All posts by Damn Millennial

LBYM: LIVE BELOW YOUR MEANS

“Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty-pound ought and six, result misery.”

-Charles Dickens

Living below your means or (LBYM) is not a sexy headline. It is safe to say it is pretty much the opposite of sexy. However, it is one of the most fundamental and most important concepts to grasp in personal finance. If you ran a business and consistently showed expenses that were greater then income month after month you would eventually run that business into the ground. No one that is rational would keep a business like this running because it would be costing them money every month. The same thought process should be applied to your personal finances, this is obviously easier said than done.

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GETTING STARTED WITH INVESTING – ACTIVE VS. PASSIVE MANAGEMENT

Before you dive into investing it is important that you understand what type of account to invest through. The investment vehicle that you are going to be taking on your journey to financial freedom is a very important piece of the overall puzzle. Make sure you first take the time to find the best account for you ahead of  getting started with investing.

After you have established the best account to use you can deposit money and get ready to invest! This is exciting because there are multiple steps you need to take before this point like establishing an emergency fund and paying down your debt. The worst thing you can do is invest to soon and then end up pulling your money out of the market at the wrong time or face paying hefty fees by withdrawing from tax advantaged accounts. If you are investing in a 401(k) your options will be limited to the plan that your company has provided. However, if you are investing in an IRA or taxable brokerage account you will have many options. You have the power to invest in any public company listed on an exchange. So, what is the best way to go about this?

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“THAT’S A BIG BULL”

Most millennials have a pretty unique view of the financial markets and investing. Many of us witnessed our parents go through the financial crisis which lead to layoffs and net worth’s shrinking back in 2008. This started us off with a negative view of how financial markets and investing works.  So when millennials started entering the workforce in masses those who could save money did because we had just witnessed how our jobs could disappear. The positive this created was that we learned to save for tomorrow but many were to scared to begin investing. Meanwhile the market came roaring back and those who stayed invested or decided to begin investing were rewarded handsomely.

Take a look at the S&P 500 returns since the great recession.

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CELEBRATE THE FOURTH OF JULY BY FIRING YOUR FINANCIAL ADVISOR!

Every year America has a national holiday to celebrate our independence. Over 200 years ago enough people were tired of being mistreated that they fought for our independence and ultimately signed the Declaration of Independence. Today everyone seems to be more comfortable than ever to conform and do what they are told even if it involves a bad deal. This is especially true in the world of personal finance. Many people are either not willing to learn or are too scared to do anything different then what their peers and family have done in the past. It is time to channel your inner Thomas Jefferson and draft your own personal declaration of financial independence!

Now before I get into why most financial advisors are not worth the money, I want to make one thing clear, there are times when you benefit by having an advisor on your team. I am not here to bash anyone or demonize an industry, I just want to inform the normal hard-working individual trying to do the right thing with their money. Hopefully this article can give you a better understanding of what type of advisor to use if any at all.

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DEBT OVERVIEW

Debt is a part of life for almost all Americans. A very small percentage of Americans have no debt whatsoever. Most have some sort of debt it may be as small as $1,000 dollars on a credit card up to $800,000 for a mortgage and beyond. No matter where you fall on the spectrum it is important to understand what debt is and how to use it intelligently.

Debt is part of our society, it allows for overall growth in the economy which leads to more jobs and the opportunity for people to increase their income and better their lives. Businesses use debt when they see an opportunity to use the capital to earn a better return than that of which they pay to borrow. By doing this many businesses can grow exponentially and use the proceeds from their revenue to repay the loans and better the overall financial position of the firm.

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PRACTICING PATIENCE WITH INVESTING

Patience is a concept that is easier said than done. In all parts of life there are times when it is key to practice patience. This is a skill that is learned from an early age and later extends throughout all stages in life. It is part of human nature to want certain things in life NOW. Why would anyone want to wait to take that dream vacation or purchase a new vehicle?

All things equal we would be better served consuming something today because tomorrow is never promised. However most of us will learn that if you consume all your resources today tomorrow never becomes easier and if you over consume your resources today (using debt) tomorrow becomes even more difficult than the day prior.  Therefore, a rational person who is looking to better their life is better served finding the healthy balance that works for them.

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INVESTMENT VEHICLES: TAXABLE ACCOUNTS

In part 3 of the investing basics series we will discuss the last major type of investing account, the taxable brokerage account. In the previous articles, we discussed the 401(k) and the IRA accounts, these are government sponsored accounts that use tax incentives to try and get Americans to invest. On the other hand, a taxable brokerage account is as simple as the name implies, it is taxable.

Taxable Accounts

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PERSONAL MONEY PRIORITIES

Every day we wake up we all have choices. If it feels that your life has become routine, that is because you have chosen a life this way. Every day before today you had choices to make, some prove to be better than others. It is a combination of the choices we make that end up being our life story. This is so important to understand as we often forget we have choices and end up moving down roads we never thought we would be on.

This same phenomenon happens with all of our money if we are not intentional and decide not to prioritize what matters.  There are so many people focused on making money, but they often forget what they are earning that money for. This certainly does not mean we all need to have money be our primary focus, instead we need to understand what the money can do for us. This involves making a list of priorities and then figuring out how much money you need to live a certain lifestyle.

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INVESTMENT VEHICLES: 401(k)

In part 1 of investing basics, we discussed different types of IRA’s or individual retirement accounts. The second account or investment vehicle used by many Americans is the 401(k). This is an employer-sponsored plan that is offered by many employers. Once again the best source of information on this is going to be the IRS, and it can be found here.

Let’s get into the details.

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DO YOU HAVE A FREEDOM FUND?

What is your freedom worth to you? Is it worth giving up nights out at fancy restaurants? Not upgrading your car when the one you have still runs just fine? Is it worth eating ramen noodles for months? The answer to this question is different for everyone. To your average American employee, most people would not be willing to give up much. These are very real trade offs that many will not make in order to save money to ensure their freedom.

A “freedom fund” is much different than an emergency fund. The freedom fund is set up so you can be proactive while an emergency fund is set up so you are able to be reactive. An emergency fund is more of a need, it allows you to keep food on the table, a roof over your head, and other livelihood necessities if worst comes to worst and you are out of a job.  The freedom fund I think is a conscious choice that is not necessary at all stages in life or for everyone.

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