Sold to

katerina.sivkova@gmail.com

1
 About Money Mastermind
A “mastermind” is a group of like-minded experts, helping each other
grow faster and further than they’d be able to alone. They think and act
as a community, sharing their knowledge, thoughts, and resources.

This book was written by more than 30 experts working together as a

team. With each author focusing on their specific expertise, the final
product is far greater than the sum of its parts. It’s a money
mastermind.

And by purchasing this book, you’ve gained access to that knowledge.

By reading this mastermind group’s knowledge, thoughts, and
resources, you’re now part of the community.

We hope you’ll keep learning with us. Reach out to us authors on

Twitter, Instagram, or through our websites. We enjoy nothing more
than interacting with people just like you.

Happy Reading!

The Money Mastermind authors

2
 Disclosure
Money Mastermind contains general best practices and the subjective opinions of
its authors.

This book is not meant to contain specific investment advice for you, nor is it
written with your particular circumstances in mind.

Any financial information is based on the authors’ personal experience(s). The

authors are not liable for any personal financial decision you may make after
reading the book. Investments identified in the book are presented for
informational purposes only.

All information is provided on an as-is basis.

Product links mentioned in the book may contain affiliate links.

3
 Table of Contents
Personal Finance Basics
Emergency Funds: How to Set One Up and Maintain It, by Fiona Smith page 7
Budget Myths You Believe (But Shouldn’t…), by Hipster Finance page 12
The "Big Income Deception", by Steve Adcock page 20
Investing vs. Paying Down Debt, by Syed from First Step Finance page 29
Side Hustles are OVERRATED!, by Brandon-Richard Austin page 35

Money Psychology
Get Rid of “Analysis Paralysis” in Your Finances, by Ceci Marshall page 43
Make Your Bed. Improve Your Finances., by Mark Palmer page 48
Money and Neuro-Linguistic Programming, by Leandra Peters page 53
You Can’t Predict, You Can Prepare, by Jesse Cramer page 58

Investing Basics
Stocks, Mutual Funds, and ETFs, by Brennan Schlagbaum page 64
Bonds, Real Estate, Commodities, and Beyond!, by Brandon-Richard Austin page 69
Index Funds: The Core of a Portfolio, by Josh Gausden page 80
Understanding Fees and Where to Find Them, by Roger Lopez page 99
Just Start! The Power of Investing While Young, by Ross @ Dividend Hero page 106
Timing the Market: Worst, Best, or Slow-And-Steady, by Jeremy Schneider page 111
The Starter Portfolio: Just Be Lazy, by Business Famous page 115
The Hurdles of Real Estate, by Tyler @ Defining Wealth page 123
How ‘House Hacking’ Helped Us Beat Debt in Our 20s, by The FI Couple page 130
Run Your Numbers!, by Uncommon Yield page 135

Advanced Investing
Explaining Bitcoin in Simple Terms, by Jesse Cramer page 145
How I’m Going to Leverage the Next Crypto Crash!, by Your Friend Andy page 176
Ethereum: The Future of Crypto?, by Stephen Wealthy page 182
The Power of Leverage, by Nate Dean page 188
What is Dividend Investing? And How to Execute It, by Alex, the Dividend Dominator page 194

Money and Family

Investing for a Family, by Jose Hernandez page 215
Getting Your Partner On Board With Financial Planning, by Joel O’Leary page 225
When “Personal” Finance Becomes “Family” Finance, by Jared Fannin page 233

Making More Money

Side Hustles for Busy People, by Mark Allan Bovair page 246
5 Ideas to Make Extra $$$ in Your 20s, by Kolin, The Decade Investor page 251

4
What Not to Do When Starting a Small Business, by Your Friend Andy page 256
The $mart Sales Mindset, by Josh @ $mart Money page 261
Raises, Negotiations, and $67,000, by Jesse Cramer page 269

Further Reading
The 15 Finance Books to Boost Your Bank Account, by Unleash The Knowledge page 279

Summary page 282

5
Part I: Personal Finance Basics
Get the fundamentals down,
And the level of everything you do will rise.

--Michael Jordan

6
Emergency Savings Fund: How to Set One Up & Maintain It
By Fiona, The Millennial Money Woman

The Millennial Money Woman was founded by Fiona Smith.

She holds her Master of Science Degree in Personal
Financial Planning and has co-founded a local charitable
non-profit community teaching financial literacy to young
professionals. Join the 80K+ followers on Fiona’s Twitter!

If the recent pandemic taught us anything, it’s that life can

throw us some very unexpected curveballs like job loss, an increased cost of living,
and of course, medical uncertainty. Yet, surprisingly, only 41% of Americans can
cover a $1,000 emergency using their saved money.

It’s time to change this statistic and start saving for the unexpected by opening an
emergency savings fund.

An emergency savings fund is a savings account where you stash between 3 to 6

months’ worth of your living expenses.

How much you have in an emergency savings fund depends on your personal
situation.

For example, it might be worth considering stashing up to 3 months’ worth of your

living expenses if you are single and have no dependents relying on your income.

Here’s how you can determine your emergency savings fund number:
● Track all your monthly expenses (which you can do using a budget)
● Determine your average 1-month’s expenses
● Multiply the average of 1-month’s expenses by 3
● Aim to build up your emergency fund to that number

While you can add more cash to your emergency savings fund, there might be
better uses for your money. You can optimize the returns on your cash when you
invest that money in, for example, the stock market or real estate.

7
If you have a partner or spouse who depends on your income to live, if you have
kids, or if you have a lot of debt (like student loans, car debt, etc.), then it might
be worth considering stashing up to 6 months’ worth of your living expenses.

Below are a few reasons why it’s so important to save in an emergency savings
fund:
● You avoid having to use credit card debt to pay for unexpected expenses
● You avoid having to liquidate money tied up in the stock market (and
potentially paying taxes and/or penalties)
● You avoid having to liquidate money tied up in the stock market during an
economic recession, which could permanently lock in any losses

Building an emergency savings fund could take some time.

Here are a few techniques you can implement today to build your emergency
savings account:
● Save bonuses
● Save birthday or holiday money
● Increase your income by starting a side hustle
● Reduce your monthly non-essential expenses and save this money
● Look for a roommate to reduce your monthly cost and save the extra
income

Keep in mind that not all emergency savings funds are equal.

While you should stash your cash in a savings account, you could get a bigger bang
for your buck if you decided to stash your cash in what is known as a high-yield
savings account.

Look at the interest rate that you are earning right now from your regular bank
savings account.

Chances are, you’re being paid a very low-interest rate – around 0.01% to 0.02%,
as with the example, below:

8
As a quick comparison, if you were to invest in the stock market, you could earn
an average between 7.00% to 10.00%.

The low-interest rates above reflect how much you can earn if you were to start
an emergency savings account at a regular brick-and-mortar bank.

Now let’s look at the interest rates you would earn if you were to open an
emergency account with a high-yield online savings bank (hint: the difference may
surprise you).

Why does an online high-yield savings account offer up to a 0.61% interest rate
while a brick-and-mortar savings account only offers around 0.01% in interest?

Here’s the answer: Think like a business owner who is dealing with business
overhead expenses.

In this case, the brick-and-mortar bank must pay for things like:
● Rent
● Heat
● Air conditioning

All these expenses cost the bank money – and these costs eat into the interest
rates that are offered to the customer.

9
On the other hand, with online savings accounts, there are no added costs of rent,
heat, etc., which is why online banks can afford to offer their customers higher
interest rates.

Online savings accounts are also typically:

● Open 24/7
● Free to open
● Easy to establish
● Secure to link with your other accounts
● Easy to integrate with your phone applications

Opening an online high-yield savings account is straightforward.

First, you’ll probably want to do a quick online search to see which online savings
banks offer the highest interest rates and are free to open and/or do not require a
minimum balance (aka you could have $1 in your savings account and still earn
the high-interest rate).

It’s a good idea to compare the top 3 banks with each other.

Some metrics for comparison include:

● Insured by the FDIC
● Interest rate offered
● Withdrawal restrictions
● Overdraft fees (if applicable)
● Monthly maintenance fees (if applicable)
● Required minimum deposit (if applicable)

Once you’ve done some research and cross-comparisons, it’s time to select your
online savings account and start the account opening process.

Below are some general guidelines on how to open your online high-yield
savings account:
● Go to the online bank’s website
● Click on the online bank’s high yield savings account link
● Click on “open an account”
● Follow the prompts on your screen
● Input your personal information, including your name, phone number,
social security number, address, etc.

10
Once you have followed the prompts on your screen and inputted your personal
information, depending on the type of online savings bank you have selected,
typically you will be led to your online savings account dashboard.

Your dashboard should direct you to link your checking account and other bank
accounts (if you have them).

Linking your external accounts should be free and secure.

Typically, this process takes 24 to 48 hours, depending on the online bank you
have selected. Often, when you link your external account (by adding your
account number and routing number in your savings account online portal), your
online savings bank will generally make a micro deposit (worth a few cents) into
your external accounts.

When you see these micro deposits in your external accounts, you’ll have to
confirm the amount of the micro-deposits with your online savings bank (and
you’ll typically be prompted on your online dashboard with your online savings
account to input the amount of the micro deposit).

Once you’ve confirmed the micro deposit amount, your online savings account
should be linked with your external accounts.

This is the point where you can start moving money between your checking
account and your high-yield online savings account.

It might take some time (between 15 to 30 minutes) to set up your online savings
account.

However, assuming you’ve done your research and compared your online account
with other existing accounts, you won’t regret opening a high-yield savings
account because you can earn more interest with your emergency savings fund in
the long term than with a brick-and-mortar savings account.

Your bank accounts will thank me later.

11
Budget Myths You Believe (But Shouldn’t…)
By Hipster Finance

Hipster Finance is a financial education brand aimed at

getting people to think about their money. It challenges
old ideas, introduces new ones, and encourages all to
further their financial journey regardless of their current
position. Hipster Finance products include one course on
budgeting, and one course on gold investing. Hipster
Finance can be found on Twitter, Instagram, and his
website.

When I first decided to create content about budgeting, I knew it wouldn’t be a

topic everyone jumped with excitement to learn.

We live in a world where fast excitement dominates slow consistency, even

though we all grew up knowing the tortoise beats the hare in the classic story.

There’s crypto with 400% gains in two months.

Options trading with 600% gains on one random trade.

Why would anyone care about learning how to spend less of their money?

I don’t blame them. The average person doesn’t know the power of their own
money.

But I knew, despite many not wanting to learn, it would be the topic most needed
to learn.

The one thing all of us have in common, from low income to high income, is that
we all receive a finite amount of cash in our lives (often in monthly or biweekly
payments) and we have to figure out how to spend it (or save it!).

Just like time and energy, we all only get so much money.

12
Given this, all of us should be obsessed with ensuring that every exchange in our
lives provides value. Time, energy, money. These are all limited resources. Each
time one of those things leaves our lives, it should be for good reason.

You must shift your thinking from seeing money as an object that randomly comes
into your life and leaves your life to seeing about money for what it is: a tool to
improve your life.

Used correctly, that tool can be used to build things you and your family can enjoy
for generations, like financial independence.

Or used incorrectly, it can be used to buy a bunch of ‘stuff’ your family will one
day have to figure out how to give away or sell when you’re gone.

Here is the thing all those crypto and options traders miss when skipping over
budgeting as a way to unlock their financial dreams: spending less gives you
MORE to spend on what counts, like investing. (P.S. Don’t worry, I still own
crypto and trade options. But I never skip budgeting to do it.)

If your expenses are low and you have a high income, all income you earn above
your spending is extra. This means you can deploy ALL that extra cash to
whatever you want. If you’re money-smart, a good portion of that extra goes
towards your investments.

This is the power of budgeting.

Because it’s so misunderstood, I’m going to spend the rest of this article dispelling
3 myths you might believe about budgeting. Then, I’m going to give you quick
advice on how to start doing it right. Ready?

First, the 3 myths about budgeting:

1. It’s pointless (I can just earn more!)

2. It’s boring (you just sit at home and watch free TV!)
3. It’s cheap (and no one likes cheap people!)

Budgeting is Pointless

13
We all know someone who refuses to budget. I know several. “I don't have a
budget. I’ll just go out and earn more.”

While this ‘abundance guru’ talk is motivating and fun to say, it’s not reality.

The reality is anyone currently spending less than they earn is already budgeting
in their own way. I call this “lazy budgeting.” Some people are naturally good at it.
“Lazy budgeting occurs when someone simply sets aside money every paycheck
before spending it/

While Lazy Budgeting leaves a lot of potential savings on the table, it still works!
And it allows people to claim, “I don’t have a budget”. But they do.

For those that earn a ton but spend more than they earn, market cycles WILL
catch up to them. No matter how much you make, if you continue to spend more
than you earn you will eventually run out. And when there’s a market downturn
(which there always is) running out will come sooner than expected.

Markets exist in cycles. There are bull market cycles (when everything is moving
up) and bear market cycles (where it's going down).

Smart business people understand the market cycle and plan for it by living below
their means in the good AND the bad times. This builds habits that can survive a
bear market and thrive in a bull market.

A market cycle occurs about once every 10 years. We’ve just gone through one of
the longest bull market cycles in recent history (about 12 years) with little
downside. What will people with high expenses do in a market downturn?

They’ll either adjust their lifestyles or... they’ll go broke.

The best part about being good at controlling your spending is you know you can
survive a down-market cycle. It would mean that you’ll be investing less of any
extra money you have. But living on less is already something you employ.

Outsiders also overlook the fact that successful investing requires extreme
consistency. Some investments win, others lose. It’s hard to perfectly pick those
winners and losers. Instead, you should aim to consistently invest your money.

14
That’s it. Just be consistent. If you’re consistently investing money, you’ll have
multiple opportunities to catch wins. And the losses won’t impact you as much.

In sum, budgeting is not pointless. The point of budgeting is to ensure you spend
your resources wisely and to ensure you leverage the most value out of your
income.

I discussed earlier how gurus claim budgeting means you lack an abundance
mindset because you’re scared to spend. I like to say that to budget means you
have an abundance mindset because you know there will be a future worth
saving for.

Budgeting Is Boring

A common myth about budgeting is that you have to cut out the fun from your
life. Or as my friend likes to tell me, “The only guy I know who retired early – he
sits on his couch all day and thinks McDonald’s is fine dining.”

In other words: people assume budgeting is boring because they know someone
boring who happens to budget.

But “budgeting is boring” couldn’t be further from the truth. Budgeting is exciting.
It’s freeing. It enables your entire life.

Budgeting defines what actually brings your life value. And budgeting removes (or
cuts down on) the rest.

Ramit Sethi said in his book I Will Teach You to Be Rich, “Spend extravagantly on
the things you love, and cut costs mercilessly on the things you don’t.”

For example, I spend more than most of my friends on eating out at restaurants. I
love being out somewhere new with friends, trying food, and enjoying the
atmosphere.

How do I do that and still save 50-60% of my income?

I make up for it by spending far less than others in nearly every other category.

15
 ● I drive a 2010 car with 200,000 miles on it. I wash it myself rather than pay
for a car wash.
● I haven’t bought new clothes in years.
● If I can fix something that’s broken instead of buying something new, I do.
● If I can buy used instead of new, I do.
● I find free/low-cost hobbies like working out, reading, hiking, etc.

Maybe you love clothing. Maybe you love cars. You should find what you LOVE,
make room for it in your budget, and then find ways to cut down everything else
to maximize your savings.

You might find, like I did, that you are using spending as a crutch to have fun.
Rather than being a fun person, you rely on spending a lot of cash to appear fun.

Once I started thinking creatively and ensured that the money I spent brought me
value, I found much more interesting things to do with friends and with my own
time.

I found that a lot of the most fun things were free (or close to it).

As the old saying goes, “If you’re bored, you’re boring.”

Life becomes so much more enjoyable when you prioritize what you value. And
the funny thing is, it usually becomes cheaper too.

Budgeting Is Cheap
People avoid appearing cheap like nothing else. No one wants to be that person.

- That guy that pays with coupons on a first date.

- The one that leaves zero tip on a restaurant bill.
- The one who never brings a gift to a close friend's celebration.

And most people are afraid that if they budget, they automatically become that
person.

I’m here to tell you that’s a myth. You can budget, and still be a generous person.
The difference is that you budget for your generosity.

16
You budget for activities like going on dates. You can plan for spending, then
spend happily and have a good time without worrying if you can afford it.

If you can’t afford to tip, you don’t go out that night.

And lastly, you find creative ways to give gifts that align with your budget (and
these gifts are often more thoughtful).

Budgeting is not cheap. Some people who budget are cheap. Many are generous.
You get to choose how you spend your money.

So You Don’t Budget but Want to Start. Now What?

I’ve got you.

Here are 5 quick things you can start doing to improve your budget today:

1. Track every dollar you earn and spend monthly. This can be done on a
piece of paper, or an Excel sheet. The things you will learn from this data
will be priceless.
2. Learn to ignore brands and instead seek value. The amount of money
people waste on ‘brand name’ alone could save $100’s a month. Find
quality products regardless of brand (especially on things that don’t matter
to you).
3. Prioritize what you love and value. Save on what you don’t. This will
ensure you don’t negatively impact the things you enjoy in your life with
your budget. A budget should improve your financial future, but it
shouldn’t sacrifice your present.
4. Spend 30 minutes thinking about your ‘Why’ (the reason you want to
spend less) and what accomplishing your ‘Why’ will do for you. Write it
down! This will drive you forward when your discipline sucks (which it will
sometimes). If you write it down, you can look at it daily. That visual
reminder is powerful. Maybe it’s your kids. Maybe it’s your wife or
husband. Figure it out and write it down.
5. Pay yourself first, fund your expenses second. This is powerful. If your
goal is to save 10% of your money to invest every month, plan for that first
and then figure out how to pay your expenses. You’ll suddenly find you

17
 have room for that 10%. Most people do this backward - and they fail. It's
an amazing unlock for your money mindset (for more on this check out
Profit First by Mike Michalowicz)

Doing the above 5 things will go a long way to shifting your mindset to respect the
power of your income. This will allow you to properly leverage that income for
value.

Remember, to invest money you have to have money.

That means you need to save it from your income.

Every compound interest calculator out there requires that you START with
money. This is called your contribution. The money you put into an investment
while it compounds.

The more you contribute, the more there is within the pile that can compound.

You could put a little in and wait a REALLY long time for the magic of compounding
to kick in (like 30+ years).

You could also get lucky with an INSANE investment return and jump-start that
initial contribution.

Or you can do what I do and increase the amount that you consistently contribute,
therefore increasing the ability for your money to compound AND increasing the
chances of that invested money resulting in insane return.

I save about 50-60% of my income each month. Because I have an emergency

fund in place, that means I invest 50-60% of my income each month.

See where I’m going with this?

Maybe that number will start at 10% for you. Maybe just 5%. Pick a savings
percentage to start at, then strategize how you will get there.

Your savings can be used to pay off debt. It can be used to fund an emergency
fund. Or if you're debt-free and have an emergency fund, you can use it to invest.

18
Budgeting is only boring if you think of it as ‘spending less’. When you start to
think of it as a tool to invest more, budgeting becomes exciting. Those myths used
to avoid having a budget become obviously false to you. And your income
suddenly becomes a powerful tool you can leverage.

Every month I think about how I can bring the most value in my life through my
expenses, while still finding a way to spend less so I can invest more.

Hopefully, with the power of budgeting, you will unlock the same in your life.

Additional Resources:

Free ‘Compound Interest Calculator’ I use:

https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calc
ulator

Book I’d recommend on the power of spending less:

Early Retirement Extreme by Jacob Lund Fisker

Podcast I’d recommend that touches on all things personal finance:

Bigger Pockets Money

19
The Big Income Deception
By Steve Adcock

Steve Adcock retired from full-time work at age 35 by using

old-fashioned wealth-building techniques like paying yourself
first, building a 6-month emergency fund, and investing at
least 20% of every paycheck. At one point, Steve and his wife
saved 70% of two combined incomes.

Today, they live in a 100% off-grid house in the Arizona desert

with their two dogs and enjoy every minute of the freedom that comes with
financial independence.

Check out what Steve’s up to on his Projects page.

The biggest uncomfortable truth in personal finance is that a big income does not
mean that you’re “wealthy”. Earning a high salary is great, but nobody’s getting
wealthy unless we put all those greenbacks to good use.

Here’s why.

Let’s say Johnny earns $200,000 a year at his job (after tax to keep the math easy),
but he spends close to $150,000 a year. Great salary, right? Johnny’s rich, yes?

You’re right that it’s a great salary. But, Johnny’s not rich.

Johnny has a huge problem: He’s spending nearly all his big salary. After spending
$150K, the poor guy is only left with $50,000 to save and invest. Even with a
$200K salary, it will take Johnny decades to build wealth if he’s only putting 25% of
his salary to work for him.

There are five primary causes behind the Big Income Deception problem. Let’s
look at them and talk about how you can avoid falling into the trap.

20
1: High-income is not big wealth
As I just alluded to above, a high income does not necessarily make us wealthy. If
we spend the majority of what we earn on things to make us look rich, we’re
acting like the “Pseudo-affluent”, a term popularized by the late Dr. Thomas
Stanley who wrote one of the most influential books in personal finance: The
Millionaire Next Door.

In his book, Dr. Thomas Stanley studied high net worth individuals for many years
and found a striking similarity among them: most wealthy people don’t spend
money as you’d think.

On the contrary, those with a high net worth typically live in modest homes and
drive normal cars. Wealthy people – that is, people with a lot of money, tend not
to be the ones driving expensive luxury cars.

Instead, Stanley found BMW, Mercedes, and other luxury car drivers who “look
the part” tend to be high-income earners, but not necessarily those with a high
net worth.

In other words, they make a lot of money but don’t necessarily have a lot of
money.

“Many people who live in expensive homes and drive luxury cars do not actually
have much wealth. Then, we discovered something even odder: Many people who
have a great deal of wealth do not even live in upscale neighborhoods,” Stanley
wrote.

The problem is high incomes trick us into thinking we are rich or can afford
anything.

But as we’ve already seen, the numbers don’t agree.

21
When high-income earners spend the large majority of what they make, they rack
up debt and live the high life under the false assumption that they can afford it.

2: High incomes cause lifestyle inflation

When high-income earners increase their spending as their salary increases, it
creates an expensive lifestyle that needs a high income and endless credit cards
just to maintain itself.

This is called lifestyle inflation.

And funding expensive lifestyles – even if you’re pulling down $200 Gs, very often
produces credit card debts that can quickly spiral out of control.

An Experian report found that the average American carries a $6,200 credit card
balance, making it tough to pay off from month-to-month even for those with high
incomes.

“Those with a net worth between $100,000 and $199,999 are most likely to carry
credit card debt, followed by people with a net worth between $200,000 and $1
million,” wrote CNBC.

A lot of us struggle with lifestyle inflation.

We start making more money and, in turn, we begin spending the majority of
what we earn – simply because we have it to spend.

The causes of lifestyle inflation include:

● Earning progressively more money each year, with bonuses and raises,
which provides us with extra cash to spend,

22
 ● Funding expensive vacations and huge purchases with all that “extra”
money that we make year to year,

● Work jobs that expect us to look successful, creating a wicked cycle of

earn-and-spend (more on this below), and

● Trying to keep up with our coworkers by matching (or exceeding) their level
of spending on luxury items

As our incomes increase, so do our lifestyles. It’s an expensive mistake.

3: High incomes often begin with steep education debt

I’ll never forget a conversation I had with a doctor several years ago.

“When I started out with a net worth of negative $208,000 at the end of training,”
said Dr. Jimmy Turner, who writes at The Physician Philosopher, “one of the most
helpful things was realizing that the panhandler on the street or the toddler with a
few dollars in their piggy bank is wealthier than I was.”

The numbers are startling. The average 4-year medical school will cost students
nearly $190,000 after all is said and done. And, almost a quarter of medical school
students will start their careers with more than $200,000 in debt.

23
Source: Student Debt Relief

While it’s true that most doctors earn substantially more during their careers than
they paid in medical school, that’s not always true. And after malpractice
insurance and lawsuits are added in, those added monthly expenses eat away at
high incomes.

The average cost for malpractice insurance is $7,500 a year, but specialized
professions like surgeons pay upwards of $50,000.

Doctors aren’t the only ones shouldering big debts to work in a high-income
career field.

24
Did you know that only 23% of law school grads say that their education was
worth the cost? Law students will pay more than $60,000 each year to attend a
Top 10 law school.

The average law school costs $43,000 a year.

Business school students will pay almost $60,000 for the average two-year MBA
program, though the top business schools will saddle students with over $100,000
in debt.

High-income earners who begin their careers deep in debt are digging themselves
out of a hole. The potential to make up for education debts might be good, but it
doesn’t always work out.

4: They work jobs that implicitly require “looking the part”

If you make a lot of money, then you need to look like you make a lot of money,
right?

This unwritten job requirement forces high-income earners to spend money on

expensive suits, nice cars, and fancy watches because that’s a part of the job.

It’s expected.

After all, research shows that “attractive” and put-together men and women earn
3 to 4% more than the rest. And, the curse of “looking the part” is more common
than you might think.

In a society that prioritizes the superficial, accomplished lawyers, successful

doctors and business people don’t tend to drive up to a client meeting in a
beat-up ‘95 Camry, do they?

Because they have perceptions to uphold.

25
Will a beat-up car make my clients think less of me?

Do I appear less successful if I drive a normal car rather than an expensive import?

This culture of looking successful devolves into a wicked cycle of consumption,

fueled through the drive to be more successful and earn more money.

5: Cost of living is much too high (house poor, childcare, etc.)

For most of us, our home mortgages are one of the biggest expenses that we will
ever face.

The average median cost of housing is nearly $1,500 a month, easily gobbling up a
quarter (or more) of our income each and every month.

“The average married couple with children between the ages of 6 and 17 spends
32 percent of their budget on housing, and single people spend almost 36
percent, according to data from the Bureau of Labor Statistics,” Consumer Reports
wrote.

And, that’s considerably more than the recommended 25 percent rule often cited
by financial advisors.

This means you might be “house poor”.

In many high-income households with kids, both parents work. The average cost
of a nanny is almost $19 an hour, though in some areas, nannies demand upwards
of $25 an hour.

Believe it or not, six in 10 nannies receive annual bonuses, too.

26
Throw in additional costs like landscaping and house cleaning, expensive
restaurant visits, and pricey alcohol, a high income encourages high consumption
because we think we can afford it.

How can we avoid this deception?

Okay, a high income does not mean big wealth. But, how do we avoid falling into
this trap?

Think of every dollar you spend as a representation of time. The more we spend,
the longer we need to work to fund our lifestyle of spending. The more we spend,
the longer we work.

Conversely, the less we spend, the quicker we can retire (or, at least not work
full-time). And that’s the goal, isn’t it? To enjoy the freedom of controlling our day
outside of a full-time job?

How many additional years of working is that $80,000 car worth? Or that $1.5
million home? Or those $40,000/year club box season tickets? Or those weekly
$500 restaurant bills?

Naturally, we cannot cut out all spending. We need to enjoy ourselves. Our life
cannot feel like a sacrifice. But we also need to understand how much longer we
are willing to spend in an office, at a computer, or on a job site to pay for all those
luxuries.

Before every big expense, ask yourself: How many additional months or years in
an office is this worth to me?

Then, put your money to work through the power of automation.

Use payroll deductions to automatically contribute to your 401(k) and Roth IRA.

27
Use automatic bank transfers to fund brokerage accounts and other investments.
Also, use these bank transfers to build up a three- to six-month emergency fund in
a CD or savings account if you don’t already have one.

Automation is a set it and forget it system. Once the leg work is done, all you need
to do is let the system do its thing. Every month (or paycheck), money gets
transferred to where it needs to go without you lifting a finger. No work. No
discipline. Easy money.

Automation is the key to building serious wealth.

28
Investing vs. Paying Down Debt
By Syed at First Step Finances

First Step Finances was founded and is operated by Syed,

an optometrist who plans on continuing that career for as
long as I can. But personal finance is his other passion. He
enjoys coaching others in subjects such as investing, cash
flow management, and student loan repayments. You can
connect with him at fsfmoney.com or on Twitter.

Bulls versus Pistons. Democrats versus Republicans. Star Trek versus Star Wars.

These are a few storied rivalries that have produced endless entertainment and
passionate fans on both sides. While personal finance doesn’t usually produce
matchups of this magnitude, there is one that comes close:

Investing versus paying down debt.

Sure, it’s not as exciting as watching Michael Jordan fly into a wall of Detroit
Pistons defenders. But it’s still an epic showdown. Because your money is at stake.
And no one should care more about your financial situation than yourself.

Deciding what to do with your free dollars - invest them or use them to pay down
debt - has been a hotly debated topic since the beginning of personal finance
content creation.

Debt is becoming a bigger part of our society. It’s “normal” to see people who
have credit card debt, student loan debt, auto loans, and a mortgage. All at the
same time.

Investing has also changed drastically. There was a time when investing in stocks
was a cumbersome activity that involved calling a broker (who took a fat fee)
every time you wanted to place a trade. It was an activity reserved for the

29
wealthy. But now, all you need is a smartphone to invest. And most companies
offer fee-free trading. So with just a few clicks and swipes, you can invest to your
heart’s content.

Debt is part of the fabric of our society. And investing is easier than ever. Both can
have a very profound effect on our financial future. How we decide to allocate our
money between these two options can determine how wealthy we become.

So, which is it? Go all-in on investing? Or knock out all our debt?

Here’s the answer: it depends. Ugh. That’s an annoying answer, right?

But it really does depend. Personal finance is ultimately very personal. Our work
and family situations play a huge role in how we spend our money.

So, let’s examine the case for each side. Then afterward, I will show you a
systematic and foolproof way to decide if you should be allocating your money to
investments or debt payoff.

Let the clash of the titans begin.

Invest for Success

I’ll get right to it. Here are the reasons to prioritize investing your spare cash:

1. Opportunity cost. If you’re spending time and money paying off debt instead of
investing, you’ll never get that time back.

Investing needs both time and capital to produce meaningful returns. If you’re
paying off debt for years before you start to invest, it makes it that much harder to
grow your portfolio.

30
2. More money. We all want more money. If you can earn 10% a year on an
investment while you have a debt at a 5% interest rate, you will mathematically
make more money by putting all your money towards the investment.

3. Flexibility. When you make extra payments towards debt, your money goes to
the bank. Poof, it’s gone. If you have an emergency come up or a vacation to pay
for, you can’t ask the bank for the money back.

If you invest that money instead, especially in a taxable brokerage account, you
can withdraw that money whenever you like. You have flexibility. In the meantime,
that money will be working for you in the form of appreciation and dividend
payments.

4. Investing is a lot more fun. Paying off debt is boring. Do people tell stories
about making extra monthly payments towards their car loans? No way! Yawn.

If you focus on investing, the wonderful worlds of stocks, mutual funds, ETFs, real
estate, crypto, collectibles, etc. open up for you.

Talking about investments is much more fun than talking about loan payments.

Destroy your debt

But there are serious advantages to paying off your debt. Here are just a few:

1. Peace of mind. This is the ultimate perk of paying off your debt. Knowing that
you don’t owe anyone else is a priceless feeling.

After taxes, of course, every dollar you make is completely yours to do whatever
you like. Now that’s freedom.

2. Guaranteed rate of return. Investing is great, but it can be a roller coaster.

Stocks can go up and down, and there’s not much you can do about it.

31
But paying down an 8% debt means you’re getting a guaranteed 8% return on
your money in the form of lower future payments and/or fewer future payments.
There aren’t many places you can get a guaranteed return like that.

Having debt is no fun. But by paying it off quickly, you are ensuring that extra
payment will increase your net worth.

3. Freeing up cash flow. Devoting a large chunk of your money to debt payoff ties
up that cash. That’s one of the big drawbacks of prioritizing debt payoff.

But once those debts are done with, you will have extra money to do whatever
you want.

You can invest it all, go on vacation, or pad your emergency fund. This is a fun
problem to have, and the opportunities are endless.

Have a System
So, you can see the appeal for both sides of the discussion. This issue shows why
personal finance is very personal.

But at the end of the day, you need to decide what to do with your money.
Stockpiling your extra money in your checking account (or worse, spending it all) is
the absolute wrong decision to make.

Through lots of reading and personal introspection, I developed a method that will
take the guesswork out of what to do with your extra money.

Without further ado, here is the step by step method to decide if you should be
investing your money or using it to pay off debt:

32
Step 1: Get your employer match
If you have a job, a 401k, and an employer match, you should take advantage of
this first. This is the only way to get a guaranteed 100% return on your investment.

Step 2: Pay off high interest debt

“High interest” can vary for different people. To me, it means any debt with an
interest rate of 6% or above.

Pay the minimums on each debt and attack your highest interest rate debt first
and keep moving down the line.

Focusing on the highest interest debt will ensure you’ll get out of debt quickly
while paying the least amount of interest.

Step 3: Max out tax advantaged accounts.

Using tax advantaged investment accounts will help you grow your portfolio while
also being the most effective way to lower your tax burden.

You don’t need to max out every single tax advantaged account available to you. I
focus on two: my 401k and Roth IRA. Go with what is comfortable for you and will
help you reach your goals.

After I was able to max those out for the year, I turned to the next step.

Step 4: Pay off lower interest (non-mortgage) debt

You should now have debts with interest rates below 6%. Start paying extra on the
debt with the highest interest rate of the bunch. And keep moving down the line.

33
Step 5: Contribute to a brokerage account
It’s nice to have healthy retirement accounts, but having a taxable brokerage
account will give you flexibility. You can withdraw your investments when you
need them while also growing your money over time.

You can open a taxable account at many places including Vanguard, Fidelity, and
Schwab.

Conclusion
Always remember: both investing and paying off debt are productive. Anything
that moves your net worth forward is great. Too many people are busy paying
others first, while leaving nothing for growing their own wealth.

So, if you’re trying to figure out how to best allocate your money, you’re farther
ahead than most people are.

And if you want an easy and systematic way to make your decision, just follow the
step-by-step method outlined above.

34
Side Hustles Are OVERRATED!
By Brandon-Richard Austin

Brandon-Richard Austin is a marketer-turned-software

developer from Toronto, Canada. He has seven years of
experience as a freelance writer and content strategist. You
can contact him through his blog, Rinkydoo Finance, or on
Twitter.

Side hustling can be a fantastic strategy for building wealth. However, there’s a big
difference between earning some extra cash to get ahead in your spare time and
spreading yourself too thin. The phenomenon I like to call “side hustle culture”
promotes the latter.

Over the next few pages, I’ll explore the pitfalls of side hustle culture and provide
some tips for achieving balance while side hustling.

What is side hustle culture?

Let me reiterate that side hustling and giving into side hustle culture are two
different things. I side hustle every day by writing for my blog (Rinkydoo Finance)
and completing freelance projects.

Side hustle culture takes this to a toxic extreme, however, by prioritizing quick
returns above long-term professional development and conflating “working
relentlessly” with “being productive.”

For example, why further your education when you can slap eBooks together,
throw them on Gumroad, and begin making money right now? Or why watch
Netflix on a Friday night when you can be pounding away at your keyboard
building an affiliate marketing empire?

35
This line of thinking is counter-productive, particularly in your 20s when your
focus (in my opinion) should be on going the distance rather than trying to make a
quick buck.

I learned this firsthand. In my late teens and early 20s, I was the side hustle king. I
had at least two side projects on the go at any given time and was perpetually
burnt out – all while earning relatively little money for my efforts.

When I began scaling back and dedicating more of my time to self-education

rather than earning a quick buck, I began progressing at an accelerated rate. My
salary climbed from $45,000 to $85,000 in the span of two years as a direct result
of my new skills and a renewed focus on my primary career path.

Rebutting common arguments in favor of side hustle culture

Here are a few side hustle culture mantras I take issue with and my reasoning for
doing so.

“The average millionaire has seven income streams.”

An Internal Revenue Service (IRS) study found the average millionaire has seven
income streams. Consequently, many people argue increasing your number of
income streams by having multiple side hustles will make you more likely to
become wealthy.

My first problem with this argument is its misrepresentation of how the average
millionaire earns money. They’re not driving for Uber or hawking Gumroad
affiliate links on Twitter. Rather (according to that same aforementioned IRS
study), the average millionaire’s income streams look like this:
● employment earnings
● stock dividends
● capital gains
● rent payments
● royalties from owned intellectual property

36
 ● business profits
● interest earned on savings (including bonds and certificates of deposit)

Notice something? Most of these income streams are passive and derived from
owning assets rather than grinding relentlessly after work.

My second problem with this argument is its ignorance of a crucial factor – time.
While writing The Millionaire Next Door, authors Thomas Stanley and William D.
Danko discovered the average millionaire is 57 years old. They accumulated assets
and income streams over the course of several decades.
Side hustle culture promotes more of a mad dash that leaves people feeling burnt
out before they’re even halfway through their working lives.

“Traditional employment is an unreliable source of income.”

Another common argument among proponents of hustle culture is that traditional
employment arrangements are precarious. Having multiple side hustles is
therefore essential, they argue, because your livelihood would otherwise be at
your employer’s mercy.

My primary issue with this argument is that it grossly overstates the average
person’s likelihood of becoming unemployed. According to the U.S. Bureau of
Labor Statistics, America’s unemployment rate has hovered around 5% for much
of the past two decades. In other words, more than 90% of eligible American
workers have remained employed at any given time for most of the 21st century
thus far.

This argument can also become a self-fulfilling prophecy. Believing traditional

employment is inherently precarious may cause you to side hustle relentlessly,
neglect professional development, and become a less desirable employee in the
long run.

37
“Side hustling is so easy and lucrative you’d be crazy not to do it.”
A third argument I’ve encountered frequently is that anyone can earn ludicrous
sums of money online and it’s therefore crazy to not have any side hustles.

Once again, the data tells a different story. Most bloggers, for example, earn less
than $100 per month, according to Melanie Pinola writing for Lifehacker. Uber and
Lyft drivers, meanwhile, earn an average of $9 per hour after paying fees and
vehicle expenses, according to The Street.

Of course, some people do rake in the big bucks by side hustling. That’s not the
norm, though. The high likelihood you’ll earn much less may make side hustling
seem less attractive considering its potential opportunity costs (falling behind at
work because you’re distracted, missing out on family time, etc.).

Another thing to note regarding this argument is that many people who insist on
its validity are selling something. Next time you see a tweet making this
argument, do some digging into its author. You’ll likely find they have some course
aimed at helping people earn money through some side hustle. If they were
upfront about side hustling being difficult, most people would shy away from their
course.

“Side hustling is the only way to earn what you deserve.”

According to Investopedia, the typical raise is 3% to 5% of one’s current salary.
That isn’t much, especially when you consider how much responsibility many
workers take on as their careers mature. Consequently, many proponents of side
hustle culture understandably argue side hustling is the only way to achieve the
meaningful compensation growth you deserve.

