How To Get Filthy Rich in Rising Asia and Random Musings

Warning – spoilers ahead.

After taking over a month to finish the Rise of Endymion by Dan Simmons I was pleasantly surprised by the diminutive size of How to Get Filthy Rich in Rising Asia. Not only was it short, but compelling and easy to read. I decided to pick this one up based on a recommendation from the Tim Ferriss show, and I’m glad I did.

I love a good rags to riches story, which fuels a good deal of my fascination with biographies of famous business people, and How To Get Filthy Rich does not disappoint. Well, in a way I suppose it does. It’s not an instruction manual, but rather a first person narrative that begins on the dirt floor of a hut and chronicles the rise of an entrepreneur. It’s a fascinating perspective, especially for someone living in the cloistered world of suburban America like myself.

We love to bitch and moan about how “busy” we are, and how times can be tough. Well, it could always be worse. A lot worse as this story will show us. How to Get Filthy Rich shows to get ahead in rising Asia you have to be willing to overcome immense odds, staggering cruelty, be willing to engage in questionable business practices, and deal with a corrupt government, competition that will resort to physical threats and intimidation, and the odd twists that life throws at us all. It reveals an almost animalistic approach to business. The young man threads carefully through the shallows, avoiding apex predators. He scraps and scrabbles and slowly builds a small foothold. He catches a break and claws his way up the food chain. The hunted becomes the hunter, and now he is the predator, although bigger threats still circle ominously overhead. He builds his fortune, but never seems to find true fulfillment. In a ruthless world where we prey upon the sick and weak, the hunter eventually regresses back the hunted.

This is a powerful and startling account of life and death. There are some stylistic nuances that take a little getting used to. While I think it’s generally a beautifully written book with lots of powerful quotes, the author’s choice of language can be juvenile and puzzling at times. He also deviates from the story at the start of each chapter, and tells the reader that this is a self help book. He talks about him writing and you reading a lot. It didn’t bother me as we quickly settle back into the story, but I can see how it might irk some people.

Ultimately, I think the theme here for me is gratitude. To paraphrase Warren Buffet, if you are reading this from the United States then you have truly won the genetic lottery. It’s easy to dismiss that as most of us have not spent time in developing or third world countries, and we lead immensely sheltered lives, but the truth is most of us have cultivated little gratitude or empathy. I know that is true for me. A book like this gives you a window into another world, and it’s primal, shocking, and more than a little sad. The pursuit of financial independence is a privilege, especially if you don’t have to get ahead by paying bribes, engaging in morally dubious business practices, and hire armed guards in order to go about your day.

I don’t want to say much more, as it’s a short and simple book. Worth a read and especially so as I close the door on another weekend. And as I close that door I can’t help but feel a little anxiety for the work week to come. By the time Friday rolled around I was exhausted and could hardly think as the clock hit 4PM. My mind was numb and cottony yet still things were racing. I got home and laid in bed for a while and read. I tried a little meditation and I actually felt better. I should try to do that more often.

Saturday was mostly spent with family and looking at real estate. Fun but not particularly relaxing. Today I was able to hit the gym, run some errands and spend some time reading and lounging in the neighbor’s pool. I cooked some fat steaks for my girlfriend’s birthday and by the time everything was cleaned up it was 7. I finished off How to Get Filthy Rich and it left me in a reflective mood. One thing I didn’t do this weekend was write – until now. I didn’t get a cigar in either, which would have been nice. On the flip side, I also didn’t go into the office this Sunday for the first time in weeks, so I suppose you just have to take what you can get.

I’ve been going full steam for a while and feel myself wanting to take a more substantial break. It’s very hard to believe we are 3/4 of the way through 2016 already. Time is blurring by. Things are generally marching forward. It has been at least a couple months since paying off my student loans. Frankly it feels great not to have that looming over my head any more. It is one less thing to worry about. A goal completed.

I still have my small car loan (less than $4K) that continues to nibble at the edge of my mind, but I’m not in a huge hurry to take my cash and pay that off immediately. At this point in the loan most of the payments go to principal, so I’d rather just have the cash on hand. I want to keep some powder dry. Speaking of which, I have decided to divert some of my newfound excess cashflow to Vanguard funds in a brokerage account. An extra $300/week for the time being. I put it into Vanguards Target 2050 fund. I’ll write a post on my take on Vanguard Target funds one day. I like it for the time being, but also own their stand alone funds as well. I am looking at real estate, but everything on the MLS seems too high. It is disappointing but am OK with that. I’ll just bide my time and enjoy being mostly debt free for a while. I’ll be curious to see how quickly the cash piles up.

I also liquidated my small position ($2,000) in Vanguard’s total bond fund and put that money into a couple of high dividend stocks. More risky business, but I think holding bonds at this point is a little silly for me. I still have some bond exposure in my target fund so I’m alright with it. I’ll write more on that later. In the meantime I am going to start reading The Deep Blue Good-Bye by John MacDonald. Tomorrow is a new day, and a new opportunity. The Sunday blues quickly fade into a manic Monday, and there will be much to do this week.

Mid Year Resolution – Limit Drinking

Writing down my goals and resolutions for 2016 has actually been an interesting exercise. People say it’s important to do this, so I figured I would give it a shot. So far I don’t regret the decision.

One of my goals was actually to only drink “3 beers a week”. Well, I don’t know what the hell I was thinking setting that goal because, (A) I don’t remember even setting it, and (B) I quickly got into the habit of drinking 2 beers a night 5 days a week. Throw in some hard liquor at least one night a week and the occasional bottle of wine, and I was pretty well rounded on the drinking front.

But that doesn’t surprise me because I’ve always been very well rounded on the drinking front. In high school I engaged in my fair share of binge drinking. Clandestine parties fueled by vacant houses, fake id’s, and high school theatrics. Since the legal drinking age is 21, it was fun and exciting to drink at 16. In college I drank massive quantities of liquor and beer. I was on my own in New Orleans, a city known for its good times, and I definitely had some great times. Although I became “of age” somewhere in the middle of college, the novelty of going out and drinking did not wear off. If anything, it intensified in my last semester. I was living with a group of German foreign exchange students. I became their unofficial ambassador and we took the city by storm. It was an epic time and one of my most memorable experiences in college. We had a blast, although I freely admit that was a time of unbridled debauchery.

In law school I got into the habit of pounding a fifth of cheap bourbon every 2 or 3 days as part of my “exam prep”. I would study from 7pm-midnight, and then drink bourbon on the rocks until 2AM. I’d wake up at 10am in time for my 11AM class. If I wasn’t rolling into class with a hangover something was wrong. In retrospect that was pretty sad, but law school was pretty sad. I was trying to jump through the hoops on the strength of my understanding that a law degree could create a better life for my future self. I was deeply confused about what I wanted to do or where I was going.

I didn’t feel like a man. School felt like an exercise in emasculation. I was reliant on the government as my education was funded by student loans, and I relied on my family. Also I didn’t care for most of the people I met at law school. When I got my internship at a big law firm, I realized I didn’t particularly care of the practice of law at a big law firm. Frankly that was a horrible realization. I hitched my wagon to the law school train because it seemed like the best opportunity at the time given my credentials and mindset. I had little confidence, I was depressed, and I self medicated.

As I settled into adult life and launched my career I found I was drinking less. Maybe one or 2 beers 3 nights a week during the week, and then I might get into it a little further on the weekends. I wasn’t going out to bars, since I met my significant other at this point, and I wasn’t binge drinking as often, but I still drank too much. And as this year wore on I found myself drinking more and more. This has been an exhausting year as I tried to get my staffing issues sorted out and my head on straight. I would get home at 7 or 8 and reflexively open the fridge and down a couple beers before I started to feel comfortably numb. Swimming in the mornings would provide some clarity, but that practice slowly slipped off the map. I also got fatter and fatter.

I went on a trip to visit a good friend in July. We both have a “thirst” and our trip included a fair amount of drinking (although honestly it could have been a lost worse). My buddy was telling me about how he had taken some time off from drinking and that he experienced some health benefits from it. His weight dropped, and his mind expanded. He felt better. That all makes sense. It doesn’t take a M.D. to realize that drinking can have ill effects, including weight gain, wear and tear on your liver, dehydration, poor sleep, and messing with your testosterone. Plus you are pretty useless once you are impaired. Even after a couple beers I have a hard time reading or writing anything. At that point we switch from producers to consumers.

