4 Steps You MUST Take Before Investing

If you’ve been following this blog for the last few posts, you’re probably fired up to start investing.  You’re probably saying to yourself “Jesus Christ man enough with this shit, teach me how to invest already.” I WILL! But if we are going to do this, we are going to do it right. Once you invest, you will probably not be touching that money for the next 5-10 years. This isn’t an ATM. Investing is something you need to put a lot of thought and effort into to be successful.

Because of this, you NEED to make sure that your finances are in check before putting any money into a long term investment. Warren Buffet is one of the greatest investors of all time and the investing strategies you will learn here, come from the lessons that he taught me (not like personally…but I read a lot). When it comes to long term investing, Buffet is king. When asked about his investment horizon Buffet said, “Our favorite holding period is forever”. You need to be okay with letting this money sit forever. That means when your ’09 Civic blows a tranny, you better not be in a position where you need to sell an investment to pay for it.

Saving will always beat investing until you really start stacking up cash. Investment returns start to get juicy the more GREEN you can put into them. Please refer to my previous post on saving tips to help you cut out unnecessary expenses which will help get the first part of your finances in order.

Emergency Savings

This is probably the most important thing to get in order before investing. It’s going to be really annoying, but I’m going to keep beating this into your head. Until you have a boatload of money, saving money will always beat investing money. Look at it this way:

 

How much should I save?

A lot of experts recommend saving up 3-6 months of expenses. This is a great opportunity to take a deep dive into what your expenses are. If you’re thinking to yourself “fuck me… how am I going to save $15,000 as a cushion” you might be spending too much money. I’m telling you, cutting out stupid purchases and paying yourself first is where you need to start.

This is also great practice for what it takes to be a great investor. When we start investing in businesses, there is going to be a great deal of thought and analysis that goes into it before pulling the trigger. You need to put the same kind of thought into any financial decision you make, even something as small as buying that coffee every morning before work.

The emergency fund that you are going to create is for emergencies ONLY.

What is an emergency?

Let us define what an emergency is NOT –  An emergency is not your friends hitting you up for a “once in a lifetime” trip to Cancun that will set you back $1,500. FOMO is a real thing but it’s not an emergency. An emergency is not the new iPhone coming out, and you upgrading even though your iPhone 7 is working perfectly fine because the new one has three fucking cameras. THREE!

An emergency is something that is unexpected, necessary, and urgent.

Please, please, please work on creating an emergency fund before putting any money into an investment of any kind. At the same time, don’t let this stop you from continuing to invest in knowledge. Knowledge is free.

 Clear Out Debt

Debt is a baby back bitch. Always has been, always will be. If you’ve already built a solid emergency fund, then I don’t think it’s necessary to eliminate debt entirely before investing, but let’s focus on high-interest debt. In one of my previous posts, I have my weird orgy analogy of how compound interest is the shit. Guess who else knows that compounding interest is dope??? Your credit card company. When you let your credit card debt build-up, you have to start paying interest on that. Then, you gotta pay interest on the interest and this continues on and on until you are living on the street.

If you have unpaid credit cards, then pay that shit off before even thinking about investing. What the hell is the point of getting awesome returns in the stock market if you have the same power of compound interest working against you at the same time? 

 If you have crippling credit card debt you are by no means in the minority:

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Just because you are in the majority doesn’t mean you’re right. A lot of people just see that little minimum payment and think “okay cool I paid it, now it says there’s no payment due”. Uhhh yeah, no shit bro there’s nothing “due”. Banks love this shit. They will keep collecting interest on that new flat-screen TV you bought. Don’t just pay the minimum. Pay the entire statement balance on your card at the end of each billing cycle. If you can’t pay the statement balance, then you are doing something wrong and can’t handle a credit card. If something comes up where you have to put a lot of money on your credit card, then paying that off moves to the top of your list. 

Not all debt is bad.

Some debt is just a necessary evil, such as a 4% school loan, which is not as much of a concern. Make your payments, but don’t feel like you need to pay off a $30,000 school loan before you can put any money into the stock market. Debt like this is very easy to factor into your budget. 

