5 strategies I used to reach financial independence

My portfolio growth rate over the last 6 years has averaged 130% of my salary. In other words, my portfolio increased by 100% of my salary plus 30%. My actual saving rate was between 60 and 70%.

More importantly, over this period my portfolio* grew from about 4x my burn rate to 22x my burn rate. This metric is key because 25x is the standard retirement escape velocity, according to the 4% rule. The 4% withdrawal rule is the rule of thumb used by most financial analysts to predict the percentage of a portfolio a retiree can safely withdraw without drawing down his principal.

Here are five ways I accomplished my financial goals:

My portfolio growth rate over the last 6 years has averaged 130% of my salary. In other words, my portfolio increased by 100% of my salary plus 30%. My actual saving rate was between 60 and 70%.

More importantly, over this period my portfolio* grew from about 4x my burn rate to 22x my burn rate. This metric is key because 25x is the standard retirement escape velocity, according to the 4% rule. The 4% withdrawal rule is the rule of thumb used by most financial analysts to predict the percentage of a portfolio a retiree can safely withdraw without drawing down his principal.

Here are five ways I accomplished my financial goals:

1 Rent instead of buy:

I held out buying my first home as long as I could until covid-19 forced my hand. While homeownership is great for a growing family, renting for nearly the first 20 years of my career was crucial.

The financial tradeoff of rent vs buy is complicated. In short, over the long run, home prices merely keep up with inflation, while the stock market provides a 7% return. On average, it takes about 5 years to break even on the buy vs rent decision.

More importantly, renting allowed me to focus on my career. I could quit my work and move across the country or the world without worrying about a home full of material possessions to drag me down. And I did – moving from Dallas to New York City to Shanghai to Atlanta to Denver within 10 years. I never had to worry about mowing lawns, broken washes, or leaky roofs. It’s possible to throw money at these problems, but avoiding the distraction allowed me to focus on growing my income instead.

2 Track your spending:

You can’t improve what you can’t measure. It’s essential to track your cash flow (both in and out) to improve your situation. I’ve tried dozens of apps to do this, but the key was tracking my finances in Personal Capital – a free tool that tracks your cash flow and investments. The results speak for themselves – it took the first 15 years of my career to save 4x my burn rate. After installing Personal Capital, it took me 6 years to save 22x my burn rate.

Personal Capital can do budgets, but I’ve never kept a budget. Budgeting is a terrible way to think about money.

Let me repeat that: a monthly budget is a terrible way to manage your money.
If something delivers more value to you than it’s worth, you should pay for it. Who cares what you paid for it last month? Every few years, I will go out and spend a fortune on new work clothes, or a computer, or a new car, or (recently) a home improvement project. Who cares how much I spent on it the previous month?

What matters is not how your spending compares to a previous period, but how it compares to the next-best use. For example, before I spent $1000 on a new suit, I will calculate the total return if I saved the money instead. For example, $1000 invested over 30 years will be worth about $8000. Will I value spending $8000 when I’m 70 more than $1000 today?
Your timeline will be different of course – it depends on what percentage of your income is saved for retirement vs upcoming major purchases. The point is that you should balance each potential purchase against the time-discounted value of the next-best purchase, whether that is an iPhone next month or a yacht 40 years from now. It takes time and data to make this calculation automatic and intuitive, which is why a personal finance platform like Personal Capital is key.

3 Single-income household:

My family is a single-income, two-child family – my wife has been a parent and/or a student since we got married. While many see this as a disadvantage, I’ve come to see the benefits of a stay-at-home parent.

The cash flow of a second income is easy to see, but the costs are not so obvious. Aside from higher taxes, work-related expenses, running a household with kids has a lot of overhead, and working parents usually have to throw money at problems to stay afloat.
It’s virtually impossible for both parents to fully dedicate themselves to a career without neglecting their children. Something has to give – either one parent will sacrifice their career, or both will have mediocre career progress. By focusing on parenting, my wife can let me focus on my career during the day, so I can support her needs as a student at night.
Second, because we homeschool, we have very low childcare costs. We took our daughter out of an expensive Montessori school because we found that she learned better at home. Our kids will probably go back to school at some point, but for now, homeschooling is efficient both financially, time-wise, and particularly in giving me the necessary mental break to focus on work each day.

4 Choose side hustles that further your career:

I encourage developing a “side hustle,” but many people get hustles that do more harm than good. The proper function of a side hustle is not to earn a few extra dollars — it’s to grow your value proposition and train for a life of financial independence and entrepreneurship.
Many people get a side hustle that distracts rather than enhances their career. Driving Uber at night or hosting Airbnb guests every night is not going to enhance your career unless your dream is to be a chauffeur or enter the hospitality industry. Same with being a jack-of-all-trades who takes whatever job he comes across.

Is your side hustle causing you to sleepwalk through the workday or work on your gigs from the office? Are you spending more money on tools and supplies for each new gig that you bring in? Are you growing as a professional and building a sustainable, revenue stream with customers that come back to you, or are you doing random, one-off jobs, often for free? Are you giving up new projects at work, a promotion or a demanding new job for your side hustle? If so, it’s holding you back rather than helping you. You don’t need more spending money: you need to create opportunities for you to grow.

