What I have learned so far

I don’t want to cheer you up

What reading all these books is teaching me.

Reading book after book on financial concepts and ideas kind of takes its toll on my time as well as my mind. Because with each book I learn something new and I try to apply its steps and or knowledge to my day to day life. The issue I am having however is to look at each book objectively as I write these chapters. Because each book brings with it the authors point of view and feelings regarding the topic I can’t help but be influenced by their words. Once I agree with them and the next book states something totally different I am extremely quick to dismiss it because I heard something else first. A prime example of that is Rich Dad Poor Dad stating that Real Estate is the way to go where as I will Teach You How To be Rich says that real estate isn’t a smart investment. Of course I am making up my mind about how I wish to follow the advice in each book but its hard to not let my opinion be colored by the books I have read.

However I am extremely grateful at all the knowledge that is being put in front of me by these books and the knowledge I am allowed to absorb. I have written a chapter for each book but I want to take this time to do a quick summary for myself on what the key points are of Money so far.

If I am going to invest I need to do it myself.

There is no way around this, because every book I have read so far clearly states that money managers, hedge fund managers, wealth managers and most stock brokers don’t know what the heck they are talking about. I should never trust them with my money because for all their fancy talk and so called expertise it is simply impossible to predict the market. And even if you find one who was really spot on with their investments last year it is extremely unlikely that they will be spot on this year as well. They are doing nothing more than beautiful guess work and charging me a hefty fee to do so. Those fees they charge can easily take up to 50% of my earnings without me even noticing it. I should never let myself be suckered in by promises of paying only 1% of the assets they will manage for me. And the most important point I need to keep in mind is that most Hedge Fund Managers don’t owe me a fiduciary duty. Which means that they do NOT have to have my best interests at heart. Their goal will thus without a doubt be to make money themselves first and use my money if they can to do so. If I wish to invest my money I will need to create my own portfolio and manage it and I will either do better than or equal to but it is very unlikely I will do worse. Stocks are similar to flipping coins in their predictability because it is just impossible to know what they will do.

When I invest, I need to invest for the long haul not the short term

The rule of investing in this day and age is very simple. You buy a stock and then you hold it. I learned that there is a difference between Traders and Investors. Traders make their money on the fluctuations of the market. So they buy a bunch of stocks and hope that they will go up or down. Some people get lucky, but most don’t and those that do get lucky don’t stay lucky for long. So the smart move is to create a portfolio of stocks that is well balanced and thus lowers your risk. The best way to create a solid diversified portfolio is to buy Index Stocks. Index Stocks are a collection of stocks that represent the market. So in other words, what I am buying is the market itself. And from what I have learned is that the market for the last 70 years the market has been growing a steady 8% every year. Which means that every year a person could have made 8% from their investments every year. Which brings me to the next point.

Compound Interest is the way to become rich.

Compound interest is a mathematical calculation about which Einstein had the following to say “Compound interest is the 8th wonder of the world. He who understands it, earns it; he who doesn’t, pays it.” Think about it, every year your money increases by 8%. In 10 years you could have doubled your money. Now if you keep adding to your initial amount you will not only double the original amount but whatever you add on to it as well. This is what it means to invest for the long haul because compound interest is amazing but it takes time to actually prove itself.

Set up pension plans that allow me to invest the money.

Knowing that compound interest is the greatest thing ever invented is one thing, but I need to make use of it to know how amazing it is. Knowledge is power, but information without action is poverty. So I have started the process of setting up accounts that will allow me to make use of compound interest. I am not an American nor do I live in America so I am not able to set up a 401K or a Roth IRA. But I was able to find similar plans and am currently in the process of setting them up. I will set up two accounts. On one account I will use the system suggested by Ramit in I will teach you how to become rich and use a Target Date Fund. On the other accounts I will use the Swensen Model. Which is the following:

With this model I will be using the same diverse portfolio as a guy who has become famous for his investment prowess. The Target Date Fund account and my Swensen based account will both run for a successive 5 years after which I will compare the two and see which one is more effective to let run for the full 20 years. I will keep putting 100 USD on each account every month for the next 5 years.

Taxes are the bad guy, whether you want to admit it or not.

Taxes per se aren’t a bad thing, but I loved the way that Rich Dad Poor Dad put it. It is the governments duty to get as much of my money as possible so it is my duty to protect my money. This might sound selfish but when you look at how taxes can damage your potential income its clear as to why the rich find ways to avoid taxes. Even with the beauty and strength of compound interest, once you factor in taxes, it loses all its power. That is why I need to make sure that my investment accounts are Tax free so that I can at least earn the most I possibly can. I will need to do more research on this because I still feel like there is more to learn about this topic.