Alcohol is also expensive, and it made up a significant portion of my grocery budget. A 12 pack of decent beers a week sets you back the better part of $20. If you go down the craft beer rabbit hole, a rabbit hole I have been known to explore quite thoroughly, you can easily blow tons of cash. Plus I have a penchant for quality bourbon, gin, vodka, rum, and tequila. I wasn’t blowing $50 a night at the bar, but I probably still spent $75-$100 a month on alcohol. That is about $1,000 a year. Even if you are making $100k a year, that’s still a full percentage point of your gross income going directly to alcohol. A decidedly un-frugal move for someone espousing the benefits of frugality, trying to reach Financial Independence, and saving at least 50% of his income. There are ways to mitigate this, cheap liquor and beer, but that’s just treating the symptoms and ignoring the root cause of a problem. The real solution is to cut back.

The trip made a big impression on me. Not only was it a tremendous trip, I remember what my buddy said about the drinking. I could feel the ill effects of all the extra drinking and restaurant food after the trip, so I decided to dial back the alcohol significantly. I have been averaging 1 beer a week for the past 6 weeks, and it has been good for me (surprise surprise). My face looks less puffy and I think I have lost some fat. I feel “OK” – probably better than if I was drinking, although I obviously enjoy drinking a great deal. I think I am sleeping better. Certainly I am spending a lot less money on alcohol. I actually haven’t spent any money on alcohol since I got back from my trip in July. I still have some beer left over in the fridge, plenty of liquor in the pantry, and at this pace it looks like I won’t need to buy anything for a while.

This isn’t the first time I have taken time away from the sauce. After college I took 9 months off to work before starting law school. In that period of time I moved back into my parent’s house, switched to a ketogenic diet, and hit the weights religiously. I got into the best shape of my life. I would still enjoy some drinks at happy hour on Fridays after work, but beyond that I kept a strict diet and cut out alcohol. I fell back into drinking once I returned school.

By some standards I would be considered an alcoholic. I have never felt that way because I always considered alcoholism to be an addiction to alcohol. I have met alcoholics, and they literally cannot stop drinking. Thankfully I have never had an addictive personality, and have managed to quit things cold turkey in the past. This sounds an awful lot like denial.

Anyhow, I am glad that I have cut back on the drinking. Now that I type all of this out I realize that it serves no real purpose and hurts your budget and health. I still appreciate the craft of creating and enjoying high quality beer and liquor, but I need to take a step back and dry out. I need to run this experiment longer.

My goal here is to limit myself to 1 drink a week. Maybe that is a beer with dinner on Friday or Saturday night, or a drink if I’m at a social event. If I get invited to a party, or have 3 beers one night or something I don’t want to feel like I fucked myself, but the general goal is one drink a week. Oddly enough that has worked out well. I don’t feel deprived of anything. It hasn’t been bad not drinking.

What I really want to avoid drinking in response to stress, and to avoid habitually drinking – especially during the week in response to stress. I most feel like having a drink after getting through a brutal Tuesday, or something along those lines. Being self employed generates a fair amount of stress, especially when you are self employed and handling divorces and litigation matters for a living. It’s like piling stress on top of stress. You have the swings of entrepreneurship, and the swings of trial law. Add my fragile personality into the mix and this has been a true exercise in self development. No wonder I want to reach financial independence so badly.

Stress is part of life and the grass is always greener. Those that work for themselves occasionally want the safety of a paycheck and freedom from managing overhead. Those that work for others occasionally want the freedom and autonomy of their own business. And our attitudes swing depending on what day it is. That’s life. I’d like to avoid drinking in response to stress and exhaustion, and so far have done a decent job. Oddly enough I haven’t felt a strong compulsion to drink on the weekends. I didn’t have a drop of alcohol this Friday or Saturday night, despite telling myself it is perfectly OK to have a beer if I wanted one. I haven’t wanted one.

At the end of the day the goal is to swap small bad habits with small good habits. Cutting out the 2 beers on a Tuesday night seems trivial on some respects, but these bad habits have a way of compounding like interest in a brokerage account. The goal is to become more productive, self-reliant, and happier. I need to take a hard look at myself and my habits if I really want to get there.

Self Employment vs. Starting a Real Business – The Cashflow Quadrant

I finished listening to Robert Kiyosaki’s Rich Dad Poor Dad: Cashflow Quadrant for the second time last month. Rich Dad Poor Dad is arguably one of most influential books on personal finance ever created, and for good reason. It’s a tremendous book that will inspire and awaken you. Cashflow Quadrant is a great read as well, and dives even deeper into some of the concepts Kiyosaki outlines in his original book.

I think the theory behind Rich Dad, Poor Dad is brilliant. Acquire assets, avoid liabilities. An “asset” is defined as something that makes you money. A “liability” is something that costs you money. Perhaps one of the more controversial aspects of the book is that Kiyosaki argues that your primary residence, if you choose to own one, is a liability, not an asset. This is because it costs you money (unless you are renting rooms or something). This concept flies in the face of the typical American dream, and the creed that “your house should be your biggest asset”. Housing is an expense, and your house should not be considered asset. Anyhow, I digress…

The original Rich Dad, Poor Dad also introduced us to the “Cashflow Quadrant”. His supplemental text dives much deeper. The Cashflow Quadrant identifies 4 types of people: Employees, Self Employed People, Business Owners, and Investors. Employees and the Self Employed work for money. True Business Owners and Investors have their money work for them. Ultimately to become financially independent you need to eventually either start a Business or become an Investor (preferably, do both!).

What was most interesting to me was the distinction between a Self Employed person and a Business Owner. I could argue that as a lawyer who owns his own law practice I am a “Small Business Owner”. The reality is I have simply created a job for myself. If I were to walk out the door of my law firm tomorrow and not come back for 6 months my “Business” would be dead. I’d face a pile of lawsuits for defaulting on my buisness’ financial obligations and for legal malpractice. A true Business is a system. That system, if it’s properly established, should be able to run itself or you should be able to hire someone to run it for you and still turn a profit. Even if you walk away from the business for a year. If you can’t walk away from your business for months, then you don’t have a Business. You have a job. I have a job.

This can be somewhat disheartening after being inculcated with the teachings of the educational-industrial complex for decades. The prevailing notion is to go to school and to get a good safe job. If you are decent at taking tests, then the prevailing notion is to go to graduate school and join a profession. Sit down, shut up, be a good boy, get good grades, pass all the tests, and then become a doctor, lawyer, pharmacist, or accountant. That way you can buy a nice house, finance a nice car, attract a spouse with a similar socioeconomic background and an equal or greater level of physical attractiveness as you, have 2.5 children, a dog, buy various shiny objects, pay plenty of taxes, enjoy 2.5 weeks of vacation a year, finance most of it, and post the highlights on social media. Disregard that nagging desire to be disruptive and independent, and sharpen your pencil because the teacher has something important to tell you. These are the keys to the upper middle class they say. Do these things and you too will achieve the American Dream they say.

That may be true, but the most successful and wealthy people in this world generally aren’t doctors or lawyers or accountants, they are business owners. People who have created systems that have scaled dramatically to help entire populations of people. They say if you want to become a billionaire, then you must figure out how to help a billion of people. It requires a totally different mindset from what the traditional path trains you for. Rather than to sit patiently in class and fall in line at school, so you can one day sit patiently in your cubicle and fall in line at work, to become a successful Business owner you must learn to think creatively and strategically to disrupt or make markets and serve the masses. You have to be more than good at showing up and taking tests. Those that can do that are the true .0001%. They are true masters of the economic universe. Even if you only learn how to help thousands or mere millions of people as a true Business owner, you are at the tip of the iceberg.

At this point, I am not going to abandon the practice of law. I’m about 4 years in, recently paid off my student loans, and am starting to get a feel for what it really means to be a lawyer. It’s a fascinating career, and the choice to practice litigation and to run my own little law firm has developed me as a person in ways that I would have never previously imagined. I have learned so much about myself, the practice of law, and about business. The job can also be exhausting and stressful, but the entire process has been a tremendous eye-opener for me, and it has been rewarding in many ways. Still, I do not suffer the illusions of grandeur that I have created a true Business. I haven’t. I have created a job for myself. It’s a relatively high paying and intellectually stimulating job, but it’s still a J-O-B. So in order to reach financial independence I must become an Investor or start a Business. Better yet, I need to do both.