When taking on debt, always ask yourself if what you are purchasing with that debt will decrease in value. For example, let’s look at a car loan. A new car loses it’s value as soon as you drive it off the lot, then continues to lose value at about 15% a year.

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You will still be paying for the full price of the car plus interest even though the car is now worth half of what you paid for it. Taking on debt to cover the cost of liability is never a good idea. On the contrary, a college diploma will still have value for the rest of your life. Yes, college is expensive and the debt is probably killing you, but hopefully, that degree increased your value as an employee.

The same thing goes for mortgage payments. You will be paying off the purchase price of your home for 30 years, however, more often than not, the price of your home will appreciate in value. You are paying for something that is actually increasing in value the more time passes.

Debt for assets = Good ι Debt for liabilities = Bad

Roth IRA

Do you know what else is a baby back bitch? Taxes. Luckily, Uncle Sam created a few loopholes to help us finesse the system. Basically, you get taxes taken directly out of each paycheck, which sucks ass, but it is what it is. If you were then to invest that pre-taxed money into the stock market with a traditional brokerage account, you would eventually have to pay additional taxes on any money that you gain once you sell the asset. This is called the capital gains tax

The US government never wants you to make money without them getting a little piece of the pie. We’ll discuss how to limit your tax liability in a later posts but a Roth IRA is probably the most important weapon in fighting the war against taxes. 

The cool thing is… A ROTH IRA IS INVESTING! Finally, we can hop into the markets in the easiest and smartest way possible.  

A Roth IRA retirement account allows you to invest money without ever paying federal taxes. You can put money in every single year while you wait for the freedom of retirement and when you take the money out, YOU GET TO KEEP ALL OF IT. All of those sweet and delicious capital gains are all yours. Obviously, the government doesn’t want you to get too carried away with this loophole, so they limit contributions to $5,500 per year. 

How much can I make with a Roth IRA?

Let’s take a look at the benefit of the Roth IRA account. If we break down the max contribution into monthly investments, it comes out to $458 per month. This may not be possible for everyone, but this is your goal. The average return for a Roth IRA account is 7-10%. The chart below shows how your money will compound over time if you maxed out your Roth IRA account from age 25 to 65 (assuming 7% return).

 

After 40 years, your $458 monthly investments come out to 1.2 MILLION DOLLARS, all yours. Nothing to the government. If you simply put that into a savings account every year, you wouldn’t even get a quarter of that. 

I personally use Vanguard, but there are tons of different options out there for opening your very own Roth IRA account. So do your research and pick which one is best for you. I really think it’s bananas to open up a personal trading account before having your Roth IRA locked down. So get that done. Even if you can’t hit the maximum, please just open the account and start contributing what you can. 

 Educate Yourself

This one should be common sense, but I feel like a ton of people focus too much on the “get rich quick” aspect without properly educating themselves. As I said before, knowledge is free and it’s also what will pay off the most long term. It’s important that you know what you are doing before you make an investment. 

I’ll be honest, I didn’t follow this advice when I first started and it bit me right in the dick. I had an account when I was in college and just watched The Wolf of Wall Street. I found some hot stock pick from a guy on Reddit, I believe it was a company called Amtrust Financial. I tossed a ton of money into it without knowing anything about the company…legit nothing. I sorta forgot about it for a while and checked my account and was down $6,000. Because I didn’t know anything about the company or investing, I had no idea why this had happened. Should I sell? Should I buy more? Should I just keep holding? I didn’t know the answer. So as any panicked newbie would do, I sold and took the loss. 

The more knowledge you have, the more confident you become. Now, it’s easy for me to look for buying opportunities and I know the difference between a solid company and a sketchy one. 

Remember when you were in chemistry class in high school thinking why the fuck am I learning this? I’m never going to use this in real life. Well, whenever you are learning about investing it’s the complete opposite. I mean what better way to spend your time than learning skills that will actually make you money, right? You already found yourself at Invest for the Rest so you are on the right path!

The 4 Worst Excuses for Not Investing

Investing is the act of allocating funds to an asset or committing capital to an endeavor (a business, project, real estate, etc.), with the expectation of generating an income or profit. –Investopedia

Investing is a part of every financially successful person’s life. Everyone wants to invest in stocks or real estate right off the bat, but I encourage you to broaden your view on investing. Start thinking about how you invest your time and energy before you even think about investing money.

