Getting Started With Finances

Over the last few years I have really taken a keen interest in my personal finance and financial freedom. In a perfect world we would all be armed with this information and start earning, saving, and investing at an early age. But majority of us did not receive this information or learn how to properly manage money. Just Google “broke athletes” and if it can happen to them, it could happen to one of us. So stay tuned and sign up for alerts. I’ll share my story about my path to financial freedom. Follow me on Twitter

@financeideas101

How To Grow Your Salary By 92%

My base salary has grown 92% since 2012. In a business environment where 2.8% Wage Growth is the norm, I have managed a yearly average increase of 13%. I have made this possible with a lack of strategy in the beginning of my career to clearly defining a goal to get to where I am at now.

I began my career in the military which has limited salary growth. I started attending college while in the military and finally landed a salary job in 2012. I was extremely happy to finally be in that business environment, but I was not thrilled about my salary compared to my peers. I felt that I was in an entry level position making the same money as some young kid who just graduated college. Unfortunately military experience doesn’t always translate to corporate experience. Most companies would tell me that 6 years of military experience is equivalent to 1-2 years of corporate experience.

I wasn’t very strategic when I started my professional career because I didn’t take the time to fully understand what I needed to obtain in order to advance. I would browse the internal job postings and apply for jobs based on salary. I didn’t think about what I could do to improve my skill set to actually land a higher paying job.

I was fortunate enough to land an interview for a higher paying position however, I had no prior experience in that role. I didn’t think I was going to get the job. To my surprise I was offered the job and my pay jumped up 22%. I was ecstatic about the increased pay but also very stressed because I had no idea what I was doing. I learned fast and that’s when I stumbled across a famous quote from Richard Branson “If somebody offers you an amazing opportunity but you are not sure you can do it, say yes – then learn how to do it later!”

This experience was my lightbulb going off in my head. Landing a higher paying position depends on three things in my opinion. First, show the prospective employer that you are capable of doing the job. Second, strategically search for a position that allows you to learn and grow. Third is luck. I will expand on that briefly. More important than what you have done or can do, is to make a connection with the hiring manager. This is pure luck. It’s almost like dating. You can both say the right things, but something might signal to each other that this isn’t a perfect match. Plenty of qualified candidates have not been offered the job based on the hiring manager not having that feeling. Each time I have been offered a higher paying position it is because myself and the hiring manager matched on a personal level.

I believe from experience and from talking to people who have moved up the corporate ladder, is that you should think about being in a position no less than 2 years and no more than 5 years. I don’t think it’s wise to jump from company to company every 2 years but internally is a different story.

The major benefit from leaving a company and joining another is that your Salary Increase on average could be 10%.

So let’s wrap this up with the numbers. I will list the major salary increases. I also never got a raise below 3.5%. I consider myself a high performer and so has all of my employers.

In 2013 I was promoted and received a 22% pay increase.

In 2018 I left that company for another one and received a 15% pay increase.

In 2019 I joined a new company and my pay increased by 11%.

If I stayed in my original position waiting and hoping for a promotion or pay increase, it would have taken me 32 years at 3% annually to match my current salary.

Bottom line is this, nobody is going to hand you anything. You need to work hard and seek out new opportunities.

How I Got An iPad For $120.00

I just bought a brand new 2017 iPad Pro for $120 dollars. That’s right, $120 dollars.

I wanted an iPad so I can be more efficient and consistent with this blog. I haven’t been writing weekly like I told myself I would as part of my 2019 New Year’s resolution. Ironically I spend more time at the gym.

I won’t get into an in depth review of the iPad as there are already too many of those on YouTube, but I will briefly describe how I ended up choosing this model and most importantly, how I only paid $120 dollars.

I initially wanted the 2018 iPad Pro. It starts at $799 for the 64GB model. That does not include the keyboard or iPencil.

My soon to be former company provided all employees with 10 shares of restricted stock rather than pay a bonus when Trump initiated his tax plan. At that time the shares were trading around $134 each. The vesting period for the first 5 shares was 12 months after the initial grant and the remaining 5 vesting 24 months later.

Mid-March the shares vested and we had the option to cash out or keep them. I sold the shares that were valued at $169 each. Normally I would never cash out my investments, but since this was low volume I figured, why not. My goal was to use this money on the iPad. But after taxes and fees that amount was only $479. Roughly half the cost of the 2018 iPad Pro.

I also had a $200 Amazon gift card which bumped me up to $679 for the iPad. But I wanted more space than the standard 64GB and I still wanted the $179 keyboard and $94 dollar pencil. Before taxes I was already faced with $1,222 for an iPad. A little bit on the excessive end of the spectrum.

