfect, but it’s interesting, it moves quickly, and it’s thoroughly entertaining.

Finances by age

We’ve all heard of general financial guidelines which wisdom would suggest we follow. Dave Ramsey talks about them, financial planners use them, we all interact with them on some level. As you move through life the guidelines also move a little bit, some things you didn’t have to deal with in your 20’s become pressing in your 40’s, and vice versa. This is a breakdown of these financial guidelines by age, things that you should be thinking about based on your stage of life. This does not mean that you’ve failed if you’re working on some 20’s things in your 30’s or 40’s, or even 50’s. But these guidelines are a helpful measuring stick to see how you’re doing currently, and they provide a good pathway for lifetime financial success. Let’s dig in.

Teen years:

  • The number one thing you can do in your teens is to start developing good financial habits.
  • Stay away from consumer debt. These debts are often subject to high interest rates (credit cards), tied to depreciating assets (cars), and often end up funding things that are unnecessary. They encourage bad spending habits and can cost years to catch up from.
  • Learn to save money. Instead of unnecessary spending, practice going the other way, save up money for things you want. 
  • Learn to work hard. Financial guidelines will certainly help you succeed, but you won’t get far if you can’t earn money. 
  • Get through college with minimal student loans.


20’s:

  • Now you’re out of college and real life is set in. The number one thing you can do is create a zero-sum budget and stick to it as if your life depends on it. Give yourself some spending money, make sure to budget your savings, and again, avoid consumer debt. The budget is not a forecast of your future spending, and it’s not just for tracking your spending either, it’s for planning your spending. You intentionally decide what you’re going to spend money on and how much, and you don’t spend beyond that. 
  • Start a financial plan. Meet with an advisor, learn about how the market works, and start putting together a loose plan for retirement. Things will obviously change, but the plan will ensure that you’re pointed in the right direction.
  • Create an emergency fund. Dave Ramsey says save $1,000, that’s a good place to start. Eventually, you might work up to a month or two worth of expenses. This is how you will pay for life’s curveballs instead of using your credit card.
  • If your company offers a 401k plan, start putting some money away. The money you invest in your 20’s will work the hardest for you over the long haul. If your company’s 401k plan offers some sort of match, try to contribute whatever is required to take full advantage of the match. The free money is hard to pass up.
  • Be aggressive about paying off student loans (and any other consumer debts).
  • Start saving for a house.


30’s & 40’s:

  • Now that you’ve set the stage in your 20’s, you’re ready to start executing in your 30’s and 40’s. Keep meeting with your advisor and updating the plan, keep learning, and keep on the straight and narrow.
  • Become debt free (aside from a potential mortgage loan). If you have any consumer debt or student loans, be aggressive about paying them off.
  • Think about buying a house. Your financial plan will show you that buying a house is the most cost-effective way to provide housing, a home is a good asset. Save up a large down payment and ensure the payment fits nicely in the budget, there are few things more financially stressful than being ‘house-poor.’
  • Make a plan to pay off the house, ideally in 15 years or less. Owning a home free and clear is one of the most impactful things you can do for your retirement. It’s also a great way to help kids through college if that’s a goal of yours.
  • Increase retirement savings. You’ve been contributing enough to take advantage of the match, but there’s no need to stop there. Bump up your 401k percentage or put some extra money away in an IRA. 15% of your income is a good goal.
  • Buy some term life insurance, especially if you have children. A 20-year policy is often sufficient, the goal is to ensure that your family will be well-off in the event of a tragedy.
  • Put together a will, again, especially if you have children. It’s another way to ensure the family will be well-off in the event of a tragedy.
  • Increase the emergency fund to cover 3-6 months (or whatever number feels most comfortable) worth of expenses. Think about this money as insurance. It’s not going to earn much if anything, but that’s not what it’s for. The investments will earn money for retirement, the insurance is to shield you from unforeseen events.

50’s:

  • Talk to your advisor about your investment allocations. As you move closer to retirement, you’ll want to ensure the retirement funds will be available for you, which means you’ll probably scale back the risk factor in your portfolio, or at least have a plan in place to do so. This means owning a higher percentage of bonds and fixed income type assets and fewer equities (stocks). A good advisor will engage with you on this subject pro-actively.
  • Adjust investment contributions. It could be a good time to increase savings again to maximize what will be available in retirement. It’s the home stretch!
  • Pay off your home. I mentioned this earlier, but paying off your home is one of the most significant things you can do for your retirement. From a cash-flow perspective, it makes a ton of sense. If you owe $100,000 on your mortgage, and your payment is $750 per month, you’ll gain $9,000 in spendable cash-flow per year for spending by paying the $100,000. If you instead saved that $100,000, you would be able to pull about 5-6% per year ($5,000-$6,000) and you’d still be making the mortgage payment. A mortgage-free budget will also be much more flexible. Many people end up working in retirement mainly because they still have to cover the mortgage.
  • Look at your social security estimate. This is available online (https://www.ssa.gov/benefits/retirement/estimator.html) and will be helpful as you get more detailed in your retirement plan.


60’s+:

  • Finalize your retirement plan. Determine when you’ll retire, what your new income sources will look like, how your advisor will manage the retirement funds, when to take social security, all the exciting stuff. These are important details to nail down as you move into retirement.
  • Revisit your budget. Income, expenses, taxes, and cash-flow all change significantly in retirement. A good comparative cash-flow analysis from your advisor could prove very helpful. Usually, retirees can achieve a similar or better cash-flow with significantly less income because of how the taxes and expenses shape up (especially if that mortgage is gone!).
  • Decide what you’d like to accomplish in retirement, maybe even set some goals. The great benefit of retirement is not the ability to stop doing anything, it’s the opportunity to focus on the things you want to do. A part-time job or some sort of enjoyable work, more family time, travel with loved ones, important hobbies, these all can be part of a richly fulfilling retirement; but don’t let them simply happen to you, do them on purpose.