Financial Tips and Tricks
Published: April 2nd, 2023 by Chris McGrath
Last Updated: Nov 7th, 2023
Set Financial Goals
Not only are micro goals a good fit for making progress along a spectrum, they're also great for helping to avoid your brain talking you out of an overly intimidating goal like Financial Freedom.
When considering what micro goals to set for yourself, it's a good idea to remember that Financial Independence isn't 100% about money. Opportunities open up when you remember Financial Knowledge and Money Management Skills are just as important. Even if you're in a bad situation where you're broke, barely making ends meet, and your ability to improve your income is limited and mostly outside of your control for the foreseeable future. What you can do is shift the focus of your micro goals to the parts of Financial Independence that you can control.
Learn and read about:
- Career options and methods for advancing within your chosen career
- Financial vocabulary words you don't know or don't fully understand
Investopedia has a solid glossary of financial terminology
- How to improve your credit score
- How to save money on your bills
- Tax implications of investing and how to minimize taxes
Research Projects and Mini Quests:
- Watch the Income Inequality for All Documentary
Understand the consequences of inflation making things more expensive while wages have stayed flat for the 50 years:
- Every new generation will have a harder time making it in the world than the previous.
- This is why millennials, gen z, and gen alpha are also known as the roommate generations.
- Realize that there's another benefit to investing ASAP, in addition to having more years of growth. If you view the past as easy mode, today as normal mode, and the future as hard mode. You'll realize that if you think it's hard to set aside money today, it's only going to get harder in the future, so you may as well start now.
- Obtain a good cash back credit card
- Obtain a low interest line of credit
- Open investment accounts
- Find housing / places to live that are cheap and safe
- Find used cars that are cheap and reliable
Money Management and Personal Finance Skills Worth Learning:
- basically a financial recording keeping system, where you record and categorize your expenses.
- A personal finance ledger is much easier to implement than a corporate ledger,
- . (Usually this means you need to be able to import expenses from multiple sources: cash, checking accounts, credit cards, PayPal, eBay, Amazon, HSA, utility bills, subscriptions, etc.)
- Track your expenses over time.
- Find a ledger methodology you like and become proficient at using it.
- You can adopt someone else's record keeping system and techniques, or come up with your own.
- Common options for personal ledgers include using pen and paper, word docs, spreadsheets, or specialized software.
- Use your ledger to:
- Come up with an accurate budget based on your expenses. (Real data is always more accurate than wishful thinking.)
- Make predictive forecasts based on your personal financial data.
- If you know your budget can only afford a mortgage of $x/month. It's a good idea to learn how to use mortgage calculators, insurance calculators, and algebra to find out the most you can spend on a home that fits your budget.
- Use tax return software to do your own taxes.
- Keep track of and secure your accounts and data using:
- A password manager
- Multi-factor authentication
- Client side encryption software
- File sync and backup software
- Cloud file storage
- Take the time to maintain an accurate ledger of expenses, periodically compare it against your budget, and adjust as needed. These maintenance tasks are ongoing and can only be sustained by making them a habit. My own personal habit is to spend 2 hours every payday to "square up" my personal finances by adding and reconciling entries into an informal text file based ledger.
- Develop Frugal Habits like staying within your budget.
- Generate a yearly report summarizing the state of your personal finances. Include your income, spending, debt, investments, net worth, and anything else that seems worth tracking.
- Eventually, you'll find ways of leveraging this habit to increase your income earning potential.
- Financial self-study resources worth habitually reading through:
- Periodically look for better investment options.
- It's hard to be motivated to achieve a goal when it seems impossible. Financial Independence is a goal that often seems impossible at first. Micro goals are easy to achieve, and eventually when you get enough of them under your belt. Your financial knowledge, money management skills, and progress along the spectrum of financial independence will reach a critical point where you'll have the ability to come up with a realistic plan of achieving the goal. Once you realize, A: it's possible for you to achieve and B: you have a plan for how to achieve it. Your motivation will peak, and you'll cruise into it.
