Wallet and Key Chain Audit

I was at a meeting the other day. I plunked my keys down on the table, and eyes of the guy I was meeting with widened. “Woah, are those are all your keys?” he asked, pointing to the jumbled mass of keys. “Yeah.” I responded, trying to laugh off my mess of keys. He then went on the explain how the extra weight of all my keys could hurt the ignition switch on my car. I had no idea, and apparently there may be some truth to the story.

Regardless of whether the extra keys could hurt my car’s ignition switch, he was absolutely right. I had too many keys. It had gotten to the point where I don’t even know what most of them were for. I of course have keys for my house and rentals, but beyond that I had all sorts of random keys that I had accumulated over the years. Some were probably for my parent’s houses. Some were from old jobs, some were probably old apartments I lived at, one was a key for a little lock I used for my gym bag, and I had several duplicates. I had close to a dozen keys in total. I only use the house key regularly, but it’s nice to have the keys for my rentals on hand because you never know when you need to stop by for a repair or turnover.

So this weekend I added streamlining my key chain to the ole “to-do” list. I stopped by the hardware store and picked up a couple colored plastic key covers. I then color coded the 3 keys I actually use, and ditched the rest. I saved the duplicates and labeled them, and now the duplicates and the rest of the old discarded keys sit on a shelf in the unlikely event that I ever stumble across a lock that I need to open.

I’m sure my car’s ignition will thank me, but I was surprised at how nice it felt to discard these extra keys. While the reduction of bulk and weight in my pocket is noticeable, the mental effect is what I appreciated the most. If you are like me, you use your keys at least twice a day, and fumbling through a mess of unorganized keys all the time adds mental stress and aggravation. That compounded over time probably would lead to a nervous breakdown. Fumbling through dozens of keys all the time is just one more piece of bullshit you have to contend with.

This was a surprisingly cathartic experience and one I recommend going through if you haven’t in a while. I’m a believer in spending money on things you use every day (in my case, shoes, a watch, a belt, my laptop, etc.). This project in particular hardly cost anything, but here I would consider it a small investment in time.

I went through a similar routine with my wallet years ago. I switched from the George Costanza wallet to a “minimalist” wallet, specifically a Big Skinny Bi-fold, and ditched all the superfluous receipts, cards, etc that build up in your wallet if you aren’t careful. I went from a dozen+ cards down to 6. I don’t miss all the extra stuff. It drags on your body, and it drags on your mind.

It is a microcosm of minimalism. I am not a minimalist, but I’d say I’m a frugalist, and in a way frugality can be seen as a form of financial minimalism. You buy less stuff so you have less things to burden yourself with. I have tried to consolidate and streamline. I use a Kindle rather than buying books, I have minimized my wardrobe to a couple “uniforms”, I’ve automated my finances and sworn off superfluous spending. I’ve also tried to say “No” and do a better job guarding my time.

The goal here is peace. The hope is that financial peace will bring mental peace, but your finances are only one part of the equation and simplicity is the true path to peace. They say enlightenment is being in a state of wanting nothing. No wonder so few ever see the light. Still, I try to keep my investing simple and I am trying to keep my life relatively simple. Of course, it’s an uphill battle and part of becoming an adult is about taking on more responsibility. Managing more chaos.

As I continue battle my way upstream I am trying to find the patterns. I am trying to figure out ways to let things go. To consolidate. I see my parents and all the stuff they have accumulated, and it’s almost painful to watch. But in many ways I am struck from the same mold. I guess the idea is to not become too attached. To be willing to purge. There are infinite ways to optimize and organize. In truth I’m not a naturally organized person. I trend towards chaos. But I’m trying. One set of keys at a time.

How Does the Middle Class Get Ahead?

I am not going to get all political on this blog, but like many Americans I have been watching the 2016 Presidential debates, and it seems that one of the recurring topics is the economy. Both candidates have plans to grow the economy, but Hillary Clinton keeps talking about how we need to help the middle class grow and “get ahead”. As I sit here and watch that I cant help but ask myself, “How the hell do they plan on doing that?” I ask that question about both sides, but in the context of this article I’m going to discuss how I personally would suggest someone in the middle or lower class try to get ahead.

This may be painful and somewhat naive of me, but I do think it is possible to get ahead, and I don’t necessarily think that social programs or providing free educations for everyone to do this. That said, as a white male born in American, the son of an educated family with an above average income, I realize that I came into this world with a silver spoon in hand, and some might argue my mouth. I’ve one the genetic lottery, and won the parental lottery. While I haven’t “made it” yet, I also have the benefit of some hindsight at this point as well. Those caveats aside here is what I might suggest to try and get ahead.