Then suddenly Apple released the 2019 iPad Air. This was also expensive priced at $922 before taxes. I then researched the difference between the two models and found out that the 2017 iPad Pro is still available. It has more features than the 2019 iPad Air but does not have the current A12 processor that the 2018 iPad Pro and new iPad Air have.

I realized that I don’t need to spend more to get less on the iPad Air and spend way more to have Face ID and a slightly better picture on the 2018 iPad Pro.

Long story short I took my $200 gift card and $479 payout of my 3 shares and bought the 2017 iPad Pro with Smart Keyboard and iPencil. The grand total was $798 for a 256GB iPad. I paid $120 dollars out of my own pocket.

It’s important to look at the big picture and not buy the latest and greatest tech that is out on the market. Yes tech products have a short shelf life but I’ll get 3-5 years out of this for $120. How about them Apples?

Net Worth of $0.00 at Age 40!

I turn 40 tomorrow. As of right now I feel like its just another day and just one more birthday.

But as I start to think about where I am in my life right now, two things come to mind.

1) I wish I started investing earlier

2) I’m glad I started investing as early as I did.

Compound Interest

A picture is worth a 1000 words right?

What if you’re 40 years old and have zero saved?

It’s a tough position to be in and I’m fortunate I can celebrate my 40th knowing that I started saving early enough. I’m well on my way to achieving my financial goals in the next 5 years.

But I can’t help and stop to think about some friends that hit a rough spot or never thought of investing.

But I hope they read this and see that even at age 40, one can still save a decent nest egg.

If you’re 40 and reading this and haven’t saved anything, I hope this motivates you and helps you realize you still have time.

But that window is closing and 25 years will go by quick!

Big Business and Personal Finance!

What can we learn from big business?

I work for a company that prefers Net 60 payment terms to its vendors. The goal is to receive the customer payment within 30 days or less and then hold the cash and make the payment to the vendor after 60 days.

So what’s the comparison to personal finance?

All of my spending is done on a rewards credit card. I make sure I stay within my monthly budget and pay the balance off on the due date. I have a high interest checking account so my cash grows while it sits there until payment time.

It’s not making me rich but it allows me to hold cash, gain some interest, and accumulate airlines reward points. I probably have about 8-10 free flights banked right now.

Businesses like to hold cash and pay debts at the very last minute. I believe in doing the same.

Let me know your thoughts on this!

That New Car Smell !!!!!

I have seen and read a lot of tweets and blog posts lately that say the key to being financially independent is never buy a new car. These posts are mostly filled with the typical writer talking about mistakes they made in the past. Although that is good, it is misleading and incorrect to attribute reaching or not reaching financial independence.

Assumptions:

Our hypothetical person for the sake of this post is 30 years old and is a college graduate. This person is single and makes just a tad bit more than the LA median salary of $62,000 LA Median Salary

I will list different scenarios. Some of them will be detailed and others will be self-explanatory.

Scenario A: Renting, credit card debt, student loan debt, and no financial strategy.

Do not buy a new car. Do not buy a car if you don’t need it. If you do need a car, buy a used junker that successfully gets you from point A to B. Self-explanatory that financing any sort of car, new or used, is absolutely not in your best interest.

Scenario B: Renting, no debt, contributing enough to get company match in 401k, 3 months emergency fund.

Do not buy a new car. Same answer as scenario A. Work on saving money to increase emergency fund to 6 months and contributing more to tax deferred investment accounts. Real Estate is tricky and we won’t get into that but decide at this stage what is more important, owning property or purchasing a new car. Either way save money for that goal.

 Scenario C: Renting, maxed out 401k, 6 month emergency fund, no debt.

Bi-weekly Gross Pay $2,500.00

• Federal Withholding $214.02
• Social Security $113.15
• Medicare $26.46
• California $64.11
• SDI $18.25
• 401k $675.00

• Net Pay $1,389.01

Average rent in LA for a 1 bedroom is $1360 Average LA Rent which leaves you with $1409 per month for remaining expenses. Average car payment in America $503 Average USA Car Payment

A dealer will “qualify” you to purchase a car based on what you can afford. Never ever tell them what you can afford. Focus on the overall price first and keep in mind the length of loan you should do to keep you finances in line

So what can you afford to buy? A simple rule of thumb to find out what the maximum you could afford is the 20/10/4 rule. Make a down payment of at least 20%. Finance a car for no more than four years. And not let your total monthly vehicle expense, including principal, interest and insurance, exceed 10% of your gross income.

So making $65,000 before taxes would allow you to purchase a car for $22,750 with a 3% interest rate financed for 4 years which ironically calculates a monthly payment of $503.

So if you choose to buy a new car this is the most you can spend without a down payment of 20%. The reason you want to put some money down is to pay off that depreciation that will happen within 30 seconds of you driving it out of the dealership.