Mindsets are basically just ways of thinking about yourself, the world, and things in general. A high value goal is to identify beneficial mindsets and actively try to adopt and internalize them.
Useful Mindsets to Consider Adopting:
- If you learn to leverage frugal habits to free up money, and combine that with investing, you'll be surprised at what's possible. Try playing around with a compound interest calculator, like the one on investor.gov.
- Imagine that because you lived frugally below your means, you were able to invest ASAP (as soon as possible) and AMAP (as much as possible). Frugal habits mixed with investing over time can make it possible to invest $500/month for 30 years. If you could do that, you could turn $180k into $1m after 30 years.
- If you can imagine $20 saved as $40-$320 saved, it becomes a lot easier to motivate
yourself to save it. Here's the trick to how to visualize $20 as more than
1.105^7 = 2.01). Since $20 invested in a total stock market index fund can be expected to learn at least 10.5% ROI, it can be expected to double every 7 years.
- When you're young and broke, that's when it's hardest to set aside $20, but it's
also when you're probably at least 28 years away from retiring. So any hard won
money you can manage to invest will have at least a 16x multiplier.
1.105^28 = 16.37, $20 • 16 = $320)
- This is also why I label universities as Predatory Lenders: Multiply your student loan debt by 16. Your degree probably didn't help you get a job, and they convinced you to accept N years of lost work experience and lost wages during your 16x multiplier years.
- Having a longterm mindset has made it easy to motivate myself to spend the time to maintain a ledger and follow frugal habits. I regularly imagine the end state, so I never mind any inconveniences of frugal habits.
- I love my old ugly car and small frugal home, because I know those and other frugal choices and habits will allow me to stop working decades sooner than most.
Shift from a Fixed Mindset to a Growth Mindset:
- "Nothing is impossible, the word itself says I'm possible." (Audrey Hepburn)
- There's a book called "Rich Dad Poor Dad". The poor dad has a mindset of "I can't afford that". The rich dad has a mindset of "How can I afford that?"
Start with the end goal in mind, then plan in reverse:
- Planning in Reverse is a mindset I picked up from Network Engineer Academy, it's where you figure out where you want to be in 3-5 years and then think in reverse about how to get there.
- When I was a public school teacher, I asked myself how could I afford to be financial independent by age 40. I figured I could make it work if I became a Cloud Engineer while continuing to live on a teacher budget.
- No one would hire me for my dream job, so I used planning in reverse to come up with the idea of transitioning from Teacher to Network Engineer to Jr Cloud Engineer to Cloud Engineer, and that worked for me.
Be skeptical of information and learn methods of verifying it:
- Never accept any knowledge at face value.
- Learn a few rule of thumb techniques by googling things like "how to identify reliable information" and "how to tell good advice from bad." Treat the results of those rule of thumb techniques as a data point, but don't rely on them.
- Do your own research and try to fact-check knowledge you come across by cross-referencing to see if multiple sources of information reach similar conclusions. (Note, this tends to only be useful for verifying simple things that are relatively easy to prove by pointing out irrefutable evidence. Things like is the earth round and is it a good idea to invest in a specific stock market index fund. It's not a good fit for complex problems full of misinformation.)
- If someone tells you that something is a best practice, without offering step by step reasoning of how or why it's a best practice. Try to use first principles thinking to draw your own conclusions, and see if you can come to the same result / independently verify their claim.
Level up your decision-making ability by asking compare and contrast questions. Instead of whether or not questions:
- I learned that switching from Good vs Bad Decision-Making to Compare and Contrast Decision-Making leads to better outcomes from Teresa Torres' product talk blog.
- Basically, because there's never enough time and resources to implement every idea you come across, you should stop trying to think of an idea as good or bad.
- Instead, whenever you have an idea that you want to evaluate, you should build a habit of spending a few minutes to brainstorm at least one more idea and compare them to find the best idea.
- Let's brainstorm a few investment ideas:
- Invest in a bond that earns 3-6% ROI.
