I haven’t really done a formal article on this yet here at Mission Life Motion. I did speak about the 2 worst and most common financial mistakes that men make however, so check out that article if you haven’t already.
What I want to give you guys in this article, is a foundation upon which you can build in your life regarding your finances. Money and how to properly manage it, is probably the most important thing you can know how to do in your life. Without the ability to do that, you’ve got nothing. Money IS the foundation of your life. A certain amount of money has to exist in your life for you to accomplish anything meaningful.
A lot of guys want to know what the formula is for success. If you read a lot books like I do, you know that there’s a lot of conflicting advice out there on how to manage your money and how to save/invest it.
For example, Dave Ramsey says that all debt is bad and should be entirely eliminated with the exception of your mortgage. Guys like Grant Cardone and MJ Demarco say you should avoid investment vehicles like 401K’s, IRA’s, and mutual funds because it takes too long to accumulate any significant wealth from them. I’ve got a friend that feels this way about those as well.
Then you got guys like Mike Cernovich who tell you that having a self-employed 401K is one the best things you can do.
So who is right? Who should you listen to? Obviously I’ve only named a few guys here, but you understand what I mean: there’s conflicting advice and it can be hard to know what your best move should be. I don’t know for certain yet if one of these guys is more right than the others. What I can tell you, is what I have deduced from these various sources, and what I feel would be the right the move for you guys.
I see you guys as younger versions of myself. So when I speak to you, I imagine myself speaking to my 18 year old self here. Point is: I’m not going to advise you on anything that I wouldn’t advise my younger self to do.
Another thing:
This is NOT Investment advice, and the information contained here is strictly for entertainment purposes.
Here are the 5 steps I firmly believe you should take when it comes to your Finances:
1.) Get an Emergency Fund Saved.
This priority numero uno and should come before everything else on this list. How much? $1,200, that’s how much.
What you eventually are going to want saved is 3-6 months of your income. With closer to 6 months being the ideal amount. Don’t worry about 6 whole months yet however, were only on step #1 here. $1,200 is what you want saved (initially). That way if your car breaks down or there’s a last minute emergency, then you can just borrow from the $1,200 emergency fund.
Without this, you’ll either be tempted to put something on credit, or you’ll borrow money from a family member or a friend. Neither of which are good solutions at all. You NEED to have $1,200 saved for when something expensive happens. It WILL happen, sooner or later. It’s not a question of if, its when.
2.) Systematically Eliminate All Your Debt.
When you’re eventually a baller like Grant Cardone, you can consider using debt as a vehicle to make the real big money. I’m going to assume however that most guys reading this blog are not yet in a financial position to leverage debt as a way to accumulate real wealth. One day that may be an entire article all to itself, but until then, for now I want you to just eliminate all your debts. The debt I’m referring to is as follows:
-Existing Credit Card Balance (If I can’t convince you to entirely rid yourself of credit cards then you can use one only to pay for groceries, or gasoline. I wouldn’t even use a credit card for both of those either, only one of them. Obviously you’ll pay the balance off every month or even once a week).
-Any Pay-Day Loans, Or Other Personal Loans That You May Have Borrowed From Credit Unions Or Anywhere Else.
-Money Owed To The IRS For Your Taxes (take care of this one 1st).
-Student Loan Debt
-What You Owe On Your Car (Car Note)
-Medical Bills
These need to ALL be eliminated as quickly and as swiftly as possible. Never forget this statement of truth: The Borrower Is Slave To The Lender. NOTHING, will keep you stuck where you are longer than these debts will. You’ll be like a hamster on a wheel, month after month, year after year. Your life will pass you by and you’ll wonder where it went.
You’ll wonder because you were always stuck on that wheel, constantly owing companies money for crap you should’ve just paid for with cash.
This is #1 reason why most people will never be truly wealthy.
They need instant gratification, and they lack self-control and discipline. So they charge things to a credit card or they finance it. When you finance something, you pay something called interest. There’s a funny about interest: either you pay it, or it pays you.
Never, ever forget what Albert Einstein said:
”Compound interest. Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.” -Albert Einstein
But Matt, what about building your credit? Just like Dave Ramsey says, why exactly do you need such a magnificent credit score? Why? Just tell me why, don’t get all huffy puffy about it and then not have an answer for the question I just asked you (what usually happens).
You want to buy house?
That’s an article all to itself, and it will be coming out on the blog here soon. Just know there’s still such a thing called ”Manual Underwriting”. Churchill Mortgage is a great company that still does manual underwriting. Look it up, I’m not going to go into a bunch of details on it right now, that will be discussed in my real estate article.
You want airline miles? How much are those miles really worth to you? Maybe you have a goal to travel a lot eventually, fine, I’m not saying don’t try to slowly build up your credit here. I don’t think having good credit is bad thing, I’m just saying I don’t think its as important as you’ve been led to believe it is by our western consumerism obsesses culture. Cash is king, always has been, always will be. Period.