Do the Opposite of What Most People Do

We have been programmed to buy things we don’t need. To wantonly consume. The idea is we want something bigger, something shinier, something better than our peers. Many are focused on the pursuit of the mere trappings of wealth, and not real wealth itself. They want the big house and the shiny car. Or at least they think they do. There is an argument that this is how we are wired as animals.

My advice would be to do the opposite. If TV tells you to buy, don’t buy. Better yet, don’t watch TV. If everyone thinks it is cool to drink, don’t drink. Avoid crowds and lines. That’s a ticket straight to the lowest common denominator.

Earn more than you spend, and save money. Easier said than done for many people, but for many this is ultimately a choice.

Add Good Habits, Subtract Bad Habits

I have been experimenting with habits. So far some have stuck (cut back on my drinking drastically, read daily). Some haven’t (exercise in the morning, write daily for this blog). That’s OK. As long as I am adding good habits and working on subtracting had habits I think in the long term that will help me get ahead.

Typical habits to add could include more exercise, reading, meditation, or spending time outside. Habits to subtract could be less tv, less social media, less drinking, etc.

Set Goals in Writing

People always talk about the importance of goals. I never really set goals in writing. In the start of 2016, when I started this blog, I decided to write down some goals. That has been helpful. I think I have thought about them more consciously throughout the year. I think when I look back on these goals at the end of 2016 / start of 2017, I’ll be able to say I met some of these.

It has been a helpful practice and I would suggest doing this. A blog is a great format to do this, but you don’t need a blog. You could write them on a word file, or a piece of loose leaf paper, or even a forum. Just keep them somewhere you can revisit them.

Pay Yourself First

Charlie Munger suggests this. I think it’s a great idea. Make sure you pay yourself. At first I was literally paying myself by investing in mutual funds, paying down debt, etc. I think this is great.

But now that I have been doing this for a while and have my finances on auto-pilot, I have been trying to set aside at least half an hour a day to work on a project for myself. Lately that has been my affiliate Website, or working on buying real estate. Ideally I want to invest my time in something that scales or compounds. Rather than work an extra hour for the man or something. Not that making more money can’t compound. I’d like to try to grow my more “passive” income, rather than my “time for money” income, although lets be honest – I want to grow both.

Still, positive passive cashflow equals freedom. There is nothing as satisfying as cashing a rent check, or watching an affiliate commission hit my bank account. Dividends are great too. Pay yourself first. It has been addicting to watch these numbers slowly grow.

Develop Resilience

Life is a battle. Most days in my line of work it feels like me against the universe. Everyone and every thing is pulling me in different directions. Trying to distract me. Trying to stand in my way. Trying to keep me from getting things done. It’s the most brutal sport. You have to roll with the punches. You can’t take it personally. You can’t allow yourself to be defined by your failures either. I

refuse to do that. I choose to be defined by my success. I think resilience is important. Everyone gets their cage rattled. It’s how you respond that defines you.

Develop Soft Skills

Develop skills like being able to communicate effectively. Read a lot. Write. Try to sell something. Practice the art of persuasion. Lead people. These aren’t the kinds of skills they will teach you at school, but these are critical for both the day to day transactions of life, and for generating value where others cannot. If you can’t negotiate let alone communicate effectively with people, how do you really expect to get ahead in life? I suppose you can be some sort of idiot savant, but most of these people come off as assholes anyways. Emotional intelligence can go a long way.

Final Thoughts

When I think about the average middle class American the word “over-extended” comes to mind. Their finances are over extended. Their waistlines are over extended. Their attention span is over extended. Yes the flailing middle class is like some sort of mystery. Find a foothold and then build some momentum. Stay hungry and lean. Only dead fish swim with the current.

And a lot of what I am talking about here is the same stuff I am talking about throughout the entire blog. If you want to see the middle class get ahead, follow what I am doing. I literally am the middle class getting ahead. My parents were successful, but it’s not like I grew up in the Taj Mahal. I wasn’t loaned $15 million dollars like Donald Trump. I started out $125k in the hole 4 years ago and now I’m well into the black. I still have a long way to go, but this shit works.

On Fulfillment

Continuing in the trend of answering questions posed on the MMM Forums on this blog. The following question was asked: http://forum.mrmoneymustache.com/ask-a-mustachian/how-did-you-come-to-feel-satiated-with-less/

Basically, the question is “How do you feel satisfied with less?”. Whether that is money, possessions, food, or verbal praise. For purposes of this discussion I’ll mostly stick with money and personal possessions.