- Invest in real estate and do a lot of leg work to achieve 5-20% ROI.
- Invest in an index fund that passively earns 11% ROI.
- Invest in an ETF that earns 18% ROI.
- Let's brainstorm more than one career path:
- ~100k in college debt + ~$100k interest payments + lost wages + lost ability to invest + no guarantees that it'll help you earn more money. My bachelors degree took 5.5 years, and that's with taking multiple AP (college credit) classes in high school and taking extra classes / actively trying to graduate early. That bachelors degree resulted in being able to earn $37k/year in 2014 dollars as a math teacher. Some random calculator puts that at $47.3k/year in 2023 inflation adjusted dollars.
- Take a fast food job, after 5.5 years it'd be possible to work your way up to a manager position. According to salary.com, $46k is the average salary for a fast food manager in my state. Imagine instead of living with your parents for 5 years while attending college. You lived with your parents for 5 years while working a fast food job and were able to invest $100k after 5 years. Then, when you moved out, you couldn't afford to invest anymore, since you were now paying your own rent/mortgage. However, you're at least able to let that 100k sit untouched in an investment. If you let it sit untouched for 25 years at 12% ROI, you'd have $1.7 million.
- Focus on a trade school job.
- If you think about one of these ideas in isolation, as in doing the idea or doing nothing. Any idea can seem good / worth doing. Example: Investing in a bond is better than nothing; however, in reality, there's something called opportunity cost. You don't have the time and resources to implement every idea. Choosing one idea means giving up on another.
When evaluating advice, try to figure out and remember the context under which the advice was given
Human evolution caused our brains to prefer spending as little energy as possible. That's why our brains like to use cognitive shortcuts (automatic though patterns that make decision-making more efficient.)
If you can theorize the context under which advice was given, then can improve your ability to implement mental shortcut based thinking. Which improves the speed and accuracy at which you can analyze the validity of advice you encounter.
Example of a cognitive shortcut:
It's possible that while reading the above section on compare and contrast decision-making, you may have come to the conclusion that
ETFs > Index Funds > Real Estate > Bonds
It's very possible that your brain will flag that conclusion as a mental shortcut and, when presented with those options in the future just, answer off memorization of the conclusion that ETFs and index funds are always best.
1st Example of implementing the mindset of identifying context:
If you implement this mindset of trying to find the context behind advice. Then the mental shortcut of memorizing "ETFs and index funds are best." Could be augmented to include the context. "ETFs and index funds are best for someone in a stage of FI that's focused on growth." That way, you've left yourself a bread crumb to help identify when it's worth reevaluating the advice.
2nd Example of implementing the mindset of identifying context:
There are well-meaning people and institutions that genuinely recommend people go to college. Those institutions are run by imperfect humans who are likely using a cognitive shortcut of recalling advice they memorized without considering context. Going to college may have been a good idea decades ago, as a few important bits of context were different back then:
- The internet didn't become full mainstream until around the year 2000. Online education platforms like Udemy, Skillshare, Coursera, and online colleges only started to exist around 2010. Even then, there were a few years of lag before they became popular and seen by employers as valuable. The majority of traditional college education has been pointless for a while now, thanks to the internet. The advice of recommending college was probably more valid in the pre-internet days. Back then, a library was the main self-study option available to compare college against.
- The cost of going to college has gone up 5x the rate of inflation over the last 50 years. So, context wise, college was more affordable back when college used to be considered good advice.
- The Income Inequality for All Documentary basically says for the past 50+ years, inflation has steadily gone up while wages have stagnated. This means it was easier to pay off college in the past, and will continue to become harder in the future.
- Financial Investment Goals:
- If you have pre-existing investments like a 401k, verify that you're not invested in the defaults, if you are: look up their 10-year average ROI, then switch to an index fund with the highest 10-year average ROI available.
- If you're starting off with no goal, a great starting point is to max out a Traditional IRA each year.
- If you can consistently reach that initial goal for 2-3 years, start to play with a compound interest calculator like the one at investor.gov. Use your ledger to predict how much you can invest each year, and the calculator to predict the future value of your investments.
