Personal Finance Archives - Abnormal Money

Setting Goals So You Can Crush Your Investment Decisions

Goal setting is essential to putting together your career and investment decisions. Good goals share a couple of common characteristics.

I’m a person who always has big plans but has trouble following through. When I was a kid playing chess I’d have great opening moves but I would never close the game. Understanding your tendencies and weaknesses is essential to put yourself on the correct path to achieving your goal.

Most of us are not great at long-term planning, but that’s the key to success. Planning and investing for the long term helped Warren Buffett accumulate his fortune. It’s helpful to have guidelines for your investment and career strategies so you stick to them.

Develop A Framework For Your Goal

Specificity

Specificity should be front and center when thinking about career & investing. Usually, those goals are monetary. If you have a goal to live a certain lifestyle, what amount of capital do you need to acquire to live that way?

Setting a specific dollar amount is a great goal because it is clearly articulated and measured. It doesn’t do much good to say, “I want to be rich” or “I want to be financially independent”. If you have a number you can work toward, that makes the journey much more realistic.

Time Constraints

If you never set a date at which you’d like to achieve your goal it’s doubtful that you’ll ever achieve it. Specificity combined with a time constraint allows you to break up your goal into manageable chunks.

Think of a longer time horizon, and set your goals to be big. Then start to break them into yearly goals. It’s better to dream big and fall short than be too conservative. Our world rewards risk takers and dreamers.

The End Goal

It’s important to have a purpose in mind for saving and investing. A lifestyle you want to live, the flexibility to take a job you actually want, the ability to pay for your children’s education, whatever it is find something that motivates you.

For myself, I want to be able to do whatever I want to do without fear of ever “needing” a job. I never want to be in a position where I’m forced to stay in a job that I’d like to leave. Hoarding capital allows you the ultimate freedom to do as you desire.

Take a couple of minutes to listen to Buffett, I think it’s important to not be taken away by excess.

Here’s an example of some possible goal setting for an ambitious investor:

Goals:
Net Worth $1,000,000 by December 1, 2035
Save $75,000 for graduate school by February 1, 2025
Earn $100,000 yearly income by December 1, 2029
Be Self Employed by December 1, 2035

It could be easier to substitute years for your age, but any way you tweak these basic goals should help you out.

Drake is a freelance writer who’s interested in history, economics, art, & beer. Drake graduated with a degree in Supply Chain Management and began working at General Motors. He writes about popular personal finance topics and shares his journey. Make sure to check back for more posts on Abnormal Money.

Career Kickstart: How One Crazy Year Gave Me Valuable Lessons

Make sure you take the time to reflect.

I started my career in supply chain after graduating in May 2021 with a bachelor’s degree in Supply Chain Management from a state school. When I first got to college I only vaguely understood what my major was. When I graduated supply chain news dominated major news networks.

I’ve been working in the auto industry for a year and moved away from my home state to the midwest. In all honesty, have been working my ass off. After one year I thought it would be relevant to reflect on my time so far and the lessons I’ve learned since joining the professional world.

Make Saving Intentional

Having a salary and a bit of disposable income was a little frightening at first. After using a budget to purchase some essentials (lease for an apartment, furniture, dishes etc.) I was suddenly left with a respectable inflow of cash into my bank account. I lived with my parents for a couple of months after graduating and worked remotely so I was able to save up but more importantly, see how others were spending their money.

Some people I saw were spending with what I thought was reckless abandon. Really nice apartments in new cities, shopping sprees, jetting off on vacations, really celebrating graduating and a new job. Good! Graduating and getting a good job is deserving of celebrating. I myself am 50/50 in terms of financial behavior. I am 50% frugal from my dad, and 50% prone to spending from my mom.

That’s why I knew I needed to just go ahead and save some amount of my gross salary and then spend the rest weekly within reason. I’ve read lots of personal finance blogs, and books, and talked with my dad so after twiddling around with my allocation I’ve settled on the following.

48% seems like a lot of your gross salary to save and it is! That’s why I just go ahead and have these percentages moved into the appropriating brokerage and savings accounts before I even touch the money. I pay myself first and then live within my means for the rest.

I recommend saving at least 50% of your income as a goal, it’s tough but in the end, it will be worth it.