I think a lot of this stems from your psychology and perhaps upbringing. I am sure there are other factors like social factors. Mental illness could cloud this as well. Some people are obsessive compulsive. Others have addictions to drugs, sex, or power.

But if the question is how does a normal person get along with less stuff? Then I think it is likely the same answer as how does someone stay in shape, or avoid certain self destructive habits. It’s about discipline. But more importantly, it’s about wanting. People do things because they want to. Every day we make choices whether we are conscious of them or not. It may be as simple as picking out what color shirt you are going to wear, or it could be a complicated decision like buying a piece of real estate, getting married, going to school, etc.

The choices we make all go back to our wants.

No one buys a Big Mac, fries, and a 32 ounce soda for lunch because they need one. They want one. They make that decision. Same with cheating on their spouse, or skipping the gym, or giving the guy that cut you off on the way to work the middle finger. These are all choices.

So how doe we become satisfied with less stuff? We want less stuff because we want something else more. Maybe that is simplicity, peace, freedom, financial security. It’s like wanting 6-pack abs more than another slice of leftover birthday cake in the office fridge.

In fact I think approaching this entire subject from a position of scarcity is the wrong way to go. Instead, I think it should be a focus on what you are really trying to do. What you really want. In the context of this question it is reaching financial independence by saving money and not frittering it away on useless crap. So it’s not about getting used to wanting less stuff, it’s about getting used to wanting more independence. It’s a re-allocation.

And it’s not necessarily a zero sum game. I think part of this is about having a healthy respect for money, and that it can be used as a tool to better your life by purchasing goods, services, and experiences. But it can also provide lasting security if you save and invest enough of it.

I’m not a shrink so if this is something you struggle with I can’t provide mental health advice. Certainly I’ve spent a lot of time trying to analyze myself and my own whacky situation. I think it all boils down to priorities. In that you may find peace.

I’m as guilty as the next person of wanting to buy things. For example, I have been ogling a Rolex watch for years now. Recently the temptation to buy one was really strong. I was checking them out daily. But over time that has slipped and faded away. I realized that I cant justify the $6,000-8,000 expense for a watch right now. I want a Rolex, but at the end of the day, there are other things that I want more right now. I want to invest that money. At some point, I’ll have enough money to where if I still want the Rolex I can buy it, but it makes no sense for me to spend that kind of money now. So it’s not about getting used to less. It’s about getting your priorities together and figuring out what you want more.

Is it Mostly About the Money, or Philosophy and Environment?

I am a member of the MrMoneyMustache Forums. I don’t post much, and try not to read it too much. It’s something of a guilty pleasure. The threads with people asking for legal advice always get me going, but I guess that’s to be expected.

I used to be big into forums back in the day. They still have their place, but I found them to be a gigantic time suck, plus I don’t care for the anonymity, group think, and status “hierarchy” of many forums. They can be a great place to find entertainment, ask questions, learn about a subject, or buy and sell things, but they can also be one big pissing match. These days I prefer blogs because the people that maintain blogs typically put more thought and care into their work product, and there is a greater measure of accountability. So I try not to screw around on forums too much. But I digress.

Whilst trolling the MMM Forums I found this interesting post.

Ultimately, the question here is, “Why practice frugality?” Is it solely means to financial independence, or is there some deeper philosophical or social reason for doing this?

MMM has stated that part of his philosophy is reducing impact on the environment. Others may choose to be frugal for reasons like practicing minimalism, stoicism, vegetarianism, or some other “ism” that I’m not attuned to. If I was handed $10 million tomorrow, would I still cook all my own food, mow my own lawn, drive a Honda, and agonize over every dollar spent?

It’s an interesting question and I thought I might hazard an answer here on the blog.

If I Won $10,000,000.00…

If I won $10M, the first thing I would do is take a break. I would not make any major financial decisions immediately. I am sure after 6 months or a year of reflection, especially in the cocoon of complete and utter financial freedom, my perspective will have changed.

But for arguments sake, I would probably buy a nice house on the water here in Florida. Thankfully, I’m in the part of the country that I like. You can do a lot worse than Southwest Florida.

Lets say I budget $2M or less. That will get you a pretty extravagant place. I wouldn’t need anything big, but would be paying a premium for the location. A nice waterfront lot here will set you back anywhere from $500k-1M+. Hell, maybe I’d build something if money was no option. I like the peace and serenity of the water. I think a property like that would provide value to me mentally.