One problem with this argument is its ignorance of the fact many jobs do pay
well and offer substantial annual raises. You’ll never find these jobs, though, if
relentless side hustling keeps you from prioritizing professional development and

38
focusing on your core skills. In other words, the solution shouldn’t be taking on
additional side work and letting your employer get away with underpaying you. It
should be finding better employment opportunities.

Another problem with this argument is that side hustles can be every bit as
exploitative as working for a company that doesn’t compensate you fairly. Uber
is a classic example of this. Most drivers earn a pittance (minimum wage, which
they had the fight for) despite Uber being among the most popular side hustles.

“If you’re not side hustling, you’re wasting time.”

The final side hustle culture myth I’d like to highlight relates to the notion that
downtime is inherently unproductive. People who believe this will often say things
to the effect of “while you were watching Netflix last night, I was building my
empire!”

This mindset is flawed because it assumes humans are machines capable of

being productive for most hours of the day. This simply isn’t the case. In fact,
research indicates most people are only able to complete high-output work for
three to four hours daily. After that point, most people see the quality of their
output drop off significantly.

So when people brag about working an additional four hours after each shift at
their primary job, something doesn’t add up. They may not be lying but they
certainly aren’t getting as much done as they might think.

Another flaw in this line of thinking is its conflation of “downtime” and

“unproductive time.” Would you describe the act of eating as “wasted time?” I
hope not, since eating is essential for survival. Other activities are essential for
survival as well - including relaxation!. Research shows we function best when
given time to relax. Relentless side hustling is the antithesis of that.

39
Tips for side hustling without giving into toxic side hustle
culture
Now that I’ve highlighted my issues with side hustle culture, here are some tips for
striking the right balance between short-term financial rewards and long-term
progress when side hustling.

Prioritize side hustles that help you build assets

Avoid side hustles that entail lots of active work yet don’t leave you with any
residual value. Instead, look for side hustles that help you build assets.

Freelance writing for someone else’s blog is a classic example of a side hustle that
falls in the first category. It’s a great way to start earning money right away but
only works if you keep producing articles.

Building your own blog falls into the second category. You’ll take longer to earn
money but benefit from passive income even when you aren’t actively writing for
your blog.

Balance side hustling with learning new skills

Two years ago, I decided I’d scale back on side hustling significantly in favor of
learning to code. That decision ultimately helped me launch a new career in
technology, which put my income on a rocket ship. The additional income I earn
because I learned a new skill dwarfs what I would have made if I spent that time
side hustling instead.

All the better if you can combine side hustling with learning new skills once you’ve
progressed to the point at which people are willing to pay for your services.

40
Set time aside for relaxation
You don’t need to spend every hour of everyday side hustling. Remember –
building wealth is a marathon, not a drag race. You may find it beneficial to set
aside one day per work for recuperating.

Make sure your side hustling doesn’t distract you from work
Being attentive and productive at work can go a long way towards helping you
progress career-wise. Make sure your side hustling doesn’t interfere with this. Be
prepared to refuse side-hustling opportunities when they jeopardize your main
focus.

Conclusion
I hope this chapter has given you some food for thought regarding side hustle
culture. To reiterate my stance, I believe side hustling has its place. Side hustle
culture, on the other hand, is toxic. Don’t underestimate how much farther you
can get ahead by playing the long game.

41
 Part II: Money Psychology
“To grasp why people bury themselves in debt,
you don’t need to study interest rates.
You need to study the history of greed, insecurity, and optimism.”

--Morgan Housel

42
Get Rid of “Analysis Paralysis” in Your Finances
By Ceci Marshall at Finances Reimagined

Ceci Marshall founded Finances Reimagined after speaking

with friends and family about the incredibly confusing
personal finance space - and realizing there was no “easy”
place to learn about what we should be doing with our
money! Ceci became a source of knowledge for friends
regarding what they should be doing with their finances and
why. Ceci works in Revenue Strategy at Google. But outside
of work, personal finance is her passion. Her dream is
teaching others how to stop fearing personal finance and
start building their long-term wealth!

Analysis Paralysis. The feeling that engulfs you as soon as you think of something
overwhelming. The feeling that FREEZES you in your tracks.

I know that feeling. Getting started is (and always will be) the hardest part of
tackling big issues. Personal finance is one of those big issues. Not only is it hard to
get started, but putting together a long-term financial plan is intimidating, too.

But what does that really mean? How do you ensure your safety in the future?
And who defines what ‘comfort’ really means?

I mean you, the reader, bought this book for a variety of reasons. But one of them
was because you wanted to hear what us social media finance gurus had to say
about finance. Maybe you were just curious. But also – just maybe - bought this
book to get that extra push to just. get. started.

Well, let me help you get started! That’s what I am here for.

Let me guide you on a mindset journey to get rid of the hesitations that cause you
to look at your personal finance and say, “Oh no, I can’t do it today”...

43
Let’s start this by analyzing where this “paralysis analysis” mindset comes from.

1) Your Background
We have all grown up differently. Different parents, cities, races, socioeconomic
backgrounds, personalities, and so much more. Whether your background was
positive or negative, we all share this one common truth: your background
dramatically shaped you into the person you are today.

Many times, the mindset shifts that occur in personal finance make us physically
uncomfortable. There’s something in our brains that screams, “Nooooooo!!! Don’t
do something different than what you grew up with. And if you do, make it safe!
Please don’t take risks.”

The hard truth is that so many events in life require us to take risks. Some steps
we take will be uncomfortable. That which challenges us also tends to be new and
outside of our comfort zones.

This can be especially true for personal finance.

Start by understanding your background. Then examine how your background

makes you feel about money. And then ask, “Is this feeling rational? Is this what’s
really best for me to feel? Or is my background playing tricks on me?”

2) Your Experiences
Your experiences are similar to your background, but I want to highlight a key
difference.

As humans, our past experiences affect the future decisions we make. With
personal finance, maybe that experience is
- a parent who made a bad investment decision
- a sibling having trouble after losing their job
- a friend who got themselves deep in credit card debt

44
Your background is deeply hard-wired into your brain. You might not even be
aware of it. Your experiences are conscious memories that you’re aware of and
that actively shape your attitudes.

But Your Background and Your Experiences share one important quality: they both
exist 100% in the past.

3) The Overwhelm
Your Background and Your Experiences can combine to turn a new life event into
something overwhelming! This is The Overwhelm.

This one hits the closest to home for me. For a long time, The Overwhelm stopped
me from getting started on my personal finance journey.

I felt there was so much to learn in personal finance. I didn’t know where to start.
I didn’t know the order of how I should learn. I thought that I would do it all
wrong. And where did the Overwhelm get me? I’ll let you answer that one….

The Overwhelm stems from inside of you. It’s a deep feeling that makes you
believe you can’t learn it on your own, or that you are incapable. That’s simply not
true. The Overwhelm is lying to you. You are more capable than you can possibly
know.

4) The Future
And lastly, we get hit with the hard questions: What do you want for your Future?
What are your goals? What kind of life do you want?

These questions scare a lot of us. Here’s one particularly scary myth: to be
successful, we must have our Future all planned out at once.

But that myth is completely false. Have you done any mindset work to figure out
what exactly you are planning your life for?

45
I’m not going to sit here and say I can solve it for you. But now that we’ve talked
about the “what” that’s preventing you from starting, let’s talk about the
solutions. Let’s eliminate your “Analysis Paralysis.”

Eliminate Your Analysis Paralysis

The best way to start is by remembering that the past is not your present. It is also
not your future. You have the power to change your future by using knowledge of
what to change and how to change it.

So now we get to that fun part…the “how.”

The key “how” to your entire personal finance journey is diving in. You need to
dive in! So let me walk you through what I did in the exact order that I did it.

The Steps in Detail:

1. Reading. The first step to any success in personal finance is reading up on
everything out there. I’m not saying go search for individual topics -
because trust me, that will be overwhelming. I’m talking about going to
read a book like “I Will Teach You To Be Rich” or “Simple Path to Wealth” or
“The Psychology of Money” or “The Money Manual”. These are books that
will talk about money as a whole - whether that be changing your mindset
on money, teaching you about how investing works, or giving you more
comfort in your personal finances.

Whatever you do, do NOT spend a ton of time here. Pick one book. ONE.
We have more book ideas at the end of Money Mastermind. And run with
that one book. Then go to the next step.

2. Planning – “Planning” is the act of organizing your financial future. Get

started with something small. The key to sticking with your plan is: small

46
 steps, one at a time. It is not starting off with a huge goal! I’ve included a
few examples below...
○ Spend Awareness - track your spending for 3 months and figure out
how much money you spend
○ Budgeting Plan - start a budget so you will keep yourself accountable
to spending
○ Savings Plan - Save up your Emergency fund (3-6 months expenses)
○ Pay Yourself First – the first thing you should do after getting your
paycheck is move a chunk of it to your savings account or your
investments
○ Learning - Learn about what to invest in. Start by researching mutual
funds vs ETFs in Money Mastermind.
○ Open New Accounts - Act and open that Roth IRA or Brokerage
account. Or start making contributions to your 401k.

3. Creation Time - Once you’ve taken those small steps, create your spending,
saving, and investing plan for the next 2-3 months.

4. Learning - Personal finance is perfected through trial and error. The reason
you start small is because you can legitimize your own plan in a PERSONAL
way. You’ll never get it right on the first try. The key is creating your plan
over and over until….

5. Automation - YOU’VE HACKED IT! YOU’VE FINISHED! You have created a

system that works for you - one that lets you save, invest, AND spend.
You’ve set this up so that you know exactly how much goes into savings &
investments each month - you have it all planned.

Life is not about trying to tackle huge projects all at once. Life is about taking
those big projects, breaking them up into 100 pieces and tackling the pieces one
at a time.

You got this. And if you feel like you don’t, I got you. DM me anytime on Instagram

47
Make Your Bed. Improve Your Finances.
By Mark Palmer

Financial Professional turned Wealth Coach Mark Palmer is

simplifying people’s approach to money. He believes anyone
can gain confidence in their finances by learning basic
concepts and tweaking their perspectives. You can reach
him on his Twitter.

If you want to be comfortable with your money, you need solid money habits.

Earning. Saving. Budgeting. Paying off debt. All of these require good habits. But if
money habits are the only habits you work on, you’re going to struggle to sustain
them.

All habits are contagious. Good or bad, they carry over into other aspects of your
life.

If you work out, you’re more likely to eat a healthy meal after. If you binge drink,
you’re more likely to eat something greasy and unhealthy. Good goes with good.
Bad with bad. Similar habits go hand-in-hand.

But habits don’t have to be directly correlated to support each other.

You may have heard the saying, “How you do one thing is how you do everything.”
It might be hyperbolic. Everything?! But there is definitely a lesson in that
statement.

If you’re a perfectionist when cleaning your bathrooms, you’re likely to be a

perfectionist when completing tasks at work.

If you procrastinate a necessary house project, you’re likely to procrastinate

planning an important event.

48
And if you’re disciplined with your diet and exercise routine, you’re likely to be
disciplined with your budget and spending habits.

It is estimated that human adults make around 35,000 decisions each day. Thanks
to your subconscious mind, you probably can’t remember more than 50 decisions
you made yesterday. Your brain has been trained your entire life to do things a
certain way, and every little decision will program it further in preparation for the
next decision – whether you consciously think about it or not.

Doing one thing a certain way will teach your brain that it should do the next thing
the same way.

And if there’s any area of your life you want to improve, such as your finances,
your habits are going to be the difference-maker between success and failure. If
you want to sustain good financial habits, it is best you develop good non-financial
habits too.

In Charles Duhigg’s The Power of Habit, he coined the term keystone habits:
small changes or habits that people introduce to their routines that unintentionally
carry over into other aspects of their lives.

Keystone habits can be big lifestyle changes – like biking to work every day or
having a salad for lunch five times a week.

Or they can be simple and quick – like making your bed every morning or flossing
your teeth every night.

My personal favorite keystone habit: Never hitting the snooze button.

These keystone habits build your habit foundation. Every time you perform a
positive habit, your mind takes note and will begin to understand that’s how
everything should be done. Over time, starting and maintaining good habits will

49
seem easier and easier, as your mind has been trained to want to do things the
way you always do.

All the decisions you make without thinking will default to your habit foundation.
A good foundation will help you make good decisions without thinking, while a
bad foundation will influence you to make bad decisions without thinking.

The following diagram depicts two ends of the habit spectrum. Your foundation
will fall somewhere within it:

Every good decision or habit of yours will strengthen your habit foundation,
training your mind to make more good decisions – even when you’re not thinking
about it. Every bad decision or habit will weaken your foundation, convincing your
mind that bad decisions are preferable. Wherever your habit foundation falls on
the spectrum, the more inclined you’ll be to develop habits that align with it.

Many pieces of a well-rounded financial plan – like saving money or paying off
debt – require consistent, disciplined efforts. If you don’t give consistent and
disciplined efforts to other parts of your life, you will struggle to do so with your
finances. Your mind will want to handle money the same way it handles
everything else – because you trained it that way.

Although your habit foundation is always active, there are certain moments where
its impact is felt most.

50
Life will throw you curveballs. You might get fired from your job or miss out on the
promotion you were counting on. You might go through a hard breakup or lose
someone you love. You might get sick or injured and not be able to do everything
you’d like to do each day. When unfortunate events occur, it’s human nature to
use them as an excuse for making poor decisions. This is where your habit
foundation can save you!

All it takes is one negative influence to slip up on a good habit.

Humans make mistakes, and nobody is perfect. You are going to slip up on your
good habits at some point.

The crucial question is: Will you get back on track?

That is when your habit foundation will take control – and things as simple as
making your bed every morning could contribute to a safety net that saves you
from additional poor decisions.

One bad choice shouldn’t ruin you. It’s simply a mistake. But as James Clear
mentions in Atomic Habits, if you make the same mistake twice, it’s no longer a
mistake – it’s the beginning of a new habit. This is dangerous – and a weak habit
foundation will make it easier and easier to continue making bad decisions.

Your takeaway from this should be to think about any poor habits you have and
decide to tweak them from a negative habit to a positive habit. Or come up with
new habits you want to develop and implement them into your daily routine.
Every small improvement counts.

You don’t have to change your entire lifestyle at once.It’s easier and more
sustainable to do it gradually. But once you start, make the commitment to never
turn back.

51
Years from now, you may be able to afford that down payment on your dream
home, and people will think it’s all thanks to your saving habits.

But you can tell them that making your bed every morning played a role too.

52
Money & Neuro-Linguistic Programming

By Leandra Peters

​Leandra is the founder of Female in Finance, LLC. Over the last

seven years, she has worked in corporate finance as a Senior
Account Manager. She created her platform to help people roll
up their sleeves and level up their personal finance game,
crush their debt, build a side hustle, and invest in the stock
market.

Find Leandra on Instagram, Twitter, or her weekly blog.

If you’re pursuing wealth, then changing your language to more positive maxims
will help you chart your way. That’s what Neuro-Linguistic Programming (NLP) is -
a way for you to change your thoughts and behaviors to achieve a specific
outcome. It is the basic language of our mind to engineer the results we want in
life. NLP can apply to wealth, debt freedom, financial independence or D.) All of
the above.

There is a link between the structure of how you speak about money and the
propensity of how you handle your money (budgeting, saving, investing, etc).
This isn’t some woo-woo bullshit. Hear me out.

Do you want to earn more money? I don’t know anyone who would answer “no.”
And I’m sure if you were to audit your life, that you'd want to earn more money
for a long time. If you’ve felt stuck for some time, you likely haven’t audited your
mindset around money.

53
LeAnDrA, how do I audit my mindset?

Audit your mindset by becoming aware of the core beliefs you have around
money. Maybe you’re uncomfortable talking about it. Maybe you think money is
evil, money is sacrifice, money is bad, money requires too much work, money is
scarce, money is greed, money is hard to get, money is stressful.

Do you think the wealthiest 1% had these core beliefs around money? Maybe at
some point. But their language and mindset around money must have pivoted at
some point for them to become wealthy.

Let me give you an example…

Ask yourself this question: What is stopping me from having money? Pause for a
second, because I actually don’t want you to answer that question.

54
Here’s why: If you read that question again, you may notice that a question like
that opens internal fear, emotion, conflict, doubt, memories, or pain.

Your answers could sound something like:

● Getting rich is too hard to do.

● I didn’t grow up with money, so I can’t get it.
● If I have too much money, people will look at me differently and treat me
differently.
● I’m afraid of working hard only to fail in the end.
● I don’t deserve large sums of money.
● I’m afraid money will change me.
● If I have a lot of money, people will take advantage of me.
● If I become wealthy, people will be less genuine and want me for my
money.

Can you hear the limiting beliefs? It’s because that question is shit. According to
NLP, having limiting beliefs, conscious or not, may be the single variable holding
you back from having a life of opulence.

So what’s a better question? Let’s try one that gives you empowering beliefs
rather than limiting beliefs.

“What does wealth look like for you?”

Ask yourself this instead: “What does wealth look like for me?”

● Wealth looks like a life of abundance and giving back.

● Wealth looks like preparing the next generation for financial success.
● Wealth gives me time with my family and people who matter to me.

Answer that question for yourself - what does wealth look like for you?

55
Don’t give yourself the right answer. Give yourself the real answer. Because a
person with these kinds of beliefs can truly have wealth, financial independence,
debt freedom, etc.

And although this all sounds like sugar plum princess gum drops woo-woo, it’s
not. In areas other than money, I’ve seen firsthand how making the conscious
decision to change your thoughts and behaviors can change your life.

Your mind is more powerful and influential than you may think. It can sabotage
what you truly covet in life.

Let me give you some credence

I grew up very poor. My Dad (not sure if that deserves a capital “D”), left when I
was three years old. He stole our family car (under my mother’s name), racked up
credit card debt (under my mother’s name), and wound up homeless.

My Mom (deserves the capital “M” with a crown) was an immigrant to the U.S.,
and unfortunately, she ended up filing bankruptcy. She didn’t speak English well
enough to get a job, so she cleaned neighbors’ homes. We had weekly garage
sales to put food on the table. The hustle never stopped.

Things didn’t get better for a long time. Until they did.

My Mom is a great example of someone who knew she deserved to be financially

independent. She had every reason to believe that she didn’t. But rather than
focusing on what she didn’t have, or being resentful for where she was, she made
the conscious decision to not only be a Super Mom, but also a debt-free,
financially independent woman.

And that she is.

Abundance is not what she had, but it was her state of mind. Her language and
mindset around money not only got her to where she is today, but it subsequently
gave me an abundance mentality too.

56
Living in poverty, it’s easier to form a Depression-era mentality. From there breeds
the unconscious limiting beliefs that you will always struggle financially. Avoid that
mindset at all costs!

So what can you do?

Start with identifying your limiting beliefs around money. Once you’ve identified
subconscious imprints, you can begin to shift your language around money and
break down financial barriers. Hence, “linguistic” programming.

For example: change “I’ll never have enough money” to —> “Prosperity exists
within me.”

Rather than thinking of things you don’t have, expand your mental framework and
focus on what’s possible for you.

A little tip: when you talk about money, it should make you feel good. If it doesn’t
feel good, try again.

Wealth is for you. Debt freedom is in your future. Financial independence is in

your power.

Money moves. Now, reel it in.

57
You Can’t Predict. You Can Prepare
By Jesse Cramer

Jesse Cramer is the founder of The Best Interest, where he

writes weekly about personal finance and investing. His work
has been featured on CNBC, Yahoo Finance, MSN, and the
Motley Fool. He lives in Rochester, NY with his fiancé and their
foster dogs. Find Jesse on The Best Interest, on Twitter, or on
Instagram.

Howard Marks is one of the most successful investors of the past 40 years. His
firm, Oaktree Capital, is worth over $8 billion. Marks is a great writer, too. One of
his pithiest quotes is, “You can’t predict. You can prepare.”

If you train your brain to understand this advice, your money life will improve.

When Marks wrote these words, he was referring to investing markets. The
markets are unpredictable, but you can still prepare intelligently. However, Marks’
wisdom applies to the entirety of your money life.

We don’t know the future. But we can prepare for it nonetheless. And here are
five important examples to prove this idea.

1) The Budget
The point of a budget is to prepare for the month(s) ahead. You don’t know
exactly what will happen. You can’t predict. But you can prepare for the most
likely eventualities.

Mortgage, groceries, car payments—all likely. Next Christmas is coming, as are the
expensive gifts you will be buying. Your next vacation falls in the same bucket.

Your budget gives your dollars a job. It prepares them for future work. Preparation
is the essence of budgeting. That’s why it’s so important.

58
But what about expenses that you can’t prepare for? That’s where the emergency
fund comes in.

2) The Emergency Fund

Your emergency fund is an extension of your budget.

Budgets help you plan for knowns. Rent and dog food and 99% of the things you
buy…those are items you know you’ll buy in the future. They are expected. Easy
to prepare for.

An emergency fund exists to cover unknowns. My go-to example is that my

furnace might die this winter. It’s not something that I can predict. If I could
predict it, I would replace it now.

But I can prepare for the possibility of that furnace dying. The same goes for the
possibility of my car breaking down. Or that my fiancé and I could find ourselves
sleeping in a 40°F Airbnb cabin and desperately need a hotel (true story!).

There are many possibilities in life that are unlikely to happen, yet painful if they
do occur. Low probability, high impact.

The point of an emergency fund is to prepare for the fact that those unlikely
events could happen. You can’t catch everyone unknown in your budget. An
emergency fund is the next-level safety net.

3) Insurance
I don’t want to break my leg. But if I was uninsured, it could cost me $17,000 –
$35,000. Wow. My emergency fund isn’t that big.

That’s why insurance is important. My current insurance plan says, “If Jesse pays
the first $1,500, then insurance will cover the rest.” My emergency fund is large
enough to cover those deductibles (e.g. the first $1500) on my various insurances.

59
I’ve chosen to prepare for a risky future by paying $100 in insurance premiums
every month. Why? Because I can’t predict when I might suffer injury or illness.

Same goes for a tree limb destroying my roof. That’s why homeowner’s insurance
matters.

Same with car insurance—they’re called “accidents” because you don’t intend for
them to happen.

And the same for Sadie getting bit by a rattlesnake (heaven forbid!).

This is not Sadie (I think?!). This is

another Texan dog named “Spotty,” two
days after a rattlesnake bite.

Insurance is the ultimate way to prepare

rather than predict.

It’s Not All Bad

Our instinct (or at least my instinct) is to
view Howard Marks’ original statement
pessimistically. You can’t predict bad stuff, but you can prepare for bad stuff.

And that’s fine. Bad stuff—like the stuff above—is worth preparing for.

But as my blog’s regular reader Chris likes to say, “The question, ‘What if
everything goes right?’ isn’t worth spending time on.”

So let’s apply Marks’ idea to good stuff. Here are a couple examples:

60
4) Investing
Why do I invest? It has nothing to do with predicting the future. If I could predict

😉
the future, I’d be “summering” in my Bitcoin-funded Adirondack chalet, not
writing to you people

Seriously, we can’t predict the future (…right?!). But we can prepare for probable
eventualities. For example:

● I’m prepared for our economy to grow like it has in the past
● I’m prepared for business ingenuity to create capital growth
● I’m prepared for both ups and downs in the stock market…but more
ups overall

It’s not a guarantee. It’s not a sure bet.

But I believe all three of those projections are likely to occur over the coming
decades. That’s why I am preparing for them by investing now.

5) Diversification in Investing
Going a step further, my investments are not concentrated solely in stocks.

Why? Why do I diversify into different assets?

Because the ability to periodically rebalance an investment portfolio has proven to

be an effective risk mitigation technique in the past. I want to be prepared for that
to be true in the future, too.

Again—it’s not a sure bet. Over the past 18 months, my diverse portfolio has
performed worse than a 100% stock portfolio.

61
But diversification is something I believe will be important eventually. I’m not sure
when. I can’t predict it! But I want to be prepared for it.

Marks My Words…
Ok. Bad pun. Mark my words. Howard Marks. Ugh.

Nevertheless, mark my words: preparation is important precisely because we

can’t predict the future. Whether you want to assuage the bad or accentuate the
good, preparing your financial life is something you should do today.

● Create a budget.
● Grow an emergency fund.
● Understand your insurance.
● Invest! And better yet, do so diversely.

62
 Part III: Investing Basics

The best time to plant a tree was 20 years ago.

The second best time is now.

--Chinese Proverb

63
Stocks, Mutual Funds, and ETFs
By Brennan Schlagbaum, aka “Budgetdog”

Brennan Schlagbaum is a Certified Public Accountant and

the founder of Budgetdog, where he believes Kevin Kruse’s
wisdom that “life is about making an impact, not making
an income.” Over the past 2 years, Brennan has grown
Budgetdog into a 6-figure online business, allowing
Brennan to quit his 9-5 job and pursue what he loves:
helping others.

If you want to contact or work with Brennan, find him on Instagram or Twitter.

Let’s discuss some of the basic financial products available to you.

The type of account you have and your investment goals will play a large role in
determining which investment products are right for you. Additionally, you can
decide to buy a single asset or a group of assets. If you decide to buy a group of a
particular asset class, this is what is called a mutual fund, index fund, or
exchange-traded funds (ETFs.)

A mutual fund is an investment that pools one individual investor’s money

together with other investors’ money to purchase shares of stocks, bonds, or
other assets.

An exchange-traded fund (ETF) is similar to a mutual fund, but an ETF is traded on

stock exchanges, much like other securities.

Lastly, an index fund is a type of mutual fund or ETF designed to track a specified
basket of underlying investments.

Remember, each investor has the option to buy whichever asset and investment
product that the investor feels best for his or her situation. The differences

64
between an investor buying a single asset and a fund asset can be best
understood by the following two pictures:

Picture 1: Below, investors are buying an accumulation of assets through an Index

Fund, Mutual Fund, or ETF. Depending on the type of fund, the Fund Manager
may be active or passive.

Picture 2: Below, investors are buying a single asset such as a stock or bond
directly from the open market. When the investor decides to buy a single asset,
the investor does not need a fund manager involved.

65
As you read above, mutual funds, index funds, and ETFs are collections (or ‘funds’)
of other assets e.g. collections of stocks, bonds, commodities, and/or other assets.
Funds can be designed to beat the market, maintain the market average, or even
track specific sectors (technology, health care, information technology, etc.).

The main two differences between mutual funds and index funds are:

1) Mutual funds are often actively managed to buy or sell assets within

the fund to beat the market and help investors profit. This means that a
single person – the fund manager – is making active decisions about what is
inside the fund. And that manager’s time is expensive. ETFs and Index Funds
are mostly passively managed, as they typically track a specific market
index. They are controlled by passive rules, not by a manager’s
ever-changing opinions.
2) ETFs can be bought and sold like stocks throughout the day when the
market is open. Mutual funds cannot. If an investor wants to buy or sell a
mutual fund, the investor will receive the market price of the asset at the
end of the trading day. However, if an investor wants to buy or sell an ETF,

66
 the investor will receive the market price of the asset at the time the
investor decides to buy or sell.

Funds tend to lower your potential ceiling but raise your potential floor. For
example, let’s look at an electric vehicle (EV) fund that holds the stocks of many
different EV companies. That fund performed worse than Tesla over the past few
years. But that fund performed much better than Nikola, an electric truck
company that has been accused of fraud.

Tesla’s stock (and one of their actual cars) have been on a rocket ship. High ceiling.
Nikola, on the other hand, might go out of business. Low floor. The EV fund’s
performance is somewhere in between.

That is why mutual funds, index funds, and ETFs have become so popular in
today’s investing world. They naturally enhance diversification of your portfolio
and reduce risk.

For example, if you purchased Apple stock in 2002, that stock would have grown
more than 500 times its original value by mid-2021. On the other hand, if you
purchased and held an S&P 500 index fund during this same time span, your
investment would have only grown at about 4.2 times its original value.

It’s normal to be attracted to those Apple-like returns. However, for every Apple,
there are 100 failed companies. They go to zero. You lose all of your investment.

A fund can’t give you Apple returns, but it won’t go to zero either.

Further, when you buy the S&P 500, you are essentially making the decision to “be
the market average.” Individual stocks and actively managed mutual funds may be
able to outperform the market at times. But less than 2% of actively-managed
mutual funds outperform the market over long periods of time.

67
Historically, the stock market has returned ~10% per year. This means an average
stock index investor will see their investment double in size every 7.3 years
(1.10^7.3 = 2.0).

If you have a 43-year investment life (age 22 - age 65), then your money would
compound and double about 6 times (43 years / 7.3 years). This means if you
invested $10,000 at age 25 and never touched it again, that one investment
would grow to...
- Age 22 - $10,000
- Age 29 - $20,000
- Age 37 - $40,000
- Age 44 - $80,000
- Age 51 - $160,000
- Age 58 - $320,000
- Age 65 - $640,000

...approximately $640,000 at age 65.

That’s just one investment at age 25. Imagine instead if you are consistently
contributing throughout that time period as well. More investing at 26, 27, 28, etc.
You’d have a huge portfolio at retirement.

Further, your investment life does not stop at age 65. Age 65 is just a gauge to see
how much your investments will be worth at the beginning of retirement. Each
year, you will only withdraw the amount that you need for that single year. The
majority of your money will remain invested. As you can tell from our
compounding example, you will experience the greatest effects of compound
interest in the latter years.

Mutual funds, ETFs, and index funds are powerful tools on which to build your
investing future. A long-term investing plan using these tools is sure to help you
succeed.

68
Bonds, Real Estate, Commodities, and Beyond!
By Brandon-Richard Austin

Brandon-Richard Austin is a marketer-turned-software

developer from Toronto, Canada. He has seven years of
experience as a freelance writer and content strategist. You can
contact him through his blog, Rinkydoo Finance, or on Twitter.

Now that Brennan has guided you through the world of stocks, mutual funds, and
ETFs, let’s talk about some of the lesser known basic investments, like bonds, real
estate, REITS, options, and commodities. And if you’re curious about
cryptocurrencies, don’t worry: we have a ton of crypto content later in the book.

What Are Bonds?

When you purchase bonds from a government or corporation, you are loaning
them money in exchange for the promise of repayment plus interest. Bonds
(particularly ones from stable governments like that of the United States or
Canada) are generally considered to be very safe, low-risk investments. These
entities have high credit ratings, which (much like individual credit scores)
symbolize their reliability as borrowers. Companies and governments with low
credit ratings need to offer higher interest rates on bonds to lure investors.

You can buy bonds directly from the issuer (i.e. through Treasury Direct for U.S.
bonds) or through a brokerage. There are also ETFs and mutual funds that contain
baskets of bonds.

One way to make money with bonds is to simply hold them until maturity. You will
collect interest throughout the term and then be repaid your initial investment
upon the maturity date’s arrival.

69
Bonds also fluctuate in value based on government policy. Say you purchase a
bond with a yield of 4%. A year later, the government lowers the interest rate on
bonds to 2%. Suddenly, your 4% bond has become more valuable to investors.
They’d rather have your 4% bond than buy a new bond that only pays them 2%.
You may be able to sell your bond for more than what you paid.

What Is Real Estate Investing?

Real estate investing involves buying properties (i.e. buildings or land) to generate
a profit.

With this type of investing, you can take advantage of something known as
leverage. You put up a relatively small amount of money (your down payment)
and a bank provides the rest in the form of a mortgage. This lets you acquire a
much larger asset than you could’ve on your own. That’s leverage.

Say you have $100,000 to invest. If you put it in the stock market, you’ll only
benefit from owning $100,000 worth of assets. But if you use that money as a
down payment on a $500,000 house, you’ll reap the rewards of a much larger
investment pie.

Remember, though: with great power comes great responsibility. We’ll explore the
dark side of leveraged investing in the section on risk. And Nate Dean goes into
great detail on leverage later in the book.

As a real estate investor, you can rent your properties out, earning monthly
income. Property values can also rise based on demand. When the value of your
property increases above what you owe on your mortgage (including interest),
you can sell it and keep the difference.

What Are Real Estate Investment Trusts?

A real estate investment trust (REIT) is a company that owns and manages
properties on behalf of its investors. You can buy REITs on the open market

70
through a brokerage firm much like you would a stock or an ETF. REITS are a
popular investment vehicle for those looking to reap the rewards of real estate
without owning property directly.

A REIT will typically focus on a single type of real estate. For example, the True
North Commercial REIT manages commercial properties throughout urban centers
in Canada. The Bluerock Residential Growth REIT, meanwhile, focuses on
apartment buildings.

The United States Securities and Exchange Commission (SEC) mandates that REITs
pay at least 90% of their taxable income to shareholders in the form of dividends.
Because of this rule, many investors view REITs as reliable investments for
generating passive income. The value of a REIT on the open market can also rise
based on demand, allowing you to sell your shares for a profit.

More Complex Investments

Many investors have earned their fortunes without ever straying beyond the
aforementioned assets and what Brennan discussed in his chapter.

However, understanding the basics of the following more complicated

investments can give you a better picture of how markets work in general.
Consider this section supplementary information. And feel free to skip ahead to
the section on investment risk if your head is already spinning.

What Are Options?

An option is a contract granting its holder the right to buy or sell a stock at an
agreed-upon valuation (known as the “strike price”) within a set amount of time.
The holder doesn’t have to make the trade if it wouldn’t be in their best financial
interest; they simply reserve the option to do so before the contract’s expiration
date passes. Here’s a fun, easy example:

You really like cookies.

71
 Right now, cookies cost $1.00.

But in your cookie-loving brain, you’re worried. You think the price of
cookies might go way up to $2.00.

So you make a deal with the cookie seller.

You’ll give the cookie seller an extra $1.00 right now. In exchange, the
cookie seller makes a promise.

He promises that for the next month, he’ll sell you up to ten cookies for
$1.25 each.

If you’re right, and the price goes up to $2.00, your promise will “save” you
75 cents per cookie!! $1.00 spent to save $7.50 – that’s a great investment.

If you want, you could turn right around and re-sell your $1.25 cookies for
$2.00, and make an immediate profit.

If you’re wrong and the price stays at $1.00, then your promise expires at
the end of 1 month and you’ve lost the extra $1.00 you spent on the
“promise.”

The promise = an options contract

Cookies = asset (like a stock)

You can buy and sell options contracts through a brokerage account, much like you
would a stock. Not all brokerages allow options trading, however, given how risky
it can be.

There are two types of options: puts and calls. How you make money depends on
which of these you choose and whether you buy or sell them. Here are some
general principles to keep in mind as you read this section:

● Each options contract controls 100 shares of the underlying asset.

72
 ● Options contracts themselves vary in price based on several complex
factors. Generally, a contract will cost more the greater its lucrativeness for
the holder is likely to be.
● As with real estate investing, options allow you to take advantage of
leverage. For a relatively small investment (commissions plus the cost of the
contract), you can control a large asset (100 shares of a stock or ETF).
● The following explanations detail the basic mechanisms for making money
with options. There are countless complex strategies savvy investors can
use but those lie beyond this article’s scope.

Buying a put option allows you to capitalize on an asset’s decline in value. Say you
strongly believe (based on your research and analysis) that Corporation A’s stock is
going to fall from its current valuation of $200. You could purchase a put option
with a strike price of $200 (or any point above where you expect the stock to fall)
and potentially benefit from this expected move downward.

Say your analysis proves to be correct and Corporation A’s stock falls from $200 all
the way down to $80 within your contract’s term. You could then exercise the
option, purchase 100 shares at the market valuation of $80 per unit, and
immediately sell them for $200 apiece, netting you a profit of $12,000.

If your analysis turns out to be wrong and Corporation A’s stock stays flat or rises,
you can simply let your contract expire worthless. You’ll lose 100% of what you
invested (i.e. the purchase price of the option contract itself). It’s an all or nothing
bet!

Buying a call option allows you to capitalize on an asset’s rise in value. Because
options involve leverage, your gains can be much greater than what you’d achieve
by simply buying the stock itself and selling it after it climbs in value.

Say you believe that Corporation A’s stock is going to rise above its current
valuation of $200 apiece. By purchasing a call option with a strike price of $200 (or

73
any point below where you expect the stock to rise), you reserve the right to buy
100 shares at that price within the contract’s term.

Imagine that your analysis is spot-on and Corporation A’s stock skyrockets from
$200 to $400. You could then exercise the option, purchase 100 shares at $200 a
pop, and immediately sell them for $400 each. That’d be a $20,000 gain.

Once again, if your analysis falls short and Corporation A’s stock stays flat or
declines in value, you can let your option expire worthless. You’ll lose 100% of
what you spent on it.

Selling Puts and Calls

While buying a put or call option sees you acquiring the right to trade a stock at a
given price, selling them sees you agreeing to sit at the other side of the trade
should it be executed, even if that would not be in your best financial interest. In
exchange for this, you’ll receive a payment (or “premium”) from the buyer.

One major advantage of selling options contracts is that you benefit from two
possible outcomes instead of just one. Remember, the buyer of an option only
makes money when the underlying stock moves in the direction they predicted.
That’s it. As an options seller, you benefit when the stock’s price moves opposite
to the buyer’s preference or when it stays flat. In either scenario, the buyer has no
reason to exercise the contract, so you keep the premium and walk away
scot-free.

If the stock’s price does move in the buyer’s favor, however, your downside as an
options seller can be massive. Remember those huge gains we discussed in the
sections about buying puts and calls? You’ll be the one handing that money over if
your contract is enforced. While there are strategies you can use to mitigate this
risk, they are very difficult for beginning investors to understand. Failure to grasp
these concepts can lead to theoretically infinite (yes, infinite) losses.

74
What Are Commodities?
The term ‘commodity’ in investing refers to resources like food, oil, natural gas,
metals, and currencies. The value of these assets is directly driven by supply and
demand. For example, during the COVID-19 shutdown, oil prices slumped as the
commodity’s supply far outpaced demand due to shuttered air travel and global
economic policies (like Russia and Saudi Arabia choosing to drill oil like crazy!).

Investing in commodities can take several forms, including:

● Buying the resource directly.
● Purchasing commodity futures. These behave similarly to options but with
some key differences. You can think of futures as a ‘stricter’ contract; while
buying options allows an investor to back out if the trade would not be in
their best interest, futures come with an obligation to fulfil the trade
regardless.
● Buying shares of a commodities-focused ETF.
● Investing in companies that produce commodities (i.e. mining or drilling
firms).

The mechanism through which you make money with commodities depends on
how you purchase them. If you obtain a commodity directly (i.e. physical gold
bars), you’ll have to store it yourself, then find a buyer, negotiate a price, and
arrange delivery. As you can imagine, this proves quite impractical for individuals
looking to invest in commodities like oil.