If you are also Self Employed or an Employee and want to become Financially Independent, then you should become an Investor or start a Business too. If that’s of interest then I recommend both Rich Dad, Poor Dad as well as Cashflow Quadrant.

Burnout and Other News

It has been a few weeks since my last post, and the reason for that is I’ve been overwhelmed and exhausted at work. It’s odd how quickly that can happen in a small law firm. My assistant was out of town last week, and as the trip was approaching there was not a whole lot going on. But of course the second she leaves town all hell breaks loose, and I have new cases coming in, clients calling with “urgent” deliverables, and work that the assistant could have helped with piles up on my desk as I try to tread enough water to keep things moving.

She came back this week and the chaos has continued. Mediations, hearings, settlement conferences, and of course plenty of phone calls and meetings. Thankfully, a few decent sized retainers have materialized out of that chaos, so at least money is being made, but as Friday approached I found myself settling a case at 4:30 (a time sensitive debt collection matter). As I walked out of the office I realized that a few things on my list for the day did not get done, and I have a full plate ahead of me Monday – so I’ll be in over the weekend to get ready and back up to speed.

It’s a great problem to have too many clients and cases. Usually I am “slammed” or bored out of my mind at work. Rarely is there that perfect balance of work coming in – it just doesn’t pan out that way in a one man law firm. I’d rather have too much going on than not enough, especially since this seems like a slow year for me. So I’ll take on additional cases as they come in, with the idea of slowly digesting that work. But as I look back 2016 has been the most frustrating year of being in business for myself.

I have had major staffing problems this year and that has really fucked with my “work-life” balance. It has made for an exhausting and less profitable year. My long term assistant left, I hired a new gal that I had to fire after 2 months, and then I hired another new assistant, who is working out alright, but needs a lot of hand holding and training – time I haven’t been able to put in this week. It’s hard to find good help, especially good part time help, and hiring and firing (plus management) is not something I have a lot of experience with. There is definitely a lot of “learning” going on here as I struggle to flesh out this aspect of my law business, and I definitely want to get that handled. Especially because I can see how this impacts my bottom line and mental health. When you start a venture you expect each year to be better than the last, and so far that has been the case, but I can’t help but think that 2016 has been steps forward in some respect, but steps back in others.

Anyhow, I don’t mean to cry, although I realize this can come off as being pretty whiny. I just wanted to chronicle this aspect of my law firm. Recently I listened to an excellent episode of the Empire Flippers podcast about “the dip” and several dips in their business and how they handed them. It was a great episode, and this is a subject that doesn’t get discussed often enough. The dips are part of all businesses. We all are beset with challenges and obstacles. It’s how we respond and improve our direction and processes that defines us.

Other News

Besides losing my mind at work, a few notable things have happened. First of all, I have decided to cut back dramatically on the amount of alcohol I drink. I think I’ll save that for a stand alone article. So far I don’t notice a huge difference, but I think it’s a worthy goal for a number of reasons that I’ll dig into further later.

My affiliate website appears to be finally picking up speed again after months of gradual decline since the holidays. I have invested thousands of dollars into content this year, and have been posting on a schedule (once a week). I have been keeping to that schedule; something I wasn’t able to do previously before hiring freelance writers to help out. I also invested in some social media scheduling software, consistently re-posting articles from my long list of archives. Despite dumping lots of money into content, the stats just dipped lower and lower every week: from 110,000 pageviews a month down to 80k or so.

But things finally appear to be heading back in the right direction. Stats are slowly climbing, and so is profitability. I will pull in close to $2,000 for July, which would be tremendous. Typically summer is very slow for Amazon affiliate sites, with the holiday season bringing in big numbers, and those numbers sliding off dramatically as we head into the dog days of summer. To have a $2k month in the heat of summer like this is an excellent step in the right direction. The idea is to continue to grow the website, with each new article attracting new readers and turning a profit. That idea is finally starting to bear fruit.

Also, now that my student loans are paid off I have been funneling money into a brokerage account, and looking at investment real estate. I am looking closely at duplexes. The market is hot now, but rents are also up. Despite the high valuations some of these properties appear to actually cashflow OK when you run the numbers. We are starting to work with an agent and I am itching to make some offers. While I am not sitting on tons of cash, I have enough available to make a purchase, and now that I am not paying down student loan debt at the rate of $2,500 or so a month, my cash reserves and non-taxable brokerage account balances are growing. Buying more rental property is inevitable. It’s something myself and my partner want to do, so we are going to make it happen.

I had to go on a trip for work the other weekend and took my girlfriend along. On the way down we listened to the Rich Dad Poor Dad Cashflow Quadrant book in the car. I have listened to this a couple times now and it’s a great book. Same with the original Rich Dad Poor Dad. Give them a read if you haven’t already.

The Rich Dad Poor Dad concept is all about creating assets. An asset is defined as something that produces cashflow. We sometimes get sucked into the pipe dream that our primary residence is an “asset” or our small business is an “asset”. If you were to leave your small business for a year, and if the business could not survive without you, then that’s not an asset. That’s a job. And if your house doesn’t throw off cashflow every month, then it’s not an asset either. Housing is a cost, and running a small business is a job. There is nothing wrong with owning a house or having a job, but the goal is to ultimately reach financial freedom. The entire premise of the book is to acquire assets to reach financial freedom. That is exactly what I intend to do.

Closing Out

As I close out this rant I feel better. Blogging / journaling like this has been incredibly cathartic. I am going to relax for the rest of the day. Maybe do some yard work and go swimming. Read a few pages of the Rise of Endymion (which has been pretty good so far). I am going to have dinner with my girlfriend and her family tonight.

Tomorrow I’m going to sleep in a little, then have a leisurely morning before I hit the gym and then head into the office for a few hours to get ready for the week. The past 2 weeks have been brutal at work, but I look forward to closing the door on them, and starting fresh this Monday. There is much to be thankful for, and we can easily lose sight of that while in the trenches, swearing and sweating profusely as the proverbial sausage gets made.

Book Review: Sapiens by Yuval Noah Harari

I have read a handful of books over the years that have really resonated with me. To the point of changing my long term perspective and in some cases even my outlook on life. In college 2 of those books were How To Win Friends and Influence People and The Selfish Gene.

How to Win Friends changed the way I viewed social interactions, largely by being less selfish and focusing on the person I was interacting with. The concept of being genuinely interested in someone and listening to them, rather than merely waiting for my turn to talk.

The Selfish Gene changed the way I thought about plants, animals, and the intersection of biology and culture. Biologically all living things exist for the express purpose of passing their DNA along. That simple yet fundamental concept has informed every aspect of living world. It is easy to take a blade of grass for granted, but when you think about how everything serves the purpose of passing it’s DNA on, it creates an entire new perspective. It did for me at least.

It has been probably 10 years since have read both books, but the core concepts have remained with me, and I like to think I remain a better person for it.

I recently downloaded a copy of Yuval Harari’s “Sapiens”, and I think that this book is right up there with How to Win Friends, and The Selfish Gene. It’s framed as a book about history, and it’s an overview of the history of mankind, but it touches on all kinds of topics – including personal finance in a roundabout way.

The book starts in pre-historic times, and discusses the rise of our species Homo Sapiens. Our conversion from hunter gatherers, to farmers, to industrialists, to gods. Along the way he touches on all manner of subjects from a simple yet omnipotent perspective. I am not a huge history buff, but still found most of the book fascinating.

One aspect of the book that I found very interesting was Harari’s exploration of the “Myths” of mankind. The myths of religion, culture, sexuality, human rights, politics, economics, and law, to name a few. These are completely made up constructs. Figments of our collective conscious woven together and iterated upon over millennia. We talk about the rule of law, but really it is the fiction of law. A fiction we collectively have bought into, ultimately enforceable by the threat of bodily harm. As a lawyer I totally agree. At many times it does feel like practicing an alchemy of sorts. An alchemy supported by trillions of tiny bits of paper floating about and connecting us. Democracy is a fiction. Religion is a fiction. Capitalism is a fiction. And mankind loves to debate (and wage war over) the efficacy of these fictions.