Trust me on this one, I’ve been there, you’ve got to be very very careful when it comes to how much you’re charging up to credit. When you play to snakes, you get bitten. To me, the risk is not worth the reward. Not going to listen me? Fine, but don’t come whining back to me in a few years after you’ve realized you’ve made a mistake. And don’t EVER say I didn’t warn you.
3.) Save 4-6 Months Of Your Income.
In other words, this is called a ”Full Emergency Fund”. Sit down and calculate how much you need to live on for 3–6 months. Go back and look at the last 3-6 months and calculate out what you spent. Subtract off anything you know would be avoided if you were ever in a position of having to dip into this 3-6 month emergency fund.
So far, you may have noticed that what I’m suggesting here is very similar to Dave Ramsey’s ”Baby Steps” plan. So far, you’d be right because up to this point its almost the exact same thing. The next step however, is where what I say differs from what Dave says. This next step will also hopefully help you tie together a lot of the conflicting advice I was talking about earlier in the article.
4.) The Day You Get Paid, Immediately Move 30-45% Of It Aside And Into A Savings Account.
Now, here me out here, you’re not going to actually ”save” all 30-45% of this money each paycheck. Whether you set aside 30% or 45% will depend on what you’re able to actually do. So in other words, it depends on your income, what’s realistic for you.
30-45% of your income may sound high, and if you still have debt, it is high, but that’s why I said to eliminate the debt first. Without a large credit card bill, or car payment every month, then yes you’re damn right its going to be hard to set aside 30-45% each month. There’s a reason why I talked about getting rid of that debt first.
If it stills sounds high, even without monthly debt payments, then its because you need to get your income up, which I’ll talk about in a minute.
Now, next I’m going to tell you what I do here, and so far I really like how its been working out for me:
Of this 30-45%: 1.) 10-15% of it is going into my self-employed 401K (I put half of this number in as pre-tax, and the other half of it in as after tax, or ”Roth” in other words), 2.) 10-15% of it I move into my ”Sacred Account”, which I’ll talk about in a minute, and 3.) the remaining 10-15% of it I RE-INVEST back into my business.
Let’s talk only about #1 here for a minute:
On my 401K, the reason I put half in as pre-tax, and the other half in as post tax, is because it gives me the best of both worlds. It gives me a perfectly even amount of the benefits of both. For example, the benefit of having a traditional ”pre-tax” 401K, is that it reduces your taxable income by the exact amount that you contribute towards it. So if you put $8,000 a year into your pre-tax 401K, then the following April when you do your taxes, your 1099 (if your self-employed), will reflect that your taxable income is $8,000 less than what you actually made.
This is a huge HUGE benefit you can take advantage of each year. Alternatively, a benefit of having a ROTH is that the contributions you make towards are taxed as they go in (so its the opposite, you’re paying taxes now, so you don’t have to pay them later). A lot of people feel that taxes will be higher in 20-30 years then they are today, so they figure its better to pay them now then in the future.
I believe, that if you invest in good growth stock mutual funds, that over time you will thank yourself for it. They have proven themselves to be a great, long term investment strategy. As long as you weather out the inevitable storms (market crashes), and let the market correct itself, you will be just fine. The closer you get to the age where you want to start actually living on all the money you’ve grown in these funds, the closer you get to that point, the more conservative you want to start getting (by increasing the fixed portion of your monthly contributions: 40% fixed (age 40)——->55% fixed (age 60)——–>70% fixed (age 72)).
Just to be clear here: in this example I used with 40%, 55%, and 70%, by that I mean 40% or 55%, or 70% of the amount actually going into the mutual funds each month. So, if out of your whole check, you’re putting 10-15% into the 401K, then I mean 40%—>55%—>70% of that amount (the 10-15% out of your total check), should be fixed. Im my opinion, there should be a portion of your monthly contribution that is FIXED. Fixed meaning it resembles a savings account almost.
This will keep your account value from flying all over the place like a roller-coaster. If you’re moderate to aggressive with your investments, it will still resemble a roller coaster anyway probably, but the fixed account will mitigate that to a degree.
If you’re worried about ”losing all your money” in a 401K, due to market fluctuations or volatility, just remember: the only ones who get hurt on a roller coaster are those that jump off. On paper you may have lost all your money, but it only becomes real the moment at which you sell and cash out. Then you have lost all your money, and at that point it’s no one’s fault but your own. If you want to read a good book on what I’ve discussed in these last few paragraph’s, then I suggest you read this book.
Its an easy read and will really get your head wrapped around this stuff.
Just remember to increase the fixed percentage more and more the older you get (so get more conservative over time).
Now, lets discuss the 2nd 10-15% (of the total 30-45% each check): The ”Sacred Account”.
This one I got from my man Grant Cardone. The main difference between what I do and what Grant suggests however, is that he tells you to put ALL 30-45% of your check into the sacred account, and to skip the other 2 components: the 401K investments, and re-investing.
