Financial Wisdom

Hi! I’m here to share personal finance wisdom with you! Don’t worry, it’ll be fun – it’s hardly the drudgery of textbooks like you might think. The advice in this blog is not only my own, but also references everything that I’ve learned from and that still inspires me today to live well and live by principles. There is enough material here to fuel your curiosity and needs for a year! Enjoy.

A quick disclaimer: I am not a financial advisor, but an avid wealth builder.

Meet Mr. Money Mustache

I started here! Meet Mr. Money Mustache. He tells it like it is. You are already rich! But your current habits and patterns are keeping you poor. He wakes up the culture of the middle class to set them on a path of freedom and happiness. This isn’t just dogma. This isn’t just frugality. It isn’t a get rich quick and retire early feel-good rant. It is about recognizing how to flex our financial muscles.

Mr. Money Mustache (or MMM for short) would point you to start here or here, but use the first link above unless you really want to skip to certain topics. Plus, MMM is absolutely on fire right from the beginning. Join the mustachian ranks, already millions strong. Who thought writing a blog from a living-room couch could create such a wave of financial literacy?

Related sites for more reading:
David Ramsey – Teaches core principles and no-nonsense way of prioritizing your finances
NoMoreHarvardDebt – A hilarious and real story on paying off 90K in student debt
EarlyRetirementExtreme – A hardcore approach. Difficult read. But needs a mention – he started it all!

Budgets Made Easy With Mint

Tired of tracking your spending? Want to actually watch your spending in real-time? Curious about your net worth? Mint makes it easy – all in 15 minutes or less.

Mint is no cure-all. It’s not perfect. But for what it is – a tool to provide transparency to your lifestyle spending – Mint is just what you need to start being mindful of your money!

For those of you who already clicked the link and created a profile and all of a sudden are prompted for your bank information…WHAT!?! Yeah. It’s ok. No one is going to steal anything. Think of Mint as your personal accountant recording and downloading every transaction from all your accounts (however many that is). Mint is highly secure! Mint is a data-scraping website that simply READS the information from your financial accounts and imports it into their smart software. That is it! You can’t manage or transfer your money via this site. It just reports. Phew? Do you feel better? Good.

Use Mint to eliminate waste. Be mindful of your purchases and set goals to spend less every month. It’s easy when you see the dollars counting up. And let Mint show you how financially disorganized you are. 3+ banks? 5+ credit cards? Really? Simplify!

You’ll be financially fit before you even know it with Mint as your financial personal trainer! You are welcome.

Thinking About Buying A House? Think Again.

Yes. Think again. Seriously. Did you? You ask why?

  • Do you have any outstanding debt or student loans?
  • Are you prepared to lose $15,000 dollars?
  • Do you intend to stay in your potential house for AT LEAST 5 years?
  • Though you are qualified for a loan, can you actually make the monthly payment?

If any your answers are a “no”, you need to do extra diligence before you think about buying or just flat-out tell yourself you aren’t ready yet – and thus it is far safer to rent.

I’m sorry to be harsh, but my primary readers are in their early to mid twenties. Home buying isn’t a fairy tale at this age. And it is not a sport for youngins like HGTV makes it out to be.

Want to buy a house? Learn the reality first. Start here. Meet Zillow. Just look, read and learn. That’s it. Find a local qualified professional if you actually want to buy. The linked buying advice guide is a perfect beginning. The other thing Zillow does well is give you a Google Maps view of all the properties in the area. Pay attention to the red house icons. Those are actual house values on the market (or recently closed), courtesy of data-scraping technology (like Mint). Quite amazing things you can do with data.

So, why the somber tone? I bought a condo last year. I’ve learned a lot of hard lessons that I wish I knew before I actually purchased. I am not jaded. I actually love living here. I’ll share my personal experiences with you in later posts. What is mine is yours. We are all here to learn!

In sum, there is a reality in home ownership that first-time buyers may not know until it is too late. This includes everything from high closing costs, the impact of local foreclosures on market values, housing association regulations and assessments, and the necessity of reserve studies and financial disciplines to accompany them. At the end of the day, closing costs will eat $10,000 or more in the buying and selling process of a house. Foreclosures in your area may devalue your property by as much as 30%. Housing associations are often mismanaged and underfunded. And to prepare for housing repairs and maintenance proactively, you’ll need to save about 50% of your mortgage cost on top of paying everything else. So the reality is, things are twice as expensive in the end. Can you afford that?

Stochastics and Moving Average Convergence-Divergences…What?

Investing. Those are investing terms – actually technical analysis metrics/indicators. Don’t worry. You don’t need to be that sophisticated.

Let me make it simple for you. Put your long-term investing portfolio equally into the following assets: NAESX, VIMSX, VFINX, VINEX. Leave your money there for at least 3 years. There. You are invested! How long did you sit on the sidelines when it was this easy all along? Ok, let me qualify this strategy. The above letters are all Vanguard mutual/index funds (indicated by their ticker symbols) that focus on (respectively) small companies, medium companies, large companies, and international companies using a blended spectrum of value and growth.

