11 Simple Rules for a Wealthy Life
I revisited an article I wrote nearly a decade ago called ‘A Lifetime of Financial Advice in Your Wallet’ on my original site Richmond Savers (that site’s claim to fame was the ‘Step-by-Step Guide to Disney World using Rewards Points’ article that we’ve since updated on ChooseFI).
Though maybe with some slightly different wording than I’d use today, these ‘11 Simple Financial Rules for a Wealthy Life’ hold up quite well:
- Always spend less than you earn and don’t start spending more every time you get a raise
- Save 10% of your income in your 401k (plus the company match) and at least 10% in regular savings/investment accounts. Automate this saving to “pay yourself first”
- Use a credit card for rewards and to build your credit rating; pay in full EVERY SINGLE month
- Save a cash amount equal to about 6 months of your expenses in an FDIC insured bank
- After you’ve saved 6 months of cash, put your additional savings into a mutual fund like Vanguard’s “VTSAX” – Total US Stock Market Index Fund w/ nearly zero expenses and fees. You can’t beat the market over 50+ years, so OWN it!
- Invest in that mutual fund automatically every month, in good markets and bad. Don’t turn on CNBC or look for stock tips – just stay the course
- When you get married and/or have children, buy a 30-year term life insurance policy and draft a will
- Don’t buy an expensive car or house. Nobody is impressed and now you’re poor.
- Keep your monthly expenses as low as possible. Don’t trap yourself into expensive car, cell phone, or mortgage payments each month.
- Don’t buy a house unless you’re going to live there for 10-20 years. It is not a good investment.
- Do not buy or lease a new car. Buy one that’s a few years old and drive it for 10-20 years.
How Long to Actually Double Your Money?
I recently mentioned the ‘Rule of 72’ which is the simple calculation we use to determine when your already invested money will double in value.
That calculation is incredibly useful, but it neglects to factor in the essential detail that you are also continuing to invest during this time!
So how quickly will your net worth actually double when factoring in these additional investments?
Our friend Nick Maggiulli wrote an article called ‘How Long Does it Take to Double Your Money’ where he answers precisely this question.
The key additional factor is what he calls the ‘wealth savings rate’ and how that impacts the doubling time.
This is an article you want to read.
The Simple Path to Wealth on The Daily Show
Hasan Minhaj recently guest hosted on ‘The Daily Show’ and in his 34-minute evisceration of Kevin O’Leary (of Shark Tank fame) and others who purport to be financial experts but then go on to hawk products and investments of dubious quality, Hasan showed himself, to my ears, as a member of the FI Community.
Here’s Hasan telling Kevin that, instead of giving his own financial literacy advice to high schoolers, he should “give them JL Collins’ book ‘The Simple Path to Wealth.’” (If you have a half hour and want to watch the whole video, I highly recommend it!)
Hasan went on to put his own take on a famous John Bogle (founder of Vanguard and credited with inventing the index fund) quote when he said:
“Everybody that’s listening should probably just put their money in an ETF, set it aside, go to sleep, wake up 30 years later.”
Bogle’s original quote is one I paraphrase often and wanted to repeat here for emphasis:
“When you get those regular retirement plan statements…don’t open them. Don’t peek. And when you do peek – which you’re only allowed to do when you get your final retirement statement – be sure to have a cardiologist standing by.
Because you will be so amazed at how much money you’ve accumulated over 20 or 30 or 40 or 50 years that you won’t believe it. You’ll probably faint, or something worse, and there will be a doctor there to revive you.”
ChooseFI Community Taking Action This Week
- Amber said, “My 1% is that I found a beautiful new walking path and have committed to making it out there at least once a week to just enjoy and be in nature. It really centers and energizes me.”
- Beth said, “Booked a 2+ week trip for 4 to the UK using rewards miles, was our 1% better.”
- Jake said, “For my 1% better I finally decided to buckle down and button up the household cyber security this weekend with help from Episode 397! The paid subscription for a good password manager is well worth it as it can be shared across our laptops and phones which eliminates the need to constantly be asking each other for passwords, resetting passwords, or just plain not having access to important pieces of information required to run the household. Our passwords were weak at best but I can now say 2-factor authentication and strong passwords have been applied to ALL financial sites, email logins, health, shopping, etc. and we BOTH have access to all of the important sites so we can get better at being on the same page. There is still work to do, but we are a million times better off now! Locking down our cyber security gives me confidence we can move forward to better track and maintain our finances on the journey towards FI. “
- Racquel said, “Ahhhh!! I thought this would never happen to me! My 1% better is so embarrassing but maybe someone else made this mistake too and can fix it now rather than later. January 1 is “Vanguard Day” for us and we often have been able to save up to max out our back door Roth that day. This year we couldn’t contribute to the Roth right away, but we still wanted to check out our accounts and see how they were doing. It’s so deceiving because Vanguard says “Total” in the account, but as I was looking at the summary my brain finally caught up and realized for the past TWO years we had contributed our money BUT IT WAS STILL IN A MONEY MARKET ACCOUNT and had not been “traded” into our 2050 target retirement investment. I had even heard someone else share that mistake in the past and I just honestly thought, “I’ll never make that mistake.” Yikes. I guess the lucky part is that VTSAX cost about what it did in January 2021 and less than it did in January 2022 so our net mistake is not terrible as it could have been but it was a big eye opener and a good reminder to always make sure you go through ALL of the steps.”
- Danny said, “My 1% better this week was negotiating working abroad with my employer and having them temporarily drop my hours from full-time to part-time. This reduction will allow me to continue investing and preserving savings while actualizing travel goals I’ve had since I was a kid. As a bonus, I will be keeping my health benefits despite the reduction in hours. I wouldn’t have proposed this to my job without the saving habits, knowledge, and confidence that this community has offered me.”
- Michael said, “My 1% better this week is meal prepping to save me money by not going out for lunch during the week when I work from home.”