A good side hustle should help you to grow in your career or to explore a new one. You should come to the office excited to try out new ideas, not just tired from staying up all night working in an unrelated field. Side projects in your current field often allow you to be in charge of a small project and use the latest technology or techniques that are too risky or difficult to approve with your boss. I’ve used this trick to qualify for jobs that I couldn’t dream of otherwise.

5 Invest aggressively:

After maximizing the spread between your income and your expenses, you need to leverage the magic of compound returns by investing it in the market.

There are as many opinions on investment strategies as there are investors, but unless investing in the market is your full-time job, you will probably not beat the market. You may get lucky, but chances are that if you try timing the market, you will be guided by your emotions, and buy high and sell low. Even the best money managers in the world can’t beat the market.
So my suggestion is: just invest in the market. The whole market, not just the S&P 500. You can either invest in an index fund like VTI (USA) + VEU (not USA) or use a robo-trader that buys individual stocks (this can lower costs and save on taxes).

I use Personal Capital. I can’t speak for other robo-traders, but Personal Capital re-balances my portfolio not only by asset class, but also by market sector, so I’m positioned to benefit from growth in any industry.

  • By portfolio, I am referring to liquid securities and some real estate. I have other assets like business interests, but I’m trying to keep this advice universal.

Ten Personal Finance Principles I’ve learned over 40 Years

Now that I’m 40, I feel both qualified to drop some wisdom on the world. To start, here are my 10 Principles of Personal Finance.
1: Marry someone who shares your financial philosophy:
If you don’t, you may be setting up for a life of endless conflict, not to mention the possibility of divorce, as money is the #1 issue couples fight over.
What is a “financial philosophy”? Here are some questions to discuss with your partner:
* Do you want to live in a single city or follow the best job opportunities? My wife and I moved from Dallas to NYC to Shanghai to Atlanta to Denver for job offers.
* How important is keeping up with fashion or your neighbors?
* Do you prefer to spend money or things or experiences?
* Are two incomes important to you?
* Who will educate your kids? (Homeschooling kids opens up all kinds of opportunities for us, though they will eventually attend Montessori school, which isn’t cheap.)
* Do you plan to retire early or not at all? Don’t leave it up to chance!
* How aggressive are you willing to be with your investments? * Would you tolerate a 30% drop in your savings because of a market crash? Would you invest your life savings in your business?
* Are you willing to live a minimalist lifestyle for your career and savings — or do you want to settle down?
2: If something brings you joy, and you have the cash to pay for it, disregard the rest of the rules and get it:
Life is too short to worry about whether something is “worth it.”
Note the two qualifiers: don’t spend money until you’ve tried something and know that it brings you joy. Furthermore, don’t spend money that you don’t have by getting into debt. With that in mind, when you identify something that makes you happy, don’t feel guilty about spending money on it. The goal of savings and financial responsibility is to enjoy your wealth, not die on a pile of cash.
3: When you are young, focus your energy on growing income. As you get older, focus on growing your assets and minimizing spending:
When young, don’t hesitate to invest your savings in yourself. While it’s essential to start investing early, it’s more important to invest in your wealth-creating ability. Learning most skills is cheap and can pay huge dividends — especially when you are young and your time is cheap. As you get older, your time will become more expensive, but your income and savings will grow. Now it’s time to protect your savings and focus on making your money work for you.
4. Don’t expect others to be smarter with your money than you:
Many people will tell you what to do with your money. They may your financial advisor, mutual funds salesmen, your parents, your coworker with a hot stock tip, your neighbor’s startup idea, and many more. Just because someone made a lot of money taking other people’s money doesn’t mean that they will make a return on your money. Fund managers drive fancy sports cars with money from the fees they collect, not necessarily because they are good investors. The most brilliant business idea in the world is useless without someone able to execute on it.
Always do your own research before investing in something, and don’t trust professional money managers. Research shows that most mutual funds fail to beat index funds after expenses.
5: Focus on “fixed” expenses over variable expenses:
The majority of your expenses are fixed: rent/mortgage, auto, insurance, childcare, and education. It’s easier and smarter to make a wise choice with long-term commitments than battling your willpower every day to skip your coffee, going out to eat, or whatever toy is on your mind.
Buy the cheapest home and car you’re willing to tolerate, not the most you can afford. Go to an in-state school, shop around for insurance options, etc. “Set and forget” your “fixed” monthly expenses, and you won’t need to stress about your day to day buying decisions.
6. Give your time generously when young, give your money generously when old:
When you are young, your productivity is low, and your time is cheap. Volunteering your time can be a valuable investment in your career. Offer a local business to set up a free website, write marketing copy, assist at a photoshoot, fix someone’s computer, help clean the hangar at a GA airport. You don’t have a lot of money to invest, but you can use your time to build your network and build valuable skills.
As you get older, you will become more productive, and your time will be worth more. Now is the time to build your savings and make your money work for you rather than work for your money. While a diversified market portfolio is important, as you get older and wiser, look for opportunities to invest in promising businesses. Most of your investments will fail, but a few might pay off.
7. Don’t confuse spending with achievement:
Have you ever bought a gym membership hoping to get in shape? What about an online course to learn a new skill? How about some sports equipment hoping to get into a sport? Or some new tools to start a new business? How often did you achieve a goal?
It’s common to spend money, hoping to achieve some value, but then fail to follow through and reach the initial goal. Sometimes just spending money on a thing makes us feel accomplished, like buying a gym membership and thinking that we’ve done something towards getting in shape.
Spending money towards a goal should never be your first step. If you want to learn something, start with some free resources – YouTube videos or a library book. Rent or borrow equipment for a new sport. Help out with someone else’s business before starting your own.
Many times you will decide that your goal is not right for you. You may find that the thing you wanted is not exactly the thing you need. You will also avoid the trap of thinking that you started a thing just because you spent money on it. Once you’ve taken a meaningful start towards your goal and have a firm idea of how spending money will make you more productive in achieving it, you can feel confident in spending money on it.
8. Make spending money on something your last recourse:
Sometimes it’s better to throw money at a problem than try to suffer through it. Paying a plumber to fix your leak, or a babysitter for a night out, or preventative maintenance on your car can be smarter than trying to tough it out.
In other cases, people throw money at a problem before exhausting their other options. If you need a new tool, can you borrow it from a friend or neighbor? Can you live without a car and use Uber and Turo to get around? Should you buy a house if you don’t plan to live in a city long-term? Have you tried fixing it before you buy a replacement?
Yesterday, I went to a car dealer for a tire pressure sensor issue. The dealer told me I had a nail in my tire and told me to replace all four tires for over $800. I turned around and went to Discount Tire. They repaired my tire for free.
I can’t count how many computers I’ve gotten for free because of some minor issues. I can almost always repair or upgrade them and sell or use them.
When I need something new, I will check out the local classified listings and see if I can get it used. I can usually find it for a fraction of what it costs new.
9. Go to bed early:
What does going to bed have to do with personal finance? Survey 100 millionaires, and you will find something in common. They tend to have their most productive period early in the morning. Whatever your job is, once you start working with your other people, it’s hard to develop a deep focus on the task at hand. You need a block of uninterrupted time when your mental ability is at your maximum, and early morning is the best time for it. Whether you are a door to door salesman or an auto mechanic, early morning is the time to develop a plan to work the day’s problems without distractions.
I try to use my mornings to go for an hour-long run or bike ride every weekday. I’m not sitting at my computer, but that time alone allows me to think about the day’s problems, set priorities, and develop a plan. After I get back immediately, I’m launched into endless meetings, but I already know what I must get done.
Getting proper sleep is, of course, required to be productive in the morning. Besides this, it’s a way of taking control of your life. People who feel powerless during their day stay up late to try some sense of self-ownership back, but it only ruins their productivity for the day ahead. Google 報復性熬夜 to understand the psychology of this phenomenon.
10. Develop an abundance mindset:
Successful people share many traits, but I think one key attribute is the abundance mindset. The abundance mindset sees the universe as full of opportunity — for friendship, love, and financial success. By contrast, the scarcity mindset sees everything as a fixed pie and leads to hoarding, envy, and stagnation in every aspect of life.
Learning to identify opportunities and getting the ability and confidence to act on them is a skill, though some of us come by it easier than others. It starts the same way: with the philosophy that the world is full of opportunity if only we can learn to recognize and take advantage of it.
Resources are scarce. Opportunities are not. People hoard resources because they see the world as fixed, and by extension, they see their nature as fixed. Believing that you are incapable of change is a self-fulfilling prophecy.
The abundance vs. scarcity mentality applies in many aspects of life: time preference is the preference to enjoy goods sooner rather than later. People with a scarcity mentality have a high time preference and struggle to save their salary for the future. People who save for their future have a low time preference because they can imagine the life of abundance that will result from forgoing current consumption.

