#Team YOLO or #TeamInvest? Which side are you on when it comes to money?

Each year I try to read several books that will not only teach me something I didn’t know but will also challenge my views on a variety of topics, especially money. One of the books I just finished reading is “Die with Zero” by Bill Perkins. I have to say, this book has made me reevaluate my entire life.

As many of you know, I’m a planner. I’m also a frugal person who tries not to spend too much money, especially on material things. One of my life goals is to amass a great deal of wealth that I can use to retire early, give to my friends and family, travel the world, and donate to companies and organizations that make the world a better place. In order to do that, my initial plan was to work a lot over the next 10 years, get paid a high salary, and invest a large percentage of that money to increase my net worth. To put it simply, I was going to work a lot, make a lot, and invest a lot so that I could build wealth as soon as possible.

Bill Perkins in his book “Die with Zero” made me rethink that entire plan.

I still plan to amass wealth but the way I do that has definitely changed.

One of my biggest takeaways from the book was that instead of structuring my life to maximize my wealth, I should instead structure my life to maximize fulfillment. That means discovering what makes me happy and creating a life that allows me to have more of the experiences I enjoy. It means realizing that some experiences like international travel, late-night outings, or active outdoor activities are better had at certain points in my life (ie. When I am young and healthy). While this may sound basic, it caused me to rethink my life plan. Through this book I learned that I shouldn’t use my youth delaying gratification and sacrificing for my older self (at last not as much as I had planned). Instead, I can be fiscally responsible, but I should also try to enjoy life more along the way. In other words, I need to make sure I’m not delaying gratification too much.  Some experiences are best had when I am young and healthy so if I keep delaying, I may never get to have them (at least not in the way I desire).

Let me give you an example. One of the things I’ve wanted to do is go to China to climb the Great Wall. I keep telling myself I’ll go eventually, but I’m about to turn 32 and I still haven’t done it. This book has helped me see that if I keep delaying going to China, I may eventually be too busy to go (once I have kids) or too to enjoy the experience the way I imagined (if I delay the trip until late middle age or retirement). A trip to China wasn’t the only thing I was delaying. There were also experiences I kept putting off. One of them is going to Coachella with my friends. This book made me realize that If I keep delaying it then I may soon miss out on the ability to do this. Why? Because at some point I will get married and have children so leaving my newborn at home to spend all day at a festival in the desert won’t be as appealing. My point? Some experiences are better had when I’m young so delaying them may cause me to miss out on the experience entirely. 

And this brings me to the balance question.

What is the right amount to work vs play? What is the right amount to spend vs save? Yes, we should all try to live in the moment and maximize happiness with incredible experiences but shouldn’t we also save for the future and for a rainy day and invest for retirement? What is the right amount to allocate to each side and how do you know when you’ve gone too far in one direction vs another?

I have friends who spend almost everything they get, fail to save anything, and rack up tons of debt that they may never be able to repay. I have other friends who save so much of what they earn that they deprive themselves of incredibly meaningful experiences they may never be able to have again.

One friend accrued over $10,000 in credit card by buying designer bags and living in fancy apartments she couldn’t afford. Another friend missed out on his best friend’s wedding because he was too busy at his job to take the time off work.

Neither is ideal.

So when I think about this phase of my life (and you think about this phase of your life), we are all left wondering about the right balance. We don’t want to squander our youth and good health working way too much to amass more money than we truly need. But we also don’t want to spend too much too soon and fail to have the money we need to take care of our families, pay our bills, and invest for the future. What should we do?

The optimal balance may vary from person to person. It may also differ for each of us during certain phases of our lives. Perhaps when I’m younger I can invest a little less to have more money to travel and enjoy life before kids. Maybe when I start having kids, I travel a little less and spend more time/money investing for their future and spend more quality time at home. Then when my kids get older, I cut back on investing once more to have more memorable family vacations and gatherings with friends.