Futures contracts aren’t very practical, either, since they come with an obligation
to purchase substantial amounts of the underlying commodity. As such, futures
are primarily used by large companies who rely on those commodities and would
be buying them anyway. In this scenario, futures are commonly used to ‘lock-in’ a
particular price for a commodity.

75
Individual investors can gain exposure to commodities through an ETF or a
commodity producer’s stock. These assets fluctuate in value based on demand for
the underlying resource and may also generate dividends.

Investment Risk: An Important Reality Check

Investing can be a great tool for growing your money over time. It’s not just a
free-for-all, though. Many investors falter by failing to take something very
important into account: risk. Here are a few things you need to consider with the
help of an investment advisor.

High Risk, High Reward

Keeping your money in a bank account is very low risk. While its value will
decrease year over year due to inflation, the nominal amount you hold will never
decline (unless, of course, you spend it). Consequently, you won’t get much of a
return by hoarding your money in this fashion. You’ll just earn whatever paltry
interest rate your bank offers (as of 2021, around 0.1%,). High-quality bonds are
also low-risk and you won’t get rich holding them, either.

Investing in the stock market carries a higher degree of risk. While stocks typically
rise over the long term, they don’t take a straight path upwards. Occasional
slumps are inevitable – and they can be substantial. During the 2020 COVID-19
pandemic, the entire market fell by more than 30%. Stock market investors are
willing to live with this risk because the potential returns are also large.

Real estate investing arguably carries an even greater amount of risk than the
stock market. If you utilize leverage to buy a property that subsequently becomes
worth less than what you paid, the bank still expects its money back. You’ll be
stuck overpaying for an asset that may or may not recover. This is the dark side of
leverage. While it can amplify your returns, it does the same for your losses. It’s
possible to end up owing more than you invested in the first place.

76
Your Appetite for Risk Is Probably Lower Than You Think
Research has shown that investors tend to overestimate their risk tolerance when
times are good. If you don’t take this phenomenon into account when designing
your portfolio, things can turn disastrous. Say you take on too much risk by buying
more properties than you can afford or tying up too much money in stocks. While
you’ll make lots of money when the market is rocketing upwards, the ferocity of a
downturn will likely catch you off guard. You may end up behaving irrationally in
one way or another, such as panic-selling assets at the worst possible time.

Avoiding this is easy if you work with a licensed advisor to determine your risk
tolerance and design a portfolio that’s compatible with it. This may seem like the
boring thing to do during exuberant times when you can pick just about any stock
and flip it for a profit the next day. However, investors who plan wisely based on
their risk tolerance have historically survived market downturns in much better
shape than those who did not.

Investing Styles: A Key Concept for Managing Risk

Choosing the right investment style is central to the process of designing a
portfolio appropriate for your risk tolerance. Here are the general styles that any
good investment advisor will explain to you before you get started.

Passive Investing
Passive investing involves buying and holding assets for the long term. Historically,
this has produced the best results for individuals investing over the long haul. One
popular strategy associated with this approach is something known as index
investing. This is when you purchase an ETF or fund that tracks an index such as
the S&P 500. It’s a low-cost, low-hassle investment strategy. Brennan discussed
these ideas in detail.

77
Active Investing
The active investing style involves picking stocks and other assets with the
intention of generating greater returns than you would through passive investing.
Over the long haul, this is much easier said than done – even for professionals.
The investors that do this well (such as Warren Buffet) are highly skilled at
analyzing companies and making financial decisions. They also have a massive
amount of money, allowing them to survive errors that would wipe out smaller
investors.

The Aggressive-Conservative Spectrum

The aggressive-conservative spectrum is a tool that advisors use to determine
how much risk an investor is capable of withstanding. For example, someone with
a high risk tolerance who won’t be retiring for 40 years can invest aggressively.
Any volatility in the short term will be a distant memory by the time they need
their money. Aggressive investing usually involves allocating more of one’s
portfolio to stocks.

Conservative investing, on the other hand, is geared towards people with a low
risk tolerance and shorter time horizon. It typically involves allocating a greater
portion of one’s portfolio to bonds, which are more stable.

Investing vs. Speculation

Another important concept to understand in relation to risk is the difference
between investing and speculation. While investing involves taking a calculated
risk on an asset that stands a good chance of producing positive results,
speculating is more akin to gambling. Let’s look at an example.

Person A truly believes that the American economy is a safe long-term bet. After
looking at different available ETFs, they settle on Vanguard’s VOO.IV fund because
they like that fund’s approach to pooling American assets. This person is an
investor; they did their research and made a choice for the long term.

78
Person B, on the other hand, is looking to get rich quick. Rather than researching
an asset and purchasing it for the long haul, they regularly trade options in an
attempt to capitalize on their predicted market swings. This person is a speculator.
Their strategy relies on short-term market action, which is much less reliable than,
say, the American economy continuing to grow as it has for hundreds of years.

Speculation can also involve buying assets like Bitcoin without fully understanding
how they work. There’s much more on crypto later in the book.

Not all speculation is a complete faux pas, though. Advanced traders can use it to
make money. It’s just not something that advisors will typically recommend you
stake your financial future on, especially as a beginner.

Are You Ready to Begin Investing?

At this point, you should have a solid grasp of investing’s fundamentals. In this
guide, we discussed various types of assets, how one might profit from them, and
the styles/benefits of investing. This information should serve as a great launching
pad for further exploration of investing.

79
Index Funds: The Core of A Portfolio
By Josh Gausden

Josh Gausden, otherwise known as Finance Josh, is obsessed

with personal finance and wealth-building strategies. His
mission is to spread financial literacy to the masses. Josh is the
author of ‘The Easy Way To Invest’; a book sharing some of
the strategies he has used to build wealth. This self-published
book has sold thousands of copies and counting. In his spare
time, Josh enjoys working out and spending time with friends and family. You’ll
often find him at restaurants eating his favorite food -- pizza.

Why should you listen to me?

Why listen to me? The truth is, you’re not listening to me. You’re listening to the
information I have learned from the greatest investors of all time, the books I have
read, and the statistical data supporting everything within this book. Below you’ll
find everything I know about investing in index funds, explained in layman's terms.
This way, you can easily understand and apply the information within this book. I
have skin in the game, and I practice what I preach. Almost my whole investment
portfolio is in index funds.

Introduction
I will explain why every investor should have index funds at the core of their
portfolio—no matter their investing skill level. Data will back everything I say, and
sources will be linked at the bottom of each page. I will also explain the negatives
of investing in index funds. By the end of this chapter, you’ll have a strong
understanding of what index funds are, why they work, and why they belong in
your portfolio.

80
What is an index fund?
If only there were a way to guarantee your fair share of the market’s returns
without spending hours analyzing companies… Enter index funds!

An index is used to measure something as a benchmark. For example, a teacher

may store an index of her class’s marks from their first exam of the year. After
that, she will test her students throughout the year and then compare the grades
to her index, noting any changes. This way, she will see if her students are
improving or not. In the investing world, indices are used as a benchmark for
investors to compare their performance. If you hear investors talking about
‘beating the market,’ they are talking about outperforming an index (usually the
S&P 500—more on this next)

A fund is simply a pool of money collected from investors.

When we combine the two, we get an index fund. An index fund is a pool of
investors’ money that aims to track an index. An index fund can either be a mutual
(index) fund or an index ETF. If you see me list an index fund with only letters like
VFIAX, I’m referring to a mutual index fund. If you see me list an index fund with a
dollar sign followed by letters, like $VOO, I’m referring to an index ETF. The dollar
signs followed by letters are called ticker symbols and are used to identify stocks
quickly.

We have multiple indexes used to track how the U.S. stock market is doing. The
most popular is the S&P 500 (Standard & Poor’s 500), which contains the top 500
companies in America. The S&P 500 makes up ~80% of the U.S. stock market’s
capitalization, making it an excellent index to track how the U.S. stock market is
performing. Here’s a list of the top 20 companies within the S&P 500 (you should
be able to recognize quite a few companies):

Apple $AAPL 6.1% Johnson & Johnson $JNJ 1.2%

81
Microsoft $MSFT 5.8% Visa $V 1.0%

Amazon $AMZN 3.9% UnitedHealth Group $UHH 1.0%

Facebook $FB 2.2% Home Depot $HD 1.0%

Alphabet (Google) $GOOGL 2.2% Procter & Gamble $PG 0.9%

Alphabet (Google) $GOOG 2.1% Bank of America $BAC 0.9%

Tesla $TESLA 1.7% Walt Disney $DIS 0.8%

NVIDIA $NVDA 1.4% PayPal $PYPL 0.8%

Berkshire Hathaway $BRK.B 1.4% Mastercard $MA 0.8%

J.P. Morgan $JPM 1.3% Adobe $ADBE 0.8%

*Data on this page is correct at the time of writing. The weights of an index are
constantly changing. Numbers have been rounded to the nearest 0.1% for simplicity.
Some companies have multiple share classes, which gives them numerous stocks. E.g.,
Alphabet (Google) has two shares listed. Different share classes represent different
voting rights.

If you’d like to see a complete list of companies included in the S&P 500 index, along with
their index weight, head to https://www.slickcharts.com/sp500

The percentage next to the ticker symbol is how much weight the stock takes up in
the index. For example, if you invested $10,000 into an S&P 500 index fund, you’d
have $610 in Apple, $580 in Microsoft, $390 in Amazon, and so on.

The S&P 500 is a market-cap weighted index, which means companies are
weighted according to their market capitalization (or market cap for short).
Market cap is how much a company is worth. It is calculated by multiplying the
number of outstanding shares by the current share price. For example, Apple
($AAPL) currently has 16.53 billion outstanding shares and has a current share

82
price of $140. 16.53 billion x $140 gives Apple a market capitalization of $2.31
trillion. In other words, investors value the entire Apple company at $2.31 trillion.

Let’s run through an example to explain the concept of a market-cap-weighted

index:

Assume that a stock market index contains only five stocks: $A, $B, $C, $D, and $E.

- $A has a market cap of $40 billion because it is expected to do very well in

the future.
- $B is also likely to do very well in the future, and so has a market cap of $30
billion.
- $C is expected to do well but not as well as $A or $B. As a result, it has a
market cap of $20 billion.
- $D is a great company, but investors don’t value it as much as $A, $B, or $C
because it is newer. It’s a higher-risk investment, and as a result, it has a
market cap of $9 billion.
- Lastly, $E isn’t expected to do well in the future. It’s been too slow to keep
up with technology, and investors aren’t confident it will turn itself around.
In the meantime, it’s providing investors with high profits paid out through
its high dividend yield. It’s only value at $1 billion.

We now have five companies of all different sizes within our index, giving us a
total index market cap of $100 billion.

$A 40%
$B 30%
$C 20%
$D 9%
$E 1%

If you invested $100 in this index fund, $40 would go to $A, $30 to $B, $20 to $C,
$9 to $D, and only $1 into $E.

83
A market-cap weighted index is great because it gives a larger weight to bigger
companies. Investors have high expectations that these companies will do well in
the future. Market-cap weighted indices are forward-looking. Technology
companies are expected to do well over the next few decades, and that’s why the
tech sector currently makes up 35% of the S&P 500. On the flip side, this type of
index fund gives smaller weight to smaller companies. These are companies that
aren’t expected to do as well in the future or whose future is uncertain.

A market-cap weighted index gives you exposure to these higher-risk-type

companies without overexposing you. Think of it like this: if you know that certain
companies will grow at a steady rate over the next few years, you may want to put
a good chunk of your money into these. But suppose a few up-and-coming
companies have a promising yet precarious future, potentially threatening the big
companies. You might want to own these too. It makes sense to put a small
amount of your money into these stocks, just in case they succeed in becoming a
larger company. How much goes into each risk bucket? The index fund does it for
you; you don’t need to do a thing. As companies move up and down the index
(due to their market cap rising or falling), you’ll own more or less of them. The
fund provider (e.g., Vanguard or Fidelity or Schwab) makes necessary changes
(new companies may enter or exit the index), so you can sit back and relax.

Another benefit of a market-cap weighted index fund is that it's diversified. A

diversified portfolio means that your long-term returns won’t be at the mercy of a
few companies. The last thing you want is all your eggs in one or a few baskets. If
one company is performing poorly, your portfolio shouldn’t suffer too severely. If
you have too much of your portfolio in one company, you will likely experience
extreme volatility.

For example, let’s say you have 20% of your portfolio in one stock. Negative news
comes out that the company has been committing fraud. The stock drops 30%
overnight, and your portfolio is subsequently down 6%. Not an ideal situation. If
you were an index fund investor, then a 30% drop in one company wouldn’t make

84
a big difference. Let’s say the index had given the stock a weight of 3% (relatively
high for an index). The net effect on your portfolio would only be - 0.9% compared
to -6%. The lower volatility works both ways – you won’t experience large daily
upward swings in your portfolio’s value. You can expect slow and steady growth
rather than wild fluctuations. You want to protect your downside more than your
upside because it’s much harder to recover from a large loss than a small one. If
your portfolio dropped 15%, you’d need to gain 17.65% to break even. But if your
portfolio dropped 3%, you’d only need a 3.1% gain to break even (much easier).

The same applies to having too much of your portfolio in one industry or sector.
With a market-cap weighted index fund like the S&P 500, there’s no need to worry
about this because you’ll own hundreds of companies across all 11 sectors and 69
industries in America.

Different Types of Index Funds

There are many types of index funds, all tracking different indices. For example,
the U.S. Total Stock Market Index contains almost 4,000 American companies. It
tracks nearly the whole U.S. stock market. An investor who wishes to own
practically every publicly listed company in the U.S. could buy an index fund like
VTSAX or $VTI. Likewise, an investor who wishes to own nearly every publicly
listed company in the world could buy an index fund like VTWAX or $VT.

You can also get industry or sector-specific index funds. If you think an industry or
sector will do well in the future but you aren’t sure which companies will succeed,
buy an industry or sector-specific index fund. For example, if you want exposure to
an Electric Vehicle (EV) index, you can do this through an index fund like $IDRV.

Although industry and sector-specific index funds are primarily passive, they are
more active than more broad-based index funds like VFIAX or $VOO. Because they
are more active, they often come with higher expense ratios.

85
An expense ratio tells you how much it costs to invest in the fund.The lower the
expense ratio, the better. You don’t actively need to pay the expense ratio. The
fund manager sells shares daily to cover the cost. Therefore, it’s vital to invest in a
fund with low fees. I’ll speak more about the crucial role that fees play in the next
section.

Index Funds vs. Actively Managed Funds vs. Picking Stocks

Should you invest in index funds, actively managed funds, or choose your own
stocks?

An actively managed fund is a fund that has a manager who often attempts to
outperform the benchmark index (usually the S&P 500) or beat the market’s
risk-adjusted return. Like an index fund, an actively managed fund can be a mutual
fund or an Exchange-Traded Fund (ETF). There is usually a lot of buying and selling
involved in actively managing a fund, so fees are high. Fees mainly cover
transaction costs, tax, and the salary of the fund manager. When you add these
fees together, it’s no surprise that the expense ratio is higher for actively-managed
funds than an index fund. Actively managed funds expense ratios are often in the
range of 0.5%-2.5%. The expense ratio is taken off the fund’s return, and even a
slight change in return can make a big difference in the long run due to the
compounding effect:

86
Note: “DCA” on the chart means Dollar-Cost Average—a.k.a. investing at the same
time every month no matter what.

As you can see, a 1% fee can be the difference between retiring at 40 and retiring
at 50.

On the flip side, index funds are passively managed. Rather than making active
decisions about what stocks to own in the fund, an index fund follows passive
rules. The fund must adhere to the ratio of stocks of the index that it’s tracking. It
still has a fund manager, but their job is not nearly as demanding as a fund
manager of an actively managed fund. Low transaction fees and minimal tax costs
make index funds a highly cost-efficient way of investing. Expense ratios on index
funds are often below 0.3%, but some are much lower. Take $VOO, for example.
It’s Vanguard’s S&P 500 ETF and has an expense ratio of 0.03%.

How do the returns of index funds compare to actively managed funds? A study
by IFA1 showed that from 2001 to 2020, 90% of actively managed mutual funds
underperformed the U.S. Equity index (VTSAX and $VTI track this index). In other
words, 90% of these highly-educated fund managers—whose job it is to pick the
best stocks—underperformed an index. It’s hard to beat the benchmark index
after accounting for all the fees and taxes incurred through frequent buying and
selling. Investing in an index fund like VTSAX or $VTI would’ve achieved a much
higher return without the thousands of hours reading through financial
statements.

You may be thinking, “but what about the 10% of actively managed funds that did
beat the index—can’t I invest in them?” Great question.

https://www.ifa.com/articles/despite_brief_reprieve_2018_spiva_report_reveals_active_funds_fail_dent_indexing
_lead_-_works/

87
The problem with this is, we don’t know which fund is going to beat the market.
Like picking the best stocks, picking the best funds is like trying to find a needle in
a haystack. If investors knew which fund would beat the market, they would rush
into the fund and drive up its premium (the difference between its share price and
the NAV of each share. A constantly rising premium can diminish a fund’s chance
of beating the market. (Note: Net Asset Value (NAV) is the value of the fund’s
assets – liabilities; essentially, the total value of all the shares that the fund holds.)

Another thing to note about this study is that it doesn’t include the funds that
failed before the end of the 20 year study. Instead, the study only includes funds
that survived the full-time period. This is known as survivorship bias.

Hence, even though 10% of actively managed funds could beat the index, the real
number is much lower since it doesn’t account for the funds that were shut down.
It’s very common for a fund to close. The main reason for a fund’s closure is
underperformance. If a fund is underperforming, it's closed and swept under the
carpet.

Another thing to note is that the returns that actively managed funds report that
they achieved aren’t achieved by investors in the fund2. The reason for this is
because most investors invest in a fund after it’s made huge returns. When the
fund’s returns converge back to its average return, investors who bought at the
top often achieve an inadequate return

How do the returns of index funds compare to actively managed funds?

According to Dalbar’s Quantitative Analysis of Investment Behaviour3, from
1988-2019, the average investor achieved a 4.1% annual return. In the same
period, the S&P 500 returned 10% annually. Thus, the average investor
underperformed the index by 5.9% per year. That is a considerable
underperformance. What may surprise you is the long-term effect of this
underperformance. Here’s a hypothetical portfolio returning what the average

2
https://www.morningstar.co.uk/uk/news/169775/investors-lose-cash-when-chasing-positive-returns.aspx
3
https://www.cnbc.com/2019/07/31/youre-making-big-financial-mistakes-and-its-your-brains-fault.html

88
investor returned compared to a hypothetical portfolio returning what the S&P
500 returned from 1988-2019:

Assumptions: $10,000 investment; no further contributions; dividends are tax-free

and reinvested.

The reasons why the average investor underperforms the market can be put down
to these five things:
● following the crowd
● overconfidence in their investing ability
● short-term thinking
● frequent buying/selling (added fees + taxable events)
● confirmation bias when researching new stocks

As you can see, the long-term effects of underperforming the market are
huge—even on a $10,000 portfolio. Now imagine you had a six-figure plus
portfolio. Even an underperformance of 1% can be the difference of hundreds of
thousands to millions of dollars in the long run.

89
For the reasons above, I believe that every investor should have index funds at the
core of their portfolio. 40%, 70%, 100%—you decide. The portfolio that would
outperform most equity investors long term would be 100% in index funds.
However, I understand that not everyone wants to only own ‘boring’ index funds.
Suppose you’re like me and find yourself wanting to invest in individual
companies. If that’s the case, there’s nothing wrong with allocating a section of
your portfolio for individual stocks. I allocate around 85% of my portfolio to index
funds, 10% to individual stocks, and 5% to crypto. These percentages may change
over time, but index funds will always remain the bulk of my portfolio.

This strategy is called the ‘core-satellite strategy.’ The core-satellite strategy is a

portfolio construction method. The strategy aims to have low costs, a small tax
liability, and minimal volatility while allowing the portfolio the chance to
outperform the market. The core of the portfolio is invested index funds, but
additional satellites are added. These can be actively managed funds, higher-risk
stocks, or cryptocurrencies.

“Index funds eliminate the risks of individual stocks, market

sectors, and manager selection. Only stock market risk remains.”

 Jack Bogle, Founder of Vanguard, inventor of the index fund, and

author of The Little Book of Common Sense Investing

Why Do Index Funds Outperform Most Investors? Index funds outperform most
investors due to something called the Efficient Market Hypothesis (EMH).

In short, EMH states that stock prices reflect all known information about the
underlying companies. Thus, it’s difficult—or perhaps even impossible—to have
an “informational edge” over the rest of the market. And without such an edge,
the prospect of “beating the market” consistently becomes near-impossible.

There are three levels of EMH: weak, semi-strong, and strong.

90
I’m going to skip over weak EMH because investors and economists largely agree
that weak EMH holds. Weak EMH renders technical analysis useless – the
historical price movement of a stock cannot be used to predict what it will do
next.

There is substantial data to support semi-strong EMH. Semi-strong EMH assumes

that weak EMH holds and that stock prices reflect all publicly available
information. Semi-strong EMH renders both fundamental and technical analysis
useless. If stock prices are always ‘fair,’ it should be impossible to find undervalued
companies, thus impossible to find an edge over other investors. An edge is
needed to beat the market. If there were a way to beat the market, then everyone
would do it, and then the strategy would no longer have an edge. Semi-strong
EMH claims it’s impossible to beat the market over a long period because
investors instantly squeeze out any efficiencies.

There is some evidence against semi-strong EMH. For example, some investors
can beat the market over long periods, like Warren Buffett, which should be
impossible under semi-strong EMH. Most economists and investors agree that the
market is not always rational (like in times of bubble-like behavior, e.g., the
dot-com bubble), but overall, it’s highly efficient.

There is convincing evidence against strong EMH, claiming that even all private
information (like insider knowledge) is priced into stock prices. I find this hard to
believe. If it were true, then insider trading wouldn’t be profitable. Spoiler: it is.

Anyone can beat the market in the short run. This doesn’t make you a good
investor – this is blind luck. The odds of beating the market in any given year are
50/50. The odds are 50/50 because the market’s return is the average return, so
50% of returns lie above and below the median.

Why is the stock market efficient? Imagine a room with a single investor in it. He
is given a laptop and the name of a company and told to value it based on all
publicly available information. Do you think his valuation will be 100% accurate?

91
Probably not because there is only one investor working on this complex
calculation. The investor’s valuation may only be 70% accurate. Now imagine a
room filled with 100 investors who are given the same task with the same
resources. Their valuation estimates are added up and divided by 100 to find the
average valuation. Do you think this will be more accurate than the valuation
proposed by the single investor? Most likely. Let’s say it’s 90% accurate. Lastly,
imagine a world filled with millions of investors using all publicly available
information to value the company (this is reality). Do you think their valuation will
be 100% accurate? I think it would be very close to 100%. If not 100%, then a
couple of decimal points off. You could argue that investors could exploit this
inefficiency, and they could. However, 99.98% of investors won’t spot it or act
quickly enough before the inefficiency is squeezed out. It will most likely be
squeezed out by software that institutions have access to that us average
investors don’t.

When market participants don’t have access to the same data, it’s possible to beat
the market. Economists call this information asymmetry. Overall, markets with
information symmetry are highly efficient. The stock market will continue to
become more efficient as the democratization of information and software takes
place.

A highly efficient market makes it near-impossible to beat the market. On the

other hand, markets with information asymmetry like real estate aren’t as
efficient as the stock market. A less efficient market makes it possible to beat the
average investor’s return.

If semi-strong EMH is true, then the best thing an investor can do is own a fund
that tracks a diversified index, make as few trades as possible and hold long
term.

If you find yourself disagreeing with EMH and can or want to find inefficiencies like
mispriced companies in the market and generate alpha, then go for it! I still think

92
it makes sense to hold a portion of your portfolio in index funds to guarantee you
your fair share of the market’s returns.

Why? Because your chances of beating the market are ultra-low. Even if you do
beat the market, it may not be worth it once you adjust for the effort and time
needed to do so.

For example, you actively manage your $100,000 portfolio and beat the market by
5% a year. If it takes you 10 hours a week to manage it, then you just earned an
hourly salary of $9.62. If you value your time at more than $9.62 an hour, it makes
no sense to attempt to beat the market. Remember, this assumes that you will
beat the market consistently, by 5% a year.

I would go as far as saying this is impossible. Even Warren Buffett used other
people’s money (via “insurance float”) to help him achieve his legendary returns.

“But what about the compound effect?” you may ask. There would be no added
compounding effect if you used that time to work a job that pays more than $9.62
an hour and invest it into index funds.

If you’d like to learn more about EMH, start here:

https://en.wikipedia.org/wiki/Efficient-market_hypothesis

How To Choose A Great Index Fund

Once you know which type of index fund you want to invest in, choosing a great
one is simple. All data can easily be found on Google. Alternatively, you can use a
website like etf.com to compare ETFs, or a website like Morningstar to compare
mutual funds.

Here’s how to choose a great index fund:

93
 ● Expense ratio – it should have a low expense ratio. Anything under 0.3% is
acceptable but ideally, the lower the better.
● Liquidity – this is how easy and cheap it is to convert your investments to
and from cash. You want a high-liquidity fund because you want the bid-ask
spread (the difference between the buy and sell price) to be small. Think of
the bid-ask spread as a hidden fee you pay when buying and selling an
investment. You can google ‘*index fund name* bid-ask spread,’ and you’ll
be able to find it.
● How well it tracks the index – measured by the fund’s tracking error; the
smaller, the better. This one is essential. You want the fund to be very good
at following the index. You don’t want it to outperform the index because
this means when the market switches from being in a bull run to a bear
market (or vice versa), you will underperform it. For the same reason, you
don’t want it to underperform the index. You can predict how well an index
fund will track the benchmark by comparing its weightings to the index’s
weightings. The two should be near-identical. If they aren’t, the index fund
won’t do a great job at tracking the index. You can find an index fund’s
weightings by googling ‘*index fund name* holdings.’
● Turnover ratio – this is how much buying and selling goes on within the
fund. The lower the turnover ratio, the better. As I’ve explained previously,
we want our fund to minimize transaction fees and tax costs, so we want
minimal buying and selling. If the index fund has a high turnover ratio (it
shouldn’t), avoid it.

Pros and Cons of Index Funds

Pros:
● Index funds are an extremely easy way to invest — you don’t need to read
hundreds of financial reports. Instead, you simply buy an index fund that
contains hundreds of companies.

94
 ● Index funds are an extremely cheap way to invest – an investor can save on
transaction fees by letting the fund manager handle the buying and selling
of hundreds of companies.
● Index funds have a strong track record — the average return from the S&P
500 has been around 10% a year over the last 90 years.
● Index Funds are proven to outperform actively managed funds — due to
the efficient market hypothesis (even if not entirely), index funds have and
will continue to outperform almost every investor.
● Index funds are diversified — investors can be diversified across hundreds
of companies, industries, sectors, and countries by investing in an index
fund.
Cons:
● It's almost impossible to beat the market – since index funds often track
the whole market, it’s nearly impossible to achieve higher returns than the
market. It’s possible to beat the market significantly using industry or
sector-specific index funds. However, it’s also possible to underperform the
market significantly, something that’s near-impossible with a broad-based
index fund like $VOO (S&P 500). Counter: this is a good thing. We know the
odds of beating the market are ultra-low. Because they are ultra-low, it
makes sense to guarantee our fair share of returns rather than risking it in
an attempt to beat the market.
● Lack of flexibility – unlike actively managing your own portfolio and
controlling which stocks you invest in and their weight (%), index funds
track an index. You can’t customize them by adding/removing stocks or
increasing/decreasing the weight of each company. Counter: you can have
index funds at the core of your portfolio and then add additional stocks,
funds, or crypto.

Index Funds FAQ

Does the S&P 500 pay dividends? Yes, it does. Because there are so many
companies within an index fund, it is almost guaranteed that at least one company
will pay dividends. You can find out an index fund’s dividend yield by looking for its

95
distribution yield. The distribution yield includes dividends, capital gains, and
bond interest. If you want to maximize the compounding effect, it’s always
recommended that you reinvest dividends. If you plan to reinvest dividends, it
may make sense to own an accumulating fund rather than a distributing fund. A
distributing fund pays out the dividends that it receives from the companies
within the fund. An accumulating fund reinvests these dividends for you.

Be careful: these dividends are taxable if an accumulating fund is held outside of

an account that offers tax-free growth.

How Many Index Funds Should an Investor Hold? An investor can get away with
holding only one index fund like $VT or VTWAX. These contain almost every
publicly listed company in the world. A fund like $VT or VTWAX would give you all
the diversification you need in terms of equities. Alternatively, if the investor only
wants to hold U.S. companies, they could invest in VTSAX or $VTI. Adding more
index funds doesn’t necessarily make you more diversified, so less is more. For
example, it doesn’t make sense to own both an S&P 500 index fund and a U.S.
Total Stock Market index fund because they heavily overlap.

Should I go for a mutual fund or an ETF? Both are very similar. ETFs offer more
flexibility as they can be traded whenever the stock market is open. On the flip
side, mutual funds can only be traded once or twice a day. Mutual funds often
have minimum investments, whereas ETFs don’t and may even be able to be
purchased as fractional shares if your brokerage supports it. You can also sell
options on ETFs, so it may make sense to go with index ETFs if you're into options.
Don’t overcomplicate it – both are passively managed, have similar expense ratios,
and offer almost identical returns. Try out both and see which one you prefer.

What are your favorite index funds? My favorite indices are anything that tracks
the broad U.S. market (like $VTI/VTSAX) and anything that tracks the whole world
(like $VT/VTWAX). Since I am from the U.K., I can’t invest in the above index funds.
However, I can invest in their equivalents – Vanguard’s U.S. Equity Fund
(equivalent to $VTI/VTSAX) and Vanguard’s FTSE Global All-Cap Fund (equivalent

96
to $VT/VTWAX). I invest in these funds because I use Vanguard as my brokerage.
There are many great index funds out there from companies like Fidelity and
Charles Schwab. If you’re with a brokerage that offers index funds, like Vanguard
or Fidelity, then it often makes sense to use their index funds. If you plan to invest
in index funds, you may want to consider this when choosing which brokerage to
use.

Concluding Remarks

Investing doesn’t need to be complicated, nor does it need to be stressful. Index

funds offer both the beginner and the professional investor a low-cost way to have
a diversified portfolio. Investing in index funds means you don’t need to spend
hours a week reading financial statements or keeping up to date with the financial
markets. It is my opinion that having index funds at the core of your portfolio is a
no-brainer. What you do with the rest is up to you: increase your allocation to
index funds, invest in individual stocks, or delve into crypto. Index fund investing is
the best and easiest long-term investment strategy for most people. 99% of
people would be much better off by investing in index funds instead of individual
stocks.

“A low-cost index fund is the most sensible equity investment for the
great majority of investors. My mentor, Ben Graham, took this
position many years ago, and everything I have seen since convinces
me of its truth.”

Warren Buffett, the current chairman and CEO of Berkshire Hathaway;

arguably the greatest investor of all time

One more thing: having learned the benefits of investing in index funds over
actively managed funds, it’s worth looking into what your 401(k) is invested in.
Often, it’s invested in an actively managed fund with an exorbitant fee. Instead,
you can get it changed into an index fund by speaking to your employer, seeing
the options, and choosing the appropriate index fund.

97
I hope that you enjoyed learning all about index funds, and good luck with your
investing journey!

You can find me on Instagram @financejosh and Twitter @joshgausden. I post

regularly about personal finance, investing in stocks, real estate, and crypto.

If you’d like to purchase one of my books, here are the links to them:

The Easy Way To Invest: https://financejosh.gumroad.com/l/howtoinvest

This book is a step-by-step guide that teaches you everything you need to know to
get started in the stock market. I offer a 100% money-back guarantee on this so if
you don’t enjoy it (I think you will), I will give you a full refund.

Hack The Algorithm: https://financejosh.gumroad.com/l/HackTheAlgorithm

This book is a step-by-step guide that teaches you everything you need to know to
go from 0-100k+ followers without spending a dime on marketing. I’ve used my
social media presence to generate a full-time income (often five-figure months)
from home and you can too!

98
Understanding Fees and Where to Find Them
By Roger Lopez

Roger is the founder of UPshot Wealth and is a self-taught

personal finance coach. He recently hit a million-dollar net
worth in his mid-30s. Roger started UPshot Wealth after
realizing that making the best financial decisions can be
complex, complicated, and definitely intimidating at
times...but with the right information and drive, anyone can
make their money work harder for them.

While the following advice applies specifically to 401(k) accounts, a similar - and
often easier - set of tactics can be applied to your IRAs, taxable accounts, or other
investing accounts. So don’t worry if you don’t have a 401(k). Because this
knowledge about fees will surely help your investing future.

You know your 401k is an important way to save for retirement, but you’re unsure
what average 401k fees are. Not to worry. This chapter will help clear up any
confusion.

401k plans are more important than ever before. As of June 30, 2020, 401k plans
are estimated to be holding $6.3 trillion dollars, or nearly one-fifth of the $31.9
trillion US retirement market according to the Investment Company Institute.

With all the money that participants are pouring into their 401k plans, TD
Ameritrade decided to see what they really know about their plans. They found
that:

● 37% of people don’t believe they pay any fees within their 401k
● 22% didn’t realize 401k plans had fees
● 14% have no idea how to determine how much they are paying in fees

99
Yet almost everyone who has a 401k plan is paying fees. According to the study
above, 95% of 401k investors pay fees.

What Types of Fees Do I Pay in My 401k?

Fees within your 401k break down into 3 categories: administration fees,
individual service fees, and investment fees, as defined by the U.S. Department of
Labor.

Administration fees are the fees you pay to whoever manages your 401k plan. It
covers things like record-keeping, accounting, legal, trustee services, etc. From the
perspective of a 401k contributor, you don’t have much control of the fees listed
as they are just built into the plan. Sometimes companies will cover these fees for
their employees.

Individual service fees relate to features you take advantage of regarding your
401k. For example, say you decide to rollover your 401k, or take a loan out against
your 401k. The administrator of your 401k plan will charge you for these services
when you decide to use them.

Investment fees are the ones people are most familiar with. Investment fees are
the only ones you have control over because you choose which funds to invest in.
The fee can be determined by looking at the expense ratio.

How To Find A Fund’s Investment Fee

As an example, take a look at this fund below, which I’ll call Fund A. We see it has
an expense ratio of 0.85%.

100
If you want to see how that fee breaks down, you can look at its Prospectus. The
easiest way to find this is by doing a CTRL+F and searching for “Prospectus” on the
page showing you the summary of your fund (similar to what you see on the chart
above).

The breakdown will show you something like the image below.

101
The Management fee is what the investment manager(s) charge for managing the
fund and any administrative costs.

The “Distribution and/or Service (12b-1) fee” was introduced by mutual funds as a
way to promote a particular mutual fund. The theory behind the fee was that if
the mutual fund became popular, that would increase its assets and the expense
ratio could be lowered.

From an investor perspective, it has no value. It is just another fee eating at

profits.

Some 12b-1 plans include “shareholder service fees”. These fees are collected to
pay persons involved with responding to investor questions and providing
investors with information about the fund they are investing in.

If the fund you are interested in has this fee, it would be listed under the Annual
Operating Expenses as shown in the above example. Since the “Fund A” I provided
does not have a shareholder service fee, it is omitted.

“Other expenses” are all the other fees that don’t fall under the Management fee
or 12b-1 fee. The fees vary, such as accounting and legal expenses, admin
expenses, etc.

Lastly, “Total annual operating expenses” is the expense ratio value you saw in the
summary page, and is the fund’s fee expresses as a percentage of average net
assets.

These same fees can exist in all mutual funds, whether inside your 401k account
or not.

What Are Average 401k Fees?

102
401k fees on average range from anywhere from 0.50% to as high as 2%. The
discrepancy depends on the size of your employer’s 401k plan, the plan provider
used, and how many participants are in the plan. A study by BrightScope,
Investment Company Institutefound that the largest 401k plans had lower fees
compared to smaller 401k plans.

While you can’t control the 401k fees such as administration fees and individual
service fees, investment fees are much more in your control as you decide what
funds to invest in within your 401k portfolio.

For my own account, I like to look for index funds that have fees no higher than
0.25%.

When deciding between which funds to invest in, the fee is only one critical
aspect. Understanding your overall goals, how the fund aligns with your goals and
your risk tolerance are even more important. Definitely checkout out the previous
chapters from Brandon, Brennan, and Josh for more information on risk tolerance
and fund choices.

Why Should I Pay Attention To Fees?

Fees can be the difference between a comfortable retirement and one that runs
out too quickly. Because of compound interest, what may seem like a “small
percentage” can actually eat away at tens of thousands of dollars of your savings.

If you invested in “Fund A.” for example, you’d pay $8.50 for every $1,000 you
invested in the fund. And you’d pay that every year. The fees compound, and they
compound in the bad direction!

103
Taken a step further, if you invested $100,000 into Fund A, in 30 years it would be
worth 22% less, a loss of over $22,000! Why? Because it would be compounding
-0.85% against your balance every year for 30 years.

Source: The Calculate Site using inputs:

- Initial Balance: $100,000

- Interest Rate: -0.85%
- Years: 30

What Can I Do To Minimize My Fees?

An easy thing to do is look at the different investment options within your 401k.
Compare funds with similar categories (Large Cap, Mid-Cap, etc) and look at their
expense ratios.

You may find that you can invest in a similar fund with a much lower fee. These
small details can be the difference between having thousands of dollars extra in
retirement versus losing those dollars to fees.

104
If you’re looking to maximize your 401k, I explain everything I’ve learned in my
book, from the basics to the more advanced.

Get your copy here.

105
Just START! The Power of Investing While Young

By Ross, the Dividend Hero

Ross is a 23-year-old investor and student of the stock

market. Hailing from Greenville, South Carolina, Ross has
been interested in helping others better understand
investing since his first trades in his teenage years. Ross’s
main investing strategy focuses on low-cost index funds and
dividend growth stocks. You can follow Ross on Twitter.

I first started investing when I was 18 years old. I invested money that I got from
my high school graduation into a low-cost index fund.

Then I forgot about my investment for 2 years. And that was the best thing that
could have happened to me.

One day I saw the stock market in some headlines and remembered, “Hey! I have
some investments somewhere…”

I logged into my account and checked my investment and saw that it had grown!
Seeing my money grow like that...I got hooked! I started reading more and
learning more about investing.

I knew I had time on my side and I wanted to take the long-term approach. The
math was overwhelmingly clear. My long time horizon gave me a significant
opportunity to grow my investment.

I saw that I was able to invest even a small amount per month, it would compound
and grow much bigger than I ever could have imagined. Time is a young investor's
greatest asset and I encourage people to take full advantage of it.

106
One of my favorite sayings along this line is that “today is the oldest you have ever
been and the youngest you will ever be again.” It’s a quote from Eleanor
Roosevelt. It is such a simple statement, but it holds so much power.