Oddly enough Harari argues that the only universal fiction that the world has really bought into is money. That is the tie that binds us all together as a globe. He talks about the history of money, it’s origins and evolution. In that discussion he also talks about luxury:

One of history’s few iron laws is that luxuries tend to become necessities and to spawn new obligations. Once people get used to a certain luxury, they take it for granted. Then they begin to count on it. Finally they reach a point where they can’t live without it.

This is so true.

Ultimately, Harari argues that despite us living in an unparalled era of wealth, peace, and prosperity, people are no happier today than they ever were as hunter gatherers. In some ways be may even be less happy. Although we live longer, we are definitely less healthy. We spend less time with our families, and more time in the face of distraction. The world is a more complicated place, and although there have been great advances, we have become a slave to luxury. In deciding to become farmers, humans became slaves to agriculture. We eventually became industrialists, and humans became slaves to material objects. Now as we live in the information age, we have become slaves to the very information we seek. We can argue that each of these ages have ultimately brought advances to our quality of life, but I think we also need to admit how they have become a great distractor as well.

While this doesn’t mean I am going to abandon things like grocery stores or modern medicine, it’s a great reminder to be grateful for what we have, and to enjoy the journey because for most reaching the destination only means wanting more.

Exploring the concept of happiness further, Harari looks into Buddhism (a subject I know essentially nothing about). The Buddhists argue that suffering is caused by the behavior patterns of ones mind, and that suffering arises from craving. The only way to be liberating from suffering is to be liberating from craving. And the only way to be liberated from craving is to train your mind to experience reality as it is.

It’s an easy concept to distill into a few sentences, but it’s man’s oldest problem. Hardly anyone ever reaches nirvana. We are all compelled to want, and must consciously repress our biologically programmed craving for more.

Pretty heady and interesting stuff. It certainly has given me some things to chew on, and more than a little perspective. While the book may not provide the end user with any “tactics” for reaching Financial Independence, it does provide a wealth of meta information. As we work towards the goal of Financial Independence we have to ask ourselves what the real goal is. I think for most it’s the simplification of life and the shift from fulfilling obligations to exploring fulfillment itself. In our way there are a great many distractions, and if we can work to build up enough assets to meet our basic obligations of food, clothing, transportation, and shelter, it can allow us to exist and free of from many of the barriers we have erected in our minds as a society – if we permit ourselves to be content with the moment.

Ultimately, the greatest irony of this material world is that “not wanting” leads to higher level of personal satisfaction and happiness.

Sapiens is the best piece of non-fiction I have read all year, and arguably the best book I have read in a long time. Recommended reading for anyone, and especially poignant for those seeking FI.

Should I Pay Off Student Loan Debt or Invest?

This will be the first in a series of basic investing posts. As I think about where I want to go with the website, I realize that I should answer the questions I had when I started out and share what I have learned in the process.

One of the biggest dilemmas I ran into personally was the question of whether it was best to use excess cash to pay down my student loan debt, or invest in the stock market (and by “stock market”, I of course mean index funds – not individual stocks or managed funds). This same question could be asked with medical debt, credit card debt, a car loan, or possibly even a mortgage.

I am here to report that there is no perfect answer. I think there are good arguments for both sides. As I tossed this idea around, my ultimate answer was to do both. Invest in the markets, and pay down debt at the same time. Here is the order I would do things in:

1. Make The Minimum Payments on Your Student Loans

The first thing you need to do is not default on your debts. I guess this goes without saying, but start by making whatever the minimum payment is.

2. Max Out Your Tax Advantaged Retirement Accounts

I didn’t do this at first (I was trying to figure all of this stuff out), but if I knew then what I knew now, I would have started a SEP IRA the first year for my business and contributed as much as I could to it. Instead I contributed to a ROTH IRA in my first year. I could have saved some money on taxes by funding a SEP in my first year, but am glad I at least contributed to something. The advantage to contributing to a SEP IRA (or a 401K, or some other tax deferred account), is that the contributions are tax deductible so you pay less in taxes. As someone who is self employed and making money, this quickly becomes a big deal. Taxes are killer, especially for the self employed, and it makes sense to legally avoid them at all costs.

If your employer offers a 401K, I would at the very least contribute whatever it takes to get the employer match. That is “free money”. In a perfect world I’d max that sucker out.

3. Split Anything Left Over Between The Loans and a Brokerage Account

If you have made the minimum payments on your loans, have taken full advantage of your tax advantaged accounts, and still have money left over, then that is where it starts to get interesting. You could throw that extra loot towards your student loans, you could fund a non-tax advantaged brokerage account, or you could do what I did: both. I suppose you could also do something else with the money, like create an emergency fund, save up for real estate, blow the money at a strip club, etc. But for arguments sake we will just assume you want to either pay down debt or invest with this extra cash.

What makes the most sense will depend on the interest rate on your loans, whether you can take advantage of the student loan interest deduction, and your tolerance for unsecured debt.

If the interest rate is 6.8% like mine was, I would strongly advise using most of the money to pay down the debt. By paying off down the loans you get a guaranteed return of 6.8%, which is pretty excellent if you are talking about guaranteed returns. I’d take 6.8% guaranteed all day over the vagaries of the stock market.

I’d also chuck more towards the loans if you are just starting out your repayment plan. You pay more interest at the start of a loan, so by making additional payments to principal early on you both reduce the total amount of interest you will pay, and you will reduce the life of the loan. Contrast that with getting towards the tail end of a loan. In that case, you are mostly paying principal.

img-loan-amortization-chart

If your loans are at an interest rate of below 4%, the decision may become harder. I ended up refinancing my student loans about half way through repaying, and my new interest rate was around 3.7%. 6.8% made the decision easy. 3.7% gave me pause. The prevailing notion is that the S&P 500 has historically yielded an inflation adjusted return of 7%. So on average you are going to get a superior return investing in the portfolio and playing some interest rate arbitrage. Your net return will theoretically be greater if you make the minimum payments on the student loans, and shovel excess capital into a portfolio.

While the cold hard calculated answer may be to invest the difference in a portfolio, some people really don’t like unsecured debt. I don’t think you can fault those people.

Personally, I really did not like the idea of having student loan debt, so I chucked most of my excess capital to the debts. I still funded a regular brokerage account and a Lending Club account, but I probably contributed $500 a month to those accounts. On the flip side, I was funneling $2k+ a month to the loans. I paid the loans off in about 3.5 years, approximately 6.5 years early, and jumped over thousands of dollars of interest payments. The student loan interest rate deduction didn’t do much for me, as I was phased out of it, and I would go nuts every time I saw the outstanding balance on my loans.

Advantages to Paying Off Loans Early

I can think of a few advantages to paying off the loans early vs playing interest rate arbitrage, but they are more reasons for psychological health than anything. If you are very debt adverse, fiscally conservative, etc, you will likely sleep sounder locking in the guaranteed return of paying off the debt. It will shore up your balance sheet, making you more credit worthy, and once you pay off that loan it will free up cashflow.

If you go by historical rates of return it will not yield the biggest bottom line, but I am not sure most people will really notice a huge difference.

Advantages to Investing and Not Paying Off Loans Early

As previously mentioned, the main advantage to not paying off your loans is it frees up money that can be presumably invested at a greater return than the interest rate on your student loans. Thus, you net the difference in interest rates and ultimately wind up with more money at the end of the day. Some people have used this to great effect, making the minimum payments on their student loans and using their cash to buy real estate at the trough of the market. Hats off to them. If you have the ability to truly find a superior return elsewhere, then the math dictates this is the best outcome.

Also, if you were to invest money in a brokerage account you could presumably sell your positions easily and free up the cash in the event of an emergency / amazing opportunity / etc. This is called having “liquidity”. Once you pay the bank you will never get that cash back (unless of course you take out another loan). This liquidity argument can be another benefit to investing your excess cash. Of course, if the stock market takes a nose dive you aren’t going to want to cash that investment out anyways, so practically speaking I am not sure how much water this argument holds.

Consider Where You Are in Your Loan Payoff Schedule

Again, if you have just graduated and started paying your student loans, then it makes the most sense to chuck extra money at the principal. This is because when you start paying down a debt with interest, the interest is front loaded and most of your initial payments go to interest. Contrast this with getting to the end of the loan, where most of your payments go to principal.

If you are on the fence between paying off early and investing, then see how much of your payment is going to interest and how much is going to principal.