Pay Myself First

Now here is the concept that every book so far keeps telling me. And they are repeating a lot of the same information and using the same historical situations as frames of reference. But this concept right here is without a doubt something that is so simple yet eluded me for so long that it irks me. Paying myself first means that I will give myself a certain amount of the money I make to NOT spend. Now this concept sounds very weird to people because most of us always believe that the money we make is ours. Its your hard earned paycheck after slaving away for all those hours, so it is yours. But when I thought about it for a second, I noticed that I made a lot of money these past few years but I have nothing to show for it. Which means that I was simply spending my money without any kind of plans for the future. And that is what a lot of people are doing. These books really imprinted this message on my brain. Really made sure it’s a concept that is embedded in my soul. I will without a doubt from here on out every month set aside money for myself that I am not allowed to spend. I will be using the 7/2/1 rule from the book Richest Man in Babylon. Which means I will use 70% of my paycheck to live, and 30% to give to myself. I cleared all my debt awhile ago so I am able to combine the 2/1 together. I will keep saving that money until it reaches a certain amount that I am able to invest.

Real Estate is the way to go.

The more I read about investing, the more I realize that the only way to go about it is to invest in something that is slow and constant. And to me Real Estate is just that. I am not interested in flipping houses or selling the property I buy. I want to start accumulating assets. And I will follow the principle of “An Asset puts money in my pocket and a Liability takes money out my pocket.” The reason why I am so focused on real estate is because my focus is without a doubt a steady cash flow. Investing in Index funds is a slow process that will pay off in the long run. Which means that I will have to keep working until the long run finally concludes. While with Real Estate I can escape the Rat Race the moment my Income exceeds my Expenditures. That is what I want, I want my assets to give me freedom as soon as possible while my Index Funds ensure my retirement. I know full well that I’m doing double, but I wouldn’t have it any other way. By making my Real Estate my main assets and my Investments my safety net I should be good.

Money is nothing but a problem to be solved.

All the books I have read have a similar feel to them with regards on how I should view or treat money. But only Rich Dad Poor Dad put it in a way that really resonated with me. Money is nothing more than a problem that needs to be solved. Which means that I should never tell myself “I can’t afford this” but instead I should ask myself “How can I afford this?” It is a very subtle way of making myself think of how I can improve my situation instead of just resigning to it. By asking myself how I can do something, I am forcing my brain to think and come up with solutions. If I simple gave up before I even started, absolutely nothing would have changed and I indeed wouldn’t have been able to afford it. This way of thinking will not only increase my financial IQ which is the most important thing of all but it will also help me to understand how I can make more money. Now I understand that this isn’t for everyone because I will be directly challenging my money. And for most people money is a big source of anxiety and thus they just wish to ignore it and or hide it away. The best solution I have read so far for these kind of people is the Automate Your Finances system introduced to me by I Will Teach You How To Become Rich. By automating your finances you are effectively creating a system where you don’t have to look at your finances anymore. Which is great, because then you save and pay for everything without looking at your money. But I would rather face my money and improve my financial IQ. Because with a high financial IQ I will be able to increase my earnings to make sure I can reach my investment goals and saving goals much faster. Plus knowing how to make money feels to me just as important as how to save money. But that’s just me.

Believe in myself

This may be the last point but it might just be the most important one. There are a lot of ways to make money and a lot of ways to lose money. The key in becoming rich isn’t in the making money, its in the keeping of your money. So if my goal were to make a lot of money by creating a business or something to that effect I will need to make sure that I keep as much as possible. But I want to talk about starting something for myself. I unfortunately don’t have any amazing business plans or concepts laying around in the back of my mind at this time so I can’t really focus on that. But if I were to do that, I would need to make sure that I believe in myself and whatever it is I am doing to the fullest. There will be no retreat and damn sure no surrender. The only way would be forward and excuses aren’t something I would allow. Even without a great plan or possible business system for me to set up, I will of course still believe in the goals I have set out. I will start my Real Estate assets portfolio and I will use compound interest to my benefit. That is what I have learned so far. I will be doing another one of these chapters as I go along this journey of consuming books. But I just wanted to do this one, to make sure that I didn’t forget anything important that I couldn’t fit into the actual chapters.