Today is the oldest you have ever been. Give yourself some credit no matter how
old you are. You should be proud of your accomplishments and how far you have
made it.

Today is the youngest you will ever be again. That last statement had you feeling
old, but now you’re feeling young again! Youth fills you energy and hope for a
bright future.

So how does this relate to investing? I’m sure you have heard people say, “I am
too old to start investing,” or “I didn’t invest early enough.” My response to that
is always, “Well…today is the youngest you will ever be again! You can start
investing today!” Time truly is the one variable we can’t control.

What can you control? The more time you can let your money work for you, the
bigger it has the chance of growing. The only solution to wasted time is to act
now.

Past results don’t always equal future success. But investing over the long term
has proven to be a successful strategy for the past 100+ years. That holds true
even when markets stay stagnant (or even move negatively) over shorter periods.

So let’s cover the real power of investing early. Some of the next few paragraphs
will be math, and some of it will be stories. Just remember that no matter how
old you are, today is the youngest you will ever be again.

Let’s start off with some math. Here is an example scenario. Say you invest:
- $1000 initially
- Add $500 per month
- Do this for 30 years

107
 - Earn an 8% annual return

You will end up with: $689,761

Let’s tweak one variable - the timeline. Say you invest:

- $1000 initially
- Add $500 per month
- Do this for 40 years
- Earn an 8% annual return

You will end up with: $1,576,063

Here is the compound interest calculator that I used. Go to it and play around with some
numbers. You might be surprised at the results.

Look at how much of a difference 10 years in the market can make. It’s a $900,000
difference. The first 30 years created ~$700,000. The additional 10 years added on
another ~$900,000. That is the difference that compound interest creates when
you give it enough time.

Compound interest occurs when your money earns interest on its own interest. It
acts as a money multiplier. Compound interest breaks down into simple math, but
it’s very powerful. Wealthy investors make sure that compound interest is working
for them.

But compound interest can also work against you in the form of bad debt. Debt
compounds too. Recovering from debt is an uphill battle against compound
interest.

Albert Einstein famously said “Compound interest is the 8th wonder of the world.
He who understands it, earns it, and he who doesn’t, pays it.”

108
This is such a great quote, and one that I always come back to. Understanding the
power of compound interest will get you excited about investing. You’ll start
taking full advantage of how it can grow your money over time.

Investing while you are young allows you to do a few things.

First, you can invest less per month but over a longer period. Let’s riff off the
30-year and 40-year examples above.

Our 30-year investor ended up with about $700,000. If they wanted to reach $1.5
million in 30 years, they would have had to double their monthly contributions
over that entire 30 year period. That’s not easy.

But if they could afford to wait 10 more years, then their smaller monthly
contribution gets them to the $1.5 million mark.

Earning and investing more money can be hard. Telling someone, “Just earn $1000
more per month,” falls into the “no shit, Sherlock!” category of advice. But
choosing to be more patient and wait longer – that’s within your control.

This is an essential point that I always stress to other young investors. You don’t
need a lot of money to begin investing, especially when you have time on your
side. The math proves it.

When I first started investing, I would find compound interest calculators and run
all kinds of scenarios. I quickly saw how attainable financial freedom was because
I had time on my side. This is what keeps me motivated as a young investor.

A second advantage of investing while you are young is that you can handle
volatility better. Instead of focusing on day-to-day gains or losses in the stock
market, you can focus on the long-term growth of your investments. Volatility
becomes less of a factor. What’s more important is picking investments that will
help you reach your investment goals.

109
One classic example is the big selloff in the stock market due to COVID-19 fears. In
March 2020, the stock market dropped ~35% in three short weeks. For young
investors, this was a great time to buy.

With a long time horizon, young investors had the ability to buy some great
companies at great prices and will be holding those stocks for many years to
come.

Most big dips like that are driven by fear and panic - not anything fundamentally
wrong with the companies themselves. Investing while you are young allows you
to ride out those market headwinds since time is on your side.

To wrap things up, remember: today is the youngest that you will ever be again.
It is never too late to start investing, but investing while you are young gives you a
huge advantage over time.

Compound interest is the backbone of why investing while you are young is
essential. Compounding your money over many years is where the real growth
happens.

The math backs all of this up and there are plenty of resources out there that will
help you with the calculations. Investing over time allows you to ride out market
volatility and keep your focus on the bigger picture.

No matter your age, I hope this chapter has inspired you to consider investing. If
you ever want to chat or have any questions, feel free to message me on Twitter,
where my username is @herodividend.

110
Timing the Market: Worst, Best, or Slow-and-Steady
By Jeremy Schneider Personal Finance Club

Jeremy Schneider is a successful entrepreneur and personal

finance expert. After starting an internet company in
college, selling it at the age of 34 for over $5M, and retiring
at 36, Jeremy has dedicated his life to teaching personal
finance. He is the founder of Personal Finance Club, a
community of champions of the individual investor who help
further financial education. Jeremy likes playing beach
volleyball and writing bios about himself in the third person
;)

I downloaded the historic S&P 500 data going back 40 years. I dumped everything
in Google Sheets and modeled three different portfolios, named after three
fictional friends: Tiffany, Brittany and Sarah.

All three saved $200 of their income per month for 40 years for a total of $96,000
each. But after 40 years they all ended up with different amounts based on their
investment strategies.

Tiffany's Terrible Timing

Tiffany is the world's worst market timing. She saves $200/month in a savings
account getting 3% interest until the worst possible times.

She started by saving for 8 years only to put her money in at the absolute market
peak in 1987, right before Black Monday and the resulting 33% crash.

But she never sold, and instead started saving her cash again, only to do the same
at the next three market peaks. Each time she invested the full amount of her
saved cash only to watch the market crash immediately after.

111
Most recently she put all her money in the day before the 2007 financial crisis.
She’s been saving cash ever since waiting for the next market peak.

With this perfectly bad market timing, Tiffany still didn’t do too bad. Her $96,000
she saved and invested over the last 40 years is now worth $663,594.

Even though she invested only at each market peak, her big nest egg is thanks to
the power of buying and holding. Since she never sold, her investment always
recovered and flourished as the market inevitably recovered far surpassing her
original entry points.

Brittany Buys at the Bottom

Brittany, in stark contrast to Tiffany, was omniscient. She also saved her money in
a savings account earning 3% interest, but she correctly predicted the exact
bottom of each of the four crashes and invested all of her saved cash on those
days.

Once invested, she also held her index fund while saving up for the next market
crash. It can’t be overstated how hard it is to predict the bottom of a market.

In 1990 with war breaking out in the Middle East, Brittany decided to dump all her
cash in when the market was only down 19%.

But in 2007, the market dropped 19% and she didn’t jump in until it fell all the way
down to a 56% drop, again perfectly predicting the exact moment it had no
further to fall and dumped in all of her cash just in time for the recovery.

For this impossibly perfect market timing, Brittany Bottom was rewarded. Her
$96,000 of savings has grown to $956,838 today.

112
It’s certainly an improvement, but interesting to note that when comparing the
absolute worst market timing versus the absolute best, the difference is only a
44% gain.

Both Brittany and Tiffany have the vast majority of their growth thanks to buying
and holding a low cost index fund.

Slow and Steady Sarah

Sarah was different from her friends. She didn’t try to time market peaks or
valleys. She didn’t watch stock prices or listen to doomsday predictions. In fact,
she only did one thing. On the day she opened her account in 1979, she set up a
$200 per month auto investment in an S&P 500 index fund. Then she never looked
at her account again.

Each month her account would automatically invest $200 more in her index fund
at whatever the current price happened to be. She invested at every market peak
and every market bottom. She invested the first month and the last month and
every month in between. But her money never sat in a savings account earning 3%
interest.

When Sarah Steady was ready to retire, she signed up for online access to her
account (since the Internet hadn’t been invented when she last looked at it). She
was pleasantly surprised with what she found.

Her slow and steady approach had grown her nest egg to $1,386,429. Even though
she didn’t have Brittany’s impossibly perfect ability to know the bottom of the
market, Sarah’s investment crushed Brittany’s by more than $400,000.

113
Recap
● Amount Saved/Invested: $96,000 each
● Investment: Buy and hold an S&P 500 index fund
● Tiffany (worst timing in the world): $663,594
● Brittany (best timing in the world): $956,838
● Sarah (auto invests monthly): $1,386,429

So if you’re worried the market is too high and we’re due for a crash...or you want
to wait for the inevitable drop before you put your money in...just think about
whether you’re so good at predicting the market you can do it better than Brittany
who knew when to invest down to the exact day.

And even if you are that good, realize that it’s still a losing strategy compared to
the early-and-often approach that Sarah executed so flawlessly

114
The Starter Portfolio: Just Be “Lazy”
By Business Famous

Business Famous is a staple on “Money Twitter,” where he’s

equally known for his investing wisdom and his witty
financial memes. Whether you’re looking for thoughts on the
market or just a good laugh, give Business Famous follow.

I’m glad to be writing this section on starter portfolios because starting is where
most people get hung up. They overthink it. Paralysis by analysis.
So…
Before you read another word, if you don’t already have a brokerage account, go
open one up! That’s Step 1. Fidelity, Webull, Robinhood – it doesn’t matter which
brokerage you open your account with. Take action and come back to this page
once your account is open.
- I’ll wait -
OK, welcome back! Now Step 2 - Put some money in that account! How much?
Doesn’t matter. $20, $100, $500 it’s all good. Typically this is done by giving your
bank account information to your brokerage.
Step 3 - look for a stock ticker called $VTI. VTI is a Vanguard Total Stock Market
Index Fund ETF. It’s the same one that Josh Gausden mentioned in his section. Buy
some VTI with that money you just funded your account with.
What is $VTI? VTI is an Index ETF. That means it holds shares of multiple
companies in one big basket. When you buy one share of VTI, you’re buying a tiny
piece of Apple, Microsoft, Google, Amazon, and over 4,000 different public U.S.
companies all at once.
Congratulations, you are now a stock market investor!
Now that you have some skin in the game, you’ll be even more enthusiastic to
learn more.

115
What does a Lazy Portfolio mean?
My idea of a Lazy Portfolio is one that you can plow money into on a consistent
basis, and very rarely need to look at it. It’s a low maintenance portfolio but still
captures that delicious, delicious compound interest we all crave.
Investing your cash puts that cash to work for you. You’re off doing your thing in
real life – working, side hustling, making memes. Your invested dollars are still
working in silence. And you’re investing more and more dollars over time.
This won’t be a “YOLO” portfolio where you make (or lose) 100% in a week. A Lazy
Portfolio is a steady workhorse. A reliable, compounding machine.

Portfolio Construction

Option 1: Lazy Level - The very laziest

Theoretically, you could just stop right here with just VTI. Regularly pound as much
money as you can into VTI every week. As long as you can resist the temptation of
withdrawing money, compound interest will serve you very well. Stock market
investing can be as simple as this. In fact, I know many people who invest this way
and are perfectly happy matching the returns of the overall US stock market.

Option 2: Lazy Level - Very lazy

A 100% stocks portfolio is too volatile for some people, so they mix in more
conservative investments. Usually, that means bonds.
The “Classic” portfolio mix is a 60% stocks/40% bonds mix. You could accomplish
this by investing in ticker BND to go along with VTI. Just like how VTI is all US
stocks, BND is all bonds (it’s Vanguard’s Total Bond Market Index Fund ETF).
That being said, it’s 2021. Bond yields have dropped so low that for most people,
it might not make sense to invest in them. There may be a time in the future that
bond yields bounce back, and bonds become relevant again. So, what could you
invest in instead?

116
Option 3: Lazy Level - Still quite lazy
You could select a mix-and-match portfolio of 2-5 different Index ETFs or sector
ETFs. This lets you focus your portfolio in areas that you enjoy investing in.
For example, if you like the idea of investing in an ETF of companies backed by
physical real estate, you can add in a percentage of ticker VNQ. Or if you think
Information Technology is going to outpace general market returns in the future,
you can invest in that sector as well (ticker = VGT).
Here is a list of some of my favorite Index or broad sector ETF’s (ticker and
description):
VTI - Vanguard Total Stock Market Index Fund
VUG - Vanguard Growth Index Fund
VGT - Vanguard Information Technology Index Fund
VOO - Vanguard S&P 500 ETF
VNQ - Vanguard Real Estate Index Fund
VB - Vanguard Small-Cap Index Fund
VYM - Vanguard High Dividend Yield Index Fund
DGRO - iShares Core Dividend Growth ETF
BTC – Bitcoin (not an ETF but I’d say everyone should have at least some Bitcoin)

What could a sample portfolio look like? Keep in mind everyone’s goals and risk
tolerances are different. But here’s an example of a five ETF portfolio that a
conservative investor might put together:
VTI (Total Market) = 65%
VNQ (Real Estate) = 10%
VB (Small-Cap) = 10%
DGRO (Dividend Growth) = 10%

117
BTC (Bitcoin baby!) = 5%
There’s no one “right” portfolio mix. It’s called Personal Finance because your
investments are personal to you. Look into each ETF on their respective website(s)
and see which ones you like best. You can mix and match different ETFs at
different percentages to do what fits your personality. At the end of the day,
what’s most important is that you believe in your investments and are
comfortable holding them long term. No one can decide that but you.
Here are some more Lazy Portfolio ideas. This is by no means a complete list of all
options, it’s merely meant to be a starting point for you own research:

A Note about Vanguard

You’ll notice that many of the ETF tickers I mentioned start with a “V”. The reason
for that is that those are ETFs run by Vanguard. In the 1970’s, Vanguard
essentially pioneered ETF/Index investing for the masses. The benefit of Vanguard
is that their fees tend to be very low.
Every ETF charges a fee to manage the stocks that are a part of it. ETF fees are
shown as “Expense Ratio” on most financial websites. Here’s an example on Yahoo
Finance:

118
The expense ratio on VTI of 0.03% means that for every $10,000 you have in VTI,
Vanguard charges $3.00 per year in management fees. Be wary of investments
that charge a high percentage in fees.
Just for reference, a 1% fee sounds small, but is actually very high. If you read
Roger’s chapter in Money Mastermind, you know how true this is.
There are many other companies that offer ETFs (Schwab, iShares, Invesco, etc).
Before you invest in any ETF, go to their website and find out what the goal of the
ETF is and what the expenses are.

Other ETFs
Up until this point, we’ve only mentioned Index ETFs or broad-based ETFs whose
goal is to provide a similar return as the entire stock market or entire sectors of
the market. Keep in mind that not all ETFs follow this footprint.
There are ETFs available that focus on growth industries, like Sport Betting (BETZ),
Space Exploration (ARKX), Streaming Services (SUBZ).
These growth focused ETFs are usually more actively managed, which usually
means a higher expense ratio (higher fees). Growth oriented portfolios also tend
to have larger price swings (both up and down), which doesn’t always fit into a

119
“lazy” portfolio model. I would encourage you to get used to Index ETF investing
first, before expanding to growth ETFs or individual company stocks.

Dollar Cost Averaging

I believe the best way for 95% of people to invest is to pick the ETFs they like and
regularly contribute to them over and over. Bonus points if you automate your
investing through your broker, so it automatically deducts the same amount from
your bank account and invests it for you.
Whether it’s $500/week or $50/month, automated investing into index ETFs will
help you avoid trying to time the market. Ideally, yes, you want to buy low and sell
high. But knowing when exactly is the lowest low and the highest high is nearly
impossible.
Instead, Dollar Cost Averaging is the best way to build your portfolio.
Dollar Cost Averaging (DCA) simply means that you’re buying a set dollar amount
over and over, regardless of the ETF price. This way you’re automatically buying
fewer shares when the stock price is high, and more shares when the stock price is
low. Here’s an example:
Let’s say you’re investing $500 every month into VTI:

120
You’ll notice that when the price of VTI is high, your $500 automatically buys you
fewer shares. Conversely, when the price of VTI is lower, your $500 buys you
more shares.
Consistently Dollar Cost Averaging is a great way to manage a lazy portfolio!

Rebalancing
It is generally advisable to rebalance your portfolio about once per year.
Rebalancing just means redistributing your investment dollars to maintain the
investment percentages that you decided upon when you started.
Example: In our example portfolio, we chose these five investments with the
following percent allocations:
VTI = 65%
VNQ = 10%
VB = 10%
DGRO = 10%
BTC = 5%

Now, let’s say that your Small Caps (VB) underperformed this year and fell to 8%
as a percentage of your investment mix. And let’s say that Real Estate was really
hot this year and wound up being 12% of your portfolio by year end.
You’d want to rebalance them to get them back in line with the original 10% each
you assigned them. So, you’d sell 2% worth of VNQ and invest those profits into
VB. This brings them both back to 10%.
The idea behind this is that different sectors will alternate outperforming and
underperforming the overall market. If you take profits from the overperformers
(sell high), you can reallocate that money into investments that have
underperformed (buy low).

121
There’s no law that says you have to rebalance, and there are many reasons why
you could rationalize NOT rebalancing certain sectors. But overall, it is a good idea
to at least consider it once per year.

Summary
Managing your portfolio can be as complicated as you want it to be.
But if you’re new to investing, start with Total Market ETFs or Index ETFs. Invest
regularly and get used to seeing your balance go up and down. Do this for a few
months and then decide if you want to take it a step further and invest in
individual companies.
In my opinion, the right move for 95% of people investing is to have a lazy
portfolio where you’ve selected a few Index ETFs or sector ETFs that you believe in
and feel comfortable regularly investing in.
A few final tips:
- Life will always throw you a curveball that will make you want to sell your
stocks. Maybe you want a new car, a vacation, etc. Keep a 3-6 month
emergency fund in cash or savings so you’re not tempted to cash in your
portfolio
- Don’t panic sell when the market drops. That’s the surest way to lose all
your gains. Historically, the market always recovers.
- Automate investing at least 10% of your salary
- Don’t try to time the market. Instead, dollar cost average your investments
and spend your time increasing your income so you have more capital to
invest!
Remember, just because it’s a lazy portfolio doesn’t mean it can’t be effective!
In fact, some of the best investors are people who invested in Index funds and
forgot their account even existed.
So get out there and become a lazy investor today!

122
The Hurdles of Real Estate
By Tyler at Defining Wealth

Tyler is the founder of Defining Wealth. He built his online brand in

early 2020 to tell his story of how he was able to become a 9 to 5
millionaire at the age of 27 in hopes of giving people both the
information and inspiration they need to reach their own
definition of wealth. Outside of the finance world, he enjoys
spending time with his fiancé, two goldendoodles, and trying to
play as much golf as he can. You can find him on Instagram,
Twitter, and TikTok by searching Defining Wealth on each
platform.

Real estate...AHHHH!!!
While maybe I didn’t say that out loud in the beginning of my real estate journey,
that is exactly what I was feeling.
Why?
Honestly, now I know that it was silly to think that, but for some reason I always
thought Real Estate was this complicated and intimidating business that only rich
people succeeded at.
But that couldn’t be farther from the truth.

How I Got Started in Real Estate?

I’m going to take you back to just before my real estate journey started. I was 22
years old, just graduated college, and was starting off my career in the “Real
World” in Sales. And I QUICKLY found out that I did not want to work the rest of
my life and retire when I was 65 like normal financial advice would lead you to
believe.
My job wasn’t bad. But I was thinking about my TIME. I wanted to live life on my
own terms. Live WHERE I wanted to, with WHO I wanted to. Waking up and
working WHEN I wanted to, doing WHAT I wanted to.
So that led me on a journey to figure out absolutely everything I could about
personal finance and investing. For the first few years, I focused on increasing my

123
income, keeping my expenses low, and investing every penny I could into the
Stock Market.
Then at some point, I started thinking to myself, “Hey, I am doing really, really well
with everything. But at the same time, how am I actually going to stop working?
Like, how am I going to make income or use money I have saved up so that I don’t
have to work?”
I had always heard about the 4% rule, where you invest in the stock market and
build up an account (say, to $1.5 million) so that you can live on 4% of it each year
(in this scenario, that’d be $60,000 per year). There were a bunch of studies done
and they determined that if you took out 4% then you would theoretically never
run out of money.
But that never really was very enticing to me. Because regardless of how hard I
worked and how much I invested, it would take FOREVER to build up enough in my
investment account to reach $1.5 million. That would probably take 20 years at
least.
And I wanted to retire MUCH quicker than that.

My “Rich Dad” Epiphany

And that is about the time I stumbled upon a book called “Rich Dad Poor Dad.”
And this is when I had my epiphany.
In the book, Robert Kiyosaki writes about how his life was forever changed when
his “rich dad” (who was actually his friend’s dad) taught him about the power of
“Income-Producing Assets” a.k.a. assets that produce monthly income for you.
And the most powerful asset in the book that he covers is Rental Real Estate,
because Real Estate brings in consistent monthly income.
The tenants pay rent every month. And as the owner, you make money as the
property appreciates in value, and as the loan gets paid down by the tenant. You
are also benefiting from tons of tax advantages.
And the most important way you make money is cash flow. Cash flow is the
amount of money that is left over every month from the rent after all expenses
are paid. This is money that you can literally live off if you want or need to.

124
If you buy enough properties and they cash flow more than your monthly
personal expenses, then you don’t need to work anymore. You can retire. Or you
could get a part-time job instead of a full-time job. Or you can take some time
away from the 9-5 life. The possibilities are endless.
So this is the route I took. I bought a primary home and proceeded to buy 7 rental
units over the next 1.5 years. I am currently working on buying my next property.
I make over $7000 in monthly revenue, and cash flow close to $3000 depending
on the month. My personal expenses are low - around the same $3000 - so I could
quit my job right now from the monthly income I make from Real Estate.
All while I have a property manager who manages all the properties for me.
The properties have also appreciated hundreds of thousands of dollars over the
last few years, and I have been taking that money out of the properties to buy
more income producing assets to keep building my passive income portfolio.

Why Tell You All This?

Why am I telling you this? To hear myself talk? To pump up my own ego?
No way.
The reason why I told you this is because this chapter is about “the hurdles”
stopping you from real estate investing. And the BIGGEST HURDLE BY FAR is
people not believing in themselves.
“I have no money”
That’s ok. I had $0 at age 22. I built up my income and saved up to buy my first
property.
“I don’t know anything about Real Estate”
My parents don’t own rental real estate. I had never met anyone in my life who
owned rental real estate before I got started. I am not a realtor or neither do I
work in any profession that is in any way related to Real Estate. I read books and
watched YouTube. I joined my local Real Estate Investor Group and tons of
Facebook groups. I talked to people. I networked. I learned as much as I possibly
could.

125
“I’m not smart enough”
I am not special. I wasn’t any type of young genius or prodigy. I just believed in
myself and committed daily to figuring out what was important to me and that
was having the ability to live life on my own terms.
So I tell you all these things not to IMPRESS you but rather to EXPRESS to you what
is possible with a commitment to learn, work hard and believe in yourself.
Now let’s look at some other hurdles that people bring up as reasons why it may
be more difficult to start.

Hurdle #1: Money

Money is probably the biggest hurdle. A lot of people don’t have a problem with
Real Estate. They actually have a problem with money. and it may prevent them
from getting involved in Real Estate.
But there are ways to get involved in Real Estate for little to no money down. The
following list goes from Least Risky to Most Risky.
● Become a Bird Dog or Wholesaler: You can go find deals and get a fee for
bringing those deals to buyers. This could help you get good at finding deals
and build experience and make money until you are ready to buy your own.
Wholesaling is similar, but you actually go find the deal, negotiate with the
seller to buy it at a price, then you go find a buyer who is willing to buy it
for a little bit more than you are paying for it. They meet you on closing day,
you never have to pay a dollar, and you get the difference between what
the seller agreed to sell it to you for and what the buyer you found agreed
to pay you.

● Become a Real Estate Agent: Pretty self-explanatory. You act as a

middle-man connecting buyers to sellers, and sellers to buyers.

● Lease Options: You can work out a deal with the seller to lease the property
for a certain number of months, and they will give you the option to buy
the property at the end of that period. This gives you time to build up funds
and lock up a property in the meantime. In exchange, the seller may
require fees and other agreements.

126
 ● Get a Partner: If you get good at finding deals =, then you can work out
deals where someone else brings the money to the table, and you get an
equity cut in return for the skills and expertise you brought to the deal

● Seller Financing: There are sellers who may agree to work with you directly
outside of a bank. They loan you money, and you two create your own
terms. For example, they may let you put little to nothing down, but you
may have to pay a slightly higher interest rate on the loan they are giving
you!

● Find a Private Lender: Similar to getting a partner, but you buy properties
funded by someone who has a lot of money, and you pay them an interest
rate for borrowing their money. You would find them through personal ties
or networking

● Find a Hard Money Lender: There are financial companies out there who
will give almost anyone money if the deal is right. But the interest rate will
be very high, sometimes in the 10-12% range. So you would only want to
do this on a very specific type of deal, and you would only want to do this
with a ton of prior experience.
There are TONS of ways to get around the money issue. However, my
recommendation is that when starting off, focus on the TOP PART of the above
list. These are ways to build up ACTIVE INCOME in Real Estate. This way, you are
essentially risking nothing while gaining tons of relevant experience.
For example, if you are wholesaling on the side and you find deals and make
money, that’s awesome. But if you don’t find deals - or need to take time away -
then you aren’t losing anything.
However, if you were to take out a hard money loan and the deal went south,
then you would be in a ton of trouble.
That is why I would focus on building experience and making money doing that.
Then maybe look at the options further down the list as time goes on and your
experience grows!

127
Hurdle 2: I Can’t Buy in My Market
So your real estate market is tough for buyers? Fair point. But you don’t have to
buy in your market.
Wait...what??
Yep, that’s correct. I know MANY Real Estate Investors who buy outside of their
market.
With property managers and technology where it is today, it is simple to manage
Real Estate Investments from afar. You want to make sure to set up a solid team
that you can depend on in your remote market.
Start by finding WHERE the best deals are from a financial perspective. Then you
would be looking to build a team of your “Core Four” which are:
● A Deal Finder (Realtor, Wholesaler, Bird Dog, etc.)
● A Lender (local to that specific market)
● A Property Manager (This is MASSIVELY important)
● A Contractor (Your property manager may be able to take care of this, but if
you need work done on the property, then you may need an outside
contractor in the area!)
With this team assembled, it is VERY plausible to invest outside of your market.
I hope all the above gave you the INSPIRATION and the INFORMATION you need to
get started on your Real Estate Investing journey TODAY!

I went over a lot above but obviously there is a lot more to it that you would
need to know:
- how to pick your own strategy
- how to find the best properties
- how to run the numbers
- how to build your team
- how to operate the property

128
And that is why I built my video course that shows you how to do all that
and more!
If you are interested, you can access more info about the course and
purchase if you decide to at the link below!
Please use code “freedom” at checkout to get the 20% off!
https://definingwealth.thinkific.com/courses/first-deal-to-freedom

129
How “House Hacking” Helped Us Beat Debt in Our 20s
By Ali and Josh - The FI Couple

Ali and Josh started their married life with $100,000 in

student loans. They were working multiple jobs, burnt out
and knew they needed a change. They decided to invest in
real estate, build multiple income streams and set the
ambitious goal of retiring from their 9-5’s in their 30s.

Today, they run an educational platform, The FI Couple,

where they share knowledge about all things personal finance, including: debt
pay-down, real estate and index fund investing. To learn more, check out their website
and Instagram. You can also find our complete e-book on househacking here.

On average, housing is a person’s largest monthly expense. And depending on

where they live, it could make up a BIG portion of their monthly budget. House
hacking is a great way to get started in real estate investing, greatly reduce (or
even eliminate) your housing expenses, and accelerate your path to financial
freedom.

We share this information with the first-time (or new) investor in mind. We
remember when we first said "we want to be real estate investors" out loud. It felt
scary, exciting, overwhelming and empowering - all at the same time. If you've
made the choice to join the “Real Estate Investor Club,” get ready for a wild ride.
It's a ride that will change you, in so many ways (mostly good ways!). We are so
grateful that we discovered real estate investing, as it has enabled us to
aggressively pay down our $100,000 in student loan debt, increase our ability to
save and invest, and will eventually allow us to retire early and achieve financial
freedom.

All of the information that is shared within this article is taken from our first-hand
experience with multiple house hacks.

What is House Hacking

130
When you house hack, you purchase a property using a low-to-no down payment
loan, move into the property, and rent out the additional rooms or units*. The
rent payment that you receive on a monthly basis helps you pay your mortgage.
*unit=apartment

For example, if you buy a duplex, you have two units.

Units also means the same thing as the term “doors.” If someone says: "I have 4
doors," it simply means they own 4 apartments in total.

Which could look like: two duplexes, one quadplex, or four single family homes.
Get it?

Let’s Explore this Further…

When you purchase a house-hack, you must live in the property for at least 1 full
year in order to qualify for a low down payment, owner-occupant loan.

131
Yeah, but why do I want a low down payment?!

Less money down equals:

1.) Less money out of your pocket to buy an investment property.
2.) Your tenant’s money is paying down your asset* for you!

*asset = something that provides financial benefit (aka gives you money).The opposite of
an asset is a liability e.g. something that takes money from you (like a car that’s
depreciating, or credit card debt).

So, you’ve qualified for a low down payment, owner occupant loan. Now, you
need to decide what type of house hack you would like to move into. Here are
some options with examples.

● Single Family House Hack: for this type of house hack, you would purchase a
single family home and rent out the extra rooms.
○ For example: Suppose you purchase a 3-bedroom, 2-bathroom house. You
live in one bedroom and rent out the other two for $600 a room. You will
collect $1200/month towards your mortgage from your
roommates/tenants. This rent will cover a portion (or maybe all) of your
mortgage.
● Multi-Family House Hack: For this type of house hack, you would purchase a
2-4* unit property, live in one of the units and then rent out the additional
units. *Anything over 4 units is considered a commercial property and you will
not qualify for a low-down payment, owner occupant loan.
○ For example: Suppose you purchase a duplex, live in one unit and rent out
the other unit for $1200. You will collect $1200/month towards your
mortgage from your tenants.
● Accessory Dwelling Unit (ADU): For this type of house hack, you would
purchase a home that has a separate living space or building on your
property. For example, you may have an apartment above a garage, or a
smaller, separate in-law space that you can convert into an apartment. This
type of house hacking is similar to multi-family house hacking, as you do not
have roommates.

132
 ○ For example: Suppose you purchase a single-family home that has an
apartment above the garage and you rent out the apartment for $1200.
You will collect $1200/month towards your mortgage from your tenants.

FYI
There are other ways to hack your housing, such as: living for free with family,
finding a career that will subsidize your housing, as well as moving into a property
with the intention of “flipping it” after a year of living in it, aka a “live-in flip.” The
point is – there are TONS of strategies that you can use to greatly reduce your cost
of living. Find the one that makes most sense for you!

But how did house hacking help us pay off debt?

That’s right, we had to go into more debt to pay off our existing debt. Prior to
house hacking, we were spending just as much as we were earning. This is also
known as living paycheck to paycheck, which according to a 2019 article by Forbes,
78% of Americans do.

By living paycheck to paycheck, we were unable to make meaningful payments

towards our debt. Through the strategy of house hacking, we were able to take
our monthly housing costs from $1300/month to $600/month overnight. Over the
course of two years, we purchased another property which eventually brought our
housing costs to $0. Without having to pay for recurring housing expenses, we
were able to use additional money to pay off our debt. In addition to radically
reducing our expenses, we also focused on raising our income.. By reducing our
expenses and increasing our income, we poured most of the remaining income
into debt payoff, continued real estate investing, and index funds.

In 3 years, we went from financially illiterate with $100,000 in debt to financially

literate with:

- $35,000 in debt
- $20,000 invested in index funds
- and 4 apartments.

133
Oh, and one of us just quit their full-time job! We say this not to brag, but to
emphasize the power that house hacking can have on your life. Spending
intentionally and making calculated decisions that reduce your cost of living, while
increasing your earnings, can have a profound impact on your life in a short period
of time.

134
Trust Your Numbers!
By Uncommon Yield

The engineer behind Uncommon Yield has always been obsessed

with optimization. In 1st Grade, the optimization was perfectly
timing his before-school routine to maximize extra sleeping time.
As an engineer, that optimization is increased quality and reduced
costs. He has taken this obsession with optimization and applied it
to personal finances to squeeze out every bit of yield possible.
Follow along with Uncommon Yield on Twitter, on Instagram and
on his website to find new ways to optimize your finances.

Run Your Own Numbers!

There are lots of deeply held truths in personal finance:

● All debt is bad
● A Roth IRA is better than a 401(k)
● Whole Life Insurance is terrible
● You should pay for your cars in cash
● Invest in 60% stocks and 40% bonds
● Bonds are an essential part of a portfolio

I cannot help but think for myself. Anytime I have a decision to make, I run it
through my process:

1. Understand in detail the conventional wisdom.

2. Understand the reasons for why the current process is being done a certain
way.
3. Challenge everything, see what breaks, and improve.

In all cases, I come away with a better understanding. And in some cases I come
away with an entirely different position than the conventional wisdom. Times
change, but sometimes ideas do not. And that’s inefficient.

135
To give you a window into this process, let’s walk through an example of how
using safe leverage and prioritizing investing can make a difference of more than
$200,000!

According to the US Census, about two thirds of Americans own a home4. Couple
that with median home prices north of $300,000,5 and buying a home is the
biggest financial decision most Americans make. The conventional wisdom
promoted by the likes of Dave Ramsey6 and Suze Orman7 says, “15-year
mortgages are better than 30-year mortgages, and you should pay off the loan as
fast as possible.” Let’s examine this to see if this is true.

First, let’s take a look at why Dave Ramsey and Suze Orman have long said you
should get a 15-year mortgage and pay it off as soon as possible. Interest rates
through the 1980’s and early 1990’s were very high! Here are charts of the
average 15 year8 and 30 year9 mortgage rates from the St. Louis Federal Reserve.

4
https://www.census.gov/housing/hvs/files/currenthvspress.pdf
5
https://www.wsj.com/articles/median-existing-home-price-hit-new-high-in-june-11626963073
6
https://www.ramseysolutions.com/real-estate/why-daves-against-30-year-mortgages
7
https://www.cnbc.com/2017/12/12/suze-orman-says-a-15-year-fixed-rate-mortgage-could-save-you-1000
00.html
8
https://fred.stlouisfed.org/series/MORTGAGE15US
9
https://fred.stlouisfed.org/graph/?g=NUh

136
Whether you had a 15 or 30 year mortgage, until 2002 you would have paid a rate
of at least 6%. Crazy! By paying down your mortgage, you could guarantee a risk
free return of more than 6%. This means Dave and Suze’s advice has made sense
for a long time.

Let’s run some numbers using BankRate’s Mortgage Calculator.10 In this example
we will look at a home purchase of $300,000, with a down payment of 20%. The
30 year mortgage rate is 6.00% and the 15 year is 5.25%.

10
https://www.bankrate.com/calculators/mortgages/mortgage-calculator.aspx

137
By taking out a 15 year loan instead of a 30 year loan, a buyer is guaranteed an
interest savings of $171,301! That is a lot of money, and if we saw interest rates
that level again, I would agree with Dave and Suze. Anyone that follows me on
social media might be shocked by this!

Something Dave and Suze get right, regardless of other factors, is the
encouragement of buying a house that you can easily afford. One way they do this
is encouraging people to buy a home you can afford on a 15 year loan. Better to
spend less on a house than stretch yourself financially.

However, interest rates are at historic lows. Here are the results for buying the
same $300,000 home with 20% down with a 30 year mortgage rate of 3.00% and a
15 year rate of 2.25% using Bankrate’s Mortgage Calculator again.

You still pay more interest with a 30 year mortgage, but it is now only $81,451.
That is a good chunk of money to save. But those savings come with a cost - an
opportunity cost

138
Let’s assume you take what Dave, Suze and I think is good advice and buy a home
you can easily afford on a 15 year mortgage. In scenario one, you take out a 30
year mortgage and invest the difference between the 15 and 30 year mortgage
every month. In scenario two, you take out a 15 year mortgage, and plan on
investing the mortgage payment amount monthly once it is paid off. In both
scenarios you outlay $1,572 a month for 30 years. Let’s assume a conservative
annual market return of 8.00%.

Mortgage Term 30 Years 15 Years

Mortgage Rate 3.00% 2.25%

Payment $1,011 $1,572

Stock Investment, First 15 Yrs $561 $0

Stock Investment, Second 15 Yrs $561 $1572

Interest Paid $124,455 $43,004

Investment Balance at Year 30 $841,666 $547,599

Investment Balance - $717,210 $504,595

Interest Paid

139
140
Are you surprised that you come out ahead by $212,615 with a 30 year
mortgage?! I know I was the first time I ran the numbers. What also surprised me
was that when you subtract the loan balance from the investment account until
year 10, the mortgage length choice was irrelevant. But after year 10, compound
interest takes over. Thus, the extra investing opportunity from the 30-year
mortgage scenario easily wins.

Investing does involve risk. But let me put your mind to ease. If you invest a set
dollar amount every month into low cost index funds and lose money over a
30-year timeline, then you will have much bigger economic problems than a
mortgage.

To show you what I mean, here is a great chart by Jesse Cramer from The Best
Interest. The chart shows the likelihood you will have a positive return in the
market over various periods of time. And it’s all based on real historical data. The
longer you are invested, the more likely you are to have a positive return.

141
Not only do you end up with more money by using a 30-year mortgage, but you
have a tremendous amount of flexibility too. The more flexibility you have, the
less risk you have.

● Lose your job? Your payment is $561 less per month, and you have liquid
investments you can tap into to help cover the mortgage and other
expenses.
● Want to pay off your home early? Use your extra money to pay off your
mortgage in just 13 years and 3 months if you choose to. With a 15-year
mortgage, you don’t have that choice.
● Want to take advantage of an investment opportunity? You have a pool of
liquid capital to deploy.
● Have an unexpected car or medical emergency? You have liquid funds to fall
back onto.

Our current low interest rates have changed the game, and that makes the
conventional wisdom (e.g. Dave Ramsey, Suze Orman) very wrong in this
instance.

142
If you buy a house you can easily afford and invest the difference between a 15
year and 30 year mortgage, you will have more security, more liquidity and most
importantly, more money.

I encourage you to think for yourself and challenge convention in other areas of
personal finance too. You may surprise yourself!

143
Part IV: Advanced Investing
Given a 10% chance of a 100 times payoff,
you should take that bet every time.

--Jeff Bezos

144
Explaining Bitcoin in Simple Terms
By Jesse Cramer

Jesse Cramer is the founder of The Best Interest, where he

writes weekly about personal finance and investing. His work
has been featured on CNBC, Yahoo Finance, MSN, and the
Motley Fool. He lives in Rochester, NY with his fiance and their
foster dogs. Find Jesse on The Best Interest, on Twitter, or on
Instagram.

