Money

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I would hate to say that everything I know about money can be boiled down to a blog post, but since I don’t want to be too specific, this format will do for a summary. First of all, why do I get to talk about money? What are my credentials? I am not particularly wealthy for where I live and I do not have any formal education in finance. I suppose you could say that my information is for the average working person. I do not have advice on how to amass vast amounts of wealth, but I do have a lot of experience trying different things and I have a lot of regrets about what I did not do.

My experience is with doing real work with a smattering of real estate investment knowledge. I am in a position where I could retire at 51 years old, relocate somewhere affordable and live fairly comfortably without ever having to work again. That is not what I am likely to do, but it is a possibility. I own 2 rental properties and a home within 5 miles of the ocean in southern California. I did not come from money. I moved out on my own when I was 17 and my Mom made 14k a year supporting a family of 5. My initial victories in life came from having a chip on my shoulder because of my background. I have long been an example of the work harder not smarter road to success. I am still trying to change that.

So my basic advice to a person graduating high school applies to those who do not have a family who can pay for your college, or do not have the opportunities of nepotism for getting a good job. Get a basic full time job that has a 401k and health and dental benefits. You can accomplish this by working at Starbucks, as an example. Put at least 5% of your money into that 401k, your company should match your contribution. Select a plan with aggressive growth, if that is an option, and transfer it to more stable investments when you are much older. Take at least ten percent of your income and put it into something like an index fund that consistently earns over 8% per year. Buy a house as soon as you can. Retire in your 40’s as a multi-millionaire. Ok, maybe it’s not that simple, but we’ll expand on that in a bit.

       I have pretty mixed feelings about college. I appreciate the need for ongoing education, but I believe most of the esteemed institutions in this county are money grubbing scams. I believe that education should be more specialized and provided primarily by the employer. I also understand that some people need a structured environment in order to learn. It just seems hard to justify spending huge amounts of money to acquire knowledge that either already is, or should be, free. It drives me crazy that so many companies require that piece of paper that means you will be paying off student loans for years and probably never shake the alcohol and drug dependencies you acquired from long nights studying and partying. It is gratifying to know, however, that more and more people are seeing through the business model that colleges and big companies have set up for their mutual benefit. Sigh, I know it’s more complex than that but this is supposed to be a blog about money so I’ll keep it simple.

I do not have a college degree. I took a lot of college classes, but with the direction my career was going and the expense and time sink involved I decided it was not practical to finish. So I have 120 credits in a variety of subjects that add up to about 30k that I will never get back. Most of the people I know in my age group that do have college degrees make less money than I do. My wife is a geologist with over 10 years of experience and I made 50k more than her last year. That being said, she had a lot more fun in her early life than I did. Like I said, I spent a lot of time on the harder, not smarter approach to life. I would also like to note that if I had taken just half of the money I have spent on alcohol and chasing women over the years, and instead made some basic investments, I could have retired as a multi-millionaire over a decade ago. We all like to have fun when we’re young.

Injecting more hypocrisy, I do not want my son to go down the same path that I did. I do not want him to be in the military, work for the police department, deliver pizza or be an air traffic controller. None of those professions are fulfilling or in any way conducive to a happy stable state of mind. I don’t necessarily want him to have an easy time either. No one should have life completely delivered to them without work. Challenge builds character, however, too much challenge builds cynicism. My wife and I agree that a community college followed by an inexpensive university would be beneficial to his worldly development. If he becomes a millionaire YouTube star in high school, however, I will be just as happy.

Don’t underestimate the power of compounding interest. I’m not going to get into the math, there are plenty of calculators online. The idea is that the interest you earn on your investments also earns interest, this combined with time creates wealth. The key is time, which is why you start young, with your first source of income, no matter what it is. I would recommend also reading up on the great Warren Buffet and how compound interest worked out for him. Let’s say you followed the above advice when you were 18 and did just the basic investments and received appropriate above inflation raises for 25 years. You would probably have close to 2 million in your investment portfolio by age 43. And that is in yesterday’s dollars, imagine how much you will have if you are a kid graduating high school today and start investing. Now imagine that you also bought a house near a major city like San Diego 20 years ago and spent half your income on that. If you continued to contribute half of your increasing income, your home would be paid for and also worth well over a million dollars. Thus, you are a multi-millionaire at 43. 