If you are already 5 years into a 10 year loan, then maybe you don’t want to be so aggressive as you have reached the tipping point and more of the payment is going to principal than interest. If you are at the very start of your loan, then now is a great time to make extra payments to minimize your interest expense.

Personally, it really pissed me off to see 75% of my payment go to interest. That was like money out the window. I wanted to throw extra at the principal to get that number down. Then again, I was pissed off at the tail end of the loan too. I’m just an angry person when it comes to unsecured debt.

Student Loans vs. Savings – Final Thoughts

While there is no perfect answer, I think utilizing tax advantaged accounts is important. If you can afford to save, you want to start saving something – especially if it benefits you from a tax perspective. The net gain will be higher, and you can never go back and claim the benefit of these tax deductions for prior tax years. Might as well carpe diem.

My Roadmap to Financial Independence

One of the best parts about starting this blog is forcing myself to crystallize ideas and enumerate goals. They say the best way to learn a subject is to teach it, and in a way this blog is forcing myself to learn how to be financially literate by attempting to explain it in the form of a blog post. Good stuff.

Over the past 6 months I have written articles about all sorts of random things; from investing in commodities to grooming tips. The focus of course is personal finance and the pursuit of financial freedom, but until now I have not explained to the reader (or myself) exactly how I plan to get there and what the dollar amount goal is.

I think spending time to flesh this out is especially important after paying off my student loans. That was the real goal for the past few years of my professional life, and now with the loans paid off my mind has been searching for the next step.

I have known that next step is to acquire more assets and reach financial freedom. To be able to walk away from working a 9-5 job as a small town lawyer – if that is what I really want to do once I get to independence. To have the freedom and autonomy to step away from the chaos and to pursue whatever it is I was meant to actually pursue. And who knows, maybe I was actually meant to pursue being a small town lawyer.

Let me caveat things by saying that I don’t hate my job. I work for myself, which is something many people apparently want to do. I also make pretty good money. At the end of the day I like the idea of more options. Right now as a lawyer I am primarily in the time for money business. I can leverage employees a little bit, but by and large my ass needs to be billing hours to make a paycheck. It’s not particular efficient. And when you are in business for yourself it seems like you are always working. Add in the fact that the work is typically fast moving and stressful, and I definitely want to create some options for myself.

While I have discussed some of my investing philosophies tangentially I want to spell out my entire approach to the goal of reaching financial independence – and then get there. I want to get as granular as I can about this. I expect this post will serve as reference for myself, and will be updated and evolve as my approach evolves. I am at the beginning of the journey and don’t pretend to be a guru on the mountain top. I’m the joker down at base camp. My debts have largely been paid and I’m well provisioned for the time being, but I got a steep climb ahead of me.

The Goal: $1.5M in Liquid Assets and a Paid Off House

I don’t think $1.5M (in today’s dollars) is my minimum amount to be Financially Independent, but it sounds like a good safe number. Assuming a conservative 3% withdrawal rate that is $45K a year.

Based on my current levels of spending this number is more than enough to live off of, especially if that figure doesn’t include a mortgage payment. Luckily here in Florida home prices are still somewhat reasonable compared to other parts of the county. They have risen substantially in the wake of the recession, but it’s entirely possible to get into a decent single family home for under $250,000. You could go much lower.

I could live in my rental condo, which currently has a small mortgage and an annual burn rate of approximately $4,500 if you just look at the condo fees, taxes, and insurance. That number does not include maintenance. To be conservative we could budget 5% a year in maintenance based on a fair market value of $75,000 would be another $3k or so, putting me well below $10k a year for housing. Most will argue that is pretty ridiculous, but that is the potential benefit of buying a 1 BR condo vs. a $300,000 McMansion like many of my peers are now buying.

Of course renting could also be an option, but since I rent my condo for $12k a year, it probably makes more sense to own the unit outright than rent it if the plan is to stay where I am. Maybe that will change in the future depending on the market and my housing needs. Renting vs. buying would certainly be a big consideration for most people planning for Financial Independence. For now I’m going to plan on owning a place. I want $1.5M in the bank and a mortgage free domicile of some sort.

Looking at my $45k budget a little further, I wouldn’t have some of the expenses I currently have as an “early retiree”. There would be no expensive suits, Allen Edmond’s shoes, not as much need for a reliable car (so less gas, maintenance, insurance). I wouldn’t need to pay for disability insurance as I would be self insured. I’d probably qualify for some sort of subsidized health insurance (although I am already on a high deductible plan, and as a health 30 year old man my premiums are not much at all). I’m already living pretty cheaply, but there is always fat to trim when you can exchange time for money and don’t have to show up to the office with a fresh shave and $75 shirt.

Of course if you are really going to do this you have to see what your historical spending is. Otherwise pulling a retirement budget out of your ass is going to be of little value, and at worst can be reckless. I use both Mint and Personal Capital to track spending. Looking at Personal Capital it states that I have spent $32k for 2016 (as of 07/02/2016). Of that $32K, approximately $20,000 has gone to student loans. However, this doesn’t tell the entire story as my law firm pays for certain things (my cell phone, computer, some meals, etc.). Also, some of the expenses listed in Personal Capital are expenses for my income producing website and rental condo. Using rough math I would peg my current actual annual spending around $20k, which includes rent and does not include paying my educational debt.

So this is something I’ll need to refine as I get closer to a target date. For the time being I’m fine with my $1.5M target and annual budget of $45k.

The Plan To Get There

At the end of the day the plan is pretty simple. Save the majority of my income, and divert it to a diversified portfolio of stocks and bonds. My strategy is to dollar cost average my way into the market by automating the purchase of index funds on a weekly basis, to maximize the use of tax advantaged accounts, to use low fee index funds and manage my own money to preserve as much of my capital as possible from expenses, and to let compounding do its thing.

The question is, how long will I need to let compounding do its thing to reach $1.5M?

One of my goals for 2016 is to save half my income. The way I plan on doing that is to first make a pretty decent income. Lets face it, for most people there are fixed costs in life – housing, food, transportation, and utilities. These can get minimized, but most people are going to have to spend some money to live – lets say $25k a year. That’s probably what my budget is. If you make $60k there is more meat on the bone (or fat to trim) than if you make $30k a year.

I then track my expenses closely by using both Mint and Personal Capital (of course any sort of budgeting software, or just a spreadsheet, will work), and attempt to minimize those expenses. From housing, to insurance, to food, my cell phone bill, to the kind of razors I buy, I do the best I can to cut away the fat while still living decently. Having been a professional student for the first 26 years of my life, I’m used to living more or less like a bum. As long as I had a bed to sleep in, a laptop, and cold beer in the fridge I was cool. My goal is to continue to live like a student for as long as I can get away with it.

In some instances there are easy wins, like cutting cable, switching from a $100/month cell phone plan to a $30/month one, not eating out so much, not going to bars often (or buying much alcohol in general), having cheap hobbies, riding a bicycle, fixing things yourself, buying used vs. immediately going to the store, etc. And then there are big wins like downsizing your house, moving closer to work, taking on a roommate, not buying new cars every 3 years, not buying cars at all, delaying having children, not having expensive pets, not taking on credit card debt, using airline miles to travel, exercising regularly, etc.

My biggest expense by far for the past few years has been student loans. $2-3k in student loans each month. God I am happy to have those things out of my life.

To get back to my question, assuming I make 100k a year, save 50k on top of my current “nest egg” of $75,000 and assume an inflation-adjusted historical return of 7% I should reach my 1.5M number in 15 years.

15 years doesn’t sound too bad, but I’d like to try and accelerate the process and also develop some other income producing assets. Namely real estate and income producing websites. That way I can “really” have financial independence. I think for me I will want to continue to have money come in. Cash flow makes the grass grow, and the thought of just living off of stocks and bonds, while totally doable, doesn’t 100% appeal to me at this point. I want to have a couple sources of income and let my investments grow to provide a wider margin of error.

Real Estate

Real estate has proven itself to an attractive investment for a number of reasons. Those reasons include:

  • Leverage
  • Cash flow
  • Appreciation
  • Tax advantages (depreciation, write offs, no self-employment tax on the income)
  • Hedge against inflation

I have witnessed the power of real estate by observing my own parents, representing wealthy landlords, and reading books on the subject. Bought right you are supposed to make money on day one with real estate and can achieve a superior return with a disciplined approach. I can see the power of real estate with my one little condo that I am renting.