What does it all mean?!

Mining. Cryptography. Distributed public ledger. Keys and wallets. HODL, FOMO,
and FUD. Cryptocurrency supporters are predicting that their digital currencies
will soon take over the material world.

But first, wouldn’t it be nice to know how Bitcoin actually works? Read on for an
all-inclusive guide explaining Bitcoin in simple terms.

Disclaimer~2% of my portfolio is in $GBTC and $OBTC–two mutual funds that

exclusively own Bitcoin.

And huge thanks to friend of The Best Interest, Bryan, who played a vital role in
fact-checking this chapter. If you end up purchasing Bitcoin, consider using his
Coinbase referral link to repay the knowledge he shared. You’ll both receive $10 in
BTC (not bad, right?)

Highlights
First, here’s a high-level review explaining Bitcoin in simple terms. Each of these
details is further explained in the rest of the chapter.

Bitcoin is software. That software tracks a digital-only currency. There’s no physical

currency, no coin you can hold in your hand.

145
Individuals use digital wallets to “store” their Bitcoin. These wallets have a unique
bitcoin address and are secure. They can only be accessed via unique passwords,
called keys. Using their private key, an individual can authorize a transfer of Bitcoin
from their wallet to another wallet.

Every Bitcoin transaction that’s ever occurred is recorded on the blockchain. The
blockchain is a distributed ledger, similar to a spreadsheet. It is maintained and
monitored by multiple people all over the globe. These monitors are called nodes.
Nodes record the blockchain and validate new blocks that are added to the chain.

New transactions are bundled into blocks and added to the blockchain. In order to
provide validity to new blocks, proof of work must be submitted that solves a
difficult cryptographic puzzle. This puzzle-solving is called mining. The first miner
to solve the current puzzle is rewarded with Bitcoin as a prize.

The puzzle involves an input-output code, or hash, that only works in one
direction. One can easily verify that a specific input leads to a specific output. But
it’s near-impossible to start with an output and find its input. The challenge in the
puzzle-solving is that miners are given an output, and asked to guess-and-check
their way to a correct input.

The puzzle itself is based on previous blocks. The next puzzle is only created once
the previous block has been added to the blockchain. Therefore, one cannot
predict or solve a puzzle ahead of time.

All miners compete to solve the puzzle, but only one miner can win. That miner
provides their solution, or proof of work, to the puzzle. The nodes on the network
verify that the solution is mathematically correct and add that block onto the
blockchain, verifying the transactions therein. The winning miner gets a prize.

And then the process starts all over again for the next block. That’s it. That’s
explaining bitcoin in simple terms.

146
Let’s Talk About How Money Works
Trust me on this. In order toTo understand how Bitcoin works, we first need to
understand how traditional money works. Once we agree on the basics of
traditional money, then explaining Bitcoin in simple terms becomes much easier.

Money is Trust
Money is based entirely on a network of trust. There is no intrinsic reason why a
little green sheet of paper is tradable for a week’s worth of food. Or for shoes. Or
a car. The grocer accepts that little green paper because he trusts that he can use
it to pay his store’s expenses. The store employees accept payment in green
papers because they trust the papers will pay for their lifestyle.

But Doesn’t the Government Back Money with Gold?

Yes, the U.S. monetary system once was backed by gold. That ended in 1933 when
Franklin Roosevelt allowed the U.S. Treasury to print money without an equivalent
gold backing. This fiscal stimulus got us out of the Great Depression. And in 1971,
Richard Nixon completely severed ties with gold by no longer permitting foreign
countries to exchange U.S. dollars for gold.

Since 1971, only trust has supported the system. Let’s dig into that trust network a
little deeper.

Why Do We Need Money?

147
Imagine a world without money.

A carpenter goes to the grocery store to buy food. Without money, how does the
carpenter pay? He can trade his skills! But the grocer doesn’t need any woodwork
done. Instead, the carpenter will leave behind some sort of IOU—a favor to be
repaid later.

The shoemaker has a leaky roof. He hires the carpenter to come by, and they
agree that the carpenter’s fix-up work is worth 20 pairs of shoes. But the
carpenter doesn’t need 20 pairs of shoes. The shoemaker agrees that he’ll owe
the carpenter in the future. Another IOU.

The grocer is on his feet all day and has worn through his shoes. He goes to the
shoemaker to buy new ones. But the shoemaker’s garden is in full bloom, and he
doesn’t want to trade shoes for food right now. How will the grocer pay? An IOU.

This is a simple example: the carpenter owes the grocer, the grocer owes the
shoemaker, and the shoemaker owes the carpenter.

Expand The Economic Network

We could expand this example further to represent the whole economy, where
the businessman owes the airline, and the airline owes the fuel company, and the
fuel company owes the oil drillers, etc, etc. A complicated web of IOUs ensues.

Source: Bank of England

148
How could we ever reconcile all these IOUs? It’s an accounting nightmare, with
each individual tracking their credits and debts.

“I’m in debt for 10 pounds of berries and three salmon, but I’m owed a shirt, some
light bulbs, and a set of winter tires.”

-Jesse, in the world of IOUs

Universal trust in money completely solves this problem. We convert each IOU to
a dollar amount. Each person measures debits and credits in dollars, rather than in
unique products (e.g. berries and fish). The market’s supply and demand
determine where prices settle. Economic activity flourishes because concerns over
payments diminish.

This is why we need money.

But Who is in Charge of Money?

In the United States, the two institutions with greatest monetary responsibility are
the U.S. Federal Reserve and the Department of Treasury.

The Federal Reserve is part of the government but operates with some autonomy.
It is the country’s largest bank. The “Fed” has three main mechanisms that it can
use to manipulate the amount of money circulating in the economy. It can buy or
sell Treasury securities (thus adding or subtracting money from the economy). It
can adjust interest rates like it did at the beginning of the COVID-19 pandemic.
And last, the Fed can change requirements on how much money a bank must keep
in reserve (a.k.a. the “reserve requirement.)

149
Quantitative Easing
One term often associated with the Federal Reserve is quantitative easing.
Quantitative easing, or QE, describes the process where the Fed buys securities
(Treasury bonds or other assets) using money that the Fed creates “out of thin
air.”

QE injects money into our economy, helping “grease the wheels” during hard
times. But an increased supply of money without increasing the demand for
products will lead to inflation, or the increase in the price of goods and services.

Some experts credit QE with saving the economy after the 2008 Financial Crisis
and COVID-19 pandemic. But many are concerned that QE is leading to
out-of-control inflation—that we will reap what we have sown. One of Bitcoin’s
ideal use-cases takes inflationary power away from institutions like the Fed.

The Department of Treasury

The Department of Treasury oversees printing money that the Federal Reserve
requests. They distribute money to the public and to banks. They sent the COVID
stimulus checks. The Treasury is also in charge of the IRS—they collect your taxes.
Again, Bitcoin’s ideal use-case removes power from the Treasury. You can’t just
“print” Bitcoin—we’ll explain later.

Do We Need “Big Brother” In Charge of Our Money?

As we start to transition this article into discussing cryptocurrency, one
fundamental question will repeatedly arise: do we need to have the government
in control of money? Do we need banks to keep accounts organized—and charge
us fees in the process? Can’t the community just take care of these
responsibilities?

Since money is based on person-to-person trust, why do we need government

involvement? If “free markets” solve all problems, why do we need the
government handcuffing monetary freedom?

150
These are the questions that Bitcoin purists ask. We’ll keep them in mind as we
proceed.

What Makes Some Money “Good” and Other Many “Bad?”

There are eight unique attributes that make money “good” (or “bad”).

1. General acceptability. This is the “trust” that we’ve discussed. Money needs
to be trusted and accepted universally.
2. Portability. Money needs to move. Dollar bills are light. Credit cards and
bank account transactions and PayPal/Venmo occur electronically. Gold,
however, is fairly challenging for an individual to move.
3. Indestructibility. Imagine if money was made of tissue paper. You hand over
$50 to the cashier and it rips in half. Who is at fault? Yikes.
4. Homogeneity or fungibility. Money needs to be the same, such that your
$50 bill is identical to mine. After all, they are worth the same amount. This
ability for one unit of money to perfectly replace another is called
fungibility. Money is fungible. Stocks and gold are fungible. But baseball
cards and pairs of shoes are not fungible—once used, they have a different
value than a new copy.
5. Divisibility. We need to be able to break large amounts of money into
smaller amounts. If I have a $100 bill and need a candy bar, I need a choice
other than “buy 100 candy bars.” I need change.
6. Malleability. This applies to physical money. You need to be able to work
with the material. Paper is easy to print on. Silver and gold are easily melted
and stamped. Glass—well, that would be tough to make money with.

151
 7. Recognizability. You’ve got to be able to recognize money as money. Unique
coins, unique bills, unique credit card designs.
8. Stability. This one is huge! We need to rely on the fact that the cost of goods
today is relatively stable to the cost of goods next week.

Another Trip to Bestland

There’s an anecdote from Bestland (home of the infamous Bestland Debt Crisis)
that illuminates the attributes of currency.

When Bestland fell deep into their debt crisis, they decided to print new Bestland
coins using the island’s famous teak wood. Alas, the solution backfired.

Initially, the public accepted the money. New money…what could be wrong? The
wooden coins were light and portable. The wood was easy to engrave (malleable)
and unique in appearance (recognizable). Big coins and small coins made the
currency divisible, and the coins were identical to one another—fungible.

But two big problems arose. First, the wooden coins began to rot over time. They
were not indestructible. And perhaps more concerning, the Bestland Lumber
Company came up with a unique idea. Why should they sell their teak lumber to
the public when they could literally turn their lumber into wooden coins?

152
The Bestland Lumber Company flooded the economy with teak coins, torpedoing
the stability of the currency. Inflation ran rampant. Soon enough, nobody believed
in the legitimacy or acceptability of the coins anymore.

Bestland will have to find another way out of their debt crisis...

Transitioning to Explaining Bitcoin in Simple Terms

Now that we’ve covered some of the basics about money in general, let’s get back
to explaining bitcoin in simple terms.

Basic Definitions
Bitcoin is software. That software tracks a digital-only currency. There’s no physical
currency, no coin you can hold in your hand.

Bitcoin is decentralized. That means there’s no Federal Reserve or Department of

Treasury involved. There’s no “higher power” that signifies trust or stability. Then,
you might ask, how can we trust Bitcoin? We’ll get into that.

The Bitcoin network was started in 2008 by a person named Satoshi Nakamoto. Is
this a real person? A fake name? A group of people using a fake name? We don’t
really know. This mystery surely adds intrigue to the story of Bitcoin.

Nakamoto’s idea was to create a currency that could be trusted independently of

government interaction and independently of personal trust. The algorithms and

153
codes are all open-source. There’s full transparency. Anyone can observe how it
works.

Why do you believe that the sun will rise tomorrow? Well, because the natural
world of math and physics suggests so. Nakamoto wanted to use math to create a
similar level of extrinsic trust for Bitcoin.

Wallets, Ledgers, and Blockchains

We’re getting to the point where explaining bitcoin in simple terms becomes
not-so-simple. Buckle up. And please reach out with your questions. I’d love to
make this a “living” article that gets updated with answers to your questions.

If you had Bitcoin, you would keep it using a wallet. But the name “wallet”
precipitates ideas of storage. In other words, Bitcoin is the thing, and the wallet
stores the thing. But that’s not true.

Instead, a wallet is nothing more than an identification (or address) and a set of
passwords, or keys. It’s similar to how your bank account ID works. Your bank
account is not a physical vault. It’s just an ID and passwords, and the bank’s ledger
uses that ID to track the account amount. The bank account is intangible storage.

Bitcoin wallets are password protected using one or more private keys that you,
the wallet owner, have. Some wallets are accessible online. Since they’re online,
they can easily communicate with the rest of the entire Bitcoin network.

Other wallets exist on local hardware—like a personal computer or USB drive—so

that they are more secure and harder to access. Hardware wallets require a little
extra work (e.g. an internet connection) to connect to the larger Bitcoin network.

The Blockchain
But how does another person know how much money is in my Bitcoin Wallet?

This is answered by the blockchain, a.k.a. the distributed ledger

(Technicallytechnically, there are many types of distributed ledgers and the

154
blockchain is just one of them). When you see “blockchain” or “ledger,” you
should just think of a community spreadsheet. That’s it! For simplicity, just
imagine that blockchain = a fancy Excel spreadsheet.

The blockchain lists all transactions that have ever occurred on the entire Bitcoin
network, just like one would use a spreadsheet to list business payments or to
operate a budget. Bob paid Frank two Bitcoins in 2016. Jim paid Sally five Bitcoins
in 2018. On and on and on. The blockchain lists every wallet-to-wallet transaction
that has ever occurred. It knows where every single Bitcoin is.

By tracking all these transactions, we know exactly which wallets have Bitcoin in
them, and exactly how much Bitcoin is in those wallets. However, we don't know
which human being owns each wallet. The system is pseudonymous. As long as a
transaction is accompanied by the correct wallet private key, the network trusts
that the true owner—who knows the private key—approves the transaction.

In the current monetary system, banks and governments control the

spreadsheets. Banks give Jim permission to pay Sally. But do we need this central
authority intervention? The crypto community says no.

155
The goal of cryptocurrency is to maintain a globally-shared copy of this
spreadsheet. People like you and me would verify the spreadsheet independently
(we’ll discuss that next). Each verifier of the spreadsheet is a node.

Verification, “Mining” and The Crypto Prefix

It feels like we might have a complete system. Bitcoin is virtual currency, and a
giant shared spreadsheet—the blockchain—tracks all Bitcoin accounts (wallets),
quantities and transactions. If all the nodes agree on the spreadsheet, we’re
happy.

Our task of explaining bitcoin in simple terms feels complete—what more do we

need?

We need trust! We need a way to validate the trustworthiness of the blockchain.

How do I really know that Bryan has five Bitcoin? What if someone else’s copy of
the blockchain says Bryan only has three Bitcoin? How do we all agree on a
consistent, uniform version of the blockchain?

The answer lies in cryptography, mining, and proof of work. A simple spreadsheet
might be easy to alter, easy to “hack,” or easy to fake. So Bitcoin uses complicated
cryptography, or code solving, to verify new transactions. The act of solving these
codes is mining. Bitcoin mining provides proof of work. If you’re confused, don’t
worry—we’re going to break it down.

This picture looks complicated. It’s just secret codes and decoder rings.

156
Proof of Work
How do you trust your trainer at the gym?

Is it because he’s fat and unathletic? Or is it because he’s muscular and

knowledgeable? It’s not a trick question. You trust your athletic trainer because
his body and knowledge act as proof of work. He has put in the effort and he has
the results to prove it. That makes him trustworthy.

The same works for Bitcoin. Whenever we append new transactions—a.k.a. a

block—to the community spreadsheet, those transactions are accompanied by a
difficult puzzle and proof that the puzzle has been solved.

All the other nodes in the network can see the solved puzzle and test its proof of
work. This is called consensus. The proof of work verifies that the new
transactions are in harmony with the current iteration of the blockchain. All nodes
can see that the new transactions reconcile with the current state of the
spreadsheet.

It’s just like “showing your work” on your math test. It proves your authenticity to
the teacher.

You and I can easily determine a physically fit person. It’s obvious. We can also
determine that you know what’s on the math test.

But how do all the nodes agree that a new block of transactions has been verified
by a sufficiently laborious proof of work? How much proof do we need and what
exactly does it look like?

The “Crypto” Bit—Making Proof Difficult

Explaining bitcoin in simple terms requires an explanation of the “crypto” prefix. It
refers to cryptography, or the act of breaking codes. And breaking a sufficiently
difficult code (which I called a “puzzle” previously) acts as proof of work for the
Bitcoin network.

157
Like many codes, cryptocurrency codes are difficult to decipher upfront yet easy to
understand once you have the key. The codes accomplish this via two distinct
traits.

First, the code is one-way only. You can always trace an input to an output, but
you can never directly trace an output back to an input. Huh?

It’s just like a Play-Doh squeezer. (how’s that for explaining bitcoin in simple
terms?). It’s easy to start with a random lump and squeeze out a predictable
pattern. However, it’s impossible to start with the output pattern and accurately
recreate the random lump.

Was the starting Play-Doh kinda lumpy or very lumpy? Did it look like a goose or
like a cookie? We don’t know. The squeezer—or the crypto hash—creates an end
pattern that cannot be traced back to its origin. It is only predictable in one
direction.

The end products might all be slightly different from one another. A little more
blue Play-Doh, a little more red there. But they are vastly different from their
respective input.

The second important trait is that the hash is subject to the “avalanche effect,”
which you might know as “chaos theory” or the “butterfly effect.” In short, a tiny

158
change in the input results in a massive change in output. A little extra red
Play-Doh in the starting lump completely changes the appearance of the output.

Example of a Hash
Below is a real example of how a single small change (a period at the end of a
sentence) completely alters a hash output.

In: ("The quick brown fox jumps over the lazy dog")
Out: 0x 730e109bd7a8a32b1cb9d9a09aa2325d2430587ddbc0c38bad911525
In: ("The quick brown fox jumps over the lazy dog.")
Out: 0x 619cba8e8e05826e9b8c519c0a5c68f4fb653e8a3d8aa04bb2c8cd4c

The “puzzle” in cryptocurrency is to guess what input might have created a

specific output.

We start with patterned Play-Doh and have to determine what the input lump
looked like. How do we do that? We create a billion lumps of Play-Doh, send them
through the squeezer, and compare the outputs we see against our target output.
A perfect match solves the puzzle.

It’s a brute force game of guess-and-check.

So, how do we determine the “target pattern of Play-Doh?” And who does the
solving?

Mining
Mining is the act of solving these puzzles. It invokes images of physical labor and
of hidden discovery, but explaining bitcoin in simple terms requires a true
explanation of the bitcoin mining process.

The puzzle might be:

Find an input that creates an output of this (or less):

619cba8e8e05826e9b8c519c0a5c68f4fb653e8a3d8aa04bb2c8cd4c

159
which might have a binary value of
000000000001298274598275092834

And the challenge is to run through potential inputs as fast as possible, finally
arriving at a specific input that creates a target output whose binary value is less
than

000000000001298274598275092834

Mining is guess-and-check to solve that puzzle. That’s it.

What Does Mining Accomplish?

Mining simultaneously completes two tasks.

First, the complexity of the puzzle provides sufficient proof of work to the Bitcoin
nodes, thus verifying recent transactions. New blocks are assumed “guilty until
proven innocent,” as if a random bad actor is attempting to add fraudulent
transactions to the blockchain. Mining’s proof of work provides evidence of
authenticity.

Second, the miner who solves the puzzle earns Bitcoin as a reward (note: the
“rewards” have been decreasing over time, by design).

160
Approximately every ten minutes, a puzzle is solved and a new block of
transactions is added to the blockchain. Importantly, the details of the current
puzzle and details of the current transactions help create the next puzzle. In this
way, the new puzzles are unpredictable. The next puzzle is based on transactions
that we will not know about until the current block is solved.

Miners repeat guesses and checks a million, billion, trillion, or more times until
the puzzle is solved. The difficulty of the puzzles is automatically adjusted based
on the total number of miners trying to solve them.

This is a terrific example of harmonized economic incentives. Miners are

incentivized to compete to find puzzle solutions. The winning miner gets a prize
(their incentive). The Bitcoin network gets verification that transactions are valid.
The more competitors, the greater the integrity of the system.

Eureka!
Let’s walk through a block/puzzle cycle again, tying ideas together and explaining
bitcoin in simple terms. There’s a bit of chicken/egg syndrome here—where
exactly do we start?

We’re at the beginning of a new block. All over the world, each node is updating.
The nodes are aware of the solution to the previous block’s puzzle. The nodes are
aware of the specific wallet-to-wallet Bitcoin transactions that the previous block
verified. The ledger is now up to date—we know the current status of every
Bitcoin wallet in the world.

Time to start the next block.

A new puzzle forms based upon the previous block’s puzzle, solution, and
transactions. The miners now know the next target output that they are
guess-and-checking to solve. Think back to Play-Doh. The target output pattern is
now apparent, but who knows what the random lump input looked like? The
miners get to work guess-and-checking.

161
Note: while many nodes are also miners, the two terms are not necessarily
synonymous.

A node is a complete record of the blockchain. A miner wants to solve the next
block.

A node can act as a miner, or not. A miner can be a node, or not.

Every miner on the network starts racing to find the solution. Play-Doh
everywhere. After a few minutes, someone solves the problem. Eureka!

The correct input that solves the puzzle—the proof of work—is sent to every node
on the network for them to individually verify. They try the solution for
themselves. Did this shape of Play-Doh actually create the desired output pattern?
Did this random number input actually create the desired hash output?

The math doesn’t lie. Verifying these proofs of work is an objective process. The
block of transactions is appended to the blockchain when the nodes reach
consensus that the proof of work is valid.

Winning, Updating, Verifying

The “winning” miner gets to do two things. First, they pack the block with their
choice of transactions. Some transactions come with fees in order to entice
miners to include those transactions in the next block. Fees go to the winning
miner. Second, the winning miner claims a bounty of Bitcoin by appending one
extra transaction onto the end of the block—P.S. Jesse mined this block, his wallet
gets two Bitcoin. Woohoo!

162
All parties win. The winning miner gets bitcoin as a reward. Sweet! And the
network as a whole receives concurrence that the ledger is accurate and up to
date. This is vital to maintain trust in the network.

Importantly, since miners are racing for the reward, the block gets verified in a
timely manner. The individual wallet owners don’t need to fear that their
transactions might get “stuck in limbo.”

When one door closes, another door opens. Now that the block has been mined,
the competition for the next block has been started.

All over the world, each node updates its version of the blockchain to include this
most recent block. The nodes are aware of the solution to that block’s puzzle, and
the nodes are aware of the Bitcoin transactions that the block verified. The ledger
is now up to date—we know the status of every Bitcoin wallet address in the
world.

Onto the next block. We have a new puzzle to solve.

163
Highlights and Quick Review
Let’s review again, explaining bitcoin in simple terms.

Bitcoin is a digital currency and software system.

Individuals use digital wallets to “store” their Bitcoin. These wallets have a unique
bitcoin address and are secure. They can only be accessed via unique passwords,
called keys. Using their private key, an individual can authorize a transfer of Bitcoin
from their wallet to another wallet.

Every Bitcoin transaction that’s ever occurred is recorded on the blockchain. The
blockchain is a distributed ledger, similar to a spreadsheet that is maintained and
monitored by multiple people all over the globe. These monitors are called nodes.
Nodes record the blockchain and validate new blocks that are added to the chain.

New transactions are bundled into blocks and added to the blockchain. In order
toTo provide validity to new blocks, proof of work must be submitted that solves a
difficult cryptographic puzzle. This puzzle-solving is called mining. The first miner
to solve the puzzle is rewarded with Bitcoin as a prize.

The puzzle involves an input-output code, or hash, that only works in one
direction. One can easily verify that a specific input leads to a specific output. But
it’s near-impossible to start with an output and find its input. The challenge in the
puzzle is that miners are given an output, and asked to guess-and-check their way
to a correct input.

The puzzle itself is based on previous blocks. The next puzzle is only created once
the previous block has been added to the blockchain. Therefore, one cannot
predict or solve a puzzle ahead of time.

All miners compete to solve the puzzle, but only one miner can win. That miner
provides their solution, or proof of work, to the puzzle. The nodes on the network

164
verify that the solution is mathematically correct and add that block onto the
blockchain, verifying the transactions therein. The winning miner gets a prize.

And then the process starts all over again for the next block. That’s it. That’s
explaining bitcoin in simple terms.

Questions and Answers

This next section is going to take a second look at some of the intricate questions
you might have, still explaining Bitcoin in simple terms.

Can Bitcoin Really Last? Will People Really Use It?

I’ve tried to stay unbiased, but let me put my bear’s hat on. Why might Bitcoin
fail?

First, I have doubts about how people will deal with non-physical money. Yes, I
know we live in the world of electronic banking, credit cards, PayPal, etc.
Non-physical transactions occur all the time. I get it. But at the end of the day, we
always know we can withdraw physical money if we need to. And with Bitcoin? No
such luck. We’re material girls living in a material world. Will fully digital Bitcoin
satisfy us?

I touched on this earlier, but the lack of a safety net in Bitcoin is concerning. I’m
already thinking about the unlucky schmucks who lose their life savings because
their dog ate their wallet key.

Another reason Bitcoin might never catch up: its volatility needs to settle down!
Stability is a key for a working currency. “But,” the detractors would say, “Bitcoin
will stabilize once it becomes the ‘standard.’” That might be true.

But there’s a chicken-and-egg issue. Do we make Bitcoin the ‘standard’ in order for
it to stabilize? Or do expect it to be stable before it becomes the standard?

Two more reasons:

165
1) Google “Mt Gox” and read a couple articles. The most-used Bitcoin exchange in
the world collapsed in 2014, along with 850,000 Bitcoins it was holding for its
customers.

2) Bitcoin’s anonymity makes it a preferred payment method for nefarious actors.

Drugs, ransom, hacking—all have connections to Bitcoin. And while it’s not
necessarily Bitcoin’s fault, people vote with their morality all the time. Will they
‘vote’ for Bitcoin?

I think technologists must (and will) develop ways to overcome these hurdles in
order for Bitcoin adoption to take hold.

But Why Are Puzzles Needed Again?

It seems like Bitcoin would do fine without the puzzles. Just update the
blockchain, verify every single transaction, etc. Right?

Well, as we’ve discussed here, the blockchain is “append-only.” You can only add
blocks to the end of the chain, and can never edit previous blocks once they’ve
been verified.

Cryptography ensures this since any small change in a previous block would alter
subsequent cryptographic proofs of work. Without cryptography, we could not
trust that previous blocks have been unedited.

Difficult cryptography provides trust that the system is whole and immutable.

What If A Node Chooses to Stall?

You might wonder, “What if a node ‘disagrees’ with a puzzle solution? Can’t it
argue?”

First, keep in mind that the math doesn’t lie. If one miner claims it has found a
solution, it can be easily verified due to the one-way nature of the hash/code. It
either works, or it doesn’t.

166
Second, any copy of the blockchain that is missing a block is no longer valid.
Remember the “avalanche effect?” If a node “chooses” to neglect a block, then
any subsequent solutions based on that chain will look vastly different than the
rest of the network’s solutions. That invalid node will be ignored until it comes
back in sync with the current state of the blockchain.

Can’t Someone Change an Old Transaction?

Couldn’t a winning miner slip in an extra zero into a previous transaction? Bryan
doesn’t have 10 Bitcoin…he has 100 Bitcoin!

No, winning miners can’t do that. Recall the “avalanche effect.” That small change
in a previous block would create an unpredictable and enormous ripple through
the rest of the blockchain. The other nodes in the network would easily determine
that the winning miner changed something in the previous blocks, and thus the
previous blocks’ proof of work would no longer be valid.

The miner’s proposed change would be rejected.

Is It Really Un-hackable?
There is one exception to Bitcoin’s safety, commonly referred to as a 51% percent
attack.

If an evildoer—let’s call him BOB—set up enough computers, he could

theoretically control more than half of the mining power and more than half of
the nodes on the Bitcoin network. 51% = more than half.

This is BOB (any Twin Peaks fans?!)

167
With this computing power, BOB could simultaneously mine blocks containing
fraudulent transactions and then approve those fraudulent blocks using his
majority of the nodes.

The cryptographic math in BOB’s blockchain would be valid. But it would be

different from the cryptographic math in the “49%’s” blockchain. BOB’s fraudulent
transactions create different puzzles to solve, but his solutions to those puzzles
would still be mathematically correct.

So BOB goes rogue. Since BOB controls more than half the computing power, he
adds new blocks to the blockchain faster than the rest of the network combined
(51% is greater than 49%). BOB’s blockchain grows long.

Wait! The blockchain is out of sync!

● 51% of nodes are listing these transactions and showing proper proof
of work based on these transactions.
● The other 49% are listing those transactions and showing proper
proof of work for those transactions.

How do we push through this impasse?

There’s a rule in Bitcoin protocol: if there’s ever a dispute between multiple

versions of the blockchain, the one with more proof of work is considered more
valid. The longer chain wins.

BOB has more computing power. He can mine blocks faster than the rest of the
network. So his chain is longer. And eventually, the rest of the network abides by
the protocol—BOB’s longer chain is considered the “new truth.”

Thankfully, the likelihood of a 51% attack grows smaller by the day. As the network
itself grows larger, the possibility of building a 51% majority grows smaller.

168
How Do the Eight Attributes of Money Apply to Bitcoin?
Part of explaining Bitcoin in simple terms requires that we revisit its applicability
as money. Let’s check out the eight attributes of Bitcoin.

1. General acceptability. This is the “trust” that we’ve discussed. While Bitcoin
is not generally accepted by the public yet, Bitcoin proponents are betting
big that it will be generally accepted eventually. And why? Because
blockchain technology provides a high level of security and validity.
2. Portability. Money needs to move. And a digital currency group is extremely
portable.
3. Indestructibility. As long as our electrical infrastructure remains intact,
Bitcoin is indestructible.
4. Homogeneity or fungibility. All Bitcoin are created equal. It’s fungible.
5. Divisibility. We need to be able to break large amounts of money into
smaller amounts. Bitcoin is tracked down to fractions equal to 1-in-100
million. At present values (April November 2021, 1 BTC = $60000), that’s
about 1/20 of a penny.
6. Malleability. This applies to physical money. Bitcoin is fine here.
7. Recognizability. You’ve got to be able to recognize money as money. I have
some concerns about this one. We’ll discuss this later.
8. Stability. This one is huge! We need to rely on the fact that the cost of goods
today is stable compared to the cost of goods next week. This is another
sore spot for Bitcoin in its present level of adoption.

In What Ways is Bitcoin “Better” Than Normal Money?

Bitcoin proponents would list the following virtues of Bitcoin that make it superior
to normal currency.

● It’s decentralized. We don’t have to worry about central banks or

manipulative governments. We don’t have to worry about wild
inflation due to printing new money. The Bitcoin supply is verified by a

169
 distributed network and the supply is limited, described in the image
below.
● The information on the blockchain is perfect. Normal currencies
cannot accurately track their own supply. With Bitcoin, we know
exactly where it exists.
● Bitcoin is secure and frictionless. It cannot be hacked (unlike a bank)
and we don’t have to wait for 9AM tomorrow morning for our money
(unlike a bank).
● Bitcoin is universal and transnational. No exchange rate needed.
● Bitcoin cannot be counterfeited or duplicated, unlike normal currency.

How Would I Spend Bitcoin?

Without getting into technical details, a merchant that accepts bitcoin will give
you their wallet address, likely through an easy means such as a QR code. You
could scan it with your mobile phone. Your wallet would send bitcoins to their
wallet, plus very small transaction fees.

170
What If I Need Help With My Bitcoin?
What if I lose my wallet key? How do I contest a transaction? I need help—who do
I consult?

The double-edged sword of a decentralized monetary system is that there’s

nobody to help you. Personally, this is where I believe many individuals will get
stuck. They might be willing to ignore the technical details of Bitcoin, but how will
they deal with the fact that their “screw-ups” are impossible to reverse?

If you lose your wallet key, you are screwed. One man threw away a hard drive
that held the key to 7500 Bitcoin. Those Bitcoin are still in his wallet, but he can’t
access them. They will sit in that wallet forever, unused. No key, no access.

Aside: Guessing A Wallet Key

The key has 64 characters (0-9, A-Z…that’s 36 options for each character.)

That’s 4.01*(10^99) possible combinations.

For reference, the universe is estimated to be 4.10*(10^17) seconds old.

Guess-and-checking your lost wallet key is a statistical impossibility. It is

more difficult than guessing the exact coordinates of an atom that is hiding
in a random location inside the Milky Way galaxy.

171
 Size of atom = 10^-31 cubic meters.

Size of Milky Way = 10^62 cubic meters

Finding an atom hiding in the Milky Way =There are 1 in 10^93 places for
an atom to hide in our galaxy…easier than guessing a wallet key. And there
are far more possible wallet key combinations!

…Back to “I Need Help!”

If you make a transaction and accidentally add an extra zero to the end, you can’t
contest the charge like you would with credit card companies. Your only hope is to
convince the recipient to send your extra funds back to you.

If $1000 burns up in a house fire, the U.S. Bureau of Engraving and Printing will
verify the details of the situation and replace that cash. The “victim” is made
whole. But if your wallet key burns up in a house fire, nobody can help.

There’s no higher power that can take advantage of you, but there’s also no higher
power to consult or bail you out. This is the selling point behind Bitcoin, but it’s
also the massive downside. It does not forgive human error. And that, in my
opinion, makes Bitcoin difficult for many humans to accept.

Many people use an “exchange” to obtain their Bitcoin. These exchanges operate
like stock exchanges, acting as middlemen and safety nets (but removing aspects
of decentralization in the process). In some cases, these exchanges will hold
Bitcoin in intermediate accounts, just like a bank might hold a payment for 24
hours. This provides some level of a safety net some of the time.

Can I Become a Node? Can I Mine?

Yes, you can become a node. The blockchain is currently about 360 GB in size (as
of October 2021), and is growing ~1.5 GB per week. The benefit of using your

172
computer as a node is that it adds security to the overall network. If you have
money in the system, you’d want to do your part to ensure its security.

And yes, you can mine Bitcoin, even using your computer at home. But keep in
mind—bitcoin mining is energy-intensive, and that energy costs money (e.g.
electricity bill). You’d be competing with miners all over the world, most of whom
are using specialized computer hardware to make mining as efficient as possible.
Your PC likely cannot compete with them, and you’ll pay more in electricity than
you’ll ever mine in Bitcoin.

Is Bitcoin A Good Investment?

Traditional investments do one of two things. They create a cashflow or they
increase in intrinsic value. A stock, for example, usually does both. The stock pays
a regular dividend (cashflow). And the underlying company grows (ideally), thus
increasing the intrinsic value of the stock.

Bitcoin does not create cash flow. It is cash.

So, will it increase in intrinsic value?

Proponents scream yes! They believe Bitcoin is a superior currency that will vastly
increase in value as compared to inferior currencies (e.g. the U.S. dollar, all
traditional national-state currencies). The more it is used (general acceptability),
the more in demand it will be. High demand = high price.

And this ties back to where we started: what makes money good?

Bitcoin proponents will be proven correct if enough of the general public believes
in it. It needs to be generally accepted. And users need to have faith that it will be
stable. To date, it hasn’t been (at least, relative to the U.S. dollar). But if we
believe Bitcoin is still in its nascent days, then perhaps volatility is to be expected.

173
Detractors believe that Bitcoin is nothing more than a speculative asset. They
worry it will never act as a fully adopted currency, and therefore will never have
intrinsic value. It will only be valued as compared to the U.S. dollar.

Getting started is fairly easy. You can buy bitcoins via one of many popular
exchanges. They will create a bitcoin wallet address for you, handle the
transaction fees, etc.

Friend-of-the-blog Bryan played a huge role in helping create this article. If you
want to buy Bitcoin, use his Coinbase referral link to repay the knowledge he
shared. Both you and he received $10 USD worth of free Bitcoin—a win-win
proposition.

HODL? FOMO? FUD? What Do These Words Mean?

Like many movements, niches, communities, etc, cryptocurrency has its own lingo.
For example, Bitcoin bulls advise others to HODL, or hold on for dear life. As in,
“Don’t sell now…the future is bright. Just HODL.”

The FOMO/FUD cycle is another well-known acronym. It stands for fear of missing
out and fear, uncertainty, doubt. In Bitcoin’s short life, there have been multiple
rampant bull markets (everyone buys because they fear they are missing out on
something big). Those manias end and are replaced by fear, uncertainty, and
doubt. Everyone sells, the price tanks.

For more common crypto sayings, there are many online cryptionaries.

174
What About All the Other Cryptocurrencies?
Bitcoin is the original and most famous cryptocurrency. But there are thousands of
alternative cryptos, collectively known as alt-coins.

For most alt-coins, their founders thought, “Bitcoin isn’t perfect…let me try to
improve on it.” Perhaps they made the cryptography easier or harder. Perhaps
they made their alt-coin easier for businesses to use.

One big issue is that Bitcoin blocks are mined (on average) once every ten
minutes. So if you just sold someone a car using Bitcoin, you might have to wait
ten 10 minutes (or longer sometimes) to verify that the transaction was valid.
That’s not great for business.

But for the most part, the differences aren’t enormous. Bitcoin remains the zenith
crypto. All alt-coins combined have less than half the value of Bitcoin alone.

What Are YOUR Questions?

I’m happy to append this chapter over time, adding your questions as they arise.

After all, explaining bitcoin in simple terms wasn’t that simple, was it?

I hope this chapter helped you think about Bitcoin and other cryptocurrencies in a
new light. Yes, the system is quite complex. But the underlying building blocks are
reasonable when examined one at a time.

What does the future hold for Bitcoin? I have no idea. But it’s exciting to learn
about and follow along!

How I’m Going to Leverage the Next Crypto Crash!

By Your Friend Andy
Andy is an entrepreneur in both the real and digital worlds.
You can learn more about his business journeys through his

175
YouTube channel, Your Friend Andy. Outside of running businesses, Andy loves to
discuss the merits of Bitcoin with his audience on his Twitter.

There are only a few things in this world that are certain: death, taxes and crypto
crashes.

Every time crypto reaches new heights, there are tons and tons of news sites with
headlines about the impending doom and crash. Everyone wants to know: when is
the next crash going to happen?

But I think that's the wrong question. I don't think you should be asking, “will it
crash again?”...because that's an inevitable yes. I think the question you should
ask is: “how can I make as much money as possible when it does crash?” That's
what I want to talk about.

I’m going to share exactly what I did during the last bear market to maximize my
returns in this current cycle (late 2021), including what I did to have results like
taking $1,200 and turning it to $150,000. I will also tell you what it was like during
the last up-and-down markets from 2017 through 2019, and how you can be
prepared from this point on forward.

The 2017-2018 Bull Run

First, I want to talk about the last bull market for crypto back in 2017, 2018. As
someone who has been in crypto for the past four years and lived through all that
stuff, I want to tell you exactly what it was like and what were some lessons I
learned from that.

A quick recap: all through 2017, Bitcoin was steadily gaining momentum and
gaining price action. That came to a head in the fall of 2017, when Bitcoin hit its

176
then-all-time high of nearly $20,000. Naturally, with news as big as that, there was
ensuing pandemonium. A crypto craze. You know...euphoria.

It was a really, really wild time to be a part of the space. 1) Bitcoin hitting $20,000
was incredible. It was one of those, “I can't believe this is happening moments.”
But 2) it led to an ensuing “altcoin season.” There was mass euphoria, mass
excitement. Everybody seemed to be jumping into cryptocurrency - a.k.a. creating
and investing in alternate coins.