I would also consider a summer house up north (which I would spend no where near $2M on), and then bank the difference. Say I spent a total of $3M on real estate. That would leave me with $7M. I’d invest the bulk of that $7M in a mix of stocks and bonds (index funds – similar to what I am currently doing) and live off the portfolio. Based on a 4% withdrawal rate that would leave me with around $300K a year gross, which is an absolute shit ton of money. I’d be set for life many times over.

I’d likely quick practicing law. Really it would make no sense financially. My investments would make as much or more money for me than practicing law. Plus practicing law is exchanging time for money. I would already have the money so I’d prefer to keep my time. But that doesn’t mean I would stop working.

I’d like to think I would do a lot of reading, writing, spending time outside, and working on some sort of business. Maybe I would be developing my online business further. Whatever I do, I think it is important to create things, versus to simply consume things. The world belongs to those who ship. I think if I were to turn totally to consumption, and not create something, then I would die a slow death. For me I would probably write. Maybe I would spend some time to do more video, a hobby I enjoyed when I had more free time. I would like to also build something physical. A physical product or develop a more physical skill.

I would probably also do some real estate investing. Maybe buy an apartment complex or some commercial real estate. I’d also like to do some slow travel. The kind of travel where you pack up and fly somewhere, race around to see as much as you can, high the highlights, and then fly home never really appealed to me. I’m doing it now because I run my own business and can’t take the time away. But if I was financially independent I’d take the time to really get to know a place.

I’d very likely spend more than the 20-30k a year I am currently spending. First of all my housing costs would be much higher. I’d probably eat more red meat and seafood than I am currently eating. I’d spend some dough on furniture to go into the house. I don’t think an Italian sports car, bottle service at “tha club”, and flashy jewelry would be on my horizon, but I’d probably buy that Rolex I have always wanted. I am sure there are a few other “nice things” that I wouldn’t turn down. Still, I wouldn’t piss money away.

Basically, this would be my like my current vision for financial independence, yet scaled up slightly on the real estate front. I’d have a nicer house, a place to stay when it gets hot as hell here in Florida, and maybe travel a little more exotically.

Why I Really Do This

My main goal is financial freedom. The ability to tell everyone to fuck right on off. Growing up I never cared for school. I am reasonably intelligent and was able to get buy without too much brown nosing or hard work in high school. In college, I more or less got my ass handed to me in pre-med. If I didn’t transfer to business school, my grades would have been an embarrassment, and I would have never gotten into a decent graduate school. In law school I straightened myself out a little, buckled down, and ground it out for 3 years. I walked away with a B average. But I never enjoyed any of that. I like learning things, but becoming a professional test taker was never my bag.

I never particularly enjoyed working for other people either, and was always relatively lazy in all my jobs. Self employment turned out to be a blessing in disguise as it motivated me in ways going to school or working for others never had. So my main goal in “practicing frugality” is to achieve independence and not have to answer anyone. I enjoy practicing law, but I can see that this is a hard field. Especially divorce law and civil litigation. It’s a grind and big game of Tetris. If you don’t stay on top of things the pieces will come flying down on your head. I have already seen people have nervous breakdowns and become alcoholics. This profession is high stress and high pressure. Self employment and the business of exchanging time for money is tough, and I don’t want to have to do that for 30+ years. If I reach financial independence and want to continue to practice law, then that’s great. But I want to be able to walk away if I want to, or be able to practice on my terms.

I also like frugality. It has simplified my life. It has shown me that there is another path to building wealth that doesn’t require that I make $500,000 a year. It has shown me a different way to view the world. I view the trappings of wealth much differently now than I did even a few years ago. I call it the “practice” of frugality, because I view it as a practice. I haven’t mastered this discipline. I work at it, and am tested by it every day. I have managed to embrace it over the past couple years, but I am still a material girl in a material world. I could always spend less money, I still like nice things, and I still have the desire to spend and consume. Thankfully I’ve been able to stick with saving more than I earn. I am saving now so I can have options later. I think it is especially important to save now because I have few needs as a single 31 year old man, and time is on my side. If I can continue to live like a student now, I can live like a king later.

Also, I readily acknowledge that I have an ego. I want the power that being financially independent brings. That is the ultimate rip cord. I am hot headed, impulsive, and insecure. I have to remind myself on a daily basis not to compare myself with others. To focus on the path head. We are all on the same road, just at different points in the journey. I need to put one foot in front of the other.