The only problem is, the market is a seller’s market now, and unless I work hard to hustle up deals then I won’t get an adequate return by purchasing properties at retail prices off the MLS. That’s OK, because I don’t really have any money to spend right now anyways. In fact, I just spent most of my liquid capital paying down my loans.

I have plenty of excuses and only one property right now, but I’ll close this section out by saying real estate is on my radar and I’m building up a small war chest with the goal of scooping up some more properties when the time is right.

Income Producing Websites

Not many personal finance bloggers will blog about using income producing websites to reach financial independence. But the dirty little secret is that the successful bloggers make good money with their sites. That’s OK. I don’t have a problem with people making money, and I think successful bloggers can choose to be compensated for their work like anyone else. But I also think this is an interesting approach that can help you pursue financial independence.

For example, my main money making affiliate site nets about $1,500 a month. That is 18k a year. If you ascribe to the 4% rule, you would need to build a portfolio of approximately $500,000 to generate $18k a year in investment income. That’s pretty powerful.

Of course there are risks to building websites, and you have to pay ordinary income tax on the earnings (and self employment tax at that typically), but if you know what you are doing and have diversified your income, I think income producing websites are a hell of a lot better than working a part time job, owning a franchise, etc. Certainly the semi passive income from a website is better than exchanging time for money. As a lawyer I can tell you that gets old quick, as I only have so much time (and energy) to give.

Plus, there is something undeniably powerful about being involved with the internet. Owning a couple websites have changed my life. Not only has it provided an income stream that will get me to financial independence faster, I have learned a ton of skills that I have applied to all sorts of things. It has completely changed me as a person. It has also allowed me to form relationships with people that I wouldn’t have otherwise met.

Being involved with the internet also keeps you current. If you don’t keep up with technology, you will grow obsolete. It’s sad but true and I have already observed some of this in my very short professional career. As an employer I am looking for people that are technologically savvy. I can teach someone how to do the specifics of a job, but I can’t teach them how to use a computer.

Keeping a finger on the pulse of the internet by forcing yourself to build and market a website is a great way to develop these skills.

I think MMM did a great job articulating this point through his post. He is totally right. If you invest the time in learning how to use a computer, and I mean to really use it to create something cool, not just fuck around on Facebook and pretend to work your 9-5, then rewards can be millions and millions of dollars. The computer and the internet is literally the difference from me working for someone else, and making low 6 figures after 3 years of starting my law firm.

And guess what, there are people that use computers a hell of a lot better than me. We all have the potential to double, triple, or 10x our output. It’s just a matter of thinking critically and taking action.

Now that I have made a case for income producing websites, I’ll talk a little more about how exactly they fit into my plan. I plan on continuing to grow out my existing main site (by writing articles and hiring writers to write articles – I am already doing this).

I don’t see myself building another income producing site from scratch (unless I was extremely passionate about the subject matter), but I may purchase other websites. Like any asset class there is a market for income producing websites, and the price is based on the relative risk and the earnings.

Fair market value for a quality website seems to be 25-30x it’s monthly net earnings. So a website like mine making $1,500 a month would sell for somewhere in the $35-45k range. A $100k website selling at a 30x multiple should spit about about $3,300 a month. That is basically 3% of a million dollar portfolio, and could conceivably be an income replacer for some people. It’s pretty cool that you can theoretically buy an income stream like that for $100k.

So perhaps purchasing an additional website or 2 is in my future. While I don’t like the idea of subsisting off a website without any kind of nest egg, this could be a great tool after reaching FI to allow my portfolio to compound without having to tap the principal, or potentially allow me to “semi retire” from practicing law at some point.

In closing, the FI and internet marketing / blogging crowds have a lot in common, and I think a lot can be learned from these 2 communities. The internet will definitely play a role in my plans for financial independence.

Final Thoughts

If I follow this plan Financial Independence is inevitable. Even if I skip the real estate investing and web development stuff, Financial Independence is inevitable if you save a significant portion of your earnings. At the end of the day, this is just a simple formula. It’s how much you save (invest) vs how much you spend. If you save substantially more than you spend, and do that long enough, eventually the income and growth from your portfolio will replace your earned income. It’s that simple.

Then again, losing weight is also simple. It’s calories in vs calories out. Yet so many people struggle with their weight (myself included). The key is consistency. The good news is we can automate a lot of our financial lives. We can make saving painless by having the money automatically withdrawn from our accounts. I only wish I could automate my ass into the gym every morning.

I am at the beginning of my journey for financial independence. If I approach this from purely a stock portfolio perspective, I expect to get there in about 10 years. At this point I think I’ll be able to save more than 50% of my income if I continue to make as much money as I am making, and don’t fall victim to the traps of consumerism and luxury. I feel strongly about reaching FI today, but I suppose anything can happen. The world owes you nothing.

State of the Union: July 2016 Update

Where to begin. I have a number of ideas for blog posts floating around my head, but haven’t found the time to put pen to paper. Given the multitude of things that have happened both personally and professionally over the past few weeks I have decided to do a little journal/blog update. Some of these ideas are topics that I plan on diving into further.

Personal

The biggest news for me personally, beyond recently paying off my student loans earlier in July, is that I went on a short vacation. I ended up staying with my good friend Andrew up in Montreal. Andrew has been bugging me to go up there for years now, and this summer we finally decided to make it happen. I am glad we made it happen because it was an excellent trip and I had an awesome time.

I am not a big traveler. Since starting my law firm in late 2012, I haven’t taken more than 2 business days off (last year I believe I took a Friday and Monday off). This time I did Thursday, Friday AND Monday. I know, holy shit, what a massive amount of time away from the office. In the past it has always felt very stressful to take the time away, and the ensuing shit-tornado of returning was always stressful. This trip I was taking the time off without an assistant to hold down the fort so I was really unsure of how things were gonna go.

Oddly enough this was the most relaxing trip I have gone on. Maybe it was due to the high volumes of exercise, food, and alcohol, or maybe I just got lucky with a short lull in my practice, but I flew home Monday night and got into the office around 10:30 Tuesday morning, and while there were a pile of voicemails to contend with I managed to work through everything quickly and even left the office a little early (around 5 or so?) that evening. Spectacular.

It was a great trip and it has me thinking about a number of things, including travel, and living in a city. Montreal is just a tremendous and beautiful city (at least in the summer) and it was so nice to be somewhere completely different for a few days. What amazed me most was the amount of young people. Here in S.W. Florida everyone is old and limping around, exercising poor situational awareness, and generally getting in the way. To be surrounded by so many young people and the hustle and bustle of a city made me feel as if I were in another world. Just an awesome trip.

Reflecting further on the student loan situation, I was never hit with a wave of euphoria. I don’t think anyone jumps for joy when a debt gets paid off. Instead, I just feel relief really. I am relieved to have that obligation behind me and I look forward to money piling up in my checking account and being diverted to assets, not paying off liabilities. I’m relieved to read a forum post about someone’s student loans and realize I am no longer in that situation. It’s great to own my degree “free and clear”.

Books

I have been reading quite a bit, shooting for my 2 books a month goal that I set for myself at the start of 2016. Over halfway through the year and I have done a good job keeping my nose in a book and have read some cool stuff.

The past few books have mostly been fiction, including 3/4s of Dan Simmons’ “Hyperion” series, a Raymond Chandler Philip Marlowe book (awesome books), and some Charles Bukowski (not the best influence honestly, but always an interesting read).

After stalling out on Dan Simmons’ series after finishing Endymion, I decided to switch over to some non-fiction. I read Anthony Robbin’s “MONEY: Master the Game” book, which is the subject for a stand alone review (it was actually pretty good), and I am currently reading Sapiens by Yuval Harari. I am maybe a quarter of the way through it, but so far Sapiens is proving to be an interesting read. Evolutionary biology has always interested me, especially after reading The Selfish Gene in college. That book really helped provide some perspective and I think Sapiens is a novel that will have a similar effect.

Anyhow, books are being read so that’s good.

The Affiliate Site

My main affiliate site / money making blog is lumbering along. I have published weekly for all of 2016 and while traffic has slowly petered out since the holidays, the site seems to be gaining a regular audience and I have received feedback that people are enjoying the regular content and additional authors that I have brought to the site. In the past I wrote every single article, and probably averaged 1-2 posts a month. Now I post every week.

