Thursday, April 6, 2017

10 Of My Best Financial Decisions During My 20s and 30s

I turned 40 last September and it felt pretty darn good.  Don't take me wrong, getting old sucks, but fortunately I reached this milestone in excellent health and with solid financial footing.  The health thing is important.  Look, do you want to live a long life with quality?  You better stay in shape, and lift weights.  I'm telling you as a person who has exercised consistently since grade school, you look and feel the way you have treated your body over time.  With health care costs high and in limbo right now, staying healthy will save you thousands of dollars in mid or late life.

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But this post is about the financial decisions I made during my twenties and thirties.  Those that have given me an above average standard of life, retirement savings, and wealth.  I'd like to share these decisions with you and reveal an underlying theme toward the end.  It's my intention for you to get ideas, and perhaps take similar action so that you can improve your own finances and wealth accumulation circumstances.  And with that...we're off.  Here they are in chronological order.

1) Got the highest paying job I could land in my industry.  I started my professional teaching career out of grad school in 2001.  By 2005, I was an assistant principal at a high school in So. Cal making over $100K.  Had I stayed a teacher, I would've been making in the mid $50K.  The extra income allowed my debt to income ratio to look better on mortgage applications.

2) I used my credit accordingly and appropriately.  From college (age 18-24, including grad school), I safeguarded my credit, using my one credit card only to make small purchases I could pay off within one to three months time.  If I couldn't pay it off in three maximum installments, I didn't use my card!  The strategy worked well so that by the time I applied for my first personal residence mortgage, my credit score was in the 700s.  When I applied for the home I'm living in today in So. Cal, my credit score was in the low 800s, and my income had doubled!

3)  I taught at an urban school and had $15K of my student loans assumed over the course of four years by the now defunct APLE program.  Thanks CA!  I finished my undergrad and grad school with only $40K of student loans, and I only had to pay $25K of it.  I did this with haste and made my last student loan payments in 2010.

4) I committed time to learning all about stocks and the stock market.  I spent a few hundred dollars on books.  I did also make good use of my library card.  Since 2011, I've made a net profit of $19K (a 12% return on my money) and $12K of this money is going to be tax free since it was earned in one of my Roth IRA accounts.  Not too shabby for a self-taught equities investor who picks his own stocks.  As a college student, I knew nothing about trading stocks.  I became a student of the market in my early thirties, seeing some of my teacher colleagues involved.

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5) I got my first Roth IRA, and built it up enough with savings to take advantage of the current bull market in stocks.  I took money from this Roth IRA and used it to fund a second Roth IRA which I used to purchase shares in  That initial $10K investment in 2014 is worth $13K today.  Get a Roth IRA!  Invest within it!

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6) I started contributing to a 403b annuity in my 5th year as an educator.  The mistake I made was keeping it at a fixed 3% interest rate for multiple years.  I was concerned about being over-exposed to the market since I was already trading heavily in my Brokerage and Roth Accounts.  Of course I missed many of the years of the current bull market.  Regaining my senses, I changed the annuity to variable interest, and spread my contribution 80% Stocks (Vanguard's Total Stock Market fund with the lowest expense ratio) and 20% Bonds (Total Bond Market fund with lowest expense ratio).  I did this 3 years ago and have had some nice gains.  People with 401ks, if you have choice in the matter, don't over complicate your portfolio, choosing a myriad of funds simply because your employer allows it.  Find a low cost Target Date fund or do what I did, get yourself a low-cost index stock and bond fund.  That's it!

7) I took profits from the stock market and savings from my hustles and job and bought three rental properties out of state at the bottom of the real estate market, between 2011 and 2013.  I'm happy to report that the three properties, all cash-flowing, have appreciated in value!  When I retire, I'll have a nice income stream from my real estate holdings.

8)  I didn't and haven't made my personal residence a money pit.  With the exception of a master bath and bedroom remodel and a solar installation, I've limited dropping serious money on my personal residence.  In fact, since 2005, I've rented rooms to Marines and collected income off my residence.  I currently have one room in my home rented to a Gunny; he's actually lived with me so long we consider him part of the family.  I never tried keeping up with the Joneses.

9) I bought a slightly used 2007 Honda Civic Ex in late 2007.  I still have the car.  It was paid off in 2013 and only has 123K miles on it.  The only thing I've needed to pay for are brakes, tires, oil changes, and one single tune-up.  I'm going to use it and be car note free for at least another three years.

10) I started freelance writing and this blog as side-hustles.  I've made over $20K in three and a half years.  You gotta work it my friends!

Well, the moral of this lesson is that you have to be willing to act and take risks.  You're not going to get anywhere over thinking things and being risk averse.  The stock market, for example, is one of the most democratic ways people can make money.  It's available to anyone with a computer, some money, and an Internet account.  Yet, many of you are too scared to take part in it.  That's a shame.  Listen, if any of this has struck a cord with you, please share your comments below.  May your financial decisions bring you prosperity and wisdom.  Peace!

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