Investing Is A Waiting Game

When I started contributing to my 401k the markets were at near highs. Within a couple of months inflation had skyrocketed, Russia invaded Ukraine, and the markets took a nose dive. I was aware of the fact I was getting in at the top and therefore knew that I would be in for some pain in the short term.

The S&P 500 is down almost 20% in the last two years. It hurts to consistently contribute money to my accounts as the market keeps plunging. I recently increased my 401k contribution while the market continued to have one of its worst first halves of the year in recent memory. I’ve been reassured by Benjamin Graham’s story of Mr. Market. The market operates on emotion and there is plenty of reason for the world’s investors to be pessimistic due to world affairs.

Right now it’s painful to invest, but the history of stock markets, says that it will be worth it in the end. That’s not to say the status quo cannot change. In the meantime, I’ll be periodically reviewing my investment decisions.

My Career Consumes Most Of My Day

To be completely honest I severely underestimated how much time I would have to devote to my job to excel. I’m more or less available between 5:30 AM and 6:00 PM every day. Occasionally I have to work weekends as well. Add that to the social hours to meet colleagues and I’m exhausted at the end of the day. That’s part of the reason I stopped writing for this blog, the shock was a little too much for me to handle.

The supply chain doesn’t sleep, especially for manufacturing firms. The sheer amount of invested capital necessary to produce millions of products every year necessitates those same machines running for as much time as possible. The result is they need a constant stream of components to assemble essentially 24/7. In the corporate sense you never really leave work at work although I’ve gotten a little better at ensuring work-life balance.

Supply Chain Has Turned The World Upside Down

Now more than ever the general public is aware of the supply chain for their products. More often than not they are blaming it either for its price or the product’s lack of availability. This level of visibility is driving companies to really take a look at their supply chain and decide if it can be improved.

I’m relatively comfortable with my career choice because of this, I expect supply chain professionals to be in demand for quite a while. One day I might want to experience a different role and different function, but I have no qualms about contributing to improving supply chains for the foreseeable future.

If you can choose a career that you enjoy AND is in demand. That is key to securing a healthy income and enjoying your job as much as you can.

Understanding Your Job’s Financial Implication Sets You Apart In Your Career

Many professionals in the supply chain are incredibly good at their job. The meat and potatoes of the supply chain. Monitoring inventory levels, working with external parties such as carriers and suppliers, production scheduling, etc. I’ve noticed a common theme among those I’ve seen be promoted and people already in positions of leadership.

They are all able to explain supply chain implications in regard to the company’s bottom line. Being financially literate is key to assuming more responsibility at your company and in turn, growing your salary.

All in all, one year in has been tough but rewarding. I’m excited for year two!

Aggressively Saving is Not Enough

With today’s inflation aggressively saving is not enough to retire comfortably. Learn what else you need to do.

When I was an undergrad I had a strategy professor who desperately tried to drive into my skull that cutting costs was never enough for a company to succeed; the first priority should be increasing revenue. This made sense but went against my instincts as everything in the supply-chain world was about cutting costs and increasing efficiency.

This is an essential concept in personal finance as well. Yes, we should be saving 50% of our income, but we won’t see any progress until we start to actively attempt to increase our salaries.

How to Increase Your Salary

Maybe the quickest way to increase your salary is to get a new job. It’s well known that job switchers receive pay increases that they simply would not have if they stayed at their current company. For whatever reason, loyalty to companies is not rewarded monetarily, never forget to look out for yourself!

If you want to stay at your current company look into educational opportunities that your company supports. It can be a master’s degree or certification. This can look different depending on your role and industry. Examples can include a 6 Sigma Blackbelt certification, or CFA/CPA designation. Master’s degree content can vary widely but almost always puts you in a position for an increase in responsibility, and therefore pay.

Pick up a side gig – some are easier to start immediately making money (think Uber and Lyft). Others like blogging take a lot of time usually without immediate results. That’s why driving for a ridesharing service is so popular there’s basically a guarantee that you will immediately start making money! Whatever you enjoy doing see if you can monetize that, streaming on platforms such as Twitch is incredibly popular. If you’re already gaming why not stream and try to monetize that?