These funds are some of the best and most accessible funds you can find. These Vanguard funds are $3,000 dollar minimum 0.00% load fees (you don’t pay a % of your assets as a fee to get in the fund) and boast some of the lowest expense ratios of any market mutual funds (expense ratios are the costs to manage the fund that will be taken out of your holdings). Yes, these funds each require a minimum of $3,000. If you have less than $12,000 dollars, just put each $3,000 chunk you have into one at a time. You can buy the other funds when you save more money.

Now, if you want to specialize your investments into growth or cap funds, or pick a fund with a specific industry investment portfolio for your own optimization, go for it. The fund may just not have the lowest fees or investment minimums.

Still confused? For those who don’t have the patience to learn, or are a little squeamish at this investing commitment, or maybe don’t have all that much savings, invest in the SPY ticker, an index fund that you can trade like a stock. It tracks the S&P 500 index, but you unfortunately won’t get the dividends. It’s better to be invested than not! For those of you still with me, the 4 fund strategy above is about diversifying your assets long-term in inexpensive, well-managed portfolios. Over the long term, it is hard to beat the market (I know you’ve heard that before). So save yourself the hassle in the short term and the long term and just keep it simple. You’ll come out ahead in hassle.

Or if you want to be risky and try your hand at individual stock investing, then good luck to you. I’ll give you a few tips:

1. Yes, you can beat the market. You have a 50% chance considering the research that 50% of managed funds beat the market averages. You’ll need to be smart. Or lucky. Or undiversified.

2. If it is your first time investing, pick your favorite stock and buy ONE share. You’ll learn a lot just by watching. You may not always hit a home run like Netflix’s comeback from $50 to $700+ a share. Or even better yet, create a virtual portfolio and try your hand at investing before you put real money down.

3. Investing is inherently risky. The bigger your portfolio of stocks (>15), the less risk you have. However, don’t just buy 15 stocks. Start with 1. Then 2. Then 3. Stick to what you know. Add new stocks or positions slowly. It is like shopping for companies. Find a good buy.

4. How do you find a good buy? Doing a bit, or a lot of research. It’s up to you. You can play it safe by picking well known brands. Or you can play it risky by picking fledgling ones. It’s risk vs reward. But know that there is always risk. Not always reward. To be a good stock investor, you will need to know the company AND the market sector they do business in. One quick way is to look at the company’s competitors. Learn about EPS, PE, PEG ratios. These should justify the relative price and performance of the stock. And so should the company’s strategy and performance.

5. Want to buy a stock at the right time? Please know that it is very difficult to the time the market. The more you sit on the sidelines the more you are apt to lose money as you wait to buy or as you close out winners and try and cycle that cash back in the market. In the long run, it’s better to simply invest in the broader market without waiting for timing. However, you can find “good deals” on individual stocks and relative historical performances simply by learning to read the technicals. And I mean this:

SPY 2 year candlestick chart with moving averages and bollinger bands

SPY 2 year candlestick chart with moving averages and bollinger bands

Technicals

Technicals for SPY 2yr. The RSI, MACD, Slow and Fast Stochastics

Intuitively, based on the chart, where do you want to buy? You want to buy at the bottom of the technical indicators of course! That’s what gives you the most bang for your buck. The trick is to know when to sell once momentum is failing and the asset is headed for a loss. You don’t have to sell. You can hold on to it. Just know that buying at the lows of these indicators means you got a great deal on your stock. Congrats.

Here are a few key entry points for a stock. You need to have at least 3 to buy near the bottom and to capture the most of the opportunity:
1. RSI < 40
2. MACD is negative and has a second “peak” shallower than the previous “peak”, but the stock price is lower than the previous bottom
3. Stochastic <20
4. Check the 6mo, 2yr, 5yr, and 10yr chart and verify that at least 2 of those time horizons have the above indicators in the objective zone
5. 3-5 days of continuous declines (short term rebound play)
6. What is the general trend of market and industry? Even if a chart looks great, if the market is in rapid decline, the stock will almost always go along with it. But the entry point for that stock would soon follow.

These technical indicators and charts can help keep you objective in your trading (with subjective analysis). Be sure to study what these indicators mean before you rely on them at a superficial level.

Coming To A Hard Stop
Ok. For some of you, that just blew your mind. I’ll spare what’s left of it and end this post. It’s a lot to think about in terms of your finances and getting it all aligned under a new discipline or philosophy. There is enough material here to keep you occupied for a year. I leave you with my imparted knowledge and your curiosity. The key to learning ANYTHING is to actually TRY it. And don’t just try it once. Stick to it. Try it for 3 months. Being patient is the key in personal finance. Don’t they say that time is our greatest asset?

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Let me know how this post helped you!