So do I disagree with Grant on this?
Yes I do, and I’ll explain why in a minute, for now lets just talk about what this SACRED ACCOUNT is used for.
The purpose of the sacred account fund, is to eventually use it towards 1 or 2 large business investments.
For example what Grant did with his sacred account fund, was he purchased an apartment building complex worth about a 3rd of his whole sacred account balance. This was a HUGE investment, and he basically exhausted his scared account fund and went all-in on this investment. He waited until he genuinely believed, way deep down, that he had a solid winner of an investment.
Then, just like in poker, he went ALL IN. If the proper due diligence was done beforehand, and you ”know” its a sure thing, you could quadruple your money, or even 10X it.
Leading up to this moment, Grant certainly did do his years and years of research and kept his eyes and ears open for the right opportunity. When he found it, he moved swiftly on it.
This is the pure definition of what’s called a ”Calculated Risk”. After you have your full emergency fund saved (5-6 months of your income), this 10-15% saved each pay period (for the scared account) is being saved for one reason and one reason only: So that you can invest it wisely. That is the ONLY reason to continue saving money once you have those initial emergency funds saved, and is what this sacred account is for.
You are saving so that one day you can make that large investment. For that very VERY calculated risk you will take. Now remember: This calculated investment risk you’ll take, is only coming from the sacred account savings you were taking out of each check. The other 20-30% you’re taking out per check is:
1.) Going into your 401K/IRA, or,
2.) Is being re-invested.
Remember: on Roth IRA’s you can only put so much into them per year (at the time of this typing, the AGI phase-out range for taxpayers making contributions to a Roth IRA is $189,000 to $199,000).
The idea behind my whole message here, is that you’re not putting ALL of your eggs in one basket. In other words, you’re not putting ALL 30-45% into the 401K, you’re not putting ALL 30-45% into your sacred account, and you’re not re-investing ALL 30-45%.
Fundamentally, the reason why I disagree with Grant’s method, is that I’m just not as ”Aggressive” with my money as he is.
To me personally, its just too much of a financial risk to dump EVERYTHING you have saved into 1 or 2 large investment decisions, no matter how much due diligence you do. We’re human, and we make mistakes, so if the possibility of loss is there, I’d rather lose a 3rd of the money, instead of ALL of my money.
Now of course nothing is guaranteed with the money that’s being invested in the mutual funds, however historically, mutual funds have PROVEN themselves to be reliable. They have always trended up over the long haul. Be in it for the long haul, and I don’t think its unreasonable to get 12% back on your money.
As far as my investments go, as I mentioned I like Mutual Funds, and this is where I’ve had them so far. This is where I aim to keep them for long haul:
-25% Growth Only Funds
-25% Growth And Income Funds
-25% International Funds
-25% Aggressive (small-cap companies)
Note: These percentages are not taking into account the fixed portion, which should vary depending on your age (the fixed percentage should increase as you get older).
Remember, this still is NOT investment advice. I’m simply telling what has been working for me and what’s worked for other successful investors I’ve studied.
If Bitcoin is of interest to you, I would check out Mike Cernovich’s podcast on it. You’ll find it on Soundcloud. Mike is a very smart guy and isn’t going to make an unwise decision with his money.
Now, to be able to save 30-45% of your income each paycheck, is going to mean something that should be obvious to you by this point: you need to get your income up. How can you get your income up? Damien Pro’s from DareAndConquer.com might get you started, go check out his site.
In conclusion, the 3rd 10-15% (of your total 30-45% from each check), should be directly re-invested back into your business. That’s pretty self-explanatory, just put it right back into whatever is making you money, even if its just paying for courses that will expand your knowledge in your field.
I’m sure there will be many people that disagree with me here, but for what its worth, that’s my take on this subject.
CONCLUSION/SUMMARY:
1.) Get an Emergency Fund Saved of $1,200.
2.) Systematically Eliminate All Your Debt:
-Existing Credit Card Balance
-Any Pay-Day Loans, Or Other Personal Loans That You May Have Borrowed From Credit Unions Or Anywhere Else.
-Money Owed To The IRS For Your Taxes (take care of this one 1st).
-Student Loan Debt
-What You Owe On Your Car (Car Note)
-Medical Bills
3.) Save 5-6 Months Of Your Income.
4.) Every Time You Get Paid, Temporarily Move 30-45% To A Savings Account And Then:
–Consider Putting 10-15% of it into your 401K (hopefully you’re self-employed). Consider putting half of this amount in as Pre-Tax, and the other half of it in as After-Tax, or ”Roth” in other words).
–Consider Putting 10-15% Into Your ”Sacred Account”(which you’ll use for 1 or 2 LARGE investments. Example: apartment complex purchase. Whatever you decide, this will be your very ”calculated risk”, do your due diligence!!).
–Consider using 10-15% and directly RE-INVESTING it back into your current business.
-Matt Mitchell