This scenario obviously makes a lot of assumptions. First we assume that you are trying to work your way up in the world and getting decent raises or you are transferring to jobs that will pay you more. Look for raises. If they are not coming, look for other work. Constantly educate yourself and update your resume. Always be looking for new opportunities. If you are having trouble getting by and/or you don’t like your job you should be filling out at least one new application every day. If you know you are a good worker you should be going into each interview with your own list of questions that are along the line of ‘what can you as an employer offer me’. That being said, don’t burn your bridges. If you leave a job, do it in such a way that there is a return path if you need it. Don’t screw over your co-workers or your boss because you think you’ll never see them again. You never know what life will throw at you. If you are not a great worker or don’t have the skills you need, own it. Offer to intern for free or ask what skills you need to get the job and go out and get them. Don’t be afraid to move. In states like Maine work is scarce and good jobs are even harder to find. In California there are not enough people who want to work so we have to import workers from other countries. I once filled out sixty applications in a week in Bangor Maine, and got 2 call backs. Just on a whim, I walked into the first place that I thought would be compatible with my schedule for a second job in California. I needed some extra cash while my wife was taking some time off work with our newborn child. I applied to the Papa John’s down the street from me in San Clemente, and they asked if I could start that evening. My wife tried to be a stay at home Mom for a while. So many people kept calling her with offers to come back to work she eventually gave in for a sweet work from home consulting gig. It’s a different world, however, at least in Maine you can easily get by with a single crappy job. Don’t be afraid to work multiple jobs. You make extra cash, you save money because you don’t have time to spend it and you meet lots of interesting people. It should be a means to an end, however, the goal should always be a single job that can pay all the bills. 

What exactly does moving up look like? This question has different answers for different lines of work but the basics are the same. Time and experience are usually the great dividers. If I have been working 5 years at a job and know how to do A through G, I should get paid more than someone brand new who can barely do A and B. If you like your job and really want to move up, I suggest being a yes man (person). I kind of cringe just saying that because of some bad experiences. Just keep in mind that if you say yes to every job and you actually get things done you will create a reputation for yourself that will cause more work to flow your way. You will be taken advantage of and become overwhelmed. The upside is a rapidly expanding resume. When I was a young Marine my dumb ass said yes to everything. It should be noted that an E-5 in the military with 12 different billets gets paid the exact same as an E-5 with zero billets. Promotion in the military and the government in general has very little to do with how productive you are or how well you actually know your job. I’m not going to get into this now, but the point is it is deceptively easy to get roped into working a lot harder than some people for the same pay. What you should be after, however, especially when you are younger, is experience. The Marines provided me with some of the most valuable aspects of experience that can carry over into every business: Leadership and Management. I may address this in a separate blog, because being in charge is a whole other game. My wife and I have been down this road and now we seek to avoid it when possible. If you are charismatic and enjoy working with people, however, nothing gives a boost up that ladder better than having documented experience leading and managing.

Another assumption is that you invested well. There are a lot of resources to help you with this, but start with your 401k and expand from there. I don’t recommend crypto or day trading unless you have a special skill set. If you have extra cash or are into the Stoic lifestyle, invest in some index funds. Find a financial adviser if you want to go beyond that. Don’t take anything on faith, do your own research. If you are under 40 be aggressive. If you are under 30, be really aggressive! Buy a house, in fact buy several if you can. My real estate investments are by far the most successful. They are the rock on which I can confidently plan a valid retirement and build long term wealth that can be passed on to my son.

If you are like many Californians today you are probably reading this thinking, ‘yeah right how the hell do I buy a house in this economy?’ You are right to be frustrated, it’s not an easy proposition. Coming from the military, I was fortunate enough to have a ‘no-money down option’. FHA loans are another option that only require 3% down, but there are a number of hoops to jump through, and extra insurance requirements that make this option less than palatable for some. Other options include seller financing which is tough, but can be feasible especially if a friend or family member is selling and they are willing to do a contract with you. There are a lot of ways seller financing can work but basically the seller gets little or no money up front, unless you work out a partial loan with a bank. All the mortgage payments go directly to the seller. It’s kind of like the seller is doing a reverse mortgage, but you are paying them instead of the bank. They end up getting the value of their home plus interest or whatever you negotiate, it just takes longer. Rent to own is another option, similar to seller financing but you don’t necessarily have to commit right away. It will probably cost you a bit more as well. Keep in mind that the above options are my simplified understanding and may not be more than 25% correct, but knowing those options are out there will prompt you to look for them and research them. Your agent has very little interest in showing you options which create more work for them or will circumvent their commission. There are literally hundreds of books out there that will tell you about the various unconventional ways to finance a house, but it has to work for your income. Agents and financial institutions will totally sell you a house you can’t afford and leave you to figure out the details. I know, it happened to me twice. This is part of the reason why I have worked a lot of second jobs and or rented out extra rooms in my house.