- Come up with your own investment goals like:
- At what age do you want to achieve Financial Independence?
- At what age do you want to achieve Financial Freedom?
- How much passive income do you need to achieve each?
- How much money do you need to generate that passive income?
- If you plan to achieve Financial Independence before age 60, you should consider using a brokerage account.
- Financial Investing is not the only kind of investing that exists:
- All of the above Financial Investment Goals have the chicken-and-egg problem of needing money in order to make money.
- Don't let not having money, become an excuse that stops you from setting investment goals. If you think you need money to invest, then you don't know the meaning of investing (generic context), because most websites only talk about investing (financial context).
- So, how do you invest without money? And how do you do so in a way that will
help you get money and achieve your financial goals?
- Investing is where you commit resources with the intended goal of developing capital.
- Time is a resource you probably forgot you have, and you can invest that resource towards developing Human Capital (knowledge and skills).
- If you focus on developing forms of Human Capital that are well known for making it easier to be employed at higher rates of pay. Then you'll eventually have enough financial capital to consider starting some financial investment goals.
Tips - Big Purchases
Let's say that you have a life goal of eventually living in a big expensive house. One of the best things you can do is hold off on that until after you've achieved financial freedom. Otherwise, you'll be "house rich cash poor." By starting off with a cheap house, or co-living arrangement, you can reach financial freedom sooner. You also avoid risking losing your home to foreclosure by sticking to a house you can afford.
If you're thinking about buying a home:
- Establish a ledger (that tracks all your spending over time) and use it to come up with a budget.
- When I was first considering buying a home, I found out my budget could support a $650/month mortgage payment.
- I then used some mortgage calculators, insurance calculators, and algebra to determine that a $80k mortgage (home, realtor, and finance fees) could work out to $650/month.
- I was able to find 33 houses in my city for $0-80k.
- I cross-referenced the 33 addresses against spotcrime.com and found out 30/33 were unsafe. 3/33 houses satisfied my requirement of being cheap and safe.
- I decided to work with a realtor only after doing my own research, and in the end I ended up with a mortgage of $655/month.
Here's a rough walkthrough of how to calculate how much house you can afford:
- Let's say your budget says you can afford $800/month
- If you find a mortgage calculator https://www.zillow.com/mortgage-calculator/
You'll notice there are a few variables:
- Loan Amount
- Loan Duration
- Monthly Payment
- Interest Rate
- Property Tax
- Home insurance
- HOA (Home Owners Association) Monthly Fee
- That's when you remember from High School Algebra that if you have an equation with multiple variables. If you're able to find and plug in known values for the variables until you narrow it down to 1 unknown variable, then you can solve for the unknown. Also, since you have access to a calculator, you can solve by leveraging the concept of algebra and calculator skills vs solving using math skills.
- Take some time to research plausible fixed values for a few variables.
- Googling property tax in my area says it's 1.18%
- HOA fee = 0 (If it existed, the choice would be eliminated)
- I find a house on Zillow where the price seems ballpark accurate ($115k), then plug the address of a random house I don't own into a home insurance quote calculator. Fill out the home insurance quote using googled / guesstimated values. I got a quote of $124/month for Basic coverage.
- Looked up current mortgage rates for purchasing in zip code and got a rate of 7% for 30-year fixed loan.
- Budgeting for $800/month payment
- Now that the loan amount is the only unknown variable, we can plug the guesstimated variables into the calculator and adjust the loan amount until we get a monthly payment of $800/month.
- When I plugged these values into the calculator on March 2023, I calculated that a $80k home will result in a mortgage payment of $801/month ($532 P&I, $79 Taxes, $125 Insurance, $65 PMI)
- I then searched for houses $0-80k in my and 2 nearby cities, which tend to be
more rural / cheaper. I found 3 homes available at that price with no HOA fee.
- 1 of the 3 had lots of water damage / would have been prohibitively expensive to fix up.