It’s Not Easy

One reason increasing your salary isn’t talked about in personal finance circles is because it is hard. It takes a lot of effort, and you don’t see the payoff immediately. We can make instant impacts on our personal cash flow with budgeting and saving but most of us will be working the same job we’re in for probably another 2-3 years.

Here’s a way to visualize the difference between staying in one job and consistently investing assuming an average 8% rate of return on your investments. For simplicity’s sake, we’re not taking into account any investments that require larger capital outlays such as real estate purchases.

Demonstrates growth of savings using an 8% annual return. One scenarios shows a consistent amount of savings and the other shows what happens if you increase your salary and therefore your savings.

The person who consistently saves 40% of their $50,000 income could expect to have $1.09 million dollars after 21 years, that’s awesome! But take a look at the person who aims to increase their salary. They keep investing 40% of their salary but eventually reach a $90,000 income. They should end up with around $1.56 million dollars in invested savings. We’re talking about a difference of almost $470,000! With inflation currently around 9% in the USA, it’s probable to say $1 million won’t have the same purchasing power in 21 years as it does today. Every extra dollar earned and invested will help!

Drake is a freelance writer who’s interested in history, economics, art, & beer. He writes about popular personal finance topics and shares his personal finance experiences Make sure to check out more posts on Abnormal Money.

Saving To Invest Is Difficult

A lot of people don’t save to invest their money. To be honest it goes against most peoples’ nature.

Living within your means is difficult. Especially now with all of the advertising we are bombarded with every day.

It’s difficult to save and invest. We have to give up those shoes we want or a couple of dinners at that restaurant we really like.

It is guaranteed that you’ll have to cut your budgets in some areas to invest money.

Sometimes it can feel like a chore to sacrifice things now. To save some of the money you work hard for and not use it on yourself.

The big question is why do we save to invest? What is the purpose?

Why Do We Invest?

We Want To Be Our Own Boss

We save because if you’re like me, you don’t want to work for someone else for your entire life.

When you have a salary and no other sources of income, you become much more dependent on your job.

We save because one day we don’t want to have to punch the clock or get up extra early for that meeting someone else set.

We want the financial independence that comes with investing so that we can make our own decisions and do what we want to do.

We Want The Option To Quit

Sometimes we’re treated unfairly at work. Other times we’re asked to take on responsibilities we’d rather not.

If you don’t have a safety net built from your investments then you really don’t have an option other than to comply in your current job or find a new one.

Often we enjoy our work and want to keep working. We don’t need financial independence immediately so that we can quit.

Rather, we want financial independence for the mental relief it offers.

We would all feel a lot better about going to work if we knew we didn’t have to.

We Want To Be Wealthy

Let’s be honest, no one gets wealthy from living off of a salary. Those executives who get millions of dollars in salaries have outside investments as well.

If you want to build wealth then you need to save your money and invest.

That can be in the stock market or a market you’re more knowledgeable about.

Maybe you have an eye for art and want to collect original pieces.

You love classic cars and appreciate that the right ones can actually increase in value, unlike most new cars.

Maybe you’d love to have your own business one day, and you’re waiting for the right one to come available so you can purchase it.

You need liquidity in all these situations. You won’t be able to invest in what you want unless you have money saved and prepared to invest when the time is right.

We Don’t Want To Work Forever

Even if we enjoy our jobs now, there will be a time when we would rather pursue other things than our careers.

When you grow older spending time with your family and kids may become more pressing than getting your next promotion.

The average retirement age in the United States is 64. I’m a long way off of 64 and I can’t imagine working for someone else for that long.

When your priorities change you want to have the financial independence and flexibility to adjust your life accordingly.

Unless you’ve found your dream career you can do until you die, most of us think we’d like to retire early and spend time pursuing hobbies or crossing items off our bucket list.

Once again, we need the income from the investments we’ve made over our life to realize these dreams. None of this is possible without being financially independent.

Investing becomes easier once you have a goal in mind. Proper preparation can make difficult tasks become so much easier.

Why do you save money? What are you investing in now? What are your investing goals? Let me know in the comments below.

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Use a Budget to Make You Wealthier

A budget will make you wealthier and can increase your total liquid assets. People 35 and younger in the United States had median total liquid assets of $3,240 in 2019.