Here are the 10 cards I keep in my wallet

As promised, here are all the cards I keep in my wallet*, with a rationale of why I acquired each card.  Jump below the image to read why I got each card:  


I have two criteria for credit cards:

  • No annual fees: I don’t spend enough to warrant paying an annual fee for any card.
  • Cash back only: I don’t mess with complex point systems which only encourage spending.  I just want some money back on my bill.


American Express Blue Cash

My favorite card.  Why?   

  1. 3% back at supermarkets
  2. 2% back at department stores and gas stations, 1% everything else
  3. Great customer service.  I once unintentionally purchased a $40 car wash at a broken gas station terminal.  I had no way to prove that I didn’t want or use it, but Amex figured it out and got my money back.
  4. Very high credit limits.  I requested a 3X increase of my credit limit shortly after getting this card.  After Amex approved it, it was easy for me to request a high credit limit on my other credit cards.
  5. Random bonuses.  See below: I got $200 for signing up, $300 for referring 3 friends, and $100 for paying for UpWork with it (which I was already doing).  If you sign up using this link, you’ll get a $100 sign up bonus.  (Disclaimer: I get a bonus from Amex if you sign up.  Yay!)

Amazon.com Store Card

The Amazon.com Store card offers 5% back on all Amazon.com purchases from Prime members.  I don’t use this card anymore because I got:


Amazon Prime Rewards Visa Signature Card

This is a great card for Amazon Prime Customers and has replaced my Store Card for Amazon.com purchases:

  1. 5% back on all Amazon.com purchases.  You can use your cash back to pay at Amazon.com checkouts.
  2. No foreign transaction fees.   This is very rare for a card without annual fees.


Discover it Card

I mostly keep this card around because I’ve had it since 2004.  However, it has a few nice benefits:

  1. 5% cash back in rotating categories (currently restaurants)
  2. Discover doubles your cash bank in your first year.  (That’s 10% of your money back!)
  3. No foreign transaction fees (this saved a fortune while I lived in Asia)


Costco Anywhere Visa Card by Citi

Why do I like this card:

  1. 4% back at any gas station
  2. 3% back at restaurants
  3. 2% back at Costco.  With the Executive card, that’s 4% back on all purchases.