While I haven’t seen a huge payoff in traffic or earnings yet, I am laying the foundation and think that eventually the site will turn a corner and all of the excellent content I have added will pay good dividends. At the very least, it will sustain the site’s current earnings (around $1,500 a month gross in the off season) with a minimal amount of work on my part.

The Law Firm

The last time I blogged about my firm was in mid March. My assistant of 1.5 years (and my first employee ever) had just left the firm. I immediately hired a new paralegal. She was literally the first person that I could interview. She represented that she could do the job, had decades of experience, and seemed a little quirky, but in a fun way. So I hired her on the spot.

In retrospect that was a huge mistake. From the first day I knew that this lady was not my best hire. But I tried to make it work. After 2 months of trying I had to let her go, and I had no one lined up to replace her. This time around I patiently interviewed candidates for a couple months. I never found that elusive “perfect hire”, but did bring someone on board this past week. She is totally different from my previous 2 paralegals (who were much older), but I am hoping this one will stick.

Otherwise my law practice is chugging along, at least as much as it can chug along with me being my own paralegal. There is a lot of administrative and busy work in the practice of law (especially in litigation), and I was doing all of it. So I felt busy (extremely busy), but wasn’t terribly efficient. But I would rather be in that position than hire the wrong person again, so I slugged it out.

I have a couple cases that are bothering me (there are always a few), but I am trying to get smarter about case selection. Proper case selection has a huge impact on your practice and quality of life.

Investing

After reading Tony Robbins’ book I decided to liquidate some of my U.S. large cap index funds to establish a small position in bonds. Previously the only bond exposure I had was through my position in target funds, and was less than 5% of my portfolio. Plus I was over-weighted in U.S. large cap stocks. So I now have a small (~$2,500) position in Vanguard’s Total Bond Index Fund. My bond holdings are still under 10% of my portfolio, and I’d like to continue to bolster that in the future. I figure at the very least this will give me some ammo to use in the event of a major market turn, plus it should reduce volatility. I am not 100% sure what percentage of my portfolio I want to be in bonds, but somewhere between 10-20%.

This business with Brexit has been interesting, and like everyone else I’ll be very curious to see what happens in the next few weeks. I already have a good chunk of my small portfolio in international index funds, so I don’t know if I necessarily want to buy more, but will continue to contribute to those funds through dollar cost averaging. I’ll be watching the markets closely and may scoop up some additional stock if the markets take a big hit.

My investment in silver has done pretty well, and only appears to be doing better in the face of this market uncertainty. I think it’s a good idea to have some level of exposure to precious metals and I have increased this position slightly via Vanguard’s Precious Metals and Mining Fund.

My investment in Lending Club stock hasn’t tanked yet, but I am considering selling some of that off. If the U.S. markets take a huge dump I’ll hold off on liquidating for the time being.

This Blog

I have tried to post at least once a week, and have been pretty good about that (with the exception of last week while I was on vacation – didn’t have the time or brain cells available to write much). The blog sees virtually no traffic, but I am not surprised. I have done nothing to promote it, and most of the content isn’t terribly valuable or amazing. I haven’t done a particularly good job editing these posts either. Even if I were taking this more seriously, Google has a sandbox that takes months to get out of.

So there are a lot of excuses, but at the end of the day I am not disappointed because I am having fun and taking things at my own place. I have no real expectations beyond the goal of writing at least once a week. I have experience blogging and know how much work is involved to experience any level of success – a ton. This blog is unfocused, rambling, and self absorbed. I haven’t put in the effort and I don’t think I have created much value in the content for readers.

This has been more of a thought experiment, and the very act of writing has been cathartic and doing things like writing out goals, chronicling my progress, and forcing myself to form semi-coherent arguments about financial decisions has been valuable. I enjoy writing these posts, and I am treating this as more of a glorified journal than anything.

Final Thoughts

We are over the halfway mark through 2016. Time is flying. Generally I feel like I am heading in the right direction. Things aren’t perfect (they never are), but one thing I am trying to do a better job of is practicing gratitude. It’s very easy to look at what you don’t have, when the truth is if you are able to read this, then we are all incredibly blessed and fortunate for so many great things in life.

In pursuit of a debt free lifestyle and ultimately financial independence it is very easy to simply focus on the destination. If you only focus on the destination then I think the end result is hollow. You can’t just live for tomorrow, but must learn to appreciate what you have today. You have to be present, and you have to be thankful.

On that note I am going to go to the gym and head into the office to get some work done. Until next time.

Giving Debt the Middle Finger – I Finally Paid Off My Student Loans

I made my final payment on the student loans this past week. The remaining balance was the better part of $7k. After paying all the bills for June, I saw that I had the money in my checking account. And for some reason I have tortured myself with these loans. Despite aggressively paying extra principal each month, and despite refinancing them from 6.8% interest to under 4% interest, I was still never able to compartmentalize the phenomena of being responsible for these loans – every time I looked at the statements I felt compelled to throw more money at the debt, and the closer the balance reached zero the more I wanted to pay the fuckers off.

So after seeing I had the cash to cover this debt in my bank account, I decided to finish it off with one final key stroke.

I am writing this post on a Saturday, and I pulled the trigger earlier on Tuesday. The situation has begun to sink in, although it’s still not entirely “real” to me. It’s great not to have this balance needle at me any more, but I think it will be even greater to see money come into my checking account that is not immediately earmarked to pay off debt. Instead, that money can be used to acquire assets.

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For a moment there I almost felt guilty. In a way, this was a irrational decision. The interest rate was under 4% and I was at the tail end of the loan; the part where most of your payment goes to principal. The prevailing notion is that you can do better by playing interest rate arbitrage and investing in the stock market, real estate, peer to peer lending, etc. And there is also something to be said for liquidity. Cold hard cash to deploy when opportunity strikes or need arises. Once you pay off a loan, you can’t get that cash back if you need it. So there is an opportunity cost to paying off debt early. Aggressive investors play the arbitrage game, find higher returns elsewhere, and keep liquidity in mind if a good opportunity comes along.

That feeling of guilt has largely faded away. The debt was like a splinter under my fingernail, and I’m glad the day has come where I could finally pull it out. No real regrets at this point. I’ll let you know if that ever changes.

I think the exercise with the student loans and my desire, my borderline unnatural urge to pay them off, says a lot about my personality. Ever since I graduated and saw exactly how much I owed my burning desire has been to pay this debt off. As soon as I had the money available to pay more than the minimum payments I was paying extra towards these loans. This was before really exploring the personal finance blogosphere. It’s clear to me that I am not a huge fan of unsecured debt. I don’t plan on taking on any more in my lifetime.

I remember early on I was trying to figure out what was better: to pay off debt early or build up investment accounts. It was the exploration of that topic, the search for a bright line rule, that got me to some of the personal finance blogs that I now read regularly. The decision to use excess cash to pay off debt vs invest is a somewhat deep subject, and one I plan on discussing in further detail in its own stand-alone post. The bottom line is that there is no bright line rule. Everyone’s situation is different. In my case, while I aggressively paid down debt, I still decided to build up investment accounts to the extent that it made sense from a tax perspective.

Debt Paydown Over Time
A fairly accurate graph of my debt paydown path

I am glad that I also contributed to investment accounts during my debt pay down period, and I think there are 3 main benefits for doing so. First of all, I was able to realize some tax benefits by doing this. Secondly, I was able to get my nest egg snowball rolling a little by contributing to investment accounts over the past 3 years or so. Building long term wealth is all about time in the market, not timing the market, and the best time to start investing is 20 years ago. The second best time is 3 years ago. And my final reason is liquidity. Most of my money is locked away in IRAs, but I do have a modest taxable brokerage account, that I could liquidate if needed.

Of course, by contributing to these accounts I delayed the time it took to pay off my loans, but once again I don’t think I will regret the path I have taken. I’m pleased with paying these loans down in under 4 years and it feels great to have that entire ordeal behind me. I feel privileged to even have the choice of whether I make extra payments or contribute to investments. That is a first world problem of the highest order.