The fact that you stumbled across this blog, shows that you are an investor–even if you’ve never bought a stock or property. You are investing in yourself through knowledge which is one of the most powerful investments of all.
Unfortunately, knowledge alone won’t make you money. You need to take that knowledge and turn it into action.

Almost everyone and their grandma are aware of what investing in the stock market is… buy shares low, sell high. It gets a wee bit more complicated than that, but if you are able to buy great companies at a discount, then you will make money.

Invest for the Rest’s Money Orgy


What if I told you I had a magical money love machine? You put some money in the magic machine and forget about it. The money in the machine has a money orgy. Everyone’s bangin’ each other left in right, just absolutely wild unprotected coitus day in day out. Then all your money gets pregnant and has little money babies who also bang each other and repeat the process. Now the babies are smashin’ and making more little babies. This goes on for the next 30 years and every month you toss more of your hard earned cash into the sex machine.

When you go to retire, there’s a big ass money family. All grown up and ready for spending.

That’s investing. So why the hell aren’t you doing it?

Excuses for Not Investing

1.  I don’t have enough money to invest. You need money to make money right???

Right and wrong. Yes, to start a money orgy of your own you do need money. If you followed my saving advice from my previous post, you should already be growing your bank account. If you don’t have your saving habits down, then I suggest starting there. Don’t use your rent money for the orgy.

In the past, maybe people had a point saying, “how can I afford to invest when amazon is $2000 a share?”, but a lot of brokerage accounts offer fractional share investing now. This allows you to invest any amount of money in any company. Instead of spending money on that funny shower curtain that has a sloth dancing in the rain on it, you can profit off the stupid people that bought it.


I mean honestly, you’ve been saying you don’t have enough money to invest for the past 5 years when your money could have been smashing and making money kids. If you still don’t have money after all of this time of saying you can’t afford it, then obviously whatever you’re doing isn’t working.

You can’t afford to invest??? Bitch, you can’t afford to NOT invest.

2. Investing is risky. I don’t wanna lose all my money.

I’d be lying if I said there weren’t risks to investing. Of course there are risks. Sorry to break it to you but anything that’s good in life has some sort of risk. Not investing because you are worried about risk is like saying “oh well I’d better not go to college because there’s a risk of not getting a job after”. Or oh maybe I shouldn’t get married because there’s the risk of a messy divorce if things don’t go well. You make those decisions based on the proven track record of college grads making more money than those with just a high school education and the fact that there are happy marriages.

The historical return on the stock market is 10%. You can’t argue that. That’s just a fact. There were down years, and there were up years but the average is 10 percent. Ten times the average high yield saving account. In later blog posts I’ll teach you how to be smart and safe when entering the markets and we will match or beat this return over the long haul.

Success comes from taking smart calculated risks.

I’ll say this once and I’ll say it again…THINK LONG TERM. Just like life, there are ups and down to investing but if you put in the work, you will end up on top.

3. Investing is complicated and I don’t understand it. That’s why I haven’t been investing.

This might be the dumbest one of all. With this mindset you’re basically saying that you have reached the peak of your life. Anything that you don’t understand in your 20s and 30s, you will never understand. BIG DUMB.

That being said, the fact you are reading this blog shows that you are willing to learn something new. WOW what a novel concept.

Learning something that you don’t understand is how you got to where ever you are right now. “Hey we are going to promote you to manager because you are doing so well how does that sound?” Uhhhh well… I actually don’t understand management, so I’d rather not, thank you though.

Commit to growing as a person and welcoming new opportunities.

4.  I will get around to it eventually. I’m just really busy right now. I’ll get around to it once XYZ happens.

If there is one thing you shouldn’t procrastinate on its saving and investing. When it comes to these two things, time is your best friend The more time you have in the market, the more money you will make and the less “risky” things become.

It’s really funny what people prioritize over investing. There are 168 hours in every week. For the average person, 40 of those hours are spent working and 96 of those hours are spent sleeping (if you get 8 hours a night). That leaves 32 hours left of free time. I get it, life can get hectic. But to sit here and tell me you can’t find 30 minutes a day to learn a skill that will help set up not only your future, but your kid’s futures? That’s just a lie. The only person that gets hurt by this lie is you.