My point? It’s quite possible that our savings/investing rate may fluctuate throughout our lives. It’s also likely that the balance of work life and personal life may change as well. Our job right now is to start thinking about what that optimal balance looks like during the next year or two. For me, this will probably mean working part-time and making a little less money than I could in order to travel more, spend quality time with my aging parents, and cross some things off my bucket list. It may also mean that instead of investing a large portion of my income, I instead invest a reasonable amount (15% to 20%) and give myself the freedom and flexibility to enjoy the rest of the money in ways that maximize my overall life fulfillment.

Tell me, what is your optimal balance of work and play? How do you determine what amount to spend vs save? Is there anything you’d like to change over the next year?

The 5 Index Funds in my Investment Portfolio

Unlike many investors, I don’t buy or trade individual stocks. I explain in detail why I’ve bypassed this new trend in a previous blog, but the main reason I don’t buy or trade individual stocks is because the price of stocks changes too quickly. It’s hard to predict if a stock will go up or down. Since stock prices are so volatile (and change so often) there is an increased risk that I might lose money. My goal is to invest in a way that increases the chance I’ll make a profit but has a low risk that I may lose money. The main way I maximize profit and minimize risk is by investing in index funds.
 
Index funds are groups of many different stocks that follow a certain index. For example, one index fund may follow the S & P 500 index and purchase hundreds of stocks from American companies. Another index fund may be filled with thousands of stocks from all around the world. There are many different choices. When you purchase an index fund you are buying a fund that has purchased a percentage of all the stocks in that index. By purchasing a percentage of hundreds or thousands of stocks, you have better diversification in your investment portfolio with much lower risk of losing money.
 
There are many different choices of index funds to choose from. I have accounts at Vanguard and Fidelity (which are two of many different types of brokerage firms). Through these companies I have chosen 5 main index funds:
 
1. Total Stock Market Index Fund I invest in this fund at Vanguard through my employer-sponsored retirement account at work (called a 403b which is very similar to a 401K). I also invest in this fund through my Roth IRA at Fidelity. This index fund has a portion of over 3,600 stocks from small, medium, and large sized American companies. With this fund, I own a portion of all the stocks in the United States. The greatest percentage of money in this fund is invested in Apple, Microsoft, Amazon, Facebook, Google, and Tesla. It also has much smaller percentages of thousands of other companies. Altogether, this fund has made over 20% in profit over the last year and 15% in profit over the last 5 years.   
 
2. Total International Stock Market Index I also invest in this fund at Vanguard through my 403b and through my Roth IRA at Fidelity. Unlike the previous index fund, this particular fund has over 7,000 stocks from all over the world. 38% of these stocks are from European countries. 24% of these stocks are from emerging markets in developing countries. 26% are from countries in the pacific and about 6% are from countries in North America. This fund has made over 11% in profit over the last 5 years.
 
3. Total Bond Market Index Fund I invest in this fund at Vanguard through my work 403b. This fund buys almost all of the bonds in the United States. Since these are bonds, there is much less risk that I will lose money but because of this extra caution, the returns aren’t as great. This fund has over 10,000 bonds with 63% of them being US Government bonds. It has made a return of about 5% over the last 5 years.
 
4. Total International Bond Market Index Fund I invest in this fund at Vanguard through my work 403b. This fund buys bonds from all around the world. This fund has over 6,000 bonds with over 57% of them from Europe. It has made a return of about 4% annually over the last 5 years.
 
5. Real Estate Index Fund I invest in this fund through my Roth IRA at Fidelity. This fund is filled with lots of smaller real estate funds that are full of many smaller real estate deals. I chose to invest in this fund in an effort to add some real estate investments to my portfolio. Over the last 5 years, this fund has had an average annual profit of 5%..  
 
Overall, about 20% of my money is in real estate index funds, 5% in bond index funds, and 75% is in stock index funds. What is the makeup of your investment portfolio? Are you using index funds?
 