Liquid assets include things that can be easily accessed like checking & savings accounts, money market accounts, prepaid cards, and a few others. This amount has probably decreased due to COVID-19 limiting employment opportunities for many people.

Compare the number of liquid assets to the $44,390 median amount of total debt for the same group. That’s almost 14 times more debt than liquid assets!

I don’t know about you but that is a ratio I feel very uncomfortable with. The good news is that we can improve our financial health is by sticking to a planned budget.

Why

There are a couple of popular budgets to consider when planning your financial future. I’ll take a look at some by using the most recent figures for the real average personal income in the United States which was roughly $52,000 in 2019.

It’s important to note that this is significantly higher than the median personal income of $36,000, but it’s easier to use the average here because we will be using the average personal income tax rate of 22.4% when budgeting our post-tax dollars.

Below are three budgets that can help you get you spending under control. Using these budgets will surely increase your wealth in the long term.

Dave Ramsey’s Budget

Dave Ramsey has a proven method for budgeting called “zero-based budgeting”. To use this budget, we need to track where every dollar we make is going.

This intense focus on each category can be helpful for people who need a lot of structure but might be off-putting for others. Here is our budget using the average personal income in the United States.

Dave Ramsey Budget (Zero-based budgeting) Annual Income Average Income Tax Average Post Tax Income Budgeting Expenses Saving Giving (Tithing) Food Utilities Housing Transportation Health Insurance Recreation Personal Spending Miscellaneous Monthly Yearly — Above are all 11 of Dave Ramsey’s budget categories and monthly/yearly contributions.

A lot is going on here but it’s important to note that the average income is reduced by $11,628 when we apply the average tax rate of 22.4%. That’s why it’s important to reduce your taxable income by saving your pre-tax dollars.

One issue I have with this budget approach is that some costs can vary a lot by geographic location. To live in a safe place near your workplace, you may have to spend more than 25% on your living expenses.

If you decide to use this budget template, make sure you keep the savings percentage at 10% at least when you’re adjusting other costs. This isn’t my favorite budget method, but I know it’s effective because of the success people have had with Dave Ramsey’s program.

50/30/20 Budget

This budget was popularized by Elizabeth Warren in her book All Your Worth: The Ultimate Lifetime Money Plan. The appeal of this method is its simplicity. Instead of having to track eleven different categories like in Dave Ramsey’s plan, you only look at three general categories.

We devote 50% of our income to needs, 30% to wants, and 20% to savings. This budget still requires setting aside time and go over your receipts or bank transactions and assign the transactions to these three broad categories.

It’s easier to keep track of this budget if you add expenses up as you go instead of sorting through every expense at the end of the month.

I like this budget because of its simplicity but some people may find they need more structure to keep them on a budget.

The Richest Man in Babylon

The last budget we’ll look at comes from a book I read some years ago, George Clason’s The Richest Man in Babylon published in 1926. The book reads like a parable with a biblical inspiration set during the Babylonian empire.

The table below shows the budget outlined in the book:

Clason's The Richest Man in Babylon Budget Annual Income Average Post Tax Income Budgeting Expenses SUM Necessary Expenses Paying off Debt Savings for future investments Average income tax Monthly Yearly — Basically a 30% savings rate with a dedicated portion put towards paying down debt.

70% of personal income is allocated to necessary expenses, and the remaining 30% is split between using 20% to pay off debt and saving 10% with the goal of future investment.

This budget is nice because it explicitly provides a couple of implications for your budgeting.

You can set aside a portion of your 30% savings to pay off debt, and after that, this budget will look more like a 70/30 plan instead of a 70/20/10 plan.

If you have debt, you can use some of your savings in the other plans to pay that off too. It’s important to make investments to diversify your income streams and this budget makes sure that’s an explicit goal.

Investing should be a cornerstone of any budget. Make sure you understand why we should invest so you’re motivated and consistent.

Any Budget Is Better Than None

If you follow any of these budgets and you earn around the average income in the United States, you’ll have more liquid assets in savings than the median American under 35 years old after 5-9 months of saving.

It’s a great idea to keep your progress somewhere where you see it every day, whether that’s on your bathroom mirror or on your fridge.

Being constantly reminded of the progress you’re making will keep you encouraged as you start saving money and work towards financial independence!

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