The best part about investing is that once you learn the skills, you never have to learn them again and the time that needs to be put in reduces dramatically.

Everyone always thinks that they are busier than everyone else and that they for some reason, have less hours in the day then other people. That’s the great thing about time; it’s a level playing field. Warren Buffet, Elon Musk, and Bill Gates all are given the same hours in the day that you have. They just choose how they use those hours differently than you do.

This is the exact reason I’m making this blog. There are aspects of investing that are confusing, no doubt. But the general principle is something everyone should be able to understand. We aren’t going to be diving into PE ratios and EPS any time soon, but you don’t need that right now. I promise this will not be as painful or confusing as you think it will be.

Stay tuned for future posts where we will actually start learning the first steps, but in the meantime, please just take a good hard look at your life and what you spend time on. I guarantee you are not as busy as you think you are.

5 Tips to Build a FAT Savings Account in Your 20’s

“Rich people don’t work for money, they have money work for them.”

This is something that is mentioned in just about every book on investing or wealth creation out there and it’s 100% true. But that’s easy to say when you have money to start with. Before jumping headfirst into the stock market or any other business venture, it’s important to first build financial habits that will help you grow your savings account.

I often hear people say “if my boss would just give me a raise then I could start saving” or “I can’t save right now because ________” I used to say shit like that too to help me rationalize why I wasn’t saving that much. It doesn’t matter how much money you make. I know that sounds like bullshit, but it’s true. You’re nuts if you think there aren’t surgeons out there who make $300,000 a year and live close to paycheck to paycheck.  Think about saving in terms of percentages instead of dollar amounts.

For example:

Joe makes $100,000 a year and ends up saving $10,000

Bertha makes $50,000 a year manages to save $7,500.

That means that Joe is saving 10% of his income while big Bertha is saving 15%. Even though Joe saves more money than Bertha, he’s actually worse at accumulating wealth. Good on ya Berthy.

I’ll give a personal example to show you how I fell into the spending trap. Two years out of college, I was doing well in my field and got a raise to 100k a year. I had never made that kind of money in my life. It started off with little shit like eating out way too much… actually, I shouldn’t even say eating out because what I really mean is ordering Uber Eats so my fat ass wouldn’t even have to leave my house. I had it down to a science. I would start my commute in LA traffic, toss on a podcast, and time my order perfectly so that the Uber Eats dude would be pulling up to my apartment right as I got home from work. I would sign up for dumb ass subscriptions I didn’t need and have amazon prime packages at my doorstep weekly, all because I could. I ended up doing a deep dive through my finances and found out I had spent $70,000 in a year. No kids. No mortgage. Virtually no responsibilities outside of work. I spent the majority of my salary (after taxes) and had nothing to show for it. Don’t fall into this trap.

The steps listed below will help you to start changing your mindset when it comes to saving your money.

1.  Auto deposits

This should be a no brainer but it shocks me how many people don’t do this. Any bank will allow you to set up automatic transfers from you checking to your savings. Set an automatic transfer for every two weeks (or whatever frequency you get paid) so that a predetermined amount goes right from your checking into your savings.

STOP USING YOUR CHECKING ACCOUNT TO STORE ALL OF YOUR MONEY.

Promise yourself that your savings account will not be touched unless you have an emergency or you plan to buy assets with that money. Also, yeah I know you are already contributing to a 401k. This is in addition to that.

If you have $10,000 in your checking account, you will convince yourself that you have no problem affording that $300 watch you want. “I got ten racks to blow I’m gooooooooddd” While if you only had $3000, you would really think about that purchase because spending too much could impact your bills and your rent.

This is the classic pay yourself first mentality. Be fucking selfish about it. See your life as a business. You’re the owner. If you owned a business and it ran into cash problems: Are you going to cut your own salary first? Or are you going to look for ways to cut the costs of goods?

If the company you work for had cash flow issues… would you want them to cut your salary to help keep the business afloat? Or would you want them to lay off Steve from accounting?