Everywhere you looked, there were news articles, blog posts, and YouTube videos
that all covered the same topic: what's the next coin to blow up?

And the crazy thing is that for a short while, there were basically no wrong
answers. Everything was going to the moon. And if you didn't pack your bags, you
were going to miss out on your trip.

With a market like that, there was so much FOMO (fear of missing out) and so
much greed. Inevitably, it had to come crashing back down. In doing so there were
a lot of people who lost a bunch of money.

Personally, I did give into the FOMO. I bought lots of coins at all-time highs, and
then watched them with a sad frown on my face as they crashed back down.

But even with all the mistakes I made during that time, I did learn a lot of valuable
lessons. Two of the biggest lessons I learned were 1) how to keep a cool head and
not let emotions dictate my investing decisions, and 2) even when things are
looking bad, there are still tons of opportunities.

177
Fear and Greed
I know it gets quoted to death, but I really believe in the merits of Warren
Buffett’s quote where he says to investors, "You should be fearful when others are
greedy and greedy when others are fearful." And I feel like that's what I personally
did from 2018, 2019 and into 2020.

What exactly did I do during the last bear market that I found to be very profitable
going into this bull market, and can you do it too?

The number one biggest thing I did is I researched Bitcoin (and cryptocurrency in
general) like crazy. I frequently spent time every day learning new things about
the “Crypto space.” I’d take in as much as I could. Listening to podcasts, reading
books, reading articles, watching YouTube videos, etc. You name it. I was doing it. I
was consuming it to try to get as much knowledge into my head as possible.

I definitely learned that the more you understand what you're investing in, the
better you are equipped to make decisions based on that information. One of the
greatest tools I have in my investing war chest is conviction. You cannot borrow
conviction from other people. You have to earn it for yourself. And I found that the
number one way to have a die-hard conviction is to understand the investment
by researching the heck out of it.

The next thing I did after researching is that I went hard on investments in
Bitcoin, in other cryptocurrencies, and in other asymmetric crypto-related bets. I
bought Bitcoin at all-time highs at $19,000 and $20,000, and I kept buying it all
the way down to its lows in the $3,000 range.

Most of the time I was dollar-cost averaging, but I was buying big chunks and little
chunks. Anytime I had extra money to throw at it, I was investing. And in doing so,
I bought all the way back up to its current all-time highs in the $64-67K range. One

178
of the biggest things I did was I just consistently invested in something I really
believe in and it has performed so well for me.

So few people were buying Bitcoin when it was less than $10,000. But I had so
much understanding and conviction about it. I thought $10,000 was a bargain. So I
was gobbling up as much Bitcoin as I could possibly afford.

Aside from buying Bitcoin, I also looked for other opportunities. And man, there
are a bunch of opportunities in the crypto space during a bear market. Not just
when it comes to buying cryptocurrencies outright, but also buying the things you
need to get the crypto, like mining rigs.

Over the past four years, I have put significant money into building mining rigs and
buying mining machines, and that investment has really paid off. I've had lots of
great bets and I've got lots of things I could share, but I will give you one example.

I’ve always thought privacy coins were super cool and are interesting projects.
One that stuck out to me in the past couple years that I found and researched is
called Pirate Chain. When I found Pirate Chain, I thought it was a project with
potential, but I didn't want to throw money directly at it. Instead, I wanted to do
the mining approach. So I hopped on Craigslist and found a mining machine that
would mine Pirate Chain. I spent $180 on that miner. Then I just let it run and I
forgot all about it. I ended up paying about $900 worth of electricity over the past
several years running that machine. All told, my investment into Pirate Chain was
about $1,200.

Then in the second quarter of 2021, Pirate Chain just...well, it blew up! At Pirate
Chain's peak, I had about $150,000 worth of Pirate Chain. I'm still holding some of
it, but I sold a large chunk of it into Bitcoin. Why? Because my ultimate strategy
with crypto and mining is to accumulate as much Bitcoin as possible. But Pirate
Chain is one example of one of the mini bets I have made over the past several

179
years. And you could be making these bets too if you're willing to put in the
research, the work, and the money when nobody else is willing to do it.

Similar to the Pirate mining rig, I also bought a bunch of mining motherboards and
video cards, mining rig enclosures, and other assorted mining-related equipment.
I bought it all for bargain basement prices during the last bear market, and threw
it on a shelf. During this current bull run, I have been selling that stuff on eBay for
extremely high profits.

These are all things you can do too during the next bear market in crypto. I'm not
special. I'm not doing anything crazy. It’s all pretty easy stuff. It just comes down to
you being willing to put your money where your mouth is and make these moves.

Another thing I did over the past four years that really, really paid off is...I simply
did not sell any of my crypto. When prices were down and it seemed like things
were hopeless, it really is tempting just to sell everything. But I didn't let my
emotions get the better of me. I held onto everything with the conviction and
expectation that one day it would pay off.

Now, some of the projects I invested in or mined have gone to zero and don't exist
anymore. But of the ones that are still around and still thriving, the returns have
been amazing. My winners have many times over made up for all my losers.

(This is similar to how venture capital firms work. They invest in 50 different
projects. Each project only might only haves a 10% chance of success. But if a
project succeeds, it’ll return 100x on the initial investment. Find the right
investments, invest in a bunch of them, and the laws of probability suddenly fall
joyfully in your favor.)

180
This brings me to the next thing I did, which was being very patient. Everyone
wants to get rich with crypto overnight, and I'm sure some people can do that. For
me, getting rich “overnight” with crypto has looked like getting rich over the
course of four years. All the while over those four years, I’ve had to ignore
everybody who told me it was a bad investment, a bad decision, or that I was
throwing my money away.

So I was patient, endured all the flack, and sat on my stacks until this current
market rolled around. It’s been a great decision. I really think if you can get
creative and invest when most other people are too scared to, you can win big.

So what are the takeaways in this article?

1) I still think there is tons of upside left with Bitcoin and other cryptocurrencies.

2) One of the biggest lessons I've learned and one of the biggest lessons you can
learn from these cycles in investing, is not to let your emotions dictate what you
do. Emotional decision-making with investing is extremely costly. If you can
combine having a level head with looking for opportunities where other people
are not looking for them, you can come out so far ahead.

When we have our next protracted bear market in crypto, keep a sharp eye out
for opportunity. It can make all the difference in your investing strategy. Then, of
course, you must have the conviction to put your money on the line and make
those decisions. But I promise you if you do that, you will see atypical results. I
wish you all the best in your investing adventures.

Ethereum: The Future of Crypto?

181
By Stephen Wealthy

Stephen Wealthy is a self-made millionaire and creator of

www.stephenwealthy.com, where he shares wealth-building
success stories and winning investment strategies that
everyone can implement. He has a Bachelor of Commerce
degree and works as a self-employed consultant for large
cap oil & gas firms. In addition, he runs and operates his
own Ethereum node and is an active participant within the Ethereum community.
You can reach Stephen on StephenWealthy.com or on Twitter.

Introduction
Ethereum embodies disruptive innovation. I want to share with you why this is,
and its Ethereum’s potential to deliver outsized returns for forward- looking
investors.

Ethereum’s opportunity for investors is cornered and squared through four use
cases: global asset transfer and settlement, proof of digital ownership,
decentralized finance, and the shift to proof of stake consensus. While there may
be more, let’s focus on these today.

However, before diving in, let's do a quick overview of what Ethereum is.

Background
Ethereum is a decentralized, open-source blockchain with smart contract
capability. Ether is the native currency of this platform. Ethereum was engineered
with the goal of running decentralized applications and is often referred to as “the
world’s computer.” Its purpose is to take what Bitcoin introduced, and see if we
can’t do more.

But make no mistake. Ethereum is not Bitcoin. It runs on its own separate
blockchain network.

182
Ethereum was conceived in 2013 by Vitalik Buterin, who at the time worked for
Bitcoin Magazine. Development work started in 2014 and the network went live
on 30 July 2015. Further improvements, upgrades and refinements have given rise
to Ethereum’s prominence as the most valuable decentralized smart contract
blockchain. I know that last bit is a mouthful, but it is very important. In terms of
total market cap, Ethereum sits second among all cryptocurrencies (only behind
Bitcoin).

Now let’s review some of its uses and why you might see investment potential in
it.

Use Case 1 - International Settlement of Assets

Far and away, the most valuable use case of Ethereum is its ability to settle the
transfer of assets across the globe. In other words – you can send money!

But not only can it transfer Ether, the native currency on which the system runs, it
can settle many others. In fact, of the $30B daily settlement value on this
blockchain, over half of it is not Ether. Other assets such as stablecoins and
non-Ether cryptocurrencies use this blockchain to transfer and settle.

Because Ethereum is decentralized and permissionless, there are no restrictions

on who can send or receive the assets. If you have the assets, you can send them
to any wallet of your choosing in a matter of seconds (for a small fee). Your
counterparty receives the funds, guaranteed, and there are no holds. The
recipient can use the asset immediately as they so choose.

This network is censorship-free and completely decentralized, which means there

is no single point of failure. It will always be on and always work. It is the premiere
smart contract cryptocurrency and blockchain which has been thoroughly battle
tested since 2015.

183
Use Case 2 - Digital Ownership & NFTs
You may have heard of digital artwork being sold for large sums of money? Or
NFT’s a.k.a. non-fungible tokens? As Jesse Cramer explained earlier, “fungible”
means “alike and substitutable.” Therefore, non-fungible means that these tokens
are one-of-a-kind and unique. They are used to prove ownership of a unique item.

When you hear about NFTs, think Ethereum. Why? Because the vast majority of
NFTs are held and settled on the Ethereum blockchain. And yes, many current
NFTs are nothing more than digital art.

But if we look past the current digital artwork craze, there is a business use case
here waiting to be leveraged. Non-fungible tokens prove ownership. And this
proof can be used for any object - not just art.

Event ticketing is a terrific example where NFT’s can be used with real-world
utility. As the buyer of the event ticket, you want confidence that you bought the
authentic ticket and it can be easily redeemed to get in. Imagine getting to your
seat and someone else is already there!

However, as a reseller, you will also want proof that you are selling the legitimate
ticket, as this makes the ticket easier to sell. NFTs ensure such a desired level of
security. And there’s another added bonus. Since NFTs are programmable, the
original issuer of the ticket can insert a condition that they receive a percentage of
any resale transactions i.e. a resale royalty.

What event organizer doesn’t want that control!

The list of possibilities here is endless. As the world goes more online, the need to
prove ownership over the Internet rises. NFTs on the Ethereum blockchain are an
answer to this problem. Did you know Microsoft is looking at Ethereum to see if it
can’t be utilized to prove ownership and prevent piracy?

184
NFT’s can be used for many needs, including warranty claims, medical records,
digital music, software, and anything where you want to buy, sell or prove you
own the item online.

Use Case 3 - Decentralized Finance

Since Ethereum is a decentralized blockchain running smart contracts, it can easily
facilitate decentralized finance. This so-called “DeFi” is the third major use-case of
the Ethereum network.

This means that many of the financial services performed by banks or financial
institutions can be executed by this blockchain at a much lower cost. On top of
this, because Ethereum is trustless and permissionless (which both mean that you
don’t need a third-party involved), you can be completely anonymous. This is
powerful.

Applying for a loan, buying an insurance product, lending your money, or

leveraging the purchase of an asset - all can all be done on the Ethereum
blockchain at the click of a button regardless of age, income, race or country.

Let’s frame it like this: someone in Ethiopia can lend or borrow assets with
someone in Japan at the click of a button in a matter of seconds with no
application. The lender and borrower won’t even know each other. The smart
contract is written and executed with financial integrity upheld.

Remember, this is a permissionless network. Your only requirement is you have

the collateral asset to begin with. If you have the asset, you get the product. No
questions asked. A smart contract will be written and added into the blockchain,
and then that contract executes with perfection. The miners compete to keep the
network secured. It is a beautiful piece of technology.

185
Use Case 4 - Proof of Stake
Speaking of mining, the Achilles heel of Ethereum is the current mining
infrastructure required to make it run. While Ethereum’s infrastructure is large
and secure, this brings security, it also means it consumes a lot of energy. The
current mining algorithm also creates “transaction bottlenecks,” as it can only
process 15 transactions per second. This bottleneck increases transaction fees
during periods of high demand.

Ethereum is currently undergoing a transition to proof of stake verification, which

will replace the mining infrastructure with a new energy efficient consensus
algorithm.

Instead of putting up hardware to run the network (i.e. volunteering to become a

miner), participants will put up their Ether as collateral and then will agree (or
disagree) to validate transactions. The upshot is that this will reduce the power
requirements of the network and also open the doors to improved transaction
speeds.

100,000 transactions per second will soon be possible. This will drastically reduce
fees. Is this fast enough? For comparison's sake, Visa processes 3,000 payments a
second.

By switching to a proof of stake consensus algorithm, Ethereum will become

incredibly energy efficient while also increasing transaction throughput.
Combined, these changes will make Ethereum extremely competitive to all
financial services, and not just to other competing cryptocurrencies.

Closing Thoughts
At its heart, Ethereum solves the problem of financial trust through a
decentralized blockchain. It transfers assets, proves ownership, and allows lending
at the global level. Once Ethereum successfully implements the proof of stake

186
upgrade, it will further disrupt the financial services industry. Game theory will
play out and many will be forced to adopt it in order to stay competitive.

Stepping back, it would seem that this is an incredible opportunity for investors to
jump in on board.

And it is.

187
The Power of Leverage
By Nate Dean

Nate Dean is the Co-Founder of Unlimited Life Concepts.

Nate studied business and finance in school but was blown
away by the concept of becoming your own banker in 2017.
As a financial educator he has taught thousands how to
control their money and properly apply the principle of
leverage. Nate is an Authorized Practitioner of the Infinite
Banking Concept through the Nelson Nash Institute. You can
reach Nate on Twitter, on Instagram, or on his website.

“Win a ‘no-win situation’ by rewriting the rules” - Harvey Specter

My favorite drama TV series is Suits.

While there are actions in that show that I don’t condone, I’m fascinated by the
frequency with which the principle of leverage is used by protagonist Harvey
Specter to quote “bend someone to his will.” Harvey always seems to find that
seam or wrinkle to use against an individual that tips the scales in his favor.

Money behaves in the manner with which you treat it. Because money is static
without an outside force. You must bend money to your will, or your behaviors
will cause inefficiency and ultimately lead to defeat.

Defeat? Yes. Money is a game. When we play a game, we want to win. And
sometimes we find that there are rules we can use to our advantage, to increase
our probability of winning.

Winning the game of money is mostly math, and everything else is overcoming
the emotion of it all. Imagine someone sitting down with you and giving you the
playbook on how to win the money game.

188
My mentor R. Nelson Nash said, “when you understand the problem, you will
know exactly what to do.” But most people never dig deep enough to understand
the problem. For example, rarely is anyone ever taught how banks actually make
money.

Do you know how?

Jim Trotter said “Give a man a gun and he can rob a bank. Give a man a bank and
he can rob the world.” The banking system, as it is today, was created to maintain
control of the economy through manipulation of the money supply.

Your average Joe has no clue how our banking system works. He just knows where
to go when he needs money. Banks only make money when Joe deposits money in
their system. The bank loans Joe’s money at a multiplier far greater than his
personal interest rate. That creates cash flow for the bank.

This system is great for the bank because they are legally allowed to leverage your
money for a profit (and even leverage money they created out of thin air). The
most profitable business on the planet is the banking business, because they use
other people’s money (yours and others) to create value for themselves.

What if we could rewrite those banking rules for ourselves, on an individual level?
What if we could legally behave in a way similar to that of banks? After all, don’t
you think they know something about money that you and I need to know?

When you understand the problem proposed solution, it might seem like a no-win
situation. What is the problem solution exactly? It’s a wild concept that I learned a
few years ago:

You finance everything you buy. Even when you pay cash

Let me explain.

189
If you don’t understand leverage, then there are two problems occurring with
your money each time you use it.

The first problem occurs when we finance, or borrow money. In this case, we have
to make interest payments back to the bank. And the bank controls how the loan
is structured, and how the repayments are scheduled. None of these factors are
good for you.

Did you know that interest is front-loaded on a home loan? When someone buys
a home and makes the minimum payments each month, they will discover a
shocking realization after 5 years. If they look at their mortgage statement, their
payments will have likely paid 60-80% in interest over that time period. Only a
small fraction actually pays down the loan principal.

On a 30-year loan, that interest is spread out to smooth the long term cost. But
who lives in a house for 30 years anymore? Our culture and economy have seen
the average person moving every 5-7 years, which means the interest calculator
gets reset with every new transaction. It’s not about the rate of interest you pay,
it’s about the volume of interest you pay. A 3-4% interest rate on a mortgage
sounds very appealing until you understand that your incurred cost is more like
60-is 80% interest in those early years.

So that’s the first problem. When you finance, or borrow money, interest works
against you and you’re subject to the bank’s schedule.

The second problem occurs when you pay cash for something.

A popular financial entertainer (we’ll call him Rave Damsey) would strongly
encourage you to save up and pay cash for everything you can, including real
estate.

190
When we save money, we have to place it in a secure location and continue to add
funds over time. The average person feels like a savings account is the most secure
location. But unfortunately, there is an erosion factor taking place.

Due to inflation (an increase in the money supply by the Federal Reserve), the cost
of living rises at a higher rate than what your money can earn in savings. You will
miss out on opportunities that those dollars could have created, because those
dollars are already allocated towards a future purchase of some kind. You fight an
invisible headwind with your money, and the only way to overcome this is to make
your dollars stronger.

We need something that tips the scales in our favor. Right now, neither paying
cash nor financing sounds very appealing when you learn that money is leaking
out of your life at a rate you cannot calculate or control.

We need leverage (or collateralization.)

Most people assume that leverage equals risk, but I want to demonstrate how you
can apply leverage in your life virtually risk-free. This will keep the pressure on
your money to create more opportunities.

I use the following example with all my clients. First, let me point out that this is
just an example, and I am going to use these numbers for a specific reason. Do not
get hung up on these numbers, because I want to show you a bigger picture - how
leverage works.

Let’s say you saved up $30,000 for a brand new vehicle. It took you a while and
you worked really hard socking money away, and the big day has finally arrived.
You’ve researched and finally decided on the perfect vehicle.

You call me up and say, “Nate, I’ve got my car picked out and I am about to run
down to the dealership to purchase it!”

191
First off, I would encourage and congratulate you on the discipline and hard work
to make that happen. But then I would tell you to not go straight to the
dealership. Instead, you should add one extra step to the process.

Go down to your local bank and deposit that money into a CD (certificate of
deposit). Let’s say that CD is going to earn you 4% interest. You’re probably
thinking at this point “What the heck Nate?! I just want to go get my car!”

Then I would tell you to turn around at that same bank and borrow $30,000 from
them using your CD as collateral. That’s called a collateralized loan, and it is the
safest loan that any bank can make. They are only going to charge you 1-2% over
what they are paying you on the CD. There will be a small gap between those two
rates.

Let’s say they are going to charge you 6% on the loan. I can hear it in your head,
“Nate, these numbers are completely backwards. If you are earning 4% but paying
6% you’re going to lose money!” Stay with me.

Let’s amortize that $30,000 loan out over 4 years at the 6% rate. You will have a
monthly payment back to the bank of $704.55 for the next 48 months. After 4
years of making those payments, you would have paid the bank a total of $33,818.
You will pay $3,818 in interest to the bank. Go ahead and plug these numbers into
an online amortization calculator for yourself.

Is there any chance that your 4% CD is worth more than your 6% loan you just
paid off? Yes! In fact, your CD would be worth $35,096 after those same 4 years.
You would have earned $5,096 at the same time as you paid $3,818 in interest!

Not only do you have a car that’s completely paid off, but you also have $35,096.
How easy would it be to follow this model every 4 years? You can grow your
money simultaneously while you’re also driving your vehicle.

192
You won the equation. You came out on the positive side of interest by following
this formula. You may still be wondering how this happened.

The loan is being charged on a decreasing amount of principal (your loan amount
decreases as you repay it). While the CD is compounding on an increasing value.
At some point those values cross each other, and the CD keeps going up while the
loan keeps going down.

At the time you’re reading this, you may not feel that my hypothetical numbers
are realistic in today’s environment. But I teach people how to achieve this on a
greater scale every day. We just use a different asset class that is more secure and
powerful than what I’ve demonstrated above.

Is leverage worth it? Absolutely it is when you understand the problem and the
solution.

Here’s the questions you need to consider:

- What if you had a system that allowed you to do this with everything in
your life?
- How fast would your money grow?

This is what I teach people how to do.

193
What is Dividend Investing? And How To Execute It.
By Alex, a.k.a. “The Dividend Dominator”

Alex--better known as The Dividend Dominator--is a

Canadian dividend growth investor who has been investing
in the stock market for 8 years. His goal is to help teach
others about the benefits of investing in cash flow
producing assets that create passive income. When his
competitive hockey career ended, he pursued University
degrees in Honors Finance Degree and a minor in Economics. He has also passed
both volume 1 and 2 of the Canadian Securities Course. In his free time, he loves
playing golf and traveling. Follow Alex on Twitter and Instagram.

What is a Dividend?
A dividend is a payment of a company's earnings to a shareholder. When a
company earns income, it has a couple of choices to make: either reinvest its
profits back into the business or distribute it to shareholders in the form of a
dividend. A dividend is cash into the shareholders pockets. Unlike the share price
that can vary over time, dividends are regular payments of income no matter what
the market is doing.

3 Common Types of Dividends

Cash Dividends
Cash dividends are the most common dividend whereby shareholders receive cash
in return for investing in the company. This cash can either be automatically
reinvested into more shares or deposited into the cash position of your
investment account. The dividend is calculated as an amount per share. Meaning,
if the company pays out a $3 annual dividend and you own 50 shares, you would
receive $150/year.

Stock Dividends

194
Companies can choose to pay out stock dividends instead of cash dividends. The
benefit of a stock dividend is that it’s not taxed until it's sold, unlike a cash
dividend which can be taxed once it is earned (depending on what type of account
you’re using). Companies who are low on cash might prefer to issue a stock
dividend, as it doesn’t affect their cash position but still gives investors an
incentive for owning more shares. Stock dividends work as a percentage of total
shares owned.

For example, if a company issued a 5% stock dividend, then their investors would
own 5% more shares after the dividend than before. A 5% stock dividend is the
equivalent to earning 1 extra share for every 20 shares owned.

Special Dividends
Special dividends are typically larger than the normal dividend paid out by the
company. But they don’t happen often. They are a one-time payment to
shareholders that are sometimes tied to an event in the company, like a large sale
of assets. The most famous special dividend was paid by Microsoft, who issued a
special dividend of $3/share in 2004 for a total of $32 billion.

What is Dividend Yield?

Dividend yield is expressed as a percentage and refers to the dividend you earn
from each share you own. The formula for dividend yield is as follows:

Dividend Yield = (Annual Dividend / Current Share Price) x 100

Let’s say you own stock ABC, which pays an annual dividend of $2.50 per share
and is currently trading at $50. In this case, the dividend yield would be calculated
as ($2.50/$50) x 100 = 5%.

Because dividend yield is related to the share price, stocks that fall in value may
have higher than normal dividend yields and vice versa. It’s important to
understand how the formula works in order to spot yields that may not be telling
the full story.

195
​Knowing Your Dividend Dates
Let’s review what a typical dividend schedule looks like. There are a few events
and dates that are of particular importance to a dividend investor.

The Declaration Date

The day the company declares their dividend. This day allows investors to get a
better idea of how much they will be earning on the next pay date. Other than
that, it has no impact on if you will or will not receive the dividend.

Cum-Dividend Date
The cum-dividend date is always 2 business days prior to the record date (we’ll
cover the record date soon). This is the latest date that an investor can purchase
shares of the company and receive the dividend. Rule of thumb: if you want to be
paid a dividend, hold the stock on or before this date.

Ex-Dividend Date
The ex-dividend date falls on the next day after the cum-dividend date. Let’s say
you held your shares on the cum-dividend date. You could sell them on the
ex-dividend date and still receive the next dividend payout on the pay date.
However, if you decided to purchase shares on the ex-dividend date, you would
not receive the dividend for the next pay date and would have to wait until the
following one.

Record Date
The record date is very important to dividend investors because it allows us to
determine the cum and ex-dividend dates. It gives us a range for when we will and
will not receive the dividend from the company.

Payment Date
Finally the payment date: the day we all love as dividend investors. This is the day
on which you will actually be paid your dividend. If you are enrolled in the
Dividend Reinvestment Plan (DRIP), your dividends will be automatically

196
reinvested into more shares of the same company. If not, your dividends will land
in the cash position of your investment account.

Why are Dividends Important?

Cashflow
Cash is king, but cashflow builds empires. Dividends are important because they
provide investors a way to earn income without trading any of their time. That’s
important in a world where we only have so many hours we can actively be
working for income.

Think of a water tank with a hole at the bottom. The hole represents your
expenses. Every month, water continuously flows out of the hole. Your mortgage
payments. Your car payment. Phone bills. Gas. Food. We need money to pay for
necessities.

But what if you could replenish a bit more of that tank from income that you earn
while you sleep? Or while you hang out with friends? Or while you’re on vacation?
Cash flow is the foundation of any business. But more importantly, it’s the
foundation of a well-functioning investment portfolio.

Most dividend investors are dividend investors for a reason. They usually plan to
one day live off their dividend earnings or just simply want to supplement their
active income in the most passive way possible.

197
If you put it into perspective, financial freedom equates to widening the gap
between your cash flow and your expenses. If you have the chance to increase
your cash flow while keeping your expenses the same, you’re taking the right
steps towards one day never having to worry about money again.

Getting Paid to be in the Market

Every dividend investor is a long-term investor. You can’t “day trade” dividend
stocks because it defeats the purpose of holding shares to earn income. So the
question then becomes, “If you’re going to be in the market for a long time, why
wouldn’t you want to be getting paid to wait?”

As an investor, you’re already putting your money at risk by being in the market.
There’s no way around that, because investing always carries some form of risk.
The stock market could crash tomorrow and you could lose everything. Having the
power to get paid in return for taking on that risk is extremely powerful. Being
able to see a tangible return on your investments (without selling your shares)
helps your stay committed to the process.

Offset Losses
Another reason why dividends are important is to offset your losses. Every
investor will experience a loss at some point in their investing journey. At the end
of the day, it’s not about how much money you can make, but how much money
you can keep.

We saw this back in March 2020 right after the pandemic sent the stock market in
a downward spiral. Growth investors were running for the fences and selling out
of their positions. But guess who wasn’t doing that? Dividend investors.

As the market fell, dividend investors may have seen their portfolios drop in value,
but those are unrealized losses. You don’t realize a loss until you actually sell your
shares.

198
So what did dividend investors do in March 2020? They continued to hold their
shares. Some may have bought more shares at a discount, decreasing their
average ownership price. And that occurred all while those investors continued
earning dividends to offset their unrealized capital losses.

I’ll give you an example. I own shares in Scotiabank (BNS), a Canadian bank that
pays a dividend of $3.60/share annually. In March 2020, I saw my share price drop
from $75/share to just below $50/share, as seen by the chart below.

My unrealized losses amounted to around $2,000. But I didn’t sell. Instead, I

decided to hold my shares to continue earning the dividend. And I also lowered
my average cost by buying more shares at $50.

In ~20 months since that time, I’ve been able to earn $400 in dividends from those
shares, offsetting some of the $2,000 unrealized losses. As I held my shares,
dividends continued to roll in. And the share price returned back to pre-pandemic
levels. While all the growth investors sold at a loss, I was able to make more
money on the way up without ever taking a loss. That’s the power of having
dividends offset your losses.

199
The Difference between a Dividend Growth Investor and a
Yield Investor

Dividend Growth Investing Explained

Dividend growth investing is a strategy in which an investor buys high-quality
companies that pay a growing dividend over time. The basis of dividend growth
investing is finding companies that have been able to sustain consistent and
growing dividends for a long period of time, even throughout recessions and
market downturns. This proves a company's ability to generate cash flow and use
that money to continue rewarding their shareholders.

As you become more familiar with dividend growth investing, you’ll notice that
companies go through a life cycle, similar to what we go through as human beings.

A company will start off in the “infancy” phase, where they’re probably spending
more than they’re earning. They’re trying to grow but need a massive influx of
cash to make that happen. Just like infants, they rely on their parents to feed
them, change their diapers, and keep them safe. Infant companies are no
different. They’re frequently dependent on cash flow and the support of an
outside cash supply to help them grow.

Then they move to the “childhood” phase. Revenues start to increase, but the risk
factor still remains high, as children are prone to making mistakes.

Then comes the “teenage” phase. Companies start making some profits, become
fairly independent and can stand on their own two feet. However, there’s still tons
of growth potential and a lot of work to be done.

Finally, we move into the “adulthood” phase, where we find mature companies.
These are the companies that every dividend growth investor loves. Most of their
growth is already done, as they’ve been profiting off their target market for years.

200
These types of companies have accumulated piles of free cash flow, which is why
they are the most sustainable and the best option for dividend growth investors
who want to continue getting larger payments every single year.

And yes, many companies eventually go through an “elderly” phase. Even the
strongest adult companies grow old, and sometimes they lose their competitive
edge. Kodak, Sears, and General Electric were all once blue-chip, strong adult
companies. Sears is now dead. Kodak and GE are shadows of their former selves,
barely hanging on.

The goal for dividend growth investors is finding a strong adult company with a
long remaining runway before they become “elderly.”

Yield Investing Explained

Yield investing is a completely different story. Yield investing occurs way too often
with new investors trying to earn passive income from their investments. Yield
investing happens when an investor chases high yields and makes investment
decisions based on yield alone.

There are two reasons why this may not be the best strategy:

1) High yielding stocks are usually not sustainable over the long run
2) High yields come with a higher chance for a future dividend cut

Of course, it can also be the case that a stock has a higher yield because of a
recent price drop in the stock. Like we learned above, dividend yield is a function
of price. When the price falls and the annual dividend stays the same, then it’s
inevitable for the dividend yield to rise as we saw back in March 2020. But as
stock prices continue to return to their pre- pandemic levels, a higher yield for a
dividend growth investor can be a huge red flag.

201
What to look out for when Dividend Investing
Here are some factors you should look for when identifying potential dividend
stock targets.

A Good Dividend Yield

You might be wondering what makes a good dividend yield. However, the answer
isn’t as simple as stating just one specific number, because there is tons of
volatility in the stock market.

I have personally found success in with stocks in the 3-6% dividend yield range.
These are the types of companies that aren’t paying out all of their earnings in the
form of a dividend. Instead, these companies are reinvesting some of their
earnings into internal projects and long term growth. The best combo for a
dividend investor is to see consistent rising dividends year over year, as well as
some stock price appreciation. Having both of those together is how massive
amounts of wealth is built over time.

With that being said, it’s important to talk about what we call the “payout ratio.”

The Payout Ratio

The payout ratio is often overlooked, but it’s a great indicator for predicting the
future growth or decline of dividend payments. Let’s break down the formula.

Payout Ratio = Annual Dividend Per Share / EPS

(EPS being the analysts estimate for Earnings Per Share throughout the following
year)

In other words, the payout ratio answers, “What share of the company’s profits
are being paid out to the stockholders?”

202
A payout ratio less than 0% is only possible if analysts estimate that the EPS for
the following year end will be negative. If you happen to see this, run as far as you
can in the opposite direction. Companies that have a negative payout ratio will not
be the ones sustaining our dividend payouts in the future.

Companies continue to pay dividends due to two main reasons:

1) They don’t want to look bad in the eyes of their shareholders if they cut
dividends, which can have a significant impact on their share price. After all,
stock price fundamentals are based on the idea of a discounted cash flow.
Stock analysts estimate all future dividend payments, and discount those
future payments into today’s dollars. If a company cuts their dividends, it
damages that key contributor to their stock value.

2) Paying out dividends is a matter of pride for many companies, as it signifies

an act of giving back to the shareholder for placing their trust in the
company. Some companies have been paying out dividends for years.
Cutting or eliminating them altogether could have a tragic impact on
shareholder confidence.

The Breakdown of Payout Ratios

A Decent Payout Ratio (0 – 35%)
We usually see ratios in the 0% - 35% range when a company has just initiated a
dividend to its shareholders. If the company has just started paying out dividends,
investors won’t value it as much as a company that has been paying out dividends
for years.

Remember, the past can be a good predictor of the future, so investors will
typically identify these types of stocks as a “value opportunity” rather than an
“income opportunity.” It’s vital to understand the difference.

Technology stocks are a perfect example of companies that operate around this
payout range. These businesses need to continue pumping money into research

203
and development. That’s the basis of their fundamental growth. To fund research
and development, companies need cash from their free cash flow reserves as well
as other financing opportunities. That’s why they typically retain the majority of
their earnings to reinvest into themselves.

A Healthy Payout Ratio (35% – 55%)

35% - 55% is a good payout range that provides investors with long term
sustainability and dividend growth. A company operating with this type of payout
ratio is distributing close to half of its earnings as dividends. This is a good
indicator that the company may be well established in their industry. They are also
reinvesting a good portion of their earnings towards internal growth opportunities
such as long-term assets, which is the best combo for maximizing your return.

A High Payout Ratio (55% – 75%)

A payout ratio within this range is considered high because the company is
expected to distribute more than half of its earnings as dividends, which results in
less retained earnings for the business.

At first glance, a high payout ratio is extremely attractive from a dividend

investor’s perspective. But by now you should know that may not be the case. A
high payout ratio implies low retained earnings for internal growth, which leaves
less money for the company to allocate to things like investments, research and
development, hiring new talent etc.

A Very High Payout Ratio (75% – 95%)

This range of payout ratio is very high and implies that the company is moving in
the direction of allocating almost all of its money towards dividends. While this
does keep shareholders happy in the short term, it also significantly increases the
risk of the company cutting its dividend in the future. A business operating in this
range usually goes down one of two paths:

204
1) Not growing its future dividend – which is bad for us as investors because we
want to see consistent dividend growth.

2) Cutting the dividend – which is also bad for investors, as this is our passive
income from the market. Companies don’t want people taking money out of their
pockets, so why would we want companies taking money out of ours?

An Unsustainable Payout Ratio (95% – 150% and beyond)

Once again, this is when you should run as fast as you can in the opposite
direction. This is not what we want to see as an investor. Companies operating in
this range are distributing more money than they earn. These types of stocks
typically result in either a significant dividend cut or a complete dividend
elimination.

The Compounding Effect

With a little bit of interest and a lot of time, the compound effect can help grow a
portfolio significantly. The compounding effect is achieved by reinvesting interest
earned back into your principal investment. Let’s look at an example below to
understand the power of compound interest.

We have 2 investors who both hold $10,000 portfolios with the exact same
holdings, and both plan to hold for 30 years.

Investor A plans to withdraw their dividends at the end of each year. They’ll use
the cash to enrich their daily lives.

Investor B plans to reinvest all of their dividends and let it compound.

Let’s assume that both of their portfolios earn 7% per year.

205
In 30 years, investor A would have earned $700 per year, totaling $21,000. Plus
they still own their $10,000 in stock. Not bad right?

In 30 years, investor B (the reinvestor) would have seen their investment grow to
approximately $76,123 more than tripling the return ($66,123 vs. $21,000) of
investor A.

Now let’s factor in time, because the compound effect is most powerful over a
longer time horizon.

Let’s say two investors both have portfolio’s worth $50,000 each, with identical
investments. Every year, both investors can contribute an additional $10,000 to
their portfolios. And let’s again assume a moderate 7% annual growth rate.

Investor A wants to cash out after 15 years.

Investor B wants to cash out after 30 years.

In 15 years, investor A will have seen the value of their portfolio grow to
approximately $389,241.

206
(https://www.getsmarteraboutmoney.ca/calculators/compound-interest-calculator/)

In 30 years, investor B will have seen the value of their portfolio grow to
approximately $1,325,221. That’s over triple the amount of investor A in only
double the time. You can also see that the total interest earned far exceeds the
total value of the investment, which confirms why the compound effect is so
powerful.

(https://www.getsmarteraboutmoney.ca/calculators/compound-interest-calculator/)

3 Ways To Take Advantage of Compounding

There are three key methods for a dividend investor to take advantage of
compound interest.

Reinvest All Of Your Earnings

Some investment brokers will allow you to use a Dividend Reinvestment Plan
(DRIP), which is a program that automatically reinvests all of your dividend
earnings back into more shares of the company that paid you. This means that on
the next dividend pay date, you will earn even more in dividends because you own

207
more shares. The number of shares you own will grow and grow! Thus, your
dividend payments will also grow and grow! This is compounding.

Start Early
The earlier you start investing and reinvesting your earnings, the more money you
can earn from compounding over time. That’s why investors who start in their 20’s
have such an advantage over those starting in their 40’s.

Stay Away From Excessive Risk

If you want to take advantage of the compound effect, it’s important to invest in
companies that will continue paying dividends, and hopefully ever-increasing
dividends. If you take on a high-risk portfolio, it can lead to large losses that
disrupt the compounding effect.

That said, it’s impossible not to experience some sort of loss if you’re invested in
the stock market. But you can limit your losses. After all, it’s not about how much
you can make, it's about how much you can keep. When it comes to the
compound effect, slow and boring can be a very effective strategy to build massive
amounts of wealth.

The Common Debate: Dividend Investing Vs. Growth

Investing

There seems to be a great divide between dividend and growth investors.

Dividend investors target the “adulthood” companies we mentioned before.
Growth investors target the “infant” and “child” companies.

So which one is the better choice? Let’s find out.

Pros of Growth Investing

● Higher upside potential
● Larger capital appreciation over time

208
 ● Exposure to future market leading companies
● Faster wealth creation

Cons of Growth Investing

● More volatility and price fluctuations
● Higher Price to Earnings multiples which may result in owning “overvalued”
stocks
● Little to no passive income generated
● Higher risk investing strategy
● Gains are “unrealized”

Pros of Dividend Investing

● The ability to generate passive income year after year
● Less volatility and price fluctuations as investors are usually buying in
mature industries
● Dividend increases resulting in the investor making more money for doing
nothing
● Getting paid to be in the market long term
● Hedge against inflation
● “Set it and forget it”

Cons of Dividend Investing

● Less exposure to capital appreciation
● Dividend tax on foreign income if not held within tax exempt accounts
● Slower growth
● Dividend policy changes and cuts
● Sector concentration as a result of dividend paying companies being
clustered within specific industries

The common argument: if you’re young, you should invest in growth stocks to
build as much wealth as you can. If you’re older, you should invest in dividend
stocks so you can build a stream of passive income to live on in retirement.