- 1 of the 3 was in a bad neighborhood per spotcrime.com
- 1 of the 3 was worth asking a realtor for a tour.
You can also use a mortgage calculator to figure out when you can afford a house:
Let's say you're currently in a co-living situation where you pay $550/month in rent. Because you live within your means, you're able to put some money away into investments. The above mortgage calculator came up with a mortgage payment of $800/month, for a $80k home with a $0 down payment. If you know that a $80k house is possible, you can change your single unknown variable to be the down payment. A $28k down payment on a $80k house results in a mortgage payment of $550/month. ($346 P&I, $79 Taxes, $125 Insurance)
Things to consider when looking to buy a car:
- Avoid brand-new cars:
- 2 Exceptions:
1: You've achieved financial freedom
2: You want your family to drive in the safest car possible with the newest safety features.
- The average price of a new car was $49k as of Feb 2023 (source: financialsamurai.com)
- New cars tend to lose 20% of their original value in 1 year, and 40% within 5 years (source: lendingtree.com)
- $49k • 40% depreciation means losing $19.6k within 5 years, and that's the best case scenario (paying cash). It gets worse when you consider the common scenario of an auto loan with interest, plus newer cars are significantly more expensive to insure, and it gets worse still if you think about it from an opportunity cost perspective of not being able to invest ASAP/AMAP.
- 2 Exceptions:
- Frugal cars exist, and here's what I've learned from driving them for over a decade:
- My father-in-law introduced me to the fact that it's always possible to get a $2k craigslist car. They tend to be antiques (cars over 20 years old) and about 200k ±40k miles, but I've always been able to find them.
- I've always been able to trade cash for a clean title / owning free and clear.
- When I don't have cash on hand, I've been able to use my line of credit for a short term cash loan and pay it off in full within a few months.
- My personal property taxes per car have always been about $100/year.
- My car insurance costs have also always been cheap ~$1k/year.
- Originally, I'd pick whatever antique car had the lowest price, lowest miles, and newest year. (When I did that, I'd end up paying a $300-600 repair bill every 6-12 months. Temporarily having a car in the shop was never a big deal because it's easy to afford a spare antique car.)
- Later, I learned to google for cars known to last 300k miles and only buy those older cars, since doing that, I've been able to drive 200k+ mile cars and go years without repair bills. I just pay standard maintenance costs for things like yearly state inspections, scheduled oil changes, and fluid top offs.
- There is a downside to antique cars, but it's not what you might have expected. As long as you find a well maintained reliable brand and continue to maintain it, an antique car can be very reliable. The main downside to older cars is relative safety. Cars from the year 2000++ tend to be safe enough, that said, newer cars are safer and cars tend to get significantly safer every decade.
- In all cases:
Only go for reliable name brands (Toyota, Lexus, and Honda) or used cars that have a history of lasting 300k miles. In addition to being dependable, they also tend to be cheaper to maintain.
- If you're broke or want a spare car:
Set a budget of $2k and aim for a 20+ year old antique car. Once your finances improve, you can either sell it for close to what you bought it for and trade up to a newer, safer car or keep it as a spare. (A spare vehicle, as in one driven a few days a year / kept to avoid needing to rent / borrow / uber when your primary vehicle needs maintenance, is another scenario where an older cheaper car makes sense. If your spare is barely driven, safety is less important and avoiding depreciation in value makes sense.)
- If money's tight:
Aim for a 5-20 year old car. Figure out what you can afford, and prefer newer years when possible (newer = safer). This usually offers a good balance of new enough to be significantly safer than antique cars, while still being affordable ($3-15k) and slow to depreciate in value.
- If money's fine:
Aim for a 3-5 year old car. 5 years tends to be the sweet spot of being new enough to feel new, experience modern features, and benefit from modern safety improvements. While being just old enough to avoid guilt associated with opportunity cost / rapid depreciation in value associated with a brand-new car and having enough years of history for common issues and factory defects to be researchable prior to purchase.