And ultimately, the loans served their purpose. It allowed me to finance an education to create a better future for myself. I still think there are problems with our education system and financial forces behind it, but ultimately the decision to go to school and take on debt was a decision I made. No one held a gun to my head. I consider myself lucky to escape with mostly graduate school debt, to have gone to a state school vs. a private one, and to have invested in a valuable degree. In retrospect I am not sure exactly what I would have done differently, but I will think on it and perhaps write further on the subject.

Looking Ahead

So now that my debts are mostly cleared (I still have a small car loan and small mortgage), I have a modest portfolio to build off of. The car loan will get paid off quickly. I have only made minimum payments on that loan (at 2.99% APR), and I’ll likely zap it over the next few months. The portfolio sits right around $75k. It’s a good start, but not near enough to provide any kind of real financial security.

As I look ahead my new goal is to be able to walk away from my day job in 10 years and 20x my portfolio. I’d like to also acquire more cash flowing real assets and build out my online business. The goal is to have my money work for me, rather than the other way around.

The practice of law is hard, and only getting harder. Like most people, I did not go to law school out of love for the law. I went because I was adrift in life, afraid of putting myself into the job market and failing, and thought it was my best shot at making decent money and ultimately finding happiness. I thought hitting the “snooze” button for 3 years and going to grad school would somehow weather the economic shit storm and avoid the pain of finding a good job. I was wrong. My problems were there to greet me the day I graduated, only now they had 70,000+ friends behind them.

The bar association is slowly gutting the legal profession, while technology is also driving many lawyers to obsolescence. I don’t mean to whine; just stating the facts. I have no problem with technology, and certainly there will continue to be a need for highly talented lawyers, but even if you were to not factor in the pressure on the industry, you still have the pressure of being a practicing attorney. It can be extremely stressful, especially if you are a trial lawyer, and the practice of law has chewed up plenty of people.

With all of that said, I have enjoyed practicing law. I think it’s a great privilege to be an attorney and I love being self employed and helping clients solve difficult legal problems. I also love being in Florida. Growing up my family moved around a lot for my Dad’s work, and I’m glad that I can stay in one place if I so choose. I don’t regret my decision to become a lawyer, and I think the entire exercise has made me a better person.

The legal markets will continue to evolve, but I plan on evolving as well. I started at the bottom with little. In fact, I started $120k in the hole. I also had poor self image, I was totally insecure, I had no money, no network, and no clue what I was really doing. I timidly put one foot in front of the other and started walking towards the light. The past 4 years have been an amazing journey of self discovery. Who would have guessed that beneath all the layers of self-loathing and neurosis there was actually something that resembled a spine and pair of balls. There was even a desire to get off my ass and make something happen. To finally face reality and become a man. Who would have known.

This first leg of the journey was all about laying the foundation. The next part is about building the empire.

Wearing Uniforms to Reduce Decision and Wallet Fatigue

We live in a world full of choices. Everything from what we want to do, who we want to do it with, to what brand of toothpaste to buy at the grocery store. And if you are like me, you make dozens (if not hundreds) of choices every single day.

In my case, I like to think they are important choices. As a business owner and lawyer, I have to make critical decisions for my business and clients on a daily basis. Everything from accepting or declining a case, to prioritizing tasks to making important strategic decisions on a client’s matter. Some of these decisions can have a grave impact on my future, and the future of the people who have hired me. And then there are the more mundane choices. What to have for lunch, what exercise to do next at the gym, etc. These choices can be nice luxuries, or in some cases they can become an anxiety laden burden leading to decision fatigue.

Personally, ever since I got out into the working world my goal has been to simplify my existence. That’s what attracts me to paying off debt and pursuing financial independence. That’s what attracts me to trying hard not to focus on acquiring a lot of “stuff”. The end result is cutting out all the bullshit that can consume people. The endless hamster wheel of the rat race. Maybe it’s because deep down, I’m lazy. Keep up with the Jonses? Fuck that, I’d rather stack some cash so I can eventually check out. Regardless, the goal for me is to try and declutter and simplify my existence wherever and however possible. You can argue it’s to free up mental CPUs to make better decisions when it really counts, or a deep desire to avoid bullshit at all costs.

One way I have been able to cut down mundane decisions and to free up mental CPUs is to wear a uniform. If you were to see me at my office on any given day I’ll be wearing dark gray or navy blue slacks, a blue or white long sleeve button down dress shirt, a black leather belt and black leather shoes. I basically rotate through all my clothing and grab whatever is next on the rack. I won’t claim to be the first person to come up with this. Plenty of successful people wear uniforms.

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The trick for me is to buy quality clothing that fits well and is comfortable, and then to stick with what works. I like solid colored shirts because people will notice if you wear the same patterned shirt all the time. I have 4 pairs of the exact same shoes, which extends the life of the shoes dramatically.

Granted, all my work stuff is relatively expensive (Brooks Brothers clothing and Allen Edmonds), but it looks good and holds up well. I also have a tailor by my office, and I make good use of her to mend and alter my clothing as needed. It’s money well spent because clients and other lawyers notice and appreciate the fact that I look like a professional. It sounds a little ridiculous, but in the working world image is important, and it all goes to the bottom line.

So while I am generally pretty cheap, work clothing is one area where I don’t want to be a tightwad.

But even if the clothing is expensive, it all gets used regularly and I get my money out of it. I think this is far better than buying a bunch of clothing that never gets worn. This happens, especially if you buy a lot of trendy or one off pieces. I have cleaned tons of stuff out of my closet that I bought on an impulse and then rarely or never wore. Eventually that stuff gets chucked to Goodwill, and it’s like throwing money in the garbage. I know exactly what dress shirts I like, what pants I like, etc. Everything gets worn and nothing gets wasted. At the end of the day I think it saves money.

I have enjoyed having a work “uniform” so much that I have instituted the same policy for my after work and weekend clothing. On the weekends I’m a lot less formal. It’s shorts and t-shirts for me year round. I used to wear cotton t-shirts when I was younger and assembled an impressive wardrobe of graphic t-shirts. Stuff I thought was cool.

Once I got a little older I was able to step out of my own mind a little and stop trying to be so “cool”. I switched to plain t-shirts and polo shirts. This approach worked well for law school. It was a little more mature than the sweet wolf t-shirts I wore in college, and I began to appreciate the simplicity of having a uniform of sorts.

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I also found some plain cotton shorts at Wal-Mart for under $10 a pair that I really liked. I bought several dozen pairs. They are called Wangler “Timber Creek” shorts. Wal-Mart no longer carries them, instead only selling goofy cargo shorts, but I was happy to see that K-Mart stocks them, and that there is still a K-Mart in my town.

These days I wear a gray quick-dry shirt and plain shorts on the evenings and weekends. These are perfect for working in the yard, going to the grocery store, working out, etc. I pair these with some dark brown Sperry Topsider boat shoes and I’m basically ready for anything.

As an aside, I have had my Sperrys for 5+ years now and they are still going strong. The soles are surprisingly tough, and although the leather has worn and cracked a bit, they are still semi-presentable. I like the fact they are closed toed (a must if you have any common sense), plus there is no need to wear socks with them. They have held up way better than a pair of tennis shoes. I think what I will do is acquire another pair and keep them as my “nice” pair, if I go out to dinner or do something that requires looking sharper. The old pair is still perfect for mowing the lawn or tooling around on my bicycle.

And if you live in the South, then I highly recommend shirts made of “quick dry” material. For whatever reason it took me a while to jump on this bandwagon, but I am never going back to cotton t-shirts for casual wear. I sweat like a pig, and while these quick-dry shirts still take a while to dry out, they are a lot better and a lot cooler than cotton shirts. Just don’t put them in the dryer (they shrink).

While I can never say I spent a ton of money on clothes, if you are looking to shore up your budget, this is one place to look. Some people go on clothes buying bans, or only wear rags. I’m not that extreme (or that rich), and probably spend under $200 a year on clothing (including shoes, underwear, etc.) and I’m comfortable with that level of spending. I have never been a big clothes shopper so if the stuff works I’ll pay for it and get on with my life.

Work clothes I’m probably at $500 a year or so after building up a base line of suits, shoes, etc. This is for 2 or 3 dress shirts and couple pairs of slacks. Throw in a pair of good shoes and I’m probably pushing a grand. It’s a fair amount of money, but in my business you have to look the part. The acquisition of the clothing may be a little painful, but I never wake up worrying about what I am going to wear. I argue that the peace of mind is priceless.