209
My response: There is no clear winner for which is the better strategy, so just do
both. Become a “dividend growth investor.” Once you know your own risk
tolerance, you can set a specific allocation towards dividend stocks, growth stocks
and even index funds. I have found success using a barbell strategy, which means
investing in both extremes of high risk and low risk companies to strike a balance
between risk and reward. Although the bulk of my portfolio is made up of
dividend paying stocks, it would be foolish as an investor to not be exposed to
both sides of the coin.

(https://koroushak.substack.com/p/talebs-barbell-strategy-84)

That said, how you establish your portfolio allocation is 100% dependent on your
own risk tolerance. Some investors may want to take on more risk and more
reward, increasing their growth exposure to 60-70% of their portfolio. Some may
want to limit their risk and decrease their growth exposure to 20-30%. Whatever
you choose, it’s important that your allocation fits your investor profile. An
investor who is risk averse should not allocate the majority of their portfolio to
growth stocks. An investor who is risk tolerant should not allocate the majority of
their portfolio to dividend stocks and index funds. But the best way to combat this
“which one are you?” debate is to just simply do both.

210
Qualities of a Profitable Dividend Investor

Patience
Patience is a valuable skill to learn when it comes to dividend investing because
the returns aren’t quick. With dividend investing, and like anything worthwhile,
success is built over time. Unless you have piles of money to play with, it’s likely
you will only be earning a small amount of dividend income in your first few years.
It’s important to keep a long-term vision and think of the bigger picture. Dividend
investing is most effective when you have a plan of what you want your life to look
like 5, 10, 20 years down the road. To be able to stick with it requires an immense
amount of patience and acceptance about the fact that your dividend income will
start out being almost insignificant. However, like a snowball rolling down a hill
growing bigger with every foot travelled, your portfolio will start to gain traction
and you’ll be happy you started when you did.

Consistency
One of the most common qualities found within profitable dividend investors is
consistency. You won’t be able to create a significant stream of passive income if
you only buy 1 share. You won’t be able to grow your passive income if you stop
contributing money to your investment account. Dividend investing requires you
to do the little things right every single week. That means buying into the process
and sticking with it over a long period of time. That means making sure you have
automatic contributions set up so you always have some dry powder. That means
identifying which stocks will make up the foundation of your dividend portfolio
and buying more shares every time they fall in price. That means refraining from
pulling out your dividends and instead reinvesting all of them into more shares.
These consistent actions over time are what create a growing stream of passive
income from the stock market.

211
Emotionless
Investing based on emotion is one of the leading reasons why investors buy at
market highs and sell at market lows. Fear causes investors to make irresponsible
decisions with their money most of the time resulting in a devastating loss. A good
way to combat emotion-based investing is to dollar cost average into your
positions. In a nutshell, this means “buying the dip,” which lowers your average
cost.

As a dividend investor, your number one priority should be to hold quality

companies that have been around for years. When the price falls, as it inevitably
will at some point, your response should be to buy more shares at a discounted
price rather than sell the shares you currently have at a loss. Taking your emotions
out of the equation and understanding that dividend investing is a long term game
is a great way to create large amounts of wealth on the way up.

Final Thoughts
Thank you for taking the time to read this chapter. Please feel free to reach out to
me on Twitter (@TheAlphaThought) or on Instagram (@TheAlphaThought_) if you
have any questions about what was covered. I’d be happy to help point you in the
right direction and get you started building a growing dividend portfolio of your
own.

My Courses/Newsletter: if you’d like to learn more about dividend investing

and how to analyze dividend growth companies, I have a 3 course bundle
called The Complete Investors Accelerator Pack that will teach you
everything you need to know about starting a dividend portfolio, reinvesting
your dividends and what to look out for when doing your own research. I
also offer a free/paid newsletter called The Profit Zone where I share all of
my dividend investing secrets, companies I’m buying, swing trades and
much more. If you decide to sign up as a paid subscriber, you will also gain
access to a Discord community of like-minded dividend investors and be the

212
first to know about any stocks I’m buying. Here is the link if you’d like to
check them out: https://linktr.ee/dividenddominator

213
 Part V: Money and Family
As long as you understand that you find happiness through
family, friends, and love, then money is just a nice bonus

--Ioan Gruffudd

214
Investing for a Family
By Jose Hernandez, “The Millenial Money Mentor”

Jose Hernandez is a financial educator and consultant. He

founded Financial University, his online financial education
platform, after spending a couple of years in the wealth
management industry and deciding he wanted to start
making an impact on many more people. Before moving on
from the wealth management industry, he was in charge of
just over $20MM in assets. Through Financial University, he’s helped over 1000
people and households learn how to start building wealth through investing.
He currently holds the Series 7 & 66 licenses and goes by
@themillennialmoneymentor on social media. He and his family are immigrants to
the US from Venezuela.

Generational wealth is much more than just a buzzword right now.

It’s a real movement.

Now that a lot of us are at the stage of our lives where we’re *finally* financially
stable and considering starting a family (if we don’t already have one), it makes
sense that there’s a lot of interest around this subject.

With the explosion in financial literacy content that’s being uploaded to social
media as of late, the door has opened up for conversations about what we should
be doing with our hard-earned cash, including investing a portion of it.

Many of us are able to start thinking about building wealth, not just for ourselves,
but for the people in our lives as well.

If you’re at all curious about starting a family, or you’re currently in the middle of

215
raising one, this chapter is going to be extremely valuable.

Together, we’ll cover:

- Ways you can go about investing for your children
- Important investment accounts to be aware of
- Actionable steps you can take to get started
- What to consider before starting to invest for your children
- And more

Investing For Your Children

One of the most important things I noticed in the time I spent in the wealth
management industry was how wealthy families were very proactive about
making sure their children had a solid head start financially in life.

Several of the clients I was managing assets for frequently brought up their
children’s investment accounts in our portfolio reviews and financial planning
meetings.

If you have children in your life, you may be thinking about doing your part to help
them have a nice cushion once they become adults, especially if you had to tough
it out once you became an adult.

If you’re serious about starting to build some wealth for your children, the good
news is that you have several options.

Each option has their unique pros, cons, and tax considerations (which we’ll go
over shortly).

My main suggestion is that you begin with the end in mind. You need to be very
clear on:

- What the money will be used for

216
 - When you expect your children to actually need the money
- When you expect your children to assume ownership of the assets
- The ins and outs of the respective investment vehicles you use

Keep in mind that there are no “right or wrong” answers to any of these
questions. It all comes down to your individual preferences as a family. But doing
this work up front can save you a ton of headaches (and potentially a good
amount in taxes and penalties) down the road.

When it comes to what the money will be used for, most people tend to invest for
their children for one of the two following financial goals:

- Education
- Endowment received at early adulthood

Education

With the cost of college skyrocketing, it’s very wise to start planning ahead if you
want to help your children out with the cost of higher education.

217
State 529 Plans are the most popular investment accounts for funding college
expenses. When used correctly, they can bring a ton of value to the table.

Here are some of the high-level benefits of State 529 Plans:

- Tax-deferred growth on the investments held within them

- Up to $10,000 can be withdrawn tax-free yearly for private K-12 expenses
- Tax-free withdrawals when used for qualified education expenses
- They do NOT count against the student for student aid purposes
- Some states offer deductions from your income for contributing to them

An easy way to think about a 529 plan is like a Roth IRA, but for education. The
account is funded with after-tax dollars. You can invest in several different types of
assets. Those assets grow tax-free. And, if you use the money for qualified
educational expenses, the funds can come out completely tax free.

Most state 529 plans offer a menu of different funds that you can own (options
vary by state), but each state typically offers a fund that attempts to track the
child’s age as they get closer to attending school.

These types of funds work similar to a target date fund in a 401k. The further the
child is from the target age (which is usually 18), the more aggressive the fund is.
This helps the account take advantage of growth in the stock market. The closer
the child gets to age 18, the more conservative the fund gets.

While this is not the only option you have within a 529, it can be a solid hands-off
solution.

The key is: these accounts must be used for qualifying educational expenses.

218
Each state defines what a qualified education expense is. But in general, you can
use these accounts for things like:

- Tuition
- School Supplies
- Room & Board
- Lab Fees
- And more general educational expenses

If you have questions about whether a particular expense counts as “qualified” in

your state, always be sure to consult with a tax advisor.

If you don’t use the funds for qualified expenses, a portion of the withdrawal may
be considered taxable income and subject to an early 10% early withdrawal
penalty (just like early distributions from an IRA).

This is why it’s so important to make sure that the funds you’re putting into a 529
are strictly earmarked for education purposes. You’d prefer to avoid that
withdrawal fee if you can.

If the child receives a scholarship, you may be able to withdraw the funds penalty
free. But the amount above and beyond what you contributed to the account
(AKA: the growth) may still be taxable as income.

Steps For Opening A 529

1. Choose a state’s plan that you like (yes - you can open a 529 plan in a state
other than that state you live in. Weird, right?)
2. Assign a beneficiary to the plan (e.g. choose your child)
3. Choose the mix of investments you want to own
4. Set up either a one-time or recurring deposit to the account via wire or
otherwise

219
It’s a simple process. You can open a 529 plan in literally any state. If your child
goes to school in a different state, they can still use the 529 plan and get the
benefits of it.

It’s important to note that you can only have one beneficiary per 529 plan. You
can change the beneficiary of the plan, but it MUST be someone who is directly
related to the original beneficiary.

As far as funding the account is concerned, it may make sense to not aggressively
fund the account until the child is a little older. When they’re young, it’s hard to
know whether college is in the books for them. But keep in mind, you can use
these plans to fund private K-12 tuition, up to $10,000 a year.

Custodial Accounts

In the event you wish to start investing for your children for purposes other than
education, you can consider funding custodial accounts.

A custodial account is a type of arrangement where the assets are managed in the
best interest of the minor until the minor reaches the age of majority (i.e.
becomes an adult in the eyes of the law).

While the child is still a minor, they have no control over the assets in the custodial
account. However, once they reach the age of majority, the account must be
transferred to the minor for them to do as they please.

The two most popular types of custodial accounts used for children are:
- UGMAs (from the Uniform Gift to Minors Act)
- UTMAs (from the Uniform Transfers to Minors Act)

These two account types are very similar. They both allow you to build wealth
within them (by investing in the market or other assets). They both remain under

220
control of the custodian (either you or the financial institution helping out with
the management of the account). Lastly, they both require that the assets be
transferred to the minor once they reach the age of majority.

The key differences between the two typically comes down to:
- What is considered the “age of majority”
- The types of assets that can be held by the account

In general, the age of majority for UGMA accounts tends to be lower, compared to
UTMA accounts (although it can vary by state).

In most states, the age of majority for UGMA accounts falls in the 18-21 range. For
UTMAs, the age of majority is typically 21, and even up to 25 in certain states.

UGMAs are also less flexible than UTMAs in terms of the assets they can hold.
Both accounts allow for financial assets (stocks, ETFs, mutual funds, bonds, etc) to
be held within them.

However, UTMAs allow real estate to be held in the account in some states.

Custodial accounts make sense for families that want to help their children have a
solid financial head start once they become adults, but don’t want their children
to be able to blow the money before they mature.

Unlike 529 plans, custodial accounts can count against the minor for federal
student aid purposes.

As such, you need to carefully weigh the pros and cons of using these types of
accounts if you believe your child may qualify for federal student aid.

It’s also important to note that any property that is placed in these accounts is
considered an “irrevocable gift”. In other words, any cash, investments, or assets
in general that are placed in the account CANNOT be returned to their original

221
owner. You need to think carefully before transferring any securities, cash or other
property into these accounts.

Depending on your personal preferences, you can either self-direct the

management of custodial accounts or you may be able to get help with the
investment management through a financial institution.

Once the child reaches the age of majority, the account must legally be
transferred to them. At that point in time, they can do with the assets as they
please. They can liquidate the assets or continue to hold onto them. Hopefully by
then, you’ve done a good job of helping them become well-versed in managing
money.

Before the minor reaches the age of majority, withdrawals from the account are
highly restricted, unless the funds are being used in the minor’s best interest.
Remember, state law can vary. It’s always wise to consult with a tax professional or
legal advisor whenever it makes sense.

Steps For Opening A Custodial Account

1. Decide whether you want to use a UGMA or UTMA

2. Choose a financial institution to open the account with (e.g. Vanguard,
Fidelity, etc)
3. Designate a beneficiary to the account
4. Decide what types of assets you want to transfer to the account
5. Decide whether you want to be in charge of managing the investments

Like a 529 plan, there can only be one beneficiary per custodial account.

However, unlike a 529 plan, you CANNOT change the beneficiary of the account
once the account is established. This decision is also irrevocable.

222
Anybody can make transfers of cash, investments, or other assets to the account.
It’s common for grandparents to do this for their grandchildren. Just keep in mind,
these transfers are considered irrevocable gifts.

What To Consider Before Investing For Your Children

It can be a huge advantage to get a head start financially early in life. Transitioning
to the “real world” is stressful enough when you take into account trying to figure
out what your career will be, where you will live and much more.

By being proactive with your financial planning, you can alleviate some of the
stress that will be on your children’s shoulders at that time by giving them one less
thing to worry about.

However, it’s important to note that everyone’s circumstances are different. In any
financial plan, you always want to make sure that your own needs are covered

223
first. There’s a saying: your children can always borrow for school, but you can’t
borrow for your own retirement.

Investing for your children is an extremely generous gesture. But it should only be
considered after you know that you’re doing enough for your own financial goals
and plan. Before investing for your children, make sure that you are properly
funding your individual investment accounts and have a solid financial foundation
already in place.

In terms of planning, you want to be as proactive as possible. You want to consider

all of the pros and cons of the options available to you, so you can make the most
informed decisions that will reduce your likelihood of dealing with headaches (or
even taxes and penalties down the road).

If you want to put very specific provisions into place regarding how specific assets
or property can be used by family members, it can make sense to look into
drafting a trust, which gives you much more control over how and when assets are
distributed.

Just keep in mind, drafting a trust is not cheap and not necessary for many people.

Lastly, it’s always wise to consult either a tax or legal advisor in your state
whenever you want a very specific question answered, as laws can vary state to
state. This cannot be overemphasized.

That said, with the plan in place, you can achieve your dream of making sure your
children are in a great place financially once they reach adulthood, while also
ensuring that your financial future is secure.

Generational wealth can be a reality for you and your family. You just have to be
armed with the right education and resources. And most importantly, you have to
get started.

224
Getting Your Partner Onboard with Financial Planning
By “5AM” Joel O’Leary
Joel is the blogger behind BudgetsAreSexy and 5amJoel. He
loves waking up early, finding ways to be more efficient with
time and money, and sharing what he learns with others. Rise
Early | Retire Early!

My wife and I had different upbringings.

She grew up in a fairly well-off household, college was paid for, and there was no
pressure to get a job or earn money as a child. Her parents rarely talked to her
about money.

My family was the opposite. We were tight with money, surviving on a small single
income. My parents talked with me openly about budgeting and saving.

Needless to say, when I met my wife 12 years ago, we were on different

wavelengths about how money worked in the world. Our incomes, spending
habits, savings techniques and investing knowledge were completely different
from one another’s. Not in a good or bad way -- just different.

This made having conversations about money extremely painful! Not to mention
planning how to fund our future goals and dreams in life. When we disagreed
about money, it added stress to our relationship.

Somehow though, thankfully, we got on the same page about managing our
money together. It took a lot of communication and hard work, but we managed
to merge our money ideals and built a solid financial plan.

225
And I’m happy to report, as of today we are very close to reaching financial
independence! We will be retired -- together -- in our early 40’s! We are achieving
something many families only dream of.

*****

Every relationship is different. While I can’t share exact tactics to suit your specific
situation, I can provide some overarching advice and tips that will help both you
and your partner think and plan as a team.

First, let’s talk about why having a joint financial plan with your partner is better
than two separate individual financial plans.

Getting on the same page financially:

Picture an airplane, sitting on the tarmac. You and your partner are the only two
people inside the plane, and you both want to fly it to Hawaii.

To fly the plane, it is your job to control the left propeller, and your partner’s job
to control the right propeller.

But, shortly before takeoff you realize something is wrong… Both you and your
partner have different directions to Hawaii! Your map says the islands are pointing

226
straight ahead, and your partner thinks Hawaii is in the opposite direction, behind
you.

Not only that, you also come to find that the two propellers have different speeds!
Your propeller is old and slow, and your partner’s is slick and fast. With unequal
propeller speeds, the plane will drift all over the place and won’t fly in a straight
line.

Given these issues, what are the chances of your plane ever making it to Hawaii?

Many relationships begin this way. Couples have hopes and dreams of reaching
Hawaii together, but end up flying around -- getting lost somewhere over the
Pacific Ocean. Or sometimes they don’t even leave the tarmac! If each person is
so focused on their individual tools and directions, it hurts the overall joint
mission.

The solution is to share maps. Talk about directions. Understand each other’s
shortfalls. Understand each other’s advantages. Adjust for your partner, regularly
and willingly.

That’s how you make it to Hawaii! -- By working together!

227
Tropical paradise, here we come! Woohoo!

OK, now let’s talk about merging your financial plans and some tips and ideas to
help you grow rich together.

“Your Way” vs. “Their Way”

I was a stubborn little bugger when my wife and I first started discussing joint
finances. Since my methods of managing money had treated me well until that
point in life, I thought my way was the “right way”.

She thought differently. Her methods had been working great before she met me
too, so she thought her way was correct.

To move forward together, we both needed a mindset shift. Instead of thinking

about “winning the other person over” to our way of doing things, we started to
abandon our individual financial plans, and create a best of both worlds plan
going forward.

Here are some questions to think about when looking at the way your partner
manages finances:

- What does your partner do really well right now? And how can you
support/encourage more of that activity?
- What are their strengths financially? (eg. are they thrifty, good at
negotiating, or perhaps great with numbers/analytics?)

228
 - What are they most excited about regarding money? And what activities do
they enjoy doing or not enjoy doing?
- What are your weaknesses? And how might your partner be able to help
you?

It’s easy to point out your partner’s shortcomings and weaknesses. But doing so
can trigger defensiveness and little progress is made. Sometimes, it leads to fights.

Instead, the best way for your partner to realize any weaknesses in their financial
plan is to admit to weaknesses in your own. The first step to creating a couple’s
financial plan is being willing to release control and step away from your individual
plan.

Regular (and Constructive) Communication

Money is one of the most important things you should openly discuss with your
partner. After all, it’s what funds your current lifestyle and future dreams.

Sometimes constructive communication is not about what is said or shared, it’s

more about *how* things are said and shared.

Here are some things to consider when discussing money with your partner:

1) Move at their pace. The road to financial independence is loooooong. Although

it’s better to start sooner rather than later, that doesn’t mean you and your
partner must be 100% on the same page immediately after the first discussion.
Progress is incremental.

For example, when you first start talking about money with your partner, you
might quickly identify 10 things that need improvement. Instead of trying to fix all
10 things immediately, consider how this will impact your partner, and what speed
they are comfortable with. Perhaps just tacking 2-3 items is better to start with.

229
Good financial habits take a long time to form. And bad habits take a long time to
shed. It’s unrealistic to think that you and your partner will get in sync
immediately.

There is no rush, and it’s OK to move slowly. You have decades of life to figure
things out. It’s a marathon, not a sprint!

2) Have regular conversations. Like any goal, it’s important to have regular check
points to make sure things are on track. Regular money discussions with your
partner are no different, to make sure your financial goals will be met.

Most couples do this with formal monthly meetings, (or financial date nights!).
They go through challenges they’re facing, review monthly spending, and make
sure forecasts are still on track.

No matter the schedule, it’s important that money is an openly discussed topic.
Delaying or avoiding discussions can lead to missing your life goals. Even if it’s
awkward to talk about money, it’s better than the pain of regret later in life.

Also, life changes as your family grows. Your life goals and financial plans will
change over time too. So having regular discussions about money helps adapt
your plans to these changes.

3) Make it fun and exciting! Money can be scary and emotional to talk about. It’s
easy to fall into a negative or closed mindset when talking about budgeting,
saving, or cutting expenses.

Not to mention, many people find money boring. Your partner may have zero
interest in topics like investing, taxes, or retirement planning.

My advice is to try and foster a fun and positive mood when talking about money.
If your partner is happy and laughing, creative ideas flow and you’ll find more
willing participation.

230
Here are a few things to consider:

- Use positive wording. For example: Instead of saying, “we can only spend
$4,000 a month for the rest of the year”. Try saying, “we get to spend
$4,000 a month on whatever we want! Let’s talk about stuff we want to
include!”
- Celebrate the wins! No matter how small or big, celebrating money wins
will bring more happiness into conversations. Celebrate debt payments,
bonuses, discounts, excess savings, etc.
- Follow and share fun social media accounts. Watching other people’s
journeys can be really inspiring and motivating. Find some fun and uplifting
social media accounts that educate you and your partner in a positive way.
(wink wink: every author in this book shares fun and happy financial info!
Find one that your partner will love!)

4) Speak in your partner’s currency. During your financial conversations, you

might find more traction if you remove the focus from dollars and cents, and
instead emphasize things that your partner values in life. Or, continue to refer to
your joint life goals together.

After all, you’re not doing all this planning for the money alone. You’re doing it for
the things and experiences money can buy.

For example: My wife isn’t motivated by dollars. If we had the goal of “saving an
extra $20,000 in our brokerage account this year” -- this isn’t a fun goal that she
would be excited to talk about.

But, my wife loves vacations and traveling to see her family... If we instead discuss
the goal of “saving an additional $20,000 now = visiting family across the country
for 2 full weeks every year, starting when we retire”, she would be excited to talk
about this more.

231
You can achieve goals faster when the “why” is clear. Find your partner’s
“currency” and build conversations around that for better progress.

Further Reading and Resources:

There is no perfect blueprint on how to manage money with a partner. Each
relationship is different, so I encourage you to continue learning and reading
various resources and opinions.

Here are some great resources that helped me, andme and might help you too!

- Smart Couples Finish Rich, by David Bach (Book): This book is a classic and
includes worksheets and couples exercises to start talking about money and
building plans.
- One Big Happy Life (YouTube channel): Follow Tasha and Joseph as they
share tips and strategies for couples to life more intentionally and finance
their dream life.
- rich&REGULAR (YouTube and Podcast): Julien and Kiersten talk about their
personal path to financial independence and how couples can build wealth.
- His And Her Money (YouTube and Podcast): Talaat and Tai help you take
domination over your money, and your life!

Feel free to reach out to me with any questions or comments. I would love to help
you and your partner reach financial independence, together.

232
When “Personal” Finance Becomes “Familial” Finance
By Jared Fannin
Jared is married and a father of 2 boys. He began his journey in
personal finance after paying off $35,000 in debt and is now
investing for his family’s futures. In the process he developed a
passion for helping and coaching others to begin their own
financial journey. Follow Jared on Twitter.

I am writing this on my oldest son's 7th birthday. I never would have imagined 7
years ago that I would be a father of two boys, be 10 years into my career, married
to a loving wife, with all this responsibility on my shoulders. Yet here we are.
Looking back though, I wouldn't have it any other way.

One of the best things about being a father and a husband is watching my family
grow, and seeing the progress and milestones that they reach along the way. From
daycare to preschool, from the first year of marriage to the 10th year of marriage.

A successful family doesn't just happen overnight and having a great financial plan
as the foundation is one of the pillars of a successful family. Sure - there are other
sections of this foundation (as shown below.)

233
All of these pillars play a pivotal role in ensuring the wellbeing of any family unit.
However, take one pillar out and the family will struggle to have the balance and
stability to thrive. This is especially true for the financial pillar.

Our Moment of Clarity

When my wife and I decided to pay off our debt and get serious about our
finances, we laid out all of our accounts.

Going down the list of debts, we made a plan to attack each one and get out of
debt as soon as possible. After looking at the debt, I glanced over at our
investments. Almost simultaneously, I looked over at my son playing in the other
room and it hit me: We have $0 saved for his college.

Then, other questions started going through my mind.

● What kind of life insurance do we have on him?
● What kind of life insurance do I have on my wife?
● Heck! I wasn't even sure what my life insurance looked like. What would
happen to him if my wife and I unexpectedly passed?

These are the questions that are the most important to ask when it comes to
family and finances.

Sure, creating a budget and living on less than you make and investing the rest are
important pieces to this puzzle. However, it's not the complete package.

I will make attempts to explain each of the most important pieces of a solid
financial plan for the typical family. Your individual situation may be different and
some or all of this information may be irrelevant to you. That's ok. My goal here is
to show you what my family and I personally practice. My hope is that you can
take some of this and apply it to your life.

234
Buckle in as I explain what it takes to have a solid financial plan for your family.

Anatomy of a Solid Financial Plan for the Family

Just like the image of the Overall Solid Family Foundation I showed earlier, allow
me to give a “zoomed in” description of the Finance Pillar of that foundation. It
really boils down to 4 items:

1. Insurance
2. Investments
3. An Emergency Fund
4. Budget/Spending Plan

You can have the appearance of a solid financial plan without certain of these
items. However, you cannot confidently say that your plan is able to withstand the
myriad of unforeseen events that may occur.

These 4 items address things that are considered “unforeseen”.

Insurance (specifically life insurance) addresses risks and events that may uproot
your financial foundation in the unfortunate event of lost income through death.

Your investments address the future. Your retirement, your kids’ educational
aspirations, and any other family goals you may have that require future funds.

A fully-funded emergency fund ensures that you have the cash on hand to pay for
the immediate costs of things that blindside us in life (car engines exploding,
refrigerator going out, etc.). Also, an emergency fund ensures that you never have
to sell those riskier investments.

235
Lastly, a budget or spending plan is used to ensure that you are not misusing your
family's most immediately useful resource: the money in your checking account.

All of these resources play a pivotal role in the solid family financial plan. We’ll
cover each one in more detail.

Before going further I just want to remind you that I am not a financial
professional and therefore what I cover here should not be considered financial
advice. I'm simply showing you what I do for my family. Always consult a
professional before you do anything yourself.

Now that we have that out of the way, let's dive in!

Insurance

I’ll admit it. Insurance is one of the most boring things that I can start off with
here. However it is one of the most important things and for good reason.

Insurance boils down to one thing: you are protecting yourself from the cost of
replacing high ticket items that can bust even the best of budgets. Some of the
common types of insurance include:
● Auto
● Homeowners
● Life
● Medical
● Pet insurance.

Car and home insurance are required by law. The others are not required, but are
needed nonetheless. Looking at these different types of insurance from the lens of
a solid family financial plan, none is more important (in my opinion) than life
insurance.

236
Life Insurance

In 2020, 54% of all people in the United States were covered by some type of life
insurance, according to LIMRA's 2020 Insurance Barometer Study.

Life insurance is vitally important for a few reasons.

The first and most obvious reason is to help pay for funeral and burial costs. The
second and not-so-obvious reason is to replace the income of the person who
passed away. This is why it is vitally important that all persons in the household
that produce income need life insurance. Children who do not produce income
need no more than coverage than the cost for a funeral and burial (God forbid!).

It’s encouraging that over half of the citizens in the US are covered by some type
of insurance. However, the scary fact is that 46% remain uncovered. This can spell
financial disaster for uncovered families. In the unexpected event of the passing of
a loved one, the last thing you should be worrying about is how to pay for a
funeral. Thankfully, there are options.

My wife and I are blessed to have jobs that provide life insurance as a benefit to
our family.

However, last year we decided to increase our coverage (in addition to the
work-provided coverage) and buy a 20-year, $20,000 Term Life Policy for both my
wife and I.

This is designed to be a supplemental policy to work in conjunction with our

insurance through our jobs. Given our age and health, the amount we pay
monthly ($30) is cheap. Yes - this policy will expire after 20 years. By then, we fully
expect to have our home paid off and expect to be able to cash flow our way
through any situation where we would need the insurance.

237
I do not like Whole Life policies, since they are generally more expensive. There
are plenty of people that use them as part of an overall wealth planning strategy.
However, that is typically reserved for those with astronomically high net worths
(even though whole life products are marketed to literally everyone.) I avoid them
all together.

That's enough about insurance. Let's talk about the next pillar.

Investments

Books like “The Millionaire Next Door” make it very clear that most millionaires
acquire their fortune by doing one essential thing:

They put their money to work.

Whether through real estate, building a business, or investing in the stock market,
buying assets is the only way to build meaningful, generational wealth. From a
mathematical standpoint, simply saving your money will make amassing wealth
much more difficult.

Most people in a family setting invest for a few different reasons:

● Retirement
● Children’s college costs
● Business startup costs
● Buying property
● Leaving an inheritance

Investing in the stock market is the best way to achieve all of this. The other
authors in this book have done a great job describing how to do that!

I will say this though. If you have a 401k at your job, make sure that you are
investing in it and at least getting your company match (if you have a match).
Target Date Retirement funds are a good place to start when you are learning

238
more about investing. The fees are usually higher, but don't worry about that
when you’re starting off.

If you are looking for a book to read on the subject of investing I recommend the
book “The Simple Path to Wealth” by JL Collins. It’s easy to read and has some of
the most actionable advice in an investing book that I've found yet.

If you don’t have a retirement plan through your employer, then you can open an
IRA (Individual Retirement Account) at just about any online brokerage. Vanguard,
Fidelity, eTrade, and many others can get you started in less than 10 minutes.

Competition between these companies over the years have translated to more
options, lower fees, and better technology for the individual investor than ever
before. Set up an account and invest in a simple, low-cost, broad-based index
fund. This will get you immediate exposure to many companies in the stock
market.

Commit to contributing as much as you can afford and set up an auto-invest

function to help you stay the course. There are many times where the auto
investment function helped me out. We are all human and nobody is perfect.
However, that auto invest function never forgets.

As far as investing for your children's college, you have several options. The most
common method for investing for college is a state-sponsored 529 plan. A 529
plan is named after section 529 in the US federal Tax Code. It states that all assets
in these accounts can grow tax-free, but can only be used for qualified educational
expenses such as books, room and board, tuition, etc.

States have different plans and a range of different investment options within the
plans. They are not all created equal. Some states even offer a tax deduction on
contributions. These are similar to retirement accounts in the sense that you have
to put your money into an investment within the account. And like a retirement

239
account, you can (and should) contribute a regular amount every month. Set up
an auto-invest option and watch it grow.

We started an account for my son when he was one. Now the account is around
$20,000.

Emergency Funds
Do you have a plan if the water heater explodes in your house? What about if a
tree falls through your living room? An unexpected illness in the family? I could go
on and on but you get the point. It's impossible to know for certain exactly what's
going to happen in our lives. We can make plans all day long but the reality is:
things happen and we need to be prepared for when those devastatingly high
cost events happen.

This is where a well funded emergency fund comes in. I'll go over what makes a
great emergency fund later. But first, allow me to lay out a scenario to help
visualize the importance of an emergency fund.

It's 10 pm on a stormy Sunday night. The family is winding down for the night after
a great weekend. You put the kids to sleep and you are walking back to the master
bedroom. Suddenly you hear a loud BOOM come from the living room.

You run back down the hallway to the living room and you find that half of a tree
limb is sticking through the ceiling! Still in shock, you slowly walk over to the
window and see that the big maple tree out back has just fallen into the house.

The family is up and scared. It’s raining in the living room. Fearing that the weight
of the tree may do further damage, you quickly pack up the family to stay in a
hotel for the night until you can assess the damage in the morning. Better be safe
than sorry.

240
You'll spend $150 on the hotel stay. By the time you repair or replace the roof,
you're looking at $1000’s out of pocket before your homeowner’s insurance kicks
in.

If you don’t have an emergency fund, then this can be a financial disaster.

This is only one example. It might sound extreme, but the larger point is that
anything can happen. Sometimes, bad luck is costly. An emergency fund helps
ensure that you can navigate through this process a little easier.

Imagine if your perceived “emergency fund” was invested in a brokerage account.

You would be looking at at least 3 days before you could withdraw that money to
pay for your roof. Not exactly an ideal time frame in this situation.

But what about a credit card? I certainly would prefer using a card over selling my
investments. But here's the thing: what if your emergency costs more than your
credit limit? You could potentially get yourself into sizable credit card debt by
relying on your card as an emergency fund.

If you have a higher income and have good cash flow, then it's not a big deal. You
would pay off the balance in one click. But just as a general rule of thumb, I always
advise people to have at least three months worth of cash in the bank reserved
for emergencies. You can have more or you can have less.

At the end of the day it's all about having a plan and doing what makes you
comfortable. An emergency fund is simple, easy to access, and can help you sleep
better at night knowing that you have something to fall back on in case the
unthinkable happens.

Budgets/Spending Plans

In the early days of our marriage, we didn’t track what we were spending. We
spent money with no regard whatsoever. Sure, we watched our bank account

241
balance and made sure that we didn't overdraft. But that was as far as we went
with money management.

We fell squarely into the camp that believed two things:

1. Investing is for rich people.
2. Always buy the cheapest stuff possible.

It's actually pretty funny looking back. We had no idea what our cash flow
situation was, so to compensate we would try to spend as little as possible. Buying
the generic brand at the grocery store. Buying the cheapest tools possible. If it
was cheaper, we bought it. Why? Because we had no clue what we were doing.

But we somehow managed to spend almost all of our money in spite of all of our
useless penny pinching. Things are a little different now since we discovered
budgeting.

You may have a different opinion of budgeting. Maybe you've heard some horror
stories of budgets being boring and restrictive. But that couldn't be further from
the truth. I firmly believe that one of the cornerstones of a well-crafted family
financial plan is a budget that services the family and helps guide the family in
making financial decisions.

After we made our first budget, we found that we were spending nearly $1,000 a
month eating out. Not by fancy steak dinners, though. Instead, we
nickel-and-diming ourselves with coffees and fast food and little stops here and
there. I don't know about you, but $1000 is a lot of money where I come from.
Without the budget, we would have been none the wiser of this bad money habit.

When it comes to investing, we never would have discovered that we make

enough money to start investing 25% of our income without the budget. What a
huge win! It all became visible to us once we laid it out on paper for the first time.
The budget was telling us exactly what we needed to do with our money.

242
I believe this is why budgets are looked at in such a negative light overall. It forces
people to acknowledge their poor money habits. That can be difficult for some
people to process. A budget may also tell you that you are spending too much
money in one area, and that a change in habits is needed. In today's instant
gratification society, that is the last thing people want to hear.

I suggest keeping your budget as simple as possible starting off. Grab a pen and
paper and list all of your sources of income at the top of the page. Next, write
down all your monthly expenses (electricity, water, internet, ext). Once you do
that, list all of your other expenses like food and other necessities. Then, you can
begin listing other things like paying down debt, investing, buying other high-cost
items or simply saving money away in the emergency fund.

This is the process that my wife and I have used for 10 years now, and it has
served us well. We paid off our $30,000 in debt using a budget similar to this and I
cannot recommend it enough.

If you have any questions about the budgeting process, feel free to reach out to
me on Twitter, and I'll be more than happy to answer any questions you may have.

The point of having strong finances for your family is simple: to serve them.

It's impossible to use your money as a service to your family if your money is in
disarray. I hope that I have made it clear that you do not need a large net worth or
a million-dollar portfolio to have a good financial foundation for your family. It’s all
about having the basics covered and having a plan on how to go forward. These
items that I have laid out will go a long way toward helping you set the
cornerstone for your own Solid Family Financial Plan today. Each family is different
and each family has their own unique needs so your plan may look slightly
different from what I have laid out today and that's ok. Just ensure that it is
centered around your family's unique needs and circumstances. After all, that's
the reason why we are doing all of this in the first place, right?

243
I hope that you have enjoyed reading - and maybe learned a thing or two! If I can
help out along your journey or help you start building your Family Financial Plan,
don't hesitate to reach out to me. I have a free Telegram channel where I talk
about stuff like this all the time. You can join here.

244
 Part VI: Making More Money
You don’t need to have a 100-person company
to develop that idea.

--Larry Page

245
Side Hustles for Busy People
By Mark Allan Bovair
Mark Allan Bovair is a single father of three teens. He paid off
$30k in debt---not once, but twice! In addition to his financial
advising business, he also founded and runs Frugability
Finance, writes a monthly newsletter, and runs a large Twitter
account.

Gimme fuel, gimme fire, gimme that which I desire, ooh!

– Metallica

I love side hustles. Well, I'll take that back. I love what side hustles have done for
me and my family! I love that side hustles represent opportunity. I love that they
are a modern day means of escaping the rat race. I love the flexibility and the
ability to put “fuel” on your FIRE (heh).

The Metallica reference might be a giveaway to my age, though I sit firmly in the
void between Gen X and Millennial. More importantly than my generational label
is the fact that I’m no kid anymore. Life comes at you fast, and I found myself
nearing 40 without much to my name.

You know those little net worth infographics that tell you by age 35 you “should”
have $100k in savings or whatever? I have PTSD from seeing those. After reckless
spending in my 20s, and a divorce in my 30s, I was starting over from NOTHING. I
was watching people close to me approach 7 figures in their retirement accounts
and I was simply happy to be out of debt.

I had (have) a lot of catching up to do.

A few decades ago, my options would have been limited. Perhaps I could have
moonlighted in my career or picked up some overtime, but developing additional
income streams and in the pre-internet era was no easy task. Most people relied

246
on their day jobs for 100% of their income and there was no backup plan (if these
seemed like simpler times, I assure you, they were).

Now? Whether we like it or not, we are in the “gig” economy. And that isn’t
changing any time soon. Company loyalty has been waning for decades, and now
full-time, traditional employment seems to be teetering on the edge. COVID and
work from home might have permanently fractured the traditional employment
structure.

Sure, we can lament these changes, but it is what it is. We can either deny and
sulk, or we can adapt and thrive. The choice is ours. The world is changing, fast.
We have a unique opportunity to reinvent the way we work and live.

Whether we desire to make a few bucks on the side of our day job, or eventually
replace it altogether, I will walk you through the key considerations when starting
down the side hustle path.

I will start with a word of caution, however. A side hustle will only be as successful
as your desire to reap the benefits of the work. “I want to make a little cash on the
side” won’t get it done. There must be significant and measurable “why” attached
to this endeavor. Putting in more work after a long day on the job is not going to
happen without purpose. Take a moment to make clear your vision for the extra
money.

Perspective is also important. A $500 per month sustainable side hustle will
generate as much cash flow as $200,000 invested in dividend stocks. Which is
easier? Saving $200,000 or starting a $500 per month side hustle? Would a $500
per month side hustle help you reach $200,000 faster? See where I am going with
this?

Side hustles are a damn near necessity at this point. Either to “diversify” our
income streams, accelerate our savings rates, or shoot for quitting the day job
entirely! No matter your reason, there is no better time to start than right now.

247
I cannot tell you the perfect side hustle for you, but I will lay out my 7
fundamentals to look for when choosing a path. Keep in mind, I am speaking from
the perspective of a busy father of three. My goal is to maximize my ROI (return
on investment) on any side hustle activity.