The environment, and being frugal for the sake of being frugal, aren’t primary motivators. I do care about the environment. I try not to waste things unnecessarily. But I’d be a liar if I said that is why I am doing what I am doing. I think that the practice of frugality has taught me lessons. And I hope that I don’t lose sight of those lessons as my net worth and income grow. While I readily acknowledge that I am not a frugal monk, and have material desires, I also don’t want to pursue money just for the sake of spending it.

Money can’t buy happiness. I just read Mike Tyson’s autobiography (excellent, but you have to have thick skin as 90% of the book is a drug and prostitute infused train wreck). That man squandered every last sent of his $300M in boxing earnings, and he was miserable throughout the entire process. Money is a tool. It can make life easier, or vastly difficult. You have to work on your mindset and your approach to money. I think it has to be holistic and genuine. Otherwise it slips through your fingers like it does for so many professional athletes, lottery winners, and most normal people caught up in the rat race.

I think of this like guys at the gym. Some guys just go to the gym so they can look better for girls. They focus on their chest, abs, and biceps. All they do are isolation exercises focusing on those 3 muscle groups. But the truth is, to truly develop yourself in the gym you have to work out your entire body. You have to do the core exercises: squats, deadlifts, and leg presses. If you ignore your legs and back, your two biggest muscle groups, you will never reap the true benefits of weight training. You will be underdeveloped. You may eventually get that six pack, but you will never become a fully developed athlete by just doing curls and crunches.

The same philosophy applies to money and wealth. Some people want to appear wealthy, so they buy a nice house, lease a foreign car, spend money on designer clothes, go on exotic vacations, and eat out all the time at trendy restaurants… and post it all on Instagram. They have the illusion of wealth. They have a nice “lifestyle” for as long as they can continue to earn a living to meet the payments on these things, but they have no real financial foundation. It’s an illusion propped up by debt and monthly payments. As Robert Platt Bell says, they have the “trappings of wealth” but no true wealth.

I am here to develop true wealth. That way I can create options for myself and my family. At the end of the day, to me the practice of frugality and the pursuit of financial independence is all about creating options. That is why I am doing what I am doing.

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.

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.

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.

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.

img-mohela-final-payment

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.

My Core Financial Philosophies

What good is a blog about personal finance if the writer doesn’t establish his baseline philosophies on personal finance? How else are we to determine whether our philosophies align and if I have anything interesting to say?

My goal is to flesh out some of my core financial tenets as a basis for discussion and future articles. These are my core beliefs I have in regards to my own finances.

Minimize Taxes

A very closely held financial belief of mine is to (legally) minimize taxes. Beyond paying for basic things like food and shelter, when it comes down to what I do with a dollar, the tax implications are the first consideration. Taxes color ever aspect of our finances, and when you start making money they can have a tremendous impact on your bottom line. So to ignore the tax implications of your financial decisions is stupid.

Taxes are especially important when you run your own business and pay self employment tax like I do. If you are single and on a salary, it may be a little easier to figure out what to do (contribute to your 401K to match your employer contribution, and attempt to maximize your 401K contributions if your budget allows for it, use your HSA if your employer offers it, etc). But once you get into business for yourself you quickly realize how badly you can get reamed by the government if you aren’t careful.

Although I do have a finance degree and took a few tax law classes in graduate school, I work with a CPA. I do this for a few reasons:

I don’t have time to learn how to be a tax guru and I don’t know it all. At this point I have several businesses. My main business usually has me working 8-10 hours a day. And I have a part time job that has me working another 16 hours a week. When I’m home I work on my online business or my rental business (or god forbid I am going to the gym or relaxing in the back yard with a cigar). While I appreciate having a basic understanding of tax avoidance and tax preparation, I don’t do my own bookkeeping, I don’t run my own payroll, and I don’t file my own tax returns. I pay people to do that and consider it money well spent. Plus, if you run your own business these are typically tax deductible expenses.

A good accountant can be viewed as a profit center, not a cost. This is especially true with large businesses.

So I do several things to minimize taxes:

  • I consult with tax professionals to help me minimize my tax burden.
  • I make use of tax advantaged retirement accounts where it makes sense. (namely a SEP IRA and Traditional IRA)
  • I carefully manage my deductions and keep track of my records.
  • I invest in my businesses to make them grow.
  • I try to consider the tax consequences of my investing and purchasing.

Live Frugally

I must confess that while I have always (sort of) been a naturally frugal person, I have never consciously thought of frugality as a road to financial independence until I started reading the MrMoneyMustache blog. Frankly reading that website changed my life.