Chase Debit

I use this at ATMs about 3x per year.


E*Trade Debit Card

This is a secret card that E*Trade does not advertise.  You can link a debit card to your brokerage account if you snail mail them a letter asking for it (there is no other way to request it).  This card allows me to keep only what I need to pay the bills in my checking account.  If I need cash in a hurry, I can sell some stocks and immediately cash them out from any ATM.


Chase Freedom: Cash Back Credit Card

Chase Freedom offers 5% back in rotating categories.  It’s too much of a hassle for me to track the categories to actually use it, but it’s easy to get approved for this card, so it’s good for beginners.


Chase Ink Business Cash

This card is for my personal business.   I like it because I get 5% back for office expenses and Chase gave me $300 just for signing up.  Using a business card makes it easy to separate my personal and business expenses.


The American Express Green Business Card

This corporate card is for my day job.   


Bank of China Debit Card

My primary card during my five years in China.  I left my account open in case SHTF and I have to bug out to Asia.  Also, Bitcoin.

Buckhead Fight Club

Physical fitness is important too 🙂  Come spar with me Tuesday, Thursday, or Saturday!


* About 7 of these are actually in my wallet most of the time.

Why you (probably) don’t need life insurance: how to self-insure your family

I’m not categorically opposed to life (and most other kinds of) insurance, but if you follow good financial practices, you’re better off self-insuring.  Self-insurance is essentially the idea that you assume a risk instead of paying an insurance company for the service, either by not taking out the policy at all, or selecting a high-deductible. This requires financial discipline and planning to keep sufficient savings to pay for emergencies.

Here are my thoughts on why insurance doesn’t make sense in most cases. I’ll focus on life insurance, but it applies to many others.

When (term) life insurance makes sense:

I’ll begin with an example where life insurance makes the most sense:
The Smith family has a single income of $100K/year, two small children, and Mrs. Smith has limited means to replace the lost income if Mr. Smith dies. They have $5K in the bank. In this case, term life insurance is a very good idea, for reasons which I hope are obvious: if Mr. Smith dies, the quality of life for Mrs. Smith and kids will be significantly diminished.

Complicating factors:

If Mr. Smith has a well-paying job, it probably comes with some disability/death benefits. Mrs. Smith will also get his social security benefits. It will be a fraction of their former earnings, but a non-trivial portion of a typical families expenses are work-related. Mrs. Smith will also qualify for several government programs (WIC, school lunch, etc). Possibly they have relatives who might help. While life insurance payouts are not taxable, it may affect your ability to receive other benefits, so the calculation is not as simple as it may seem.

There are probably tens of millions of American families in this general situation. Yet only 44% of households have life insurance, and many don’t have enough. Why? Because if you only have $5K in the bank (most Americans have very little savings and millennials have a negative savings rate), you probably have bad financial habits, and limited means to have another monthly expense.

When (term) life insurance doesn’t make sense:

If you are single, there is no point in life insurance. Buying life insurance, in this case, is equivalent to your beneficiary (let’s say girlfriend or parents) playing the lottery on your life. While the odds are probably better than the government lottery (your chance of dying in the next year in your 20’s or 30’s are about 1/2000, whereas the chance of winning millions in a lottery are 1/185 million), it’s a lot less somber.

If you’re married and both spouses have similar earning capacity (even if both are not currently working), again, there is little point — your quality of life will not change dramatically if your partner dies.

If you are married with dependents, have very different earning capacity, but have sufficient savings to recover earning capacity, again life insurance is not needed. Unless you have six kids, you only need enough savings to rebuild your ability to support your family.

If you’re too poor to build sufficient savings to recover from the death of a spouse, you’re probably poor enough that a single income will not dramatically affect the quality of life, and can’t afford life insurance anyway.

If you have sufficient earnings to afford insurance but are too financially irresponsible to save for disaster, then you may need insurance, but you’re probably not reading this, and may not have the budget to pay for insurance.

Three bad assumptions financial advisors make

Financial advisors (especially non-fiduciary advisors trying to sell you something) will typically make three flawed assumptions:
1: a single, non-working parent should never need to work again
2: your quality of life after your partner dies should remain the same
3: your savings rate is fixed

Here is why these assumptions are wrong:
1 is flawed because most adults do have the ability to develop marketable skills.
2 is flawed because insurance is only intended to protect you against catastrophes, not pay for your boat and summer cottage. You only need enough cushion to recover from a budget crunch, not profit from your partner’s death
3 instead of trying to patch over bad money habits with insurance (and especially whole life insurance), advisors should help you save more and build additional income streams through your investments. Instead of overmedicating to cover up the symptoms of an unhealthy money habit, good financial advice should help you adopt good financial practices that would make the medicine with dangerous side effects (more on this below) unnecessary.

Self-Insure your Family Instead

Here is the financial strategy which I recommend (scenario based on demographic averages):

While you are single (age 16 to your mid 20’s):

Max out your savings rate at about 50%. This should give you a cushion of $100K going into your marriage — hopefully, both partners have something to contribute to your net worth.