This information is so very important because the dealer is going to up sell you and tell you that since you could afford $503 a month, you could afford more car for a longer term. Don’t be fooled by this. You could also afford a solid used car for this amount but your interest rate will be higher just because the car is older.

Your car payment will be $393 for 48 months if you utilize a 20% down payment.

10% of a $65,000 gross salary is $541 per month.

After car payment, insurance, fuel, the estimated monthly amount left over for remaining expenses should be around $800.

Ask yourself if maxing out or going above your maximum will ever help you achieve financial independence? The answer is no. It’s possibly but the odds are stacked against you.

I would recommend this person stick with the answer from Scenario A and B. But if buying a car is high on the personal priority list it would be best to purchase a vehicle that will retain some value and purchase something that is $15,000 or less. Which if anyone has been to a dealership knows this is hard to find.

It’s not surprising that consumers get suckered into buying much more car than they can afford. And yes this will hurt your goal of achieving financial independence in a timely manner.

Scenario D: You skipped A,B, and C and currently are financing a vehicle.

Let’s assume you purchased a car and currently have a monthly payment of $503 per month for a period of 5 years.

What do you do?

The FI community will tell you to aggressively pay off this car loan. Let’s say you can afford to pay an extra $250 per month.

Option 1: Pay $753 per month towards the car. You will have a paid off car in about 3 and half years with a value of $15,120.

Option 2: Pay the minimum amount of $503 per month for 60 months and put the $250 a month into a brokerage account assuming 6% returns you would have a paid off car worth about $10,000 and about $17,500 in a brokerage account. Combine those two at year 5 you have $27,500.

The numbers don’t lie and here is how you can still work towards your goal of FI while paying off debt. Of course if you never had that car payment in the first place there would be better numbers.

Point is if you are stuck in a car loan, it’s not the end of the world if you manage your debt and use money as a tool. A tool that grows.

	Existing Payment Schedule			Accelerated Payment Schedule
Year	Total			Payments			Total			Interest			Ending			Balance			Total			Payments			Total			Interest			Ending			Balance
			$28,000.00			$28,000.00
1	$6,037.44	$767.93	$22,730.49	$9,037.44	$726.35	$19,688.91
2	$6,037.44	$607.66	$17,300.71	$9,037.44	$473.56	$11,125.03
3	$6,037.44	$442.49	$11,705.76	$9,037.44	$213.06	$2,300.65
4	$6,037.44	$272.32	$5,940.64	$2,312.42	$11.77	$0.00
5	$6,037.44	$96.99	$0.19	$0.00	$0.00	$0.00

Investment Results by Year

Year	Balance	Balance After			Taxes			Balance After			Inflation and Taxes
	$250	Starting Balance $250	Starting Balance $250
1	$3,350	$3,320	$3,226
2	$6,641	$6,522	$6,160
3	$10,135	$9,863	$9,052
4	$13,846	$13,348	$11,906
5	$17,786	$16,984	$14,722

A Month of Not Spending-Final Thoughts

It’s hard. Really hard. I didn’t actually achieve my goal of only spending money on key essentials such as gas, food, and medical.

What I learned:

I learned it’s hard to be frugal when I am already frugal.

Hear me out before passing judgement. I currently max out tax deferred accounts (401k, Roth IRA). I have an emergency fund. I pay all my bills on time. I make double car payments. I also have brokerage accounts I invest in. Personally, our savings rate is phenomenal. Well above the national average and probably above majority of our peers.

But when is too much saving…too much? I felt it becoming almost an obsession. An obsession that took on the form of a monster when it came to not spending.

We both work hard and work long hours. We are looking at side hustles and niche ways to make additional income. But we also need to enjoy the fruits of our labor.

Enough Sad Story

I decided to add $100 each for myself and my wife to spend on clothing per month.

How did spending money on clothing originate from a month of no spend?

I was able to look closely at our budget and spending and decided this is a need. There were times in the past we decided we needed clothing. We would then spend large sums at that time. We both felt this would make more sense. Keep the spending under control and maintain our wardrobe.

I might do this with restaurants. That was previously another high monthly expense. I think we will put a cap on monthly restaurant spending.

This allows us to increase our savings rate without decreasing our lifestyle. It will provide more satisfaction and careful selection of restaurants. And it’s date night! A later blog post will detail how we plan to be frugal at restaurants.

Summary

Not spending any of our disposable income is not a sustainable path for us. I am glad I chose to not spend for a month, but anything beyond that is next to impossible. We gained some great ideas from it and I do encourage you to try it. The caveat, make sure you have your spending and debt under control.

No Spend August Day 18

Screenshots courtesy of the Daily Budget App which I highly recommend.