I grew up in high income family. My father made very good money as I was growing up, and is an extremely smart and aggressive business person and holds a PhD in organic chemistry from one of the top universities in the world. The emphasis growing up was to get educated, go to school, get a graduate degree and then leverage that to try and make big bucks. Being smart as hell and making (relatively) massive amounts of money was the key to financial success.

I wish I could say that I am as smart as my father. I am not a total idiot, but I got straight C’s in chemistry in college, fucked around in high school and college quite a bit, barely squeaked in to a decent grad school, and don’t have the same fire in my belly than my father has. He is very type “A” – I am much more laid back. So obviously this was concerning for a kid growing up and trying to find his place in the world. Every parent wants their kids to do better than they did, and many say that for the first time in decades my generation (the “millennials”) will be financially worse off than their baby boomer parents. I refuse to resign myself to that fate – but that is the subject of another article.

While my parents were never huge spenders (they certainly saved and invested lots of their money), and were at least relatively frugal, they aren’t “Mustachian”, and to read Pete’s blog really opened my eyes to the other half of the equation. Truly, a penny saved is a penny earned and you can build wealth and reach financial independence faster by focusing on optimizing your expenses. By thinking consciously of your spending and lifestyle, you can make dramatic results to your bottom line in a short amount of time.

Also, you can trim expenses and not compromise your quality of life. If you focus on the things you truly care about and cut back on the things you don’t, you can live a rich and satisfying existence and still have money left over to save and invest.

So it’s a relief to think that I won’t need to make half a million dollars a year to retire. To think that I will never reach the same levels of success as my parents. Often we get caught up in “keeping up with the Joneses,” and many financial gurus tell you to chuck the notion of keeping up with the Joneses out the window, but what if you grew up in the Jones family? First world problems definitely, but stumbling across the concept of frugality while standing in the shadow of my parent’s massively successful careers was a huge mental breakthrough for me personally.

And I gotta admit – I like nice stuff. I’m typing this blog post on a $1,300 Thinkpad Laptop, I have a $1,500 watch strapped to my wrist, have a closet full of expensive business clothes, and generally am fond of high quality stuff. So I gotta be careful because if I decide I do want something, I typically buy something pretty nice. But a lot of stuff I don’t give a shit about, like clothes for the weekend, going out to dinner every night, or driving a BMW. I splurge on things occasionally – typically if I know I am going to use it a lot and enjoy it a lot. So I’m not a paragon of frugality, but I don’t live paycheck to paycheck either.

Now some blogs have focused entirely on the concept of frugality. While this is a core tenet of my financial plan, I do not plan on making this into a frugality blog. It’s a big part of the equation, but it is not my life’s mission to be as frugal as possible or espouse frugality as a panacea (although I think in many ways, it can solve a ton of problems). One of my goals is to save at least half of my income every year.

However, I am very driven about my next core financial belief…

Hustle Hard – Make Money

Living frugally is all well and good, but maximizing your earnings while living frugally is like pouring jet fuel into your financial freedom gas tank. Although organic chemistry was never my shtick, I like to think I inherited my father’s fascination with business and making money, and a big belief of mine is to hustle hard and make some fucking money.

Many people are upset with their jobs. I worked several jobs as a kid and while going through school. I never particularly enjoyed working for anyone. And when I got my “big ticket” corporate law internship in law school, and worked for an AMA 200 law firm over the summer it totally sucked. I was miserable working in this setting. I’m somewhat embarrassed to admit this, but I was so disappointed with this internship (which, ironically, was the thing I was pursuing for years and spent tens of thousands of dollars on) I cried. I absolutely hated what I was doing.

Thankfully, I never got offered a full time position after the internship so I was forced to find something else to do. I graduated law school in the bottom half of my class, was broke, unemployable, and couldn’t get a job interview to save my life, so I did the only logical thing and started my own law firm. Now, I am not going to pretend to be a self made man – I got lucky in finding the right mentor, was supported by my family, and was essentially at the right place at the right time with the right attitude. But immediately I went from lowest man on the totem pole to “senior partner” of my sparkling new law firm, and the amount of money I wanted to make was only limited by the amount of hustling I wanted to do to earn clients, learn how to practice law, run a business, and make money. 3+ years later and I’m still at it, and could not be happier with the decision to work for myself. Sure it was (and continues to be) hugely stressful, but at this point I don’t think I would have it any other way.

But not everyone runs their own business, or wants to for that matter. In those situations, they can either start a side hustle, or work their way up the corporate ladder to earn a higher and higher salary. How do you do that? I have no idea, but my best guess is that it takes a lot of hustle and a willingness to become a better person. Stronger, smarter, and more emotionally intelligent. My guess is there is also a fair amount of strategy involved, and maybe a little politickin’.