- In all cases:
- As a general rule of thumb, electronics are like cars in that you want to avoid buying new whenever possible. Computers and cell phones tend to lose half their value each year and keep going down over time.
- eBay is a great resource for used computers and cell phones in mint condition.
- As a general rule of thumb, I find Laptops/Desktops/Cell Phones that are 2-5 generations old or about $150-$300 tend to be the sweet spot of best bang for your buck. They will be new enough to offer great performance, yet old enough to be affordable and not quickly depreciate in value.
- It's worth pointing out that junk is also sold at that price range, but you can avoid buying junk by cross-referencing against cpubenchmark.net and videocardbenchmark.net
Tips - Reoccurring Costs
- ISPs often try to rent out all in one units that combine modem, router, firewall, and wireless access point functionality to customers for $60-300/year.
- Using your own equipment is almost always both better and cheaper.
- A $20 SB6183 Cable Modem will support internet speeds of up to 400Mbps.
- For about $60 you can buy a quality router that offers firewall, wireless access point functionality, and DD-WRT pre-installed. DD-WRT is open source firmware (replacement operating system) that allows you to verify how much internet you're actually using.
- Another solid option is to buy a wireless mesh solution and combine it with a pfSense firewall router unit for traffic monitoring.
- 25Mbps down and 5Mbps up is enough to video chat and stream at 1080p, most people won't notice a significant difference in internet at these speeds vs higher speeds.
- If you doubt the rule of thumb and would rather have evidence to verify this. It's usually not hard to figure out how to log in to your router and find a live traffic monitoring graph that you can use to see how much internet you're actually using.
- When I check my ISP's pricing listed on their website, I see it offered for $60/month.
- If I google and follow different links to the same page, I'll see the same service for $50/month.
- If I call on the phone and say I can't afford that, I don't need that much speed, and I'll ask for a cheaper option. They'll either give me the same service for $40/month, or offer me an even cheaper option that's not advertised on their website.
- After I've been a customer for a year, they'll increase my price to $65/month. So once a year I make $300/hour for a single hour. I do so by spending 1 hour on the phone and have 10 minutes of internet downtime to bring my bill back down to $40/month. I do so by calling my ISP and requesting a roommate account in my name at the address where I currently have service, they give me the new customer pricing of $40/month. I then call back and cancel my original service. I've been doing this for over 10 years.
- Also, if you think those are shady business practices and wounder how they're allowed to get away with that. On the Financial Mistakes to Avoid page, I mentioned that lobbyists control the US government. Well, another fun fact is that Comcast (a popular ISP monopoly in the US) is on the top spenders list of lobbyists, they've actually spent $252m between 1998-2022 to write the laws to their advantage.
- Tracfone (a Verizon reseller) has a $125/year option. Note, I've been a Tracfone customer for over a decade. Their phone service isn't bad for what you get but their website is terrible. Their website will show multiple options for adding prepaid text, data, minutes, and extending your service end date. It's very common for 3 of 4 click paths to lead to permanently broken webpages, and only 1 of 4 the workflow options of clicking through the web interface will work.
- Mint Mobile (a T-Mobile reseller) has a $15/month option.
- Many other options exist with other terms / carriers.
- Most cheap plans have low amounts of high speed data. It's easy to make that last by pre-downloading Google Maps, Netflix, Audible, and other apps when on Wi-Fi.
- These plans all offer BYOP (bring your own phone), where you can buy a 1-3 year old, nice modern cell phone on eBay in mint condition for $200 to use with the cheap service.
- Google Voice is free for personal use and easy to set up.
- VoIP.ms offers home and business lines for $1/month. It's not easy to set up, but it has good docs where someone who understands computers should be able to figure it out without much trouble.
- These and other similar VoIP options offer calling, text messaging, incoming text messages to email inbox, incoming voicemail to email with speech to text and downloadable mp3 audio, the ability to integrate with physical corded and cordless VoIP handsets with physical answering machines, and integrate with computers and cellphones using software like Zoiper, Linphone, and Google Voice.