The most common and easiest way to finance, assuming you can’t just pay cash for the whole house, is the conventional way, with a ridiculous down payment. I have never had to save for a full down payment so I can only give you advice from my reading, and stories I’ve heard. When you are first starting out it can seem impossible to save, but where there is a will, there is a way. You can start by renting the crappiest little hovel in town and sharing the rent with five other people. You laugh but I’ve actually done this, my share of the rent in the 4 bedroom house in Old Town, Maine was 132 dollars a month including all utilities. Good times. 

Other ways to get the down payment include the famous top ramen diet. Get a pack of multivitamins and buy a year’s worth of noodles for $200. Be an introvert and start a side hustle like Ebay sales. Sell all your old toys. You don’t really need that 20,000 dollar collection of Magic the Gathering cards any more do you? On a more serious note you can get a loan from your family or even a bank. I’ve totally heard of people getting a $60,000 loan from a bank to put as a down payment on a $200,000 house and just paying the 2 loans. Are you handy? Look for a fixer upper no one else wants and get an amazing deal. Remember to negotiate. I’ve heard of the seller actually providing the down payment as a loan so that the buyer could get a conventional loan without the upfront cash. Nurse your credit rating, you have many more options with an 800 credit score vs a 600 credit score.

House-hopping is a valid method of building wealth for us normal people if you have the inclination for it. I sort of did this out of necessity, but I know some folks who did this intentionally to great effect. This is different from flipping houses in that you actually live in them for a while. The idea is you buy a run down house in a desirable area and live in it until you fix it up enough to make it rent-worthy. Try to add value to the property by adding an extra bedroom or bathroom if you can. You then rent it out for 2 years while you live in an apartment and save money. Two years is how much tax return history you need on your rental property in order to have it be considered income for the purposes of your next loan application. If you do not have 2 years of rental income history, it will be much more challenging to get approved for a second mortgage because your lender will assume you have to pay both mortgages thus destroying your debt to income ratio. So after renting for 2 years you use your savings as a down-payment on a second home, live in it until it is fixed, then rent it out while you rent an apartment. If you do this smartly you could acquire another property every three years or so. It seems slow but if you buy in good areas these properties will pay for themselves and provide additional income. The equity you have in your homes will allow you to purchase larger (multi-unit) properties which will accelerate your growth to as much as you can handle. You could go from high school to real estate mogul in 10-20 years!

You can accelerate this strategy in several ways if you are savvy. Buying in the right area is key, and there are separate books written on this subject alone. All of my properties are in San Diego County and Orange County California, and I have been fairly fortunate. If you can get friends or family to invest with you this can help speed things up. Make sure you cover your ass by getting the right contracts in place. Don’t be afraid to start an LLC or something. Get legal advice. A handshake between friends seems great until there’s a couple hundred grand on the table and the disagreements begin. Buying at the right time also helps, but timing the market can be tough. I know people who have been waiting since 2017 to buy a home because they keep thinking ‘the bubble is going to burst any day now’. You can leverage other assets to buy properties more quickly, but don’t dig yourself a hole you can’t get out of. I’ve touched on seller financing as a way to avoid a lot of the restrictions that lending institutions have. If you are a good networker there are other options, but I’m not going to get into them since they are all variations on the same idea: use other people’s money to help you make money. If you are married, the house hopping strategy probably isn’t for you, though I have known couples who were into it. If you want to settle down and have kids, moving every couple years is not very practical. 

I talk about real estate a lot because it is what I know the most about and what I am the most comfortable with. There are certainly easier and faster ways to acquire wealth but they are generally more high risk. Please don’t take any of my advice as gospel. I am not a financial advisor or a life coach, I’m just trying to share some wisdom based on my personal experiences. Read books, talk to people who have done what you want to do. Educate yourself, take classes, and acquire skills. Most importantly, get out there and try stuff. Stay low risk if you want, but get as much experience as you can when you’re young so you can make better, more well informed decisions about how to spend your time when you’re older and have less of it.