Deuces Steve ✌️

2.   Ease your way into it

If you’ve never paid yourself first, don’t get all hyped after this blog and try to save half your paychecks. It’s going to stress you out and you are probably going to fail miserably. You’ll do it for the first couple months and then its gonna stress you the hell out and you will give up. Start with 5%. Maybe 10% if your feeling bold.

Paycheck is 1500 biweekly? Save 75

Easy.

Okay, now try 100 a check.

I get it. Life’s expensive. But life being expensive is not an excuse not to save. Just because saving $75 a check doesn’t seem worth it, doesn’t mean you shouldn’t do it. Start slow and work your way up. In my opinion, if you can get to a 1/3 of your monthly paycheck, you’ve made it.  I realize that this isn’t possible for everyone, but do what you can.

3. Focus of recurring purchases

When you start getting up there in percentages you may start to notice some cash flow issues. Remember, as I mentioned before, this doesn’t mean stop paying yourself.

This is when you gotta take a deep dive into that credit card statement and find out what you are spending your hard earned cash on. When I say recurring purchases, I don’t just mean your netflix, hulu, spotify, amazon prime, tinder plus, and whatever else subscriptions. I mean that burrito you get everyday or that trip to the 7/11 across the street from work that has the spicy beef jerky and those little rainbow fruit belt candies that surprisingly go really well with the berry prickly pear and mango pineapple frappuccino from the starbs that’s conveniently located next the 7/11. It’s this kind of stuff that can do dirty things to a bank account when left unsupervised.

Most bank apps these days can give you a breakdown of your spending and you can even set budgets for each category. If your bank doesn’t offer this, just download the app Mint (Hey mint exec reading this: first ad is free) We are creatures of habit. At first it’s going to be hard to stop buying certain things everyday, but pretty soon you won’t be able to imagine spending $15  a day on coffee and snacks.

4. Pretend you didn’t get a raise

This one is big. Once you master the first three, don’t let getting a raise at work change any of the things you have been doing. This is the easiest way to get stuck in the rat race. You will get used to making 50k a year and living paycheck to paycheck. You crush your powerpoint presentation at work and they bump you up to 60k and the process starts all over again.

If you were living off 50k a year and you get a raise, then all that money just goes back into savings. I never understood how someone can make 50k a year and live perfectly fine, not saving money, but still living fine and then get a raise to 75k a year and still not be saving. The best part is, they always make excuses why their circumstances are different and cost of living went up. No bro, you got a raise and thought you could afford that beamer and now you are back where you started. Which brings me to my next tip…

5. Bad debt goes first

I mean I guess first off, don’t get into bad debt. When I say bad debt, I don’t mean your school loans. That’s a necessary evil that got you where you are now. When I say bad debt, I mean anything above 5% interest that you probably could have lived without. The worst of all is credit card debt.  The average credit card interest for 2019 was 21% hahaha. If you promised me I could make 21% a year on any investment I make for the rest of my life, I would be wildly rich when I’m 50.

But okay don’t be so hard on yourself. You got yourself into absolutely crippling credit card debt. You went to a financial adviser and they threw up all over their desk when they looked at your bank statements. This is now your main focus.

Start dumping all this money your saving into your bad debt first. There’s no point in trying to build a saving account if you have the magical powers of compound interest working against you in the wrong direction. Chip away at it and promise yourself that you’ll never get back into this position again.

Good luck. I just want you to know that I believe in you.

State of the Market

Before I start getting into the nitty gritty I just want to address where we are at in the stock market. Stocks took a fat dookie this morning because of the Modelovirus out in China.

This is what we like to call an event. Stocks have been a god damn money machine for the past 18 months so everyone is kinda on edge about the crash. If you own companies, the most important thing to ask yourself is, “has the long term outlook of my company actually changed?” It probably hasn’t… unless this becomes a full on plague, I doubt this is really going to affect the bottom line of most companies 3 years from now.

People on Wall Street have more mood swings than an angsty teenage girl. Either the god damn word is on fire or nothing can go wrong.

My recommendation is to stop checking the markets unless you are shopping for a new stock. Some companies may have gone on sale today but keep in mind that everything is still trading above fair value for the most part.

Crush up a Xanax in your coffee this morning, and just chill out.

RIP Kobe