Marriage – before kids:

In the first few years of marriage, you should maintain dual incomes and build your nest egg at least until you decide to have children. If you have kids around age 30, you should have a solid 8-10 years of savings — enough to build a portfolio of $300K.

Marriage – post-kids (when you need a backup plan):

Let’s say the mom decides to be a full-time parent. By your mid 30’s, if you have multiple kids, your savings rate will drop to 20-30%, but 20 years of savings and compound interest should give you a net worth of at least half a million. This, combined the social security and work benefits becomes your insurance policy. Buying additional life insurance is thus unnecessary because each spouse has enough cushion to preserve most of their quality of life and/or recover earning capacity.

Addendum: Whole life insurance (also applies to Infinite Banking)

Once upon a time, when a diversified, well-balanced, tax-smart, age-appropriate, and personalized investment portfolio was not available to most people, whole life insurance made a lot of sense. It still makes sense for people who
1: are compulsive spenders who can’t keep any savings or investments and
2: don’t have a tax-advantaged savings options available or
3: need to hide assets from someone

For everyone else, investing their money in the market makes a lot more sense. You can invest up to $55K per year in tax-advantaged or tax-deferred investments. A properly diversified portfolio will return about 12% (pre tax, pre-inflation).
Ask an insurance salesperson for the yield for whole life insurance. They’ve intentionally made the product so complicated (with lots of hidden fees) that they won’t be able to compare it to the yield of traditional investments.
What the insurance company is doing behind the scenes to make a profit on your money is locking it in various ultra-safe (aka low yield) bonds and giving you a fraction of the return. Those bonds return a maximum of about 5%, and you get a portion of that. You’d do much better separating your insurance and investment needs, especially since a young professional should have a high-risk stock-based portfolio.

If an advisor scares you with the uncertainty of stock markets,  remember that there is No Free Lunch.  Guaranteed returns mean low returns.  Less risk means less profits.  Take your risks while you are young and retire rich.  See my post for simple, low-cost investment options.

Financial Responsibility Is about Habits, Not Budgeting

What’s the first thing that comes to mind when you hear “personal finance?” I bet it’s “balancing a checkbook.”

Young people are spending more than their entire paycheck each month.

Do you know anyone who does it? I don’t. Like most people under the age of 40, the only checks I ever write are to the government – to pay for taxes and speeding tickets. Everyone else has moved on. Like most Americans who don’t live in a log cabin in the backwoods, I use a bank account and credit cards that keep a record of all my transactions.

No doubt a written record of transactions was essential during the first five thousand or so years of civilization – until we got online bank accounts and apps with bots who know how to navigate the archaic interfaces of the banking websites and automatically compile an intuitive real-time infographic of your financial status. There’s a category of thousands of apps now in the Android and Apple app stores.

In 2016, I re-integrated into the Western financial system after half a decade in cash-only China. As soon as my plane landed, my feed was flooded with ads for apps promising to budget my spending, repair my credit, and invest for retirement. Popular gimmicks include redirecting the spare change from purchases into savings, safe-keeping a few dollars each month for a big purchase, and keeping certain categories of spending to a monthly budget.

Apps Won’t Cure Your Affluenza

The sense that emerges from these apps, as well as surveys of spending habits, is that Americans have lost self-control over their wallets. Young people are spending more than their entire paycheck each month (the millennial savings rate is negative 2%), and only by various means of self-deception and outside intervention (via hidden or protected savings accounts) can they ever save a few pennies for anything beyond momentary whims.

Instead of driving up your blood sugar and destroying your arteries, you are driving up your debt and destroying your retirement prospects.

For those afflicted by a lack of good finance habits, I have news:

The whole concept of “budgeting” as we know it is flawed and counterproductive. Financial responsibility and abundance requires developing good habits and a healthy relationship with material possessions.

Suppose that you were overweight because your diet was mostly junk food. What if I asked you to start following a “calorie budget?” Eating a bunch of carbs will cause your blood sugar to spike. When you suddenly cut off their source, your blood sugar will drop and you will get tired, moody, and develop an insatiable craving for more sugar. Failure is inevitable.

Bad spending habits work the same way: you buy whatever fills your craving at the moment. The sugar high is replaced by the rush of getting a shiny new thing. Soon after, the high wears off, and the craving for more stuff returns. Instead of driving up your blood sugar and destroying your arteries, you are driving up your debt and destroying your retirement prospects.

We’re Addicted to Junk

It’s no coincidence that modern Western societies are the first to have a large portion of the population addicted to both things and food – for the first time in history, we have the wealth (and credit) to buy a near-unlimited supply of both stuff and food. Something similar has happened with our sleep: artificial lightning plus the ever-present Internet divorced sleep from daylight, causing an epidemic of both sleep deprivation and insomnia. People stay up late seeking cheap stimulation, drug themselves with coffee in the morning, and stumble through their lives.

Focus your energy on things that make you a happier and healthier person, not distractions and momentary pleasures.

I often see people buy a thing as a substitute for the experience the object provides. For example, many people will buy a gym membership because they want to get in shape. But having bought the membership, they make no effort to use it, because they act as if the purchase itself will achieve their goal. Likewise, people buy books they never read as if owning the book itself will bring knowledge.