The world belongs to those who hustle, and while I can’t really comment on being a good employee and advancing up the corporate ladder, I am sure if you take the time to learn the game you too can reap the rewards. And the way I see it, there is more to making money and getting ahead than simply being a “good employee” – you have to be good with people and develop a broad skill set to add value. You can’t punch in for 8 hours, go home, watch TV until you fall asleep, wake up and do it all over again. You need to be pushing yourself to learn new things and become more valuable so you can give yourself greater opportunities.

So at least some part of this blog will be devoted to personal development. Productivity hacks, inspirational stories, book reviews and recommendations – whatever I can comment on to make you a better person. There is more to success and independence than simply saving money. That’s a big part of it, but becoming a better person is the real reason to get out of bed.

Pay Down High Interest Unsecured Debt

One of the best ways to reduce your expenses is to pay down your debts. If you are like me, you have a mortgage, car payment and student loans. Maybe you have credit card bills or some other form of unsecured debt on your balance sheet. While I do not think debt is necessarily evil, the unsecured debt is a burden on your balance sheet and debt of any kind certainly hurts your cash flow.

When I graduated law school in 2012 I had $75k in student loan debt accruing at 6.8% interest. I know many people graduated school with a lot more debt than me, but the thought of this debt at near 7% interest was quite scary and uncomfortable to me, and a priority was paying it down aggressively. I did not have a traditional W2 job, so refinancing at the time was not an option. I concentrated my efforts on paying these loans down, and refinanced last year through So-Fi (and wrote about the experience at length here).

Currently the balance of my loan is just shy of $20k, and my interest rate is under 4% (I refinanced into an adjustable rate loan). I am not paying it as aggressively at this point (especially at the time of writing this article – when I am still figuring out my 2015 tax burden, and the market is depressed so stock is “on sale” and could be getting even cheaper). Still, the goal is to get this sucker paid off.

I have a car loan with a modest balance on it (less than 7k). That is at 3% interest so I have never made any extra payments on it (instead paying down higher interest debt or investing my money). If I still have a car loan after I pay off my student loans I may chuck some extra cash at this and squash the loan early, but for now I’m comfortable with it.

Although I have a credit card I do not maintain a balance on it. I do not plan on taking on any further unsecured debt in the future.

Develop Multiple Sources of Income

The word “income stream” pisses me off for some reason. It’s too buzzwordy. But I must confess that my personal strategy to financial success involves developing multiple sources (or “streams”, if you will) of income.

Ideally I want to develop sources of income that don’t require my direct involvement. My day job as lawyer still revolves around the billable hour; exchanging my time for money. I would like to have some assets that leverage my time instead of consume it endlessly. The wealthy know that the income from their assets will far outstrip the income they could earn working. That is the whole concept of wealth. I already have developed some of these passive income generating assets in my short career. Here is a list:

Stocks and bonds that throw off cash.

This is what most people think of when the idea of “passive income” pops in their head. Living on the dividends and coupon payments. Swimming in a sea of gold coins like Scrooge McDuck. This can be a powerful source of income and it’s the bedrock of my strategy. While my portfolio is nowhere near large enough to generate money that I can live off, the end goal is to one day have a portfolio of that size and to employ the 4% rule to live off of these liquid investments.

I also want to add that I am interested in Peer to Peer lending and have a modest Lending Club portfolio (around $5k currently). I have been investing in Lending Club since September of 2014. I will definitely be writing more on that subject later. But I am definitely interested in not just bonds, but buying notes, and P2P lending.

Real Estate

Sadly I did not spring onto the real estate scene in 2009. I was fortunate enough to acquire a single property in 2013 (a 1BR condominium), and I have rented it out over the past year or so. It has been a powerful lesson in business, and it has certainly wet my appetite for more properties in the future. The only problem is that prices have risen substantially since I acquired that property, and if you were to enter the market now real estate in my area does not make as much sense from a cash flow and ROE perspective. Plus I don’t really have the contingent funds yet to buy another piece of real estate. I am still paying down debt and maximizing my tax advantaged accounts. I’m slowly building up the funds needed to not only acquire another piece of real estate, but have the cash buffer necessary to pay for the inevitable unexpected problems that crop up in real estate.

Whether it’s unexpected repairs, horrible tenants, or a health enough down payment to avoid PMI, investing in real estate requires a good amount of working capital if you don’t want to loose your shirt.