1) Scalable

This is the most important aspect. The goal is to eventually stop trading time for
money, right? We could make good money driving Uber or delivering Instacart,
but where does that lead? If I stop driving Uber, I stop getting paid. I am looking to
create assets with my free time. Sure, trading time for money can get us through a
tight spot. And if I was young and in debt, like I was in my 20s, I would absolutely
hustle my ass off until I broke the cycle. But now, I am a busy father with a day job.
My free time is limited, and I want to use it with precision. I want to build a side
hustle that can eventually generate passive income. The hourly rate might not be
so good early on, but I want something that will pay me forever!

2) Cost of entry

I want a side hustle that has a barrier to entry. If anyone off the street can do my
side hustle, then there isn’t much value. It’s a race to the bottom for efficiency,
with an ever-decreasing return on my time. No thanks. I want something with a
moat around it. I want to jump through a few hoops, which keeps the window
shoppers out. I want to be involved with only serious hustlers. Value is created in
the process of crossing a barrier to entry.

3) Enjoyable

This should go without saying, but if I am going to work on something outside of

my day job, I want to enjoy it. If it’s miserable, there is a zero percent chance that I
will follow through with it daily. When I am tired and come home from work,
anything that feels like a chore is going to get ignored without hesitation. I need
something that is fun and doesn’t feel like work.

4) Flexible

248
Like I said, I am busy, and my kids come first. There is never a dull moment in my
household and schedules are always shifting. I can rarely count on anything
staying constant. I can’t commit to a side hustle that requires specific hours on a
regular basis. Never going to happen. It needs to be something I can do on my
own time, on demand. Pick up and put down over and over.

5) Low risk

I know I said I want something with a barrier to entry, but I also can’t put up a lot
of capital to get started. I don’t have that kind of cash at the ready. I can devote
time and mental power to building a side business, but my cash? Not really. I will
throw a little to get things moving, but any big outlays are a no-go for me.

6) Full time potential

This is an extension of number 1. Not only do I need my side business to be

scalable, but it must have the potential to replace my day job eventually. The
biggest motivating factor that’ll keep me going is the promise of freedom. A few
extra dollars are fine, but I want out of the rat race completely. Why would I settle
for anything other than an opportunity to escape completely?

7) Family

I want a business that I can get my kids involved in. I want them to see me working
and building something, and I want the option of including them in that business
someday. Maybe I will hand it down to them, or they will take over themselves.
No matter what, I want my kids to be involved. Anything that takes me away from
them is a no-go. Family first.

These are all great criteria, but you might be wondering what sort of side hustles
are ideal for busy people with families? There are probably a thousand that I can’t
think of, but I will name a few here.

I say this first: start where you are. The best side hustles are often an extension of
your day job skills. For example, I have a buddy who works the rental counter at
Lowe’s, where they rent out power equipment. He started buying used equipment

249
and renting it out on the side. Now he’s building it into his own rental business.
Start where you are and work outward.

If you’re a teacher, you could start a tutoring business and then scale by hiring
other tutors to work for you.

If you’re a police officer, you could start a private security company and hire other
officers to moonlight for extra cash.

If you’re an accountant, you could start a bookkeeping business on the side then
outsource the work to anyone in the world with an internet connection.

If you’re in finance, you could start your own advising firm and build a team of
advisors working for you (ask me how).

If you enjoy digital marketing, you can start an agency running social media
accounts for local businesses, then outsource the work to interns.

You get the idea. The key is to always put yourself at the top of a business that can
expand. This is how wealth is created. It’s never too late to begin the
entrepreneurial journey. Even if your goal is to make a small side income, the
formula is the same. Create a hustle that removes as much of you from the
equation as possible.

Our time is short, let’s spend it wisely.

250
5 Ideas to Make Extra $$$ in Your 20’s
By Kolin, the “Decade Investor”
Kolin is the founder of the Decade Investor. He enjoys spending
his time working out & sharing the good news of investing on
Twitter, Instagram & YouTube @DecadeInvestor. He currently
lives in the midwestMidwest, USA! If you have any
questions/confusion, reach out to him via DM on social media or
decadeinvestor@yahoo.com

Making extra money in your 20’s can be a massive help in terms of building
wealth. The reason for this is due to compound interest. Let me show you WHY
before I cover some ideas to help you make extra income in your 20’s!

If you are 25 years old and start investing $500/month with an 8% average annual
return, when you turn 60, you’ll have $1.1 million! That is not bad for investing
$500/month!

But let’s say you pick up a side hustle that pays you an extra $500/month and you
decide to invest it all. Now you are investing $1,000/month with an 8% average
annual return. When you turn 60, you’ll have $2.2 million!

Notice how an extra stream of income in your 20’s, when invested, can equate to
millions more at retirement?

Now you know that side income is important. But what can you do to pick up
some extra income? Here is a list of 5 ideas that you can start doing today to find
that extra $500/month!

Idea 1: Lawn Care Business

I did this when I was in high school and made great money. While the startup
costs for lawn care may be on the higher end, there is opportunity for you to make
a great ROI.

251
Everyone needs their lawn mowed. For some regions, that need recurs every
month of the year. Other regions require seasonal service. Lawn care can be a
great way to generate extra cash on the weekends or weekdays. I know people in
their 20’s who turned their lawn care “side hustle” into their full-time job.

All you need to start a lawn care business (when first starting out) is a lawn
mower, weed eater, blower, and a trailer (or truck) to haul the equipment. While
you may see others using the $3,000+ mowers, a simple push behind can do the
trick for you as a beginner.

The best strategies for acquiring new clients is to go door to door and drop off a
business card, or to post in local neighborhood Facebook groups. Charging $25-45
each year every week can add up fast.

Idea 2: Driving for Uber, Lyft or a food delivery service

Driving side hustles are a great way to earn extra money with little start-up costs
(assuming you already own a vehicle). While it’s dependent upon where you live
(bigger cities = more people = more demand for ride-share apps), driving can bring
in anywhere from $300-500 each month (if doing recreationally) or $2,000+ each
month (if doing close to full- time).

While you may be working late nights and weekends for Uber and Lyft (that is
when there is usually most demand), doing a food delivery service (like DoorDash)
is a daytime alternative. However, even with food delivery, certain times of the
day have higher demands (i.e. around lunch time rather than 2pm in the
afternoon).

Driving is great because you can turn on the app anytime. If you want to work only
a day or two each week, you can simply turn on the app and start working at your
desire.

But keep in mind: there are unintended and often-overlooked costs that come
along with driving. Wear and tear on your personal car adds up quickly.

252
Idea 3: Affiliate Marketing

Affiliate marketing is a great way to earn money with essentially zero in startup
costs. Affiliate marketing works well with my next idea (Social Media) because
affiliate marketing requires an audience to market to.

Affiliate marketing is the process in which a product/service is promoted and sold

at no extra cost to the customer. In return, the product’s creator usually offers a
bonus to both the customer and the promoter.

For example, some investing brokerages offer affiliate programs in which a new
customer uses a special link to create an account. By doing so, both the promoter
(that’s you!) and the new customer get a share of a stock for free. Everyone wins.

While this side hustle requires an audience to promote to, it can be very
rewarding. Personally, I have made nearly $10,000 in just 3 months off affiliate
marketing.

Graham Stephan, a YouTuber with over 3 million subscribers, made over $40,000
in one month by just posting links under his videos (2019 data).

Affiliate marketing can be a lucrative way to earn extra money each month. But
keep in mind: don’t push products/services solely because they pay well. You can
lose your audience's trust that way.

Heck - if you enjoy this book, you can become an affiliate marketer for it! 😊
Idea 4: Social Media/Youtube

I started my social media journey in July 2020. Since then, I have built a
community of over 50,000 combined followers across three platforms. Social
media and the internet provide massive potential in many ways. Starting and
building a brand is a terrific, but tough, way to start earning money online as a
side hustle.

There are so many possibilities when you build an audience. You ready for this?

253
 ● You can make money via YouTube Ads
● Sell merchandise,
● Run affiliate marketing
● Get sponsorships
● Start a paid community
● Sell your own digital products and courses

Building a brand online is the digital real estate you want to own.

There are many ways for you to build an audience online. Personally, I chose the
personal finance and investing niche, as that is what I’m most passionate about.

**I want to add an important note about building a brand. Most people are
consumers. They never make the transition to creator. Once you make that
transition, it opens so many doors, including some negative doors. One such
negative door allows strangers to hate & cast negativity on your brand/content.
Don’t listen to them. I have been called many names on my posts. Who cares?.
Keep posting. Just a heads up.

Idea 5: Vending Machines

A vending machine business is a great way to earn passive income. While there is
upkeep involved, a vending machine business is close to passive income. Fill up
your machine, let the sales roll in, and re-fill when needed (frequency depending
on location). Rinse and repeat.

While the start-up costs for a vending machine business is on the higher end
($500-$2000 for a machine), the ROI can be really good depending on location.
Location is the biggest thing with a vending machine. If you find settle on a bad
location, sales will be lower. But if you find a great location, you could make great
money.

A friend of mine learned how to start his vending machine business via
information on YouTube. He’s making $500 per month per machine, and he has
plans to scale his vending machine business up even more. Know this: YouTube

254
has a ton of free content and you can learn just about anything on there. Leverage
it!

All in all, like stated above, picking up an extra $500+ each month can speed up
your retirement by years. Don’t underestimate the power of side hustles and the
ability for them to eventually overtake your 9-5 income!

They take time to build up. You won’t go start a side hustle on Tuesday and earn
$500 on Wednesday. It doesn’t work like that.

It took me months to hit $250 per month. It took me years of consistency for my
side hustle incomes to overtake my 9-5 income.

Don’t quit, don’t give up. Find a side hustle that works in your region, find a way
to grow it, and you never know what can happen.

255
What NOT To Do When Starting a Small Business
By Your Friend Andy
Andy is an entrepreneur in both the real and digital worlds.
You can learn more about his business journeys through his
YouTube channel, Your Friend Andy. Outside of running
businesses, Andy loves to discuss the merits of Bitcoin with his
audience on his Twitter.

So have you decided to start a small business? Or have you recently started one?

Would you like that small business to have the greatest chance possible to
succeed and not nosedive into the earth with all your hopes and dreams onboard?

If yes, then read on. I'm going to share 10 things you should never do when
starting a small business or side hustle.

Now any time someone talks about this, they seem to say the same thing...

They say 90% of all startups fail within their first year. That sounds scary. And that
statistic is true. But that's for startups.

Many more people go the “small business” route than the “startup” route. 80% of
the small businesses that started last year survived - only a 20% failure rate in the
first year. If we zoom out to Year 5, about 50% of small businesses will fail. That’s
not as dire as the 90% startup failure rate, it's still a significant amount.

So why listen to me? I have been running my own small businesses since junior
high school - about age 13. My current small business is 10 years old and doing
just fine (no thanks to the pandemic, though). My new online business is thriving
and soon going to overtake my “day job” small biz.

So I've seen my share of success but also failure. And I feel like I might have some
insights that would be helpful to you.

256
With all that in mind, here are 10 things you should never do when starting a
small business. Because we want to increase your chances of success!

1) My first tip is to not be wrapped up in “being perfect.” In most cases, “good

enough” is good enough when starting a new business. You will learn and
you will evolve and you can’t let being perfect stop you from forging ahead.
Just start. Or, if you prefer to stick with Nike’s bangin’ slogan, put on your
sweatbands and “just do it.”

2) My next two tips go hand in hand, and they both revolve around how you
make the money, honey. It’s easy to get hyped about starting a new
business once you commit to it. It’s easy to focus on refining the business
processes.

The fact of the matter is, your main goal in starting a new business
shouldn’t be creating the finest excel spreadsheet the world and Einstein
have ever seen (or maybe he’d be amazing at ANY computer spreadsheet).

Your early focus is on creating customers. Contacts turn into customers,

and that’s what pays the bills (even if you don’t have a dazzling excel sheet
to track it on). Paper and pen are still a thing. Just focus on creating
customers.

3) Since I already know you’re going to listen to my advice and be an insatiable

customer creator, what do you do with them when you get them? Well,
you’re not going to ignore customer service. But you can ignore all my
double negatives in this article or at the very least don’t tell my high school
English teacher. I am so sorry, Mrs. Smith.

Back to customers. They are your bread and butter. Your livelihood and
(sorry for the hyperbole) your lifeblood.

As Uncle Warren Buffet says, “constantly delight them.” This doesn’t mean
you need to give them massages and free coffees, but it does mean that
you should keep your promises, answer communication in a timely fashion,

257
 and remember that last one? Ask them to refer their friends! Constant.
Client. Creation. And. Customer. Service.

4) Next up, don’t get caught up in busywork. We talked a little bit about this
in getting wrapped around the axle creating processes, but busy work could
even look like business cards, websites, office supplies. Do you need brand
new Papermate pens to be successful? Do you need business cards? People
have phones surgically attached to their hands these days, so that’s gonna
be a no from me dog. Do you need customers? Oh yes.

5) Even though I just told you not to get bogged down with administrative
tasks, there are two things I don’t want you to skip. Those two things are
business plans and contracts.

When you’re just getting started, these documents should be fluid. You
don’t have to spend a ton on them. Your business plan can be as simple as
scribbling on a cocktail napkin what you want to accomplish and who your
target customer is and what you have to offer them.

Southwest Airlines was created on a cocktail napkin. If they can do it, you
can do it too. The polo shirts and sdad jokes are optional. The thing about
your business plan is that it will evolve. It’s not a contract with yourself, it’s
just a document to help you focus.

6) Now, you don’t have to have a contract with yourself, but I must insist that
you have contracts, written agreements, and invoices for your clients. The
internet is FULL of free/cheap ones, and they’ll carry you through the early
stage.

You just need to set expectations about what you’re delivering, how much
you’re delivering it for, and how you’re delivering it. This isn’t a task to slow
you down. It’s about covering yourself, and it can absolutely be revisited
with a lawyer after you’ve got some traction.

258
 To start, just pick something. Hansel and Gretel had bread crumbs, but you
are gonna have a paper trail, ok?

7) You don’t have to go this alone either. Starting a small business is not easy
and having a community surrounding you can help immensely. People love
to help people and when you are starting a new business, be a shameless
receptacle for help and support!

You might surprise yourself by finding local groups of like-minded people,

but, if not, there are tons of online communities out there to offer support.
Being surrounded by small business owners who you can bounce ideas off
of, get support from, and even help will be invaluable to your success and
feeling like you are part of something bigger than yourself.

There are people you haven’t even met yet ready to cheer for you. Isn’t that
cool? I think so.

8) The next thing I want to impress on you is to not think that working for free
is worthless. If you don’t have a portfolio or testimonials, sometimes
offering free work is the best way to build your customer loyalty. We
already know you’re going to delight your customers because Uncle Buffett
said so. There is real merit in creating your portfolio or clientele by offering
free work. It might be the best thing to get the ball rolling.

9) Do you know what else you don’t need to do to get started? You don’t need
to spend a ton of money. I am talking about working with the bare
minimum of supplies. I promise that you do not need a 12-foot billboard of
your face to be successful. You also don’t have to upgrade to the latest and
greatest equipment. You can get creative with what you have and save
yourself the skrilla until you can upgrade with your profits. I believe in you.

10) And, finally, speaking of believing in you, YOU need to believe in

yourself. Don’t be failure conscious.

259
 Sure, 50% of new businesses fail by the 5th year, but you’re not them and
they are not you.

I am not telling you that you need to rub your entire body down with Citrine
crystals and take up manifestation rituals. Just know that you will be
successful. Focusing on what you want to happen instead of what could go
wrong will help you to keep moving in the right direction.

You’re going to make mistakes, but mistakes and failures are opportunities,
you either dwell on them and think whoa is me or you take them as lessons,
learn from them and grow and make yourself and your business better.

You can do this. Believe in you.

Alright, those are my big 10! I know that there are more tips out there, but these
are the ones that I think are most important.

Oh - and one last BONUS TIP: Keep your finances separate!

This will save you an incredible headache and instantly make your biz more
professional and easier to manage. Get a business bank account and do all your
business through your business bank account. Trust me. You’ll thank me later.

Which bank accounts are best? Check out this video - a review of the best bank
accounts for small businesses.

Best of luck with your business!

260
The $mart Sales Mindset
By Josh @ $mart Money
Josh is the founder of $mart Money. He is a dad to two boys,
a husband to a beautiful wife, and a compulsive
entrepreneur. He loves exploring new ideas and making
them into a reality. You can find Josh on Twitter.

My goal for this chapter is to take you on a journey that will hopefully change your
mindset forever. And who knows - maybe even make you millions one day.

Let me give you a little bit of my personal background. I want you to understand
how I began and where I am now. My brief story will help you get started on a
journey of endless possibilities. You will be able to accomplish so much more than
the average person by simply applying the same methodology that has helped me
move across four different industries in ten years (while making money in all of
them).

My professional journey started in my early 20’s after graduating from university. I

have an Honours Bachelor of Commerce with specialities in Venture Capital and
Entrepreneurship. Soon after graduation I started working for a private equity
fund. With time, I ended up moving to the top of the capital raising team of that
fund (we used to ask people to invest with us).

What truly matters here is the mindset shift from looking at spreadsheets for
hours and over analyzing everything, to interacting with people, networking, and
asking for money (the sale).

Many people get caught up with the numbers, the over-analyzing of everything.
But the real money is in the relationships that you make, the art of putting deals
together, and finally, closing them.

261
The mindset of working in sales has provided me with the tools and skills that I
needed to become a part of three startups, as well as being a key factor in the
growth of two other companies.

Over the years my skills and interests slowly changed. I migrated from finance to
high ticket sales in the construction industry, and more recently, online income.

My area of expertise is high ticket sales and accelerated growth of SMEs (small
and mid-size enterprises). That is how I will approach this chapter. I want you to
start seeing the world as a high ticket sales transaction. The transaction is your
future and we need to increase its value as much as possible. I want you to get the
highest return on your investment. My goal is to teach you how adapting a sales
mindset in life can help you start new ventures or “side hustles”, and most
importantly, make money.

The Sales Framework and its Mindset Application

Making money is an art. But to create art, you need skills.

A simple sales process consists of four clear steps:

1- The Introduction Stage
2- The Questioning Stage
3- The Presentation Stage
4- The Closing Stage

Let's dig a bit deeper into each stage and how it can be applied to your life and
change the way that you approach problems and new businesses.

1- The Introduction Stage

262
Regardless of how you make money, you need to be able to introduce yourself,
your brand, and product or services in an efficient and clear manner. To put this in
real life terms: if you are going to date someone, first impressions matter.

It is important to show your qualities or the qualities of your products in a way

that creates intrigue and wonder. Make them want more. Be confident enough to
understand the real benefits of who you are and what you are offering.
Remember, for a message to be conveyed properly, you have to believe it.

These are four key areas of the introduction stage that you should focus on:

● Yourself
● Your Company
● Your Products or Services
● Give a compelling story about your why

You only have one chance to create a first impression, so make it memorable.
Whether you are talking about yourself, a new product, or business venture, make
sure you are prepared to introduce it with confidence.

You should be your own biggest fan. People invest in people more than they do in
ideas, so if they trust and connect with you, the sky's the limit.

Henry Ford said it best: “Whether you think you can, or you think you can’t -
you're right.”

2 - Questioning Stage

The questioning stage is probably the most important stage of all.

People think that the golden rule of sales is, “always be closing.” I strongly
disagree.

263
The golden rule of sales is: People purchase based on emotion, then justify it
with logic.

During the questioning stage is where you get to figure out who you are dealing
with. Focus on understanding the underlying truth that makes people tick. After
all, 95% of our decisions, according to Harvard Business School professor Gerald
Zaltman, take place subconsciously.

To win in life you need to connect with those around you on a deeper emotional
level.

To use the dating metaphor again, you have to show real interest in what your
date is talking about. You have to be quiet and listen, ask lots of questions, and let
them talk.

Focus on:

● Creating rapport
● Understanding their values
● Looking for emotional angles

“The two words 'information' and 'communication' are often used

interchangeably, but they signify quite different things. Information is giving out;
communication is getting through.”

– Sydney J. Harris

3 - The Presentation

When you are presenting, whether it is you talking about yourself or a product or
service, tailor the presentation based on the findings you got from the questioning
stage.

264
No one likes a robot that repeats a script. People want to feel engaged and excited
about learning from you. Connect your ideas, products or services with the
experiences and information you received from your prospect (that is where the
money is).

When you start a venture or a side hustle you must do the exact same thing.
Those who connect with their clients and show solutions based on previously
acquired knowledge do better than the rest.

If you are on a date and you have a particular talent that complements the other
person, what do you think is going to happen? You are one step closer to “closing
the deal.”

Businesses, relationships, self-development, and sales all have that one thing in
common. To get from point A to point B there has to be a deeper connection
beyond features and services. Your presentation stage has to be focused on
targeting the deeper connections you previously unveiled while explaining how
your product complements them.

"Opportunities don't happen. You create them."

- Chris Grosser

4- The Closing Stage

This is the moment you have been working towards the entire time.
This is the grand finale.
This is when you get your return on your investment.

At this point:

● You presented yourself/product/service

265
 ● Gathered relevant information
● Put together the puzzle of information
● Developed a deeper connection
● Presented why you are a great fit

The next logical step is to close the deal. There are only two possible scenarios in
this stage:

● You closed the deal

● You lost the deal

The power of silence plays a key role here. Be quiet and listen. During this stage, it
is important to bring back the learnings from the questioning stage. You have to
listen to what they say closely and do not interrupt.

If you close the deal: Always provide clear expectations. What are the next steps,
what do you need to proceed? If there are ugly truths, bring them up in a
humorous way. You do not want to lose the sale, but at the same time, you have
to be honest with the client.

If you lost the deal: Always ask, why? Determine if there are still opportunities to
work together in the future. A closed door today doesn’t mean a closed door
forever. This point is especially important in business. A lot of times a NO just
means, “not right now”.

The fear of rejection and failure consumes most people's lives. The beautiful thing
about learning how to think with a sales mindset is that rejection no longer hurts
as much. You have to train your mind, and most importantly, your self-esteem to
take the word “no” as a challenge more than a failure.

266
I use a very simple sales statistic to deal with my problems. It takes an average of
7-9 tries to close a sale. In my life if I haven’t failed at something 7-9 times, it just
means there is still time to get it done.

Those who confront their challenges head on have the highest probability of
survival.

Success has to do more with the mindset of coming back from failure than
anything else. I often tweet, “money is a tool, wealth is a mindset”. A wealthy
mindset starts with self-belief. Any fool can have money, but only the wise develop
generational wealth.

The most amazing entrepreneurs of all time have experienced failure over and
over again. The difference between a regular Joe and a truly successful person is
that one of them tried a few extra times and didn’t give up.

"Don't be afraid to give up the good to go for the great."

- John D. Rockefeller

Conclusion

This 4 step sales framework works for everything.

Apply it to be more confident - Think of yourself as the product

Apply it to make money - If you currently have products and services
Apply it to start new businesses - Figure out the avenues with higher probabilities
of success

Sales has changed my life, it has made me the person I am today.

I have been blessed enough to have been surrounded by a plethora of wealthy

individuals during my lifetime and the consensus is clear.

267
Those who can sell will always do well in life.

Most people think that sales is about persuasion and pushing products, but few
understand that sales is a mindset.

I hope this chapter can bring some value into your life. Next time you are facing a
challenging situation or trying to close a deal, remember the framework.

Life is a wonderful game. Those who play with a clear plan and are consistent will
ultimately win.

268
Raises, Negotiations, and $67,000
By Jesse Cramer
Jesse Cramer is the founder of The Best Interest, where he
writes weekly about personal finance and investing. His work
has been featured on CNBC, Yahoo Finance, MSN, and the
Motley Fool. He lives in Rochester, NY with his fiance and
their foster dogs. Find Jesse on The Best Interest, on Twitter,
or on Instagram.

$67,000.

I negotiated a raise at work 30 months ago. And because of that raise, my net
worth is now $67,000 higher than it otherwise would have been.

I shared this fact with my Twitter followers. Lots of questions ensued.

“How’d you get the raise?”

“Any tips?”

“Can you share the negotiation tactics you used?”

This article chapter will answer all those questions and more.

I divided this article chapter into “The Story” and “The Tips.” The story is
entertaining. The tips are the important takeaways. Use the Table of Contents
above to skip to The Tips if you wish.Feel free to skip to The Tips if you’d like.

The Story
In the Spring of 2017, my company published data on “salary ranges.” For the first
time, I realized that I was at the bottom of my salary range. Very underpaid. Yet I
had glowing reviews from my managers.

269
What gives? Great work, but low pay? I wanted to change that.

I brought it up with my manager, and she was open and helpful. We went to
Human Resources (HR) together, and HR said, “Sorry – we can’t just give away
raises to every person who asks for one.”

Hmmm. Stonewalled. I kept the conversation open though. This felt too important
to drop.

6 Months Later
Fast forward 6 months and our company had a big hiring spree! Lots of new
college grads were coming on board, and word quickly spread about their salaries.

Wait…they’re making $10K, $15K, even $20K more than me?

I’d been working there three years with a Masters’ degree.

They had no experience and less education. It’s not the new hires’ fault…

But what is going on?!?

I went back to my Manager and we went back to HR, and I got the same answer:
“Sorry – we can’t give raises just because you ask.”

Time to Rethink – Back to First Principles

To me, the situation defied common sense. So I asked myself, “Well how does
someone get a raise around here?”

● Being underpaid isn’t sufficient

● Getting good reviews isn’t sufficient
● Having support from leadership and management doesn’t work
either.

270
These Human Resources people were confusing me. On a whim, I went to Google.
“What’s the purpose of human resources?”, I asked.

The answers were eye-opening. Maybe you’re already aware, but:

● Human Resources’ primary role is to protect the corporation from the

employees.
● They protect the corporation from getting sued by employees. Makes
sense.
● They ensure employees are following Federal and Local employment
laws. Makes sense.
● They hire employees to keep the company progressing, but do so at
lowest reasonable salaries. Makes s…WAIT!! Really???

I should have realized this earlier. Human Resources aren’t your buddy. Nor mine.

Their job is to work on behalf of the corporation. Not on behalf of individual

employees. It doesn’t make them bad or evil. It’s just a fact. They aren’t there to
help individual employees, especially when it comes to salary negotiations.

With this new fact in hand, I rethought all my prior interactions with HR. That’s
when I realized that HR was playing a different game.

Their Game vs. My Game

What game had I been naively playing? I expected my coworkers—the people with
whom I was busting my butt—to be fair-minded. I expected them to say, “Ahh yes.
You’re underpaid. You’re overachieving. It’s obvious to everyone that you deserve
a raise. And that’s exactly what we’ll do.”

But since HR is part of the corporate vampire squid, they rammed their blood
funnel into my salary, eking out what profit they could (thanks, Matt Taibbi, for

271
the metaphor). They were getting a great discount on my labor. A steal, really. I
was a profit machine (for them).

I was the victim of my own naïve assumptions. I was patiently waiting for the
cream to rise—i.e. for them to realize I needed a raise. And while I waited, they
profited.

When I presented my arguments to HR, they even said, “Well Jesse…you’re being
paid in the 15th percentile. That means that 15% of your peers get paid even less
than you, and are more deserving of a raise. And we can’t even give them raises.”

Crazy, right?

1. I never thought “You’re in the 15th percentile” would be used as an argument to not
give someone a raise.
2. I’d happily represent the salary interests of my co-workers. But “union” is the worst
five-letter word you can utter in corporate America.
3. Where are those 15 percent-ers? Are they advocating for raises too? If not, then why is
HR bringing it up to me? It was just a deflection tactic.

It was ridiculous. Unfair. Made no sense.

How did this otherwise competent HR professional not realize this lunacy?

And Suddenly I Realized…

And then it hit me. I suddenly knew what was happening. I felt even more naïve –
but I felt angry, too.

“She does realize it’s not fair—but she just doesn’t care.”

HR was tacitly telling me, “It’s not about what’s fair, Jesse. It’s about what you’ll
accept.”

272
Up until that precise moment—hearing those foolish arguments in that HR
office—I unwittingly played by those rules. To this day, many of my coworkers
continue to play along.

As long as you accept less than you deserve, we’ll give you less than you deserve.
And every day you come through those front doors, you’re accepting it.

That’s their rule, plain and simple.

I assumed they would be fair-minded.

I assumed they’d give me a fair wage.

I assumed they’d look me in the eye and be forced to change their ways.

Nope. As Upton Sinclair noted: “It is difficult to get a man to understand

something, when his salary depends on his not understanding it.” A giant
corporation isn’t going to think like a fair-minded individual. Their quarterly profits
depend on them thinking far differently than little old Jesse.

They Volley, I Respond

So that’s the first volley of their game theory.

As long as you accept less than you deserve, we’ll give you less than you deserve.

In response, I asked myself: if this is a game, what move do they not want me to
make?

Do you know the answer, reader? Do you know the one chip I held? The one
resource of mine that HR really cared about?

It’s me. Me. My presence. My brain. My labor. My attendance.

So, what’s my move?

273
I had to stop accepting less than I deserved.

In fact, I had to firmly reject less than I deserved.

I needed to find a different job.

So I did. I went and impressed the pants off another company and they offered
me a 30% raise. Then I went back to my boss and said, “Thanks for being my
advocate, it sucks that HR didn’t want to cooperate, and now I’m leaving.” That’s
that.

What Happened Next…

But you wouldn’t believe what happened next. I certainly didn’t.

Heaven and Earth were moved to keep me around. Big wigs called me at my desk.
Managers pulling me aside to ask me what I needed to stay. Strings were pulled
and same-day approvals were granted. The Company matched the salary offer
that the other company gave me.

That’s great! I got what I wanted. …Right?!

If I’m being honest, HR’s instantaneous reaction made me angry. So many of HR’s
previous actions suddenly came into focus. And all at once, I realized how sly their
game theory tactics are. It made me realize:

1. HR knows many employees will not have the gumption to interview for another job.
Some people don’t advocate for themselves. Those people will be underpaid the rest of
their careers.
2. I felt pressured to where my options were either 1) be an underpaid sucker or 2) waste
another company’s time and resources via interviews, flights, hotels, etc. I didn’t want to
be a sucker. So I wasted another company’s time and resources. It felt bad. That sucks. It
makes employees like me less likely to speak up (not to mention the other company’s
resources).
3. Rather than choose one of the reasonable off-ramps I offered in my early negotiations,
HR opted for a game of chicken. They opted to hold their trajectory until they almost
went over the cliff i.e. I was about to quit. Then they slammed the brakes and swerved,

274
 praying—as their tires lifted off the ground—that they weren’t too late. And I thought,
“Jesus—this is how a cutting-edge tech company thinks? This is the practice of an
industry leader?”

I don’t blame the individual humans in HR. But I hold accountable the system
they’ve created.

Should I Stay or Should I Go Now?

Was I going to stay at my job with a raise, or go take the other offer?

This was a personal decision for me. There were so many variables. Job duties.
Locations. Travel. The devil you know versus the one you don’t. Family and friends.
Etc.

I can’t offer much advice here other than, “Do what feels right.”

I decided to stay.

But the biggest lesson I learned has been so important to me. And I hope you’ve
learned it now too.

The lesson is: don’t accept less than you’re worth.

Over the 30 months since obtaining that raise, I’ve accumulated $67,000 that I
otherwise wouldn’t have had. Not too bad.

The Tips
Ok—let’s talk brass tacks. What can you implement in your own career?

First, what did I do to get the bigger offer from the other company?

275
Securing a Bigger Offer
Everyone always says, “When negotiating, don’t say the first number.”

And that’s mostly true. If you’re looking for a line to give HR, one that I enjoy is, “I
want to be paid a fair industry rate.” And then ask what the HR rep believes that
fair industry rate is. Put the onus on them.

But listen: playing “salary tag” with HR gets annoying.

You might decide to pull a Bill O’Reilly: WE’RE DOING IT LIVE! A.K.A. you say the
first number, breaking the unwritten rule from above.

If you pull an O’Reilly, use anchoring to your advantage. What’s anchoring? It’s
this wonderful idea from behavioral economics that says we get attached, or
anchored, to numbers we hear. Here’s a great example:

Let’s say you hope to get a $100,000 salary offer, and you think that’s perfectly fair
based on industry research. You play some financial footsy with HR, but neither
side is budging.

“Ok,” you say, squinting like Clint Eastwood at high noon, “I want $150K.”

$150K? But Jesse, we just agreed that $100K is acceptable.

We did. But I want to anchor that HR rep to a much higher number. Because one
of three things is about to happen.

1. They’ll give you $150K. You’ll feel amazing for getting $50K more than you hoped for.
And then you’ll feel like a dope for not asking for even more. Or…
2. They’ll say, “Whoa Clint…that’s a mighty high request. Might’n ya cool your spurs and
bring it down a bit. We can’t offer anymore than…$125K.”
3. Or they’ll think, “Jeez…we were hoping to pay $100K, but that might be insulting since
they’re asking for $150K. So I guess we’ll meet in the middle and offer $125K.”

276
Boom. If you lead with $100K, they would have accepted it. You might have left
$25K on the table.

And you won’t believe how much that $25K could cost you in the long run.

The Cost of Not Asking For A Raise

Do you know the long-term impacts of not asking for a raise? Let’s walk through a
simple math example.

Alex and Bart are coworkers. They both earn $50,000 a year, and both spend
$45,000 a year. Both take their extra money each year and invest in a conservative
fund that returns 5% per year.

But then Alex asks for a raise—a 30% raise, like the one I got—and gets it. He’s
now making $65,000 a year, but his spending is still $45,000 a year.

How will their futures differ?

After 10 years, Alex will have $327K to Bart’s $102K.

After 20 years, Alex will have $1.05M to Bart’s $385K

After 30 years, Alex will have $2.51M to Bart’s $1.02M

Alex’s “small” $15,000 raise equates to $1.5 million in extra value after 30 years.

Don’t underestimate the value of a raise.

Final Tips from My Experience

Here are a few of the earlier tips, in summary.

● HR employees aren’t evil. But they have incentives that are not
aligned with your financial incentives.
● Does something just not make sense regarding how others (managers,
HR, etc) perceive your salary? Remember what Upton Sinclair said: “It

277
 is difficult to get a man to understand something, when his salary
depends on his not understanding it.”
● How your HR might be thinking: As long as you accept less than you
deserve, we’ll give you less than you deserve. And every day you come
through those front doors, you’re accepting it.
● What options do you have?
○ Call their bluff.
○ Find a new job with a better offer.
● When negotiating, you should try to make HR say the first number.
● But if they really don’t want to and you’re sick of waiting, then you
gotta aim high with your request. Anchor that HR rep to a high
number. Force them to divulge what their maximum offering is.
● But once HR sets their salary limit, believe them. A former coworker
of mine pushed back after HR set its limit, and they called his bluff:
“Sorry Chuck—we’re no longer interested in employing you.” Ouch.
You don’t want that.

Alright folks – that’s the story and the associated tips. Thanks for reading and let
me know what you think!

278
Further Reading
The 15 Finance Books To Boost Your Bank Account
By Unleash The Knowledge
Unleash The Knowledge is a digital brand advocating
personal growth through reading. We spread the mantra
that, “you are one book away from changing your life,”
Unleash the Knowledge is driven by a mission to provide you
with more knowledge in less time. Our goal is to create one
million lifelong learners by promoting self-education
through the use of non-fiction books.

We read a lot of books at Unleash The Knowledge, and our community gives us a
ton of feedback. Here are the 15 books that we think can have the most impact on
your financial future.

For daily book recommendations, join Unleash The Knowledge’s community of

90,000+ readers on Instagram, Twitter, and their email list.

1. I Will Teach You To Be Rich by Ramit Sethi. A perfect all-encompassing book

for beginners.

2. Rich Dad Poor Dad by Robert Kiyosaki. Covering the relationship between
finances as an employee vs. as an entrepreneur.

3. The Total Money Makeover by Dave Ramsey. The ultimate get-out-of-debt

book.

279
4. The Simple Path to Wealth by JL Collins. A phenomenal book about
retirement, FIRE, and the stock market.

5. The Latte Factor by David Bach. A terrific book that emphasizes the
compounding power of small steps.

6. Unshakeable by Tony Robbins. About how to diversify your portfolio to

weather storms and prepare for winter.

7. Your Money or Your Life by Vicki Robin. The book that founded the FIRE
movement. It’s all about developing a mindset that encompasses both
money and life.

8. The Psychology of Money by Morgan Housel. An amazing book of

interesting anecdotes and stories that will change how you think about
money.

9. The Millionaire Next Door by Thomas Stanley. An absolute classic lifestyle

finance book for sustainable success.

10. The Richest Man in Babylon by George Clason. A timeless book of money
principles, entertaining told through the lens of ancient Babylon.

11. Think and Grow Rich by Napoleon Hill. Both motivational and financial, this
book will encourage you to seek growth from within.

280
 12. The Millionaire Fastlane by MJ DeMarco. A book about how
entrepreneurship can expedite your journey to financial freedom.

13. The Little Book of Common Sense Investing by John Bogle. Written by the
father of the index fund, this “common sense” book will help you realize
that successful investing is well within your reach.

14. A Random Walk Down Wall Street by Burton Malkiel. A wonderful,

data-packed read that proves how simplicity wins in the investment world.

15. You Are A Badass at Making Money by Jen Sincero. If you don’t believe in
yourself, who will? This book is all about developing a positive money
mindset to reach your goals.

Happy reading!

281
 Summary
Thank you for reading Money Mastermind! We all hope that you’ve learned
dozens of valuable lessons from these chapters.

Personal finance isn’t rocket science - but that doesn’t mean it’s easy. And unlike
rocket science, there isn’t a stable curriculum for the world of personal finance.
There’s no CalTech or MIT to teach you about money.

Instead, the teachers are people like us. All of us authors at Money Mastermind
aim to be consistent, valuable teachers of personal finance curriculum.

Whether the topic is budgeting, career choices, or the meme investment du jour,
we want you to feel confident in your understanding and your choices.

That’s our mission.

We want you to be a money mastermind.

Best of luck in your journey, and journey and let us know how we can help!

- The Money Mastermind authors

282
 Now Go Talk About It!
Did you enjoy Money Mastermind? We would LOVE to hear back from you!

Come talk to us!

The creators in this book are easily accessible on Instagram and/or Twitter, and they all
love interacting with their audiences. Please - feel free to reach out!

Leave us your feedback!

Additionally, please leave us a rating and a review!
1) Simply go back to your email from Gumroad…
2) Click “View Content”

3) And follow the directions on the screen to leave a Rating!

4) And send your favorite author a Review!

Invest in Others’ Knowledge!

If you want to share this book with your community, reach out to us! We can set them
up with a discount code, and can set you up with an affiliate code.

283