Financial
Warfare
1.) Live way below your means!
Example: If you can afford a Mercedes buy a Honda Accord.
The biggest killers is student loans, credit card debt, car/truck loans, home mortgages and God forbid medical bills. We live in a debt nation so avoid it and/or payoff as soon as possible.
Never have a mortgage greater than 2 times your gross income and finance with 15 year loan.
If you want to have life where you can save and invest plus money for the extras never overpay for housing. You will have to save for a few years but it well worth it as the savings in mortgage interest cost is staggering.
Also with a 20% down you avoid private mortgage insurance (PMI is used for possible default) an expense far greater than just a nuisance. Not an easy task with property prices moving upward at breath taking speed but well worth it in the end as you will have a smaller payment and a paid off house in 15 years (or less if you make extra payments).
2.) Increase your means!
Work on your career pushing for that next pay raise or promotion. Early in your life have a part time job as well.
3.) Avoid debt like a deadly disease!
Use your debit card exclusively only rarely use a credit card and when you do pay it off at light speed. If investment returns are less than the cost of your mortgage and/or student loans make additional payments. Get rid of debt!
4.) Have excessive savings!
They say having 3 to 6 months of saving is good enough. That's BS! Life will throw you more curve balls than a professional pitcher from your favorite team. 3 months in checking; 3 months in high yielding savings account; 6 to 18 months worth of savings in an account with Vanguard's short term bond fund - Vanguard Short-Term Investment-Grade Fund Investor Shares.
One or even two year’s worth of savings is not out of the question. We live in a world of downsizing, mergers-buyouts, economic declines even hurricanes that flood out the Appalachian mountains of Ashville NC!
5.) Invest conservatively and consistently!
Don't try to go shoot for those mega returns look for the slow and stable returns defined as below average return upside, above average in flat markets and superior returns downside.
My favorite Vanguard Wellesley Income Fund Investor Shares
At this moment 10-6-2024 stocks are massively overvalued, however the stock holdings in Wellesley Fund are not the high flyers of today they are the big dividend payers. This fund holds approximately 35% stocks and 65% in bonds. Their average PE for stocks is 19.6 using DYI's allocation formula that current PE is acceptable for 60% bonds and 40% stocks. Wellesley meets that threshold.
6.) Automate your savings
Almost all HR/Payroll departments will allow you to split your take home
pay to two different checking/savings account.
Send a portion to build up your high yielding savings account (HYSA)
once that is finished then set up an auto draft from your savings to vanguard
into your short term bond fund. Once that
becomes too big, call Vanguard and shift a portion to Wellesley or whatever
fund depending on the valuations of the market.
Example: Let's say your putting in $500 per month into your high yielding savings account straight in from your paycheck overtime you've achieved your 6 months emergency money. Establish an account with Vanguard's short term bond fund and auto-draft from your savings $250 per month.
Once you've passed the two years in savings once
per year (January is a good month) - [have your smart phone send you reminders]
call Vanguard and transfer the excess from your short term bond fund into your long
term stock/bond fund.
Any excess from your HYSA send that money to your short term bond fund.
7.) To 401k or not to 401k??
The vast majority of these plans have fee's that are way too high. Most of their stocks funds has an expense ratio 2% plus and have additional fees to manage 401k structure. Wellesley Income Fund expense ratio is 0.23% with no other fees of any type attached! Once you have $50,000 this shifts automatically to Vanguard's Wellesley Admiral fund and drops the expense ratio to 0.16% and again no other fees of any type attached!
So...If your 401k is loaded with fees - and it most likely is - if your
company has a match then invest up to that amount and no more.
Video with the late Jack Bogle explaining the tyranny of compounding fees! Click HERE
By the way I receive zero money from Vanguard it is simply my opinion that they are great ultra low cost providers.
8.) Be careful who you marry!
If you marry a spender you will end up working well into your 70's. A bit out of my wheel house but I felt
compelled to add this - as this dynamic happens way too often with couples.
My
Take on Dave Ramsey's
Baby Steps
DYI:
Step 1: Start an Emergency Fund. ...
You have to start some where. Ramsey it is a $1,000 emergency fund however due to inflation boost that to $3,000
Step 2: Focus on Debts. ...
Consumer debt will ruin individuals and families faster than a speeding bullet. 4 door Trucks range from 50k to 100k is typical and many times a family will own two vehicles. Add on credit card debt, student loans, and medical bills before you know it they’re drowning financially.
Pay these off ASAP or if you have to sell the damn truck. Get out of debt except for the house, duplex, condo if you have one.
Currently today 11-26-2024 housing prices are insanely priced so much so that renting a comparable property money wise you are way ahead renting versus purchasing. By renting a bit lower than the comparable property a family will be able to save some serious money.
Step 3: Complete Your Emergency Fund...
If all debts are paid off (except for the house – if you own a house) DYI recommends at least one year of expenses and two years is not of the of question.
Here is my roadmap for your emergency fund:
3 months in checking
3 months in high yield savings account
6 to 18 months in Vanguard Short Term bond fund
Any excess once per year those dollars into a conservative mutual fund my favorite Vanguard Wellesley Income Fund.
This gives you 4 layers of protection when the poop hits the van financially. Despite Wellesley Income Fund being in the emergency category acts as a dual purpose for emergency and when it is large enough for retirement or special purchases such as a down payment on a house!
Step 3a: Automate Savings!
Automate all of your savings and investments. From your paycheck split 3 ways, checking, HYSA, and 401k. From your HYSA auto-draft monthly those extra dollars into your short term bond fund. Only once per year you will need to call Vanguard and those extra dollars into your conservative stock/bond fund.
Step 4: Save for Retirement. ...
Start with the 401k match then max out the Roth IRA even if your employer has the Roth 401k set yours up with Vanguard as the fees will be significantly less and put in the maximum. If by some miracle you can squeeze additional dollars for retirement then move progressively to maxing out the 401k if you have low fees. If your 401k has high fees 2% plus then use Vanguard's Tax Managed Managed Balance Fund.
Step 5: Save for College Funds. ...
I prefer using Vanguard’s Taxed Managed Fund with 50% in tax free bonds and 50% in growth stocks that pay little in dividends or none at all. This gives maximum flexibility especially if the little whipper snapper blows off any additional schooling or training. It also gives you an extra layer of emergency money incase the slim chance you experience Mad Max level financial crises. If neither occurs then even more money for retirement or other goals.
Step 6: Pay Off Your House. ...
Before you buy the house have 2 years worth of savings - remaining monies after down payment. Having your own house is wonderful but make no mistake they can easily become money pits!
If by some miracle (how many miracles do we need??) you are able to make additional payments; that’s great. However if you are sporting a low and especially very low interest rate (under 4%) it is better to put those extra dollars into a conservative mutual fund with.
Step 7: Build Wealth. …
If you have made it here you are already building wealth and obviously if the house is paid off there is more money for investment and having a bit of fun along the way.
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