Still, real estate is an attractive investment vehicle for all the reasons people love real estate:

  • The ability to use leverage;
  • The tax advantages (depreciation; the ability to offset any losses against gains from other passive businesses);
  • Cash flow, and the ability to a develop passive, or semi passive source of income;
  • Appreciation; and
  • Diversification from traditional paper investments.

Traditional Businesses

As mentioned before, I run a law office in small town. I typically charge hourly for my time, and while it sounds cool to say I run my own business I am basically just self employed and the business runs me. This is essentially my day job.

However, when you run a traditional business it is possible to engineer ways to develop income streams through your business – even in a high touch business like practicing law. The way to do that is to leverage employees, processes, and technology.

The formula is simple: hire employees to follow processes to make you more money, or invest in technology to make you more money.

When you first start out you may not have the luxury of being able to hire someone or spend boatloads of cash on fancy technology. I know I didn’t have that luxury. And that was a good thing, because I didn’t know what the hell I was doing so there is no way I could have taught an employee to do anything or utilized technology smartly. But eventually I learned a few things, helped out some clients, learned some more things, helped out a few more clients, and before I knew it I was overwhelmed with work (lots of it routine paper-pushing type stuff) and needing to hire some part time help.

I hired someone to help in and handle the lower value tasks (routine preparation and assembly of documents; coordination of hearings and phone calls; handling certain kinds of phone calls; administrative work) so I could focus on the higher value tasks. I also found that I could actually bill out this person’s time to clients and have this person effectively “pay for themself”. So instead of going crazy licking envelopes, preparing basic documents, and coordinating things like conference calls and hearings, I have my employee do this.

I also leverage technology and have hired a payroll company and CPA to take other time consuming tasks that I do poorly off my desk so I can focus on getting better clients, and billing them for high value tasks like making court appearances, drafting high level documents, and solving their legal problems. This has allowed me to be more profitable and lower my stress.

Blogs / Online Businesses

I stumbled across the concept of making money on the internet while trolling the Miscellaneous section of the BodyBuilding.com forums back in the summer of 2010. I always thought “making money online” was a scam, but I remember wandering across a thread on making money through the Amazon Affiliate program, and it made sense to me.

For those unaware of the Amazon Affiliate program (or affiliate marketing in general), the basic idea is to send traffic (people surfing the internet) to some sort of e-commerce website using a trackable link called an affiliate link. If people purchase something on the e-commerce website within a certain amount of time of clicking through your affiliate link, then you receive a commission on whatever that person buys. In the case of Amazon, you make anywhere from 4-9% of whatever people buy on Amazon if they buy something within 24 hours of clicking on your link. At the time I was a fan of Amazon (still am), and so it made perfect sense to me that this could be a legitimate way to make money.

Several hours later I had purchased my first domain, set up a crude wordpress site and was trying this whole affiliate marketing thing out. Low and behold it actually worked – people found my website, clicked through my link, and actually bought stuff. I was hooked. Unfortunately, I never rose to the level of success that would have allowed me to drop out of school and be a full time affiliate marketer. It has been a struggle with lots of mistakes made along the way. I was able to get the business up to around $500 a month after maybe a year or so, but got slammed by the Penguin update, and it took me years to crawl my way up to $1,000 a month. Last year I averaged $1,500 a month (which was great!), and in December of 2015 I broke through the $2k a month barrier (which was really great!). I’d love to develop this income source into something that I could truly live on (say 10k a month before taxes).

Arguably the biggest success of my affiliate marketing website was learning about websites and SEO to develop the website for my offline business. My lawfirm website has generated hundreds of thousands of dollars of revenue. Without it I would not be where I am today, and I also likely would not be writing this article. The internet is an amazing thing.

As it stands I continue to learn and experiment with my affiliate websites and experiment with things like social media, online videos, podcasting, hiring freelance writers, and even developing online products. The idea of treating websites as an asset class is fascinating to me, and I am considering purchasing a website as an investment in the future.

Final Thoughts

OK – I think I wrote way too much here on my various “philosophies” on personal finance and kicking ass. I will write more articles on all of these subjects down the line, but I wanted to provide an overview of what my current strategy is and some of the rationale behind it, as I think its important context for you, and the process of thinking critically and writing it all out is helpful to me.

I reserve the right to tweak this article in the coming days. I don’t profess to have it all figured out here, and there is something cathartic about dumping all of these thoughts onto a page. My goal is to refine these thoughts and improve the strategy. There are certainly other ways to manage your finances, and half of the point of writing this blog is to try and crystalize my viewpoints, expand my mind, and hopefully learn some things in the process. I’m not a guru on the mountain top, and don’t play one on the internet.