So it’s day 18 and I’m more than half way through our August no spend. To recap, the goal was to only purchase necessities, such as food and medical. I budget for gas so I don’t include items like that in my variable expenses, although I could.

I’ll tell you this…..not spending is hard. Especially in a city like Los Angeles. We tend to spend the majority of our variable cash on food and drink.

So how are we doing so far?

Medical added up this month but usually we rarely have medical expenses. I was on business travel so I spent some money on restaurants. The good thing is I will be reimbursed for most of it, regardless, I kept track of it.

We haven’t done as good as we expected on the restaurant and drinks categories. However, it is significantly lower than past months at this point. We aren’t going out this weekend so I don’t expect much to change.

Lessons learned!

-we love eating out. Going forward we won’t eliminate it but we will start sharing one entree and only having one drink each.

-we have not spent money on clothes but we decided to add $100 each per month to spend on improving and managing our wardrobe. That’s another blog post.

-we have projected enough savings to pay for our AirBnB for our 14 day vacation to South America.

Not spending isn’t easy but it can help change habits and improve your overall savings rate.

I like the surplus of cash and the fact that I am in the green and not the red. See below.

No Spend August Day 9

I definitely couldn’t blog daily about my one month no spend experiment.

I was going to wait until day 15, but since I am craving tacos and tequila, I opted for day 9.

It’s definitely harder than I thought. I figured this would be a breeze. Then I realized I can’t go golfing. I have to stick to my guns here.

So far I have spent $870.00 in variable expenses. Some of you might say, whoa dude, you spent almost $100 per day. Unfortunately I had to pay some medical expenses I put off and didn’t realize were due. But the only two expenses that are acceptable during a month of no spend is…..groceries and medical.

My wife and I are eating up all the food we have. Good way to clear out the old stuff before it goes bad. You can get pretty creative with it. We haven’t purchased anything in 3 days and other then groceries this weekend, highly unlikely we’ll purchase anything else.

My goal is to keep the variable expenses to $1200 this month. It helps to use an app like Daily Budget which allows a quick simple way to track expenses.

It takes a few weeks to change habits so maybe I’ll continue this no spend into September. I still have to get through August first.

Side Hustle Struggle! Part 1

I would have liked for this post to be about how I have found success in my side hustle(s). So far I am still trying to find my niche.

The positive is that my wife and I are coming up work ideas and writing them down. Trying out some prototypes as well.

I suppose there really isn’t a negative considering that forces us to use creativity and communication.

We both love wine, so recycling our wine bottles into art is something we could do. We would have to build an Etsy page and market ourselves. Eventually it might take off.

I have also tried Mturk with Amazon. I earned $0.12 in one week. Woo hoo. Still navigating that process.

Stay tuned. More to come.

401k Contributions

I have posted about this on Twitter a few times recently. I come across people who don’t know how much they should contribute. Some people think they can’t afford to contribute at all and some just don’t know the basics. And let’s be honest, human resources staff will just tell you that you have a 401k. Most of them don’t know the basics either and just refer you to the plan representatives.

I want to make this a quick and basic tutorial. Contributing and lowering your tax liability is easy. What funds to put it in….that’s another topic. Although don’t fear that just yet. If your just getting started then let the 401k plan contributor manage it while you measure their performance and fees.

I decided to use a salary of $75,000 but we could use any salary to make the point. The salary range will change your tax bracket depending on how much you contribute to your 401k.

Example 1:

75k per year salary with bi-weekly paychecks and claiming 0 for Federal and State taxes and no contributions. Combined Federal and State tax liability is $672.52 with $0 dollars going into a 401k. Total take home pay is $52,546.00 after taxes.

Example 2:

75K per salary with bi-weekly paychecks claiming 0 on Federal and State taxes and contributing 8% of base salary into a 401K account which is exempt from Federal, State, and Local taxes.

Combined Federal and State tax liability is $565.89 with $230.77 going into a 401k. After deductions the take home pay is $1,867.28 which is a difference of $154.00 per paycheck. Total take home pay is $48,549.28 and $5,980 into a 401k account.

Conclusion:

Example 1 will allow you to have a larger paycheck but only by $154.00 while paying more in taxes.

Example 2 allows you to save $5980.00 while still taking home $48,549.28 for a grand total of $54,529.28.

By contributing 8% of your 75k a year salary into a 401k you are saving over 2k from being taxed.

Seems like a win-win to me.

Screenshots courtesy of PaycheckCity

I use the free salary calculators at PaycheckCity to analyze my contributions and tax liability. It is a very useful too that can help you decided how much can you afford to save. And if you live paycheck to paycheck, start tracking expenses to see what you can afford. It might be more than you think.