My Lessons Learned about Personal Profitability
- Be maniacal about saving: every dollar you save will grow because of compounding. Use tools like Albert or an expense diary to help you.
- Make sure your basic needs are taken care of: shelter, food, safety, health before you spend on nice to haves.
- Understand “nice to haves” might be never.
- Understand expensive debt is the enemy: don’t add to it, and figure out how to pay it down over time.
- Open a separate bank account that’s your “when I don’t need to work fund” and every pay day, transfer money into it…$100, $50. The amount is less important than making sure it’s a habit.
- Create an emergency fund. Not to be touched except when you absolutely need it. My rule of thumb is the number of months to find a new job times a month’s worth of expenses.
- Pay attention to what’s going on with your accounts …especially outflows: as Oprah says “write your own checks.”
- If you have a family, make sure they are protected: insurance, will, trust, power of attorney. It’s not pleasant, but it’s necessary.
- Know your spending triggers: internet shopping, gourmet grocery stores, anything that makes you spend and either avoid or return what you don’t love.
- Educate yourself on investments: know what an IRA is, a brokerage account, dividends, interest, mutual funds…the basics. Not knowing isn’t a good excuse.
- Move from savings to investing: Once you’ve built up some savings and funded your emergency fund, start looking at the best way to grow your wealth: 401K? IRA? Brokerage account?
- Once you’ve identified your investing strategy, keep saving to fund your investments. It’s not about just paying the bills anymore…you’re saving in order to stop working/not need to work.
- Keep the spending belt tight: through the years, you’re hopefully making more money, but if you keep your expenses down, you’ll save even more.
- Protect yourself from the catastrophic event: job loss/medical expenses with too much debt and no emergency fund happens more than you think.
- Be super vigilante about your job security: be the “go to person” in your group, raise your hand, work hard. Watch for warning signs: getting layered, not involved in important events, no exposure to senior people, going multiple years without a promotion or raise.
- Be honest about what you can afford: a huge mortage, big car payments, private school tuition…if you didn’t have the income to cover those obligations comfortably, don’t start. It’s much harder to stop than to delay starting.
- Keep your personal finances personal. Money is still one of the most difficult things to talk about….mostly because it will affect how others view you. Better to keep quiet.
- Neither a lender or borrower be: if you lend, don’t expect it back. It’s a gift.
- Have a plan b. If the worst happened, what would you do? Do you have someone you could go to? Would you need money? Do you have lines of credit? I once went through an analysis with someone and he realized he could only go for two months if he lost his job.
- Know what works for you: there are people who remember numbers easily. I need to write everything down, so I do…every month, I reconcile where I am in terms of savings/investments, loans, expenses and income.
- Gordon Gekko was right: don’t get personal about stocks. My worst decisions were when I was aggravated with company performance. Yup, that includes Amazon.
- Slow and steady wins the race: it’s not about big hail mary passes…it’s about slowly building up your wealth. Think about how much better of you are now compared to 5 years ago.
- Cash is king: yes, it earns next to nothing. But it’s great when the market drops 700 points.
- Understand what your risk tolerance is: mine is pretty low. Other people will invest on margin, have a variable rate mortgage…it all depends on what you’re comfortable with.
- DIY is underrated: why pay someone else for something you can do reasonably well yourself? I know someone who pays a person to clean the grill for $200 every year.
- Find an expert you are comfortable with: expertise keeps you from making some very costly mistakes: find people you trust. It will take a while, but once you do, it’s well worth it.
- Ask if you don’t understand: sometimes when I don’t fully understand something, i ignore it. That can be very expensive…plus you’re mad at yourself you weren’t listening more.