6 Step Money Challenge for 2020

As we embark upon this new decade, many of us are committed improving our finances. We may have vowed to stick to a budget or have a general goal to live below our means. While these are noble goals, let’s challenge ourselves to do even more. Here’s my 6 step-money challenge for 2020:  

1. Buy 1 or 2 finance books to read. There are many different ways to consume information but I’m a firm believer in the benefit of books. While I enjoy blogs, books can be a one-stop-shop for the information you seek. Having books allows us to highlight certain passages and tips that make the material a consistent resource we can refer to throughout our journeys. Plus, it provides a single resource we can use to learn about a several different topics or go in depth on one particular area. There are plenty of good finance books but I think the white coat investor has a list of recommendations organized by various categories that can be useful. When I started on my personal finance journey my favorite books were Rich Dad Poor Dad, the White Coat Investor, and the Total Money Makeover. I’ve just purchased How to Think about Money and tend to refer to Ken McElroy’s The ABCs of Real Estate Investing as I’m thinking over new real estate deals. There’s always more to learn and books are a great way to do that. Pick a couple finance books to read this year.

2. Download a finance podcast. As someone who is intellectually curious and loves to be efficient during my “off” time, I consume a lot of finance information via podcast. Whether it’s the “Hippocratic Hustle” giving me insight into ways other female docs have increased their income, “Docs Outside the Box” giving me new ideas on ways to create additional revenue streams, or the “White Coat Investor” providing step-by-step instructions on how to do a backdoor Roth IRA, podcasts can be a great way to learn about various finance topics without requiring a huge sacrifice of your time. Most episodes are 30-45min or faster if you alter the playback speed. Whether you’re commuting to work, cooking dinner, or working out at the gym, there are plenty of good podcast options. As you continue along your journey of increased financial literacy, download a finance podcast and commit to listening to 1-2 episodes a week.

3.  Join an in-person or online group. Along with increasing your knowledge via books and podcasts, strive to be more active as well. Whether it’s participating in a finance-focused Facebook group, joining the Bogleheads F.I.R.E. (financial independence retire early) online community, or going to real estate investor meetup groups in your city, surrounding yourself with likeminded people can be beneficial. In fact, it’s this active engagement that can propel us even further along in our journey. These groups and online communities challenge us to share our goals with others and inundate us with people traveling a similar path. They also provide a slew of contacts that can keep us motivated and accountable. As you continue along your journey, commit to joining at least one finance or investor group.

4. Create a spending plan for the next month. There couldn’t be a money challenge without a point on living below your means. While many of us would like to increase our savings and invest more, this can be quite challenging to uphold. Sustainable change involves altering our behaviors and putting boundaries in place that keep us focused on our goals. One of the best ways to do this is by creating a spending plan for the next pay period. While most of us know where large chunks of our money are spent, there still may be things that go unnoticed. The challenge for this year is to create an active spending plan that outlines which things we will purchase, and which bills will be paid on certain dates. It also includes automating our payments so that a percentage of our income automatically goes to various savings accounts or investment funds. If you haven’t already done so, create a spending plan that automates payments and “forces” you to live below your means.

5. Pay off “bad debt” early. I’m a huge proponent of paying off consumer debt, especially when the interest rate is higher than 7%. Many of us understand the importance of getting the match to our retirement plans, but once that’s done, we are unsure on what to do next. The correct answer may vary from person to person but generally speaking, once you have at least a small amount of cash for emergencies, you should prioritize paying off consumer debt like high-interest credit cards or car loans. Although investing in the stock market is another great option, the guaranteed return from paying off debt cannot go unnoticed. Plus, paying off consumer debt faster will increase our monthly cash flow and allow us to invest even more towards retirement once the debt is paid off.

6. Give more to charity. Although we each have different priorities and plans for our money, one of the things I challenge you to do this year is think outside of yourself and give more. Even though it can be tempting to delay helping others until we have met all of our own individual goals, I challenge you to find ways to give in the midst of this journey. Oftentimes, we find the most happiness when we find ways to assist others. Giving has helped me stay grounded in the midst of success and allowed me to help others in a way that has increased my own quality of life in ways I never imagined. In 2020, I challenge you to find ways to give more. Doing so may impact your own life more than you may realize.

Tell me, what are some ways you will challenge yourself to improve your finances this year?