Get the Cash, Put It to Work
Set a savings plan. Ideally, you’d max out your tax-advantaged retirement accounts and then save and invest at least 20% of your remaining cash flow in taxable investments for passive income.
At least once a month, review your progress and objectives. Also use this time to make adjustments when necessary. The more you stay on top of your finances, the better you can optimize them.
The best passive-income investments are physical real estate, online real estate, dividend stocks, and creating your own products. Treat your passive-income investments as money soldiers that fight alongside your main source of income.
It may take between ten and thirty years for you to generate enough passive income to cover your basic living expenses. Therefore, there’s no time like the present to start.
Optimize Your Investments
Practice tax-efficient investing, which is to invest in tax-efficient investments in taxable accounts and less tax-efficient investments in tax-advantaged accounts.
Max out your tax-advantaged accounts while you have a chance. This includes your 401(k) and Roth IRA. If you end up much wealthier than expected in retirement, your Roth IRA and Roth 401(k) will be welcome tax diversification.
Invest 80% or more of your public investment portfolio (stocks and bonds) in passive index funds or ETFs. The vast majority of active fund managers cannot outperform their respective indices over a ten-year period. Depending on your level of interest and conviction, invest up to 20% of your portfolio in individual securities, active funds, and alternative investments. This is the Index Plus strategy for your attempt to outperform the masses who invest only in index ETFs or funds.
Choose Where to Live for Maximum Wealth Potential
Buy property with the intention of owning it forever. Ideally, buy your home, live in it for five to ten years, rent it out, and buy another. Over a working lifetime, you could easily end up building a rental portfolio of three to five units to generate passive income. Shoot to keep your housing expenses to no more than 20% of your gross monthly income to increase the gap between your earnings and expenses.
Due to the proliferation of work from home, investing in up-and-coming neighborhoods or neighborhoods farther from downtown is becoming more appealing.
For greater living efficiency and higher income, buy a multiunit property. For better living and potentially faster price appreciation, buy a single-family home. Ideally, find a single-family home with expansion potential. Condos provide the easiest way to gain access to the property market due to a lower price point. However, they tend to decline the most in value during a downturn.
Think Strategically About Your Career
Be strategic in your field of study and in your job search. If you want to make more money, focus on industries that pay the most.
Do not underestimate public-sector jobs or any job that offers a pension. In a low-interest-rate environment, the value of a pension increases. After twenty years, employees with pensions often retire early and find a new job. This way, they get to earn double income.
In your twenties, you can join a start-up to learn, but you likely won’t earn much. Once you’re in your thirties, you can really start making a healthy income at a start-up with all the knowledge and skills you’ve acquired.
If you do join a start-up, try to get as much equity as possible. More equity is consistent with your bet that the start-up is going to be a winner. Getting more cash won’t make as much of a difference.
Make Your Money and Then Make Your Exit
It’s not good enough to be good at your job. You must sell internally as much as you do externally.
If you want to conquer guilt as a working parent, beat the average time spent with your child (120 minutes per day for college-educated moms, 85 minutes for college-educated dads).
If you decide to become a full-time parent, it doesn’t have to be forever. Going back to work after two to three years is soon enough that you can likely get a similar job with similar pay.
Never quit your job; get laid off and try to negotiate a severance. If you planned to leave anyway, there is no downside.
Get Your Side Hustle On
Starting a side hustle can help you build extra income to save and invest. It might one day supplant your day-job income. You won’t know until you try.
Don’t wait until you’re an expert or everything is perfect to start. You can figure things out as you go.
Once your side-hustle income can cover your basic living expenses, you have the potential to leave your day job behind. However, a job is a security blanket that enables you to take more risks outside of work.
View your weekend as a time to recharge but also as a time to build the life you ultimately want. The hard work you put in won’t last forever. But the results may.
Invest in Education
Do not let the allure of prestige cloud your judgment. Elite private schools help graduates get their first opportunity at a job interview, but they are not the be-all and end-all of a person’s success. Private school is typically not worth the expense if the cost of tuition will require you to sacrifice important financial goals.
The goal of grade school is to provide a nurturing environment for learning where your kids feel protected and valued. If you can find this setting in a public school, then you’ve found the ideal situation. If not, then look to private school. The best schools have strong parental involvement.
Getting an MBA is a growing gamble due to high tuition, increased supply of graduates, and time. Ideally, you’ll have an employer subsidize your tuition while working full time.
Keep an open mind. There is always something new to learn, regardless of the educational format. Reading a book like this one might be one of your best educational investments of them all.
Nurture Your Love
The best age to have a baby is determined by biology and economics. After about ten years of working after high school or college, you should be able to build some sort of financial momentum and understanding of what you want. Therefore, if you want to start a family, shoot to have your first baby by around age thirty-two. The difficulties of getting pregnant and staying pregnant start increasing after thirty-five.
Help your adult children financially if you feel they appreciate the value of money and hard work. However, charge interest and set a target date for when you will get paid back. When they are able to pay you back, that is when you can decide whether to forgive their loan. Don’t take away their pride of making it on their own.
You deserve to be happy. Don’t let the sunk-cost fallacy cause you to stay in an unhappy marriage for longer than you want. Try your best to make your marriage work. Go to therapy, and seek counsel from friends and family. But if there is no improvement after a year, it’s time to move on. Divorce is no longer taboo.
Live Like a Financial Samurai
Optimize your online and offline profile for Stealth Wealth. The less attention you receive for your wealth, the happier you will be.
Stop driving an expensive automobile to work or to any social gathering where you might be negatively judged.
Calculate what your time is worth per hour. Now determine the true value of cooking or doing anything else that can be outsourced. Compare the cost of outsourcing with the value of what you could make or do, and make the appropriate choice. Always think in terms of opportunity costs. What could you be doing if you didn’t have to do something else?
Be mindful of the suffering of others. The more mindful you can be, the more you will appreciate what you have and the less you will take things for granted.