Our addiction for stuff does not only affect our credit cards. Like the fat we accumulate from a bad diet, our stuff accumulates and becomes an anchor which ties us down. The 21st century demands that work be nimble and mobile – seizing opportunities whenever they may be. I followed opportunities across states, countries, and then continents during my brief career. This is impossible to do with a house, the stuff filling it, and the debt to pay for it all weigh you down. When I got an offer to work in Asia, my wife and I packed two suitcases each and got on a flight. Five years later, we flew back with the same four suitcases.

Develop an abundance mindset

Don’t budget. Don’t save the spare change from every transaction, or hide it in a hidden bank account. Beware the scarcity mindset — saving is not an act of suffering and denial, but an act of exchanging a momentary pleasure for a longer-term value: the big-ticket item you are saving up to buy, such as a house or retirement. $1 saved and invested today becomes $10 in 30 years if you invest in the market.

Three Steps to Responsible Spending Habits

1: Monitor and reflect on every transaction. Use Personal Capital or Mint to track every transaction across all your accounts and cards. Instead of reviewing your credit card statement once a month, set up push notifications for every transaction. Develop an intuition for how much you spend for every category. At first, you won’t have the self-control to stop yourself before you buy stuff. Reflect on every purchase and think about whether the pleasure of spending money now is worth delaying a life of financial success and independence. 

2: Discover what makes you happy. Focus your energy on things that make you a happier and healthier person, not distractions and momentary pleasures. I save a fortune each year by biking to work, bringing my lunch to work, and living in a small apartment. At the same time, I’m not afraid to invest time, money, and energy into hobbies that I’m passionate about.

3: Make your money work for you. There is only so much you can save every month. Long-term financial success requires investing in yourself by increasing your income and making your money work for you while you enjoy life. Develop your career, and make your money work for you through smart investments.

How to make a million bucks by 40

The average American has less than $1000 in savings, the typical family has $90,000 in debt, and most cannot pay for a $500 emergency. Americans, you can do better! There are three parts to maximizing your net worth: (1) maximize your earnings (2) minimize your cost of living and (3) maximize the return from your investments.

I’ve never thought of myself as someone who knows much about personal finance or  investing.  Yet I keep reading scary statistics about how the average American has less than $1000 in savings, the typical family has $90,000 in debt, and most cannot pay for a $500 emergency.

Furthermore, the lack of good money habits cut across all income levels.  I have friends who make far more money than me, but recently complained that they could not take advantage of Amazon Prime Day discounts because pay day was too far away.   Friends who amass huge bank accounts, where their money slowly rots from inflation, or gets invested into CD’s, or useless and expensive mutual funds.    Friends who panicked when the market crashed, and converted their securities to cash at the worst possible time.

Americans, you can do better!  You can save and be a successful investor without becoming an expert or hiring one.   By my estimate, a majority of American households would be worth a million dollars by their 40’s if they start early and make a concerted effort.  There are three parts to maximizing your net worth: (1) maximize your earnings (2) minimize your cost of living and (3) maximize the return from your investments.

I will share my financial story so you can see that that I learned these lessons the hard way.

First, I invested my student loans in the stock market – in the early 2000’s

I purchased my first mutual fund at 15, with the first $500 that I earned.   That was a smart start, but I followed up with a common setback:  I wasted 5 years of my life getting three useless university degrees.   A university degree may be necessary for many careers, but in my case, I learned virtually nothing that I used in my career as a software developer.   I made university as cheap as possible by going to a state school and applying for tons of scholarships.  I saved money by not having a car until I was 24, worked as a student worker, and had summer jobs.  Because I lived so cheaply and worked while at school, I was able to invest my student loans in the stock market, which as you may recall did not do very well in the early 2000’s.  I sold my stocks and paid off 100% of my student loans when the interest-free period elapsed, and decided to go with a professional advisor from then on.

Then, my broker bet everything on sub-prime mortgages

From 2005 to 2007, I lived cheaply and I sent a significant portion of my income to a broker.  Whatever he was doing seemed to be working.  What I did not consider is that the market itself did very well – I failed to compare his returns with overall market performance.  When the recession hit in  2007, I lost over 60% of my original investment.   Only later did I learn that he invested in subprime mortgage REITs that gave him kickbacks in the form of commissions.   His incentive was to sell me funds with the highest commission – not those that controlled risk or maximized my return.

So I fired the professionals and make a killing investing on my own

After watching my life savings dwindle away for all of 2008, I created a forum thread with a investment strategy based on Peter Schiff’s Crash Proof in January 2009.   I transferred everything to E*Trade and invested almost every penny I had in the markets.  My return for 2009 from my investment fund was 58% – I made back everything I lost in 2008.  That was a good start, but it was only a start.  I invested very little additional capital over the next several years because I started spending most of my money on a nice car, restaurants, a fancy wedding, and an apartment that was soon overflowing with stuff I barely used.

2009 investment returns
My first year investing on my own. Green is my investment account, blue is S&P 500

Then I got rid of all my possessions, moved to China, and adopted a minimalist lifestyle

In 2010, I was making a good income working for an big-name ad agency in midtown Manhattan.  I was making great money, but I was not very happy.  I worked crazy hours and never saw my wife.  The cost of life and taxes for a NYC resident are crazy high, and my friends and relative rarely had time for a vacation.  I wanted to see more of the world while my wife and I were still young.

