I've been a wealth advisor for 20 years — here are 10 of the best pieces of
money advice I can give you
1.
Put your money where your happiness is.
It is an incredible understatement
to say the San Francisco Bay Area is an expensive place to live. Whether you
come from money or just joined Facebook, you will have to make trade-offs to keep your
head above water here — make the trade offs that are appropriate for you.
You don’t have to drive a Tesla, you
aren’t required to live in a rad
pad in the Mission,
and you don’t need designer duds or the newest iGadget. Give up the trappings
of success that hold no personal meaning for you and focus your financial
resources on activities and affordable luxuries that build your particular
brand of happiness, like a rock-climbing course and killer burritos.
2.
Invest in yourself early and often.
If you are an engineer or scientist,
you must stay on top of your technical game, but don’t hesitate to spend money
on coaching or classes to develop your communication and leadership skills, as
well.
If you are a professional, constantly hone your craft. Read broadly
within your industry, enroll in continuing education, obtain advanced professional designations,
and find opportunities to network with new people.
The dollars you dedicate to increasing
your intellectual capacity
and enhancing your ability to work well with others can boost your income substantially. Lifelong
learning and professional development both lead to long-term success. The
sooner you embark
upon rigorous
self-improvement, the longer you’ll enjoy the fruits of your labors, so invest in yourself
now.
3.
Don’t count your chickens before they’re hatched.
Equity compensation in the form of RSUs and stock-options
can be a wonderful addition to your income and asset base. Over the years, I
have seen many folks become wealthy through their company stock programs.
However, I have watched just as many
stock compensation packages go up in smoke. Never forget that your stock has NO
real value until you are fully vested and someone is willing to give you cash money for it on
the open market. Just because a VC gives your company a sky-high valuation does
not mean you’ll receive that valuation if (not when) the stock
ever trades publicly.
Do not borrow against your stock. Do
not pledge your
stock as collateral to buy a massive
house on Russian Hill. Do not count your stock among your REAL assets until it
is actually part of your real assets. Better yet, don’t even count the
eggs in your basket until you’ve hatched and sold them.
4.
Get your foot in the front door.
Yes. The cost of housing in the Bay
Area is ridiculous!
When I read a 2015 San Francisco Chronicle article claiming that a
Mountain View, California, resident was renting a tent in their backyard with bathroom access but no
kitchen privileges
for $900, I knew that we had all gone off the deep-end.
Today the median sales price for San
Francisco homes is over $1.1 Million! No one is happy about real estate prices in the
greater Bay Area, but if you are planning to stay here for five to seven
years or more, consider buying a home. It doesn’t have to be beautiful or
close-in. Alameda and Contra Costa counties are still relatively affordable.
Just get your foot in the
front door.
If you stay on the sidelines, don’t be
surprised if the market continues to run away from you. Expect rare short-term dips, like we saw in
2008-2009, to effervesce
quickly due to decades of housing policy that limited building.
And while many cities have strong
rent-control laws, remaining a renter means your housing costs will continue to
grow — perhaps pricing you out of the rental market and into that tent in
someone’s backyard.
5.
Turn a passion into a side hustle
into a business.
First and foremost, do not neglect your day job. If your 9-to-5 office gig pays the bills and
affords you ample
pocket money, pursuing your passion for cooking by taking a second job as a
sous-chef in a neighborhood restaurant won’t help you get ahead. You will
burn out.
Nonetheless, there are hundreds of creative ways to capitalize on your
hidden and not so hidden talents. My 11-year-old son bakes pies for neighbors,
cat sits, and walks dogs. If you like baking or pets, why not?
You prefer to drive? Try Lyft or
Uber. You love to write? Start a blog and learn how to drive traffic with
social media. You’re a crack
web designer? Register on freelance sites like Upwork or Hired.com. You have a
spare bedroom? You get the idea!Finding a side hustle — like driving for Uber
or Lyft — is a great idea, so long as you're passionate about it and it won't
burn you out.Thomson Reuters
6.
Create a financial road map.
Where do you want to go in life? As
with any journey, if you have a specific destination in mind, you will need to
take specific steps to get there. Planning your route is essential.
No one can afford to experience everything
they want, but you can accomplish
what is most important to you by creating a financial road map. Decide what
tradeoffs you’re willing to make to achieve your goals. Take staycations
until you’ve saved the down
payment on a new house? Live with your old car six more months so that
you can afford that new motorcycle next year? Drive Uber on week-ends to cover
the cost of coding classes?
Where are you now? In debt? $20,000
away from that down payment? Underemployed? No need for shame. Accept your today and plan for a
better tomorrow. What tradeoffs will you make? How much do you need to save?
How are you going to get where you want to be? Planning makes things happen for
you! NOT planning lets them happen to you.
7.
Make your health a priority.
There are actually significant financial
benefits to being healthy.
It probably comes as no surprise
that healthier people have higher energy levels, improved resistance to illness,
improved moods, higher self-esteem, better brain function, reduced fatigue, and
less anxiety. But
research indicates
that healthier people may earn more and spend less, as well.
Good health while you’re young gives
you the energy and focus to work harder and smarter, which can lead to better
raises and more promotions,
which translates into increased lifetime earnings. And good health later in
life means fewer doctors visits, fewer medications, and hopefully decreased
long-term care expenses as you age.
8.
Save at least 10% of every dime
you make.
Or, as the familiar saying goes,
“Pay yourself first.”
Once you got your first “real” job
and started earning more, you probably started spending more, too. If
that trend continues every time you get a promotion or better job, you will
never get ahead. At some point, you must make a conscious decision to save a specific portion of your income
every single month. These savings will form the foundation upon which your
entire financial life can be built.
Start by saving at least 10% of your
gross salary every
paycheck, and increase your savings 1% each year until you are saving 20% of
your income. Use those initial
savings to establish a cash emergency fund
with six months to two years of living expenses. At the same time, take
advantage of the tax breaks and “free” money you get from participating in your
company’s 401(k) matching program. Next, pay-off your high interest debt. Then
max out your 401(k), ROTH, and IRA combo, after consulting with your tax
professional. The final step is to save even more in a taxable investment
account and/or pay down your low interest debts.
9.
Invest 90% of your liquid assets in an appropriately allocated, broadly diversified, and annually rebalanced basket of publicly
traded securities.
I expect I will get some healthy Bay
Area blow-back for this statement: Your investing prowess will not lead to “outperformance”
in the long run.
Timing the markets, stock selection,
and economic predictions may be an enduring part of the investment landscape, but none of those
strategies offer a repeatable process for financial success. Luck often plays a
much bigger role than skill when it comes to investment performance.
There is plenty of research on portfolio
construction available to anyone willing to look. There is no evidence to support the
idea that recent past performance will persist into the future or that folks dedicated to the timing
and selection have been or will be successful doing so. Stock-picking requires
repeated luck. Asset allocation, diversification, and rebalancing rely on something we can
control, our consistent
behavior, patience,
and discipline.
10.
Always be mindful of the big picture.
The course of human social and
economic history expresses itself in a very long upward trend. That upward trend is often punctuated by short-term
market upheavals,
which are amplified
by Wall Street and the financial press.
Stock markets and the financial
media constantly over-correct in both directions in a seemingly endless cycle.
Upside yields to
downside. Excitement
leads to despair.
The good news? Today’s losses sow the seeds of future gain. You can’t consistently predict
short-term outcomes because the economic and market details are ever-changing. Nonetheless, the big
picture remains the same. Instead of reacting and over-reacting to the markets whims, be mindful of the
big picture and stick to your thoughtfully constructed investment program and
financial plan.