So, I found a job in Shanghai, China.  It paid a fraction of what I was earning, but my wife and I decided that life is short, and if we did not see the world while we could, we would always regret it.  We only brought with us what we could fit into the two suitcases allowed by the airline.  Once we got to China, we knew we would have the same limitation when moved on, so we decided not to buy anything we could not carry when we moved to our next destination.  Over the next five years, we lived in a series of tiny apartments in central Shanghai (one of the most expensive cities in the world).  Yet because we had so few possessions, we felt liberated, not constrained.    We found that we did not miss the vast majority of our stuff,  and we could move anywhere in the world with just our baggage.

After five years, we decided to move back to the USA.  We were able to fit all the possessions for three people in standard airline baggage, plus five medium boxes than we shipped via China Post.

I let a robot manage my life savings and worry about the details

When I returned to the USA, I reviewed what my ETrade account had been doing while I was in Asia.  I saw that it had grown badly unbalanced – investments that had been successful dominated my portfolio, and moved me away from my intended strategy.  To stay true my plan, I would have to re-balance my portfolio multiple times per years, buying and selling many stocks and driving up my costs.  That’s when I decided to switch to a robo-advisor, which would implement my strategy automatically, while minimizing taxes by investing funds in the right tax-category and performing tax loss harvesting.  After some research, I decided to go with Personal Capital, although there are several cheaper options if you don’t care about having access to a personal advisor when you want it.

Summary: how to make a million bucks by age 40

Here is a summary what I’ve learned over the last 10 years:

  1. Take responsibility for your own career
  2. Develop money-saving habits
  3. Don’t let your possessions control you: adopt a minimal lifestyle
  4. Get rich slowly: select your trading strategy, then automate it

1: Take responsibility for developing your career path

Remember that your career is an enterprise.  If you want to increase your compensation, you must increase your value to your employer.  Do what employer asks, but also discover what builds value for your employer and focus on that.  Keep in mind that making the value you create visible within your company is your responsibility.   Stay on the market and explore new opportunities even if you are happy where you are – this will help you understand your value.

If you get in a rut, be entrepreneurial: there were several times in my career when I felt stuck in a job or a position that either didn’t have the career path that I wanted or did not pay what I was worth.  I took on several freelance projects that boosted my income or helped me leverage into a career shift.  It’s not hard to find these opportunities if you’re always looking for them.

2: Develop money-saving habitswidgets

The money you able to invest each month is a simple difference of your earnings minus your expenses.  Every small change can make a small difference over many years.  Eliminating a $4 coffee every day over 30 years will add $142,000 to your retirement.  That’s why I bring my lunch to work, and commute to the office by bike.

To visualize my financial status, I use mint.com and personalcapital.com to track all my expenses and investments. (Mint.com is better at tracking personal expenses and keeping a budget, while Personal Capital is better at more complex situations and investments.)  I can quickly identify if a spending category is out of normal range, and I don’t forget about recurring expenses and subscriptions.  Mint.com also gives me a nice graph of my net worth from 2008 to today, which helps keep me motivated.

3: Practice minimalism

our minimal living room
our minimal living room

The real savings in my lifestyle come a minimalism.  Here is Joshua Millburn’s take on it:

I understand that my possessions can be replaced. Someone recently asked me what I would grab if my apartment caught fire. “Nothing,” I responded. “Everything I own is replaceable.”

Minimalism is not a radical lifestyle. Minimalism is a tool I use to get rid of unnecessary stuff and live a meaningful life—a life filled with happiness, freedom, and conscious awareness. Because I strip away life’s excess, I’m able to focus on the important parts of life: health, relationships, passions, growth, and contribution.

Here are some ways that a minimalist lifestyle saves us money:

  • By biking to work, we are able to eliminate the need for a second car.   This saves  us $10K/year.
  • By keeping possessions to a minimum and owning only what we use, we avoid the need to use a garage or spare room for storage.  We can easily fit everything we need to live in a small apartment
  • If we really need something we don’t have, we borrow it.
  • We buy very little prepared food.  We (well, mostly my wife) can make just about anything from a small set of ingredients.   Raw food is cheaper and the result is healthier.
  • We visit our library to borrow books, e-books, and movies, as well as passes to local parks & zoos
  • We work out at home using body-weight exercises and swim at the apartment’s pool – no gym memberships needed.
  • We buy our daughter’s clothes from resale shops and sell them back when she grows out of them.
  • We have a capsule wardrobe.  Everything hanging in my closet right now is for use during this summer.  Clothes for other seasons are in storage.   I don’t own anything I won’t wear over the course of a year.
  • When we moved to China, I digitized all my books by sending them to 1DollarScan.
  • I can fix shoes, furniture, and most electronics.   (It’s not hard to learn.)  I buy nice shoes and resole them many times before I wear out the upper.   I know how to replace a fuse in a microwave, change the air filter in my car, and I own a glue for every material in the house.  I know how to Google repairs — and I know when to let the experts handle them!

Don’t buy a home:

The New York Times has a great calculator for whether buying or renting makes sense, but if you’re working hard for that million, it generally does not.  Yes, buying will generally save you money over renting in the long term, but consider this:

Even if you could buy a new house with cash, chances are that your investments will appreciate far more than your home.  So you have to take out a mortgage.  Now you have to worry about the costs of buying the home, paying the mortgage, performing maintenance, and big hassle if you want to move somewhere else. It’s better for you to stay flexible, focus on your family and career and let someone else take care of all the maintenance.  (Another great perspective on this.)

4: Get rich slowly

After maximizing the spread between your income and your expenses, you need to leverage the magic of compound returns by investing it in the market.

There as many opinions investment strategies as there are investors, but unless investing in the market is your full time job, you will probably not beat the market.  You may get lucky, but chances are that if you try timing the market, you will be guided by your emotions, and buy high and sell low.  Even the best money managers in the world can’t beat the market.

So my suggestion is: just invest in the market.  The whole market, not just the S&P 500.  You can either invest in an index fund like VTI (USA) + VEU (not USA) or use a robo-trader which buys individual stocks (this can lower costs and save on taxes).  I use Personal Capital.  I can’t speak for other robo-traders, but Personal Capital re-balances my portfolio not only by asset class, but also by market sector, so I’m positioned to benefit from growth in any industry.

The only two questions you need to decide are: how to split domestic versus international stocks, and what to invest in alternative investments (such as gold, REITs, and Bitcoin).  If you have trouble with these questions, use the default from a robo-trader, or use my strategy:

My portfolio asset allocation:


Allocation by sector (industry):

portfolio US sectors

An aggressive portfolio can “beat the market” while controlling risk but that’s not the primary goal:

PersonalCapital holdings

Can I really make a million by 40?https://www.edwardjones.com/preparing-for-your-future/calculators-checklists/calculators/retirement-savings-calculator.html

The average historical market return is about 10.7%.*  A 10.7% return means your money will double every 6.5 years.   If you start investing at age 20, and invest $16,300 each year, you can expect just over a million dollars by 40.   Saving $1360 per month is not possible for a typical American, but becomes doable if you follow the career and lifestyle principles mentioned above.  (Delaying the start of your career with a college degree would push your million into your mid 40’s.)

* Before accounting for inflation, with dividend reinvestment, and an aggressive portfolio.  Read another perspective on $1M by 40, and 12 tips for retiring at 30.

Seven tips for riding a bike to work

I ride a bike to work almost every morning.   Occasionally my wife or a coworker will give me a ride, but this is actually a hassle because then I don’t have my bike when I go home.  On two days a week, I ride across town to a class.  I’ve discovered that getting there by car takes 25-40 minutes depending on traffic, and I have to pay at least $6 for parking (in Atlanta, even shopping malls and doctors offices have paid parking).  It takes me 15-20 minutes by bike regardless of traffic, and the parking is free.  Not everyone can bike to work, but I think bicycles are under-appreciated in the USA as a means of transport.

There are tons of lists online for why you should bike, so I won’t try to rehash the reasons here.   Here are seven ways I make my bike commute easier:

  • Live near the office:  I know this is obvious, but I want to stress that a short commute can justify paying much higher rent.  I save about $800/month by not having a car just to drive to work, including the cost of the car, gas, insurance, repairs & parking pass.  Paying more for an apartment in an upscale area close to my office lets me live in a much better apartment.   Just as crucially, I can be a lot more productive by avoiding a long commute to and from work.   Furthermore, I enjoy my ride: some studies claim that avoiding a commute is equivalent a $40,000 raise!
  • Get a light bike: you can commute on any bike, but a lightweight road bike is a lot more efficient than a heavy mountain bike.   Decent road bikes start around $250- mine cost about $860 from a bike shop.
  • Don’t get stranded:  see the infographic below for the gear I keep on my bike.  You should either know how to change a flat tire, or have someone who can pick you up when you have mechanical trouble.
  • Know when to cheat:  I keep a poncho at the office so I can get home in the rain, but if there is heavy rain in the morning, I either wait or get a ride – it’s not worth biking in a downpour.   Also, mud guards are awesome.
  • Be safe in traffic:  I don’t wear a helmet on my very short commute to work.  I only mention so you realize that I’m serious about this: if you ride at night, you must get a solid front light and rear lights.
    • It is required by law in most cities, and you will get a ticket
    • Cars don’t expect cyclists at night, and a light will save your butt
    • I do wear a helmet if my ride will be more than 10 minutes
    • Know when to claim the lane.  In most cases, you want to ride in the middle of a lane – not on the sidewalk and not to the extreme right.
  • Adapt to hot weather:  Atlanta stays between 90 and 100 all summer, but it’s not unusual for me to wear a suit to the office.   A few suggestions:
    • I used an office shower at my last job, but I’ve had to make do with a desk fan this year.  It works pretty well.
    • Keep a change of clothes at the office.   I haven’t tried this so yet, but on extra hot days, I change shirts and I don’t put on my tie until I get to the office.
    • You can reduce how much you sweat during your ride by either optimizing your intensity or efficiency.  You can lower intensity by using your bike’s gears correctly, getting a more efficient bike, or a more gentle route. Keep in mind that the harder your ride, the faster your body will adapt!
  • Take the scenic route:  Do not simply follow the path that you would normally take in your car.
    • Use Google Maps to see bike paths and experiment with different ways to get from A to B.
    • Experiment with routes that have fewer (or more, if that’s your thing) hills in the summer.
    • Don’t forget to enjoy your ride!  When it’s not too hot, I take the Atlanta Beltline part of the way (a nice path down a forest is great to relax before work), then take another detour when I want to avoid a steep hill.  It took me over a dozen variations and several months to find the ideal route – one that combines a park, quiet neighborhood streets, bike trails for part of the way, minimal hills, and the fewest stoplights.

Here’s the gear I carry on my bike: