Keep your nose to the grindstone

In March 2010, I became debt-free.  I had already been making small contributions to my retirement accounts for the previous 4 years, so I wasn't starting at zero.  Best I can tell, I had about $5,000 in my Thrift Savings Plan when I paid off the last of my credit cards and my car loan.

So little work actually goes into successful investing, people who aren't in the right mindset will think you're lying.  The key is to set aside as much money as possible from your paycheck BEFORE you receive it and have a chance to spend it.  People call this "paying yourself first."  If you're in debt, that money should go towards ensuring your freedom from bad debt, and if you're out of debt, that money should go towards your future financial freedom.

UPS hired me last December, and I started out making $10 an hour.  I quickly did what I could to learn a skill (sorting by zip codes), which got me another dollar an hour.  For the first seven months I was there, I was making roughly $800 a month after taxes.  Since my rent is $500 a month, and food is included, you'll probably guess living on $800 a month is possible, but not very pleasant.  You'd be right.  I did manage to survive on that money without having to dip into my savings, but only because I did absolutely nothing.  I went nowhere, and only bought the absolute necessities, taking the bus to save on gas sometimes.  Every additional penny spent was scrutinized for practicality and necessity.

Many people in my position would have gone ahead and used their savings to maintain their "quality of life," but I was determined not to cheat my future self.  I also knew that this low level of pay was merely temporary until I could land a better position.  That position ended up being part-time supervisor, which effectively doubled my salary.  As you can see from a quick calculation, it's still not very much, but I now had enough money to buy myself small luxuries such as fast food and hour-long leisure drives to visit friends without having to really worry about spending more than I earned.

I also now had extra money with which I could fund my retirement, so I opened a Roth 401(k) and set aside 10% of my income to go towards that.  This is money that would get pulled out before I got my paycheck, so I wouldn't have an opportunity to miss it.  To many people, 10% may seem like a lot, but keep in mind my paycheck was still 80% higher than just a few months prior.  If I could survive on $800 a month, $1,440 would still be a fantastic raise.

Now we come to the main point of this post.  After I realized that I was still doing fine on a 10% contribution rate, I increased it to 15%, then 20%.  Every time, I would wait a month or two and see if my living expenses were covered.  What you want to do is drive up your savings rate until it hurts, then ease back just a little.

At work, I encourage many of my co-workers to start saving, especially the younger ones.  They don't really listen, because at 21, all you really care about is having fun, not thinking about the future.  Putting money in a retirement account means less money you can spend on awesome stuff today.  And even if they don't spend very much, there's always an excuse as to why they can't start right now.  They're content just coasting.  I am not.

I make no excuses.  I just do it.  My 401(k) currently sits at $1,460 or so, including the 3% matching contribution that UPS gives us.  That's $1,460 more than my co-workers have saved.  We both started at zero, but I bought one less restaurant meal, or went on one less trip, and instead put that money to work for me.

You can too.  Start saving today.  You'll be amazed at how little you can live on when your priorities are straight.

Successful investing

Recently, the stock market took a pretty big dive. Plenty of people thought this was The End. The start of another Recession. You should have bought gold when Glenn Beck yelled at you. The market hit a peak in May, then dropped over 10%, and bottomed out on August 25. Since then, it's been steadily going up. How many of you panicked and sold?  In the grand scheme of things, this is an insignificant blip you won't remember. The stock market tumbled in October of 2011; how many of you remember that?

Let's pretend you regularly check your portfolio. Let's also assume you decided you wanted to take a vacation from it all and go camping or out to sea for 7 months or so, leaving the day before the market started tanking. During your time away, you had no internet access and couldn't check your portfolio. When you come back in December or January, you open up your account and notice it's slightly higher than when you left. Not by very much, but still in line with the gradual upward trend of the market over time. Nothing to see here. You shrug, close your computer, and go about your day as usual. And unless someone said something, you would have had no idea there was a small crisis in your absence.

That beard has got to go before you go back to work

The best investors keep their cool. They have a solid, SIMPLE plan, and know that stocks aren't something to buy and sell, but rather portions of ownership of real businesses. Businesses that produce things, that earn money, that keep the economy going. Good investors view stocks like most people would view investment real estate. Would you buy an apartment building just so you can sell it a year later and collect the profit? Probably not. Most people would buy it so they could collect rent and eventually have it as a source of passive income so they don't have to work any more.

In the same way, good investors buy business ownership for the long run. There are some people that try to make money by buying and selling stocks or real estate.  Most people that try to time the market end up broke.  A handful, either through luck or skill, do extraordinarily well, which fuel the dreams and ambitions of those trying to emulate them with little hope.  During the real estate bubble, millions of people bought properties with the goal of capitalizing on the market increases. Those who sold before the bubble burst were either lucky or smart.  Some people get lucky with risk. Statistically, you're probably not one of them.

Don't try to time the market. Buy businesses that your research shows will do well over the next few decades, invest regularly and hold on to them. If you don't know how to research a business, buy an index.  History shows us that the market returns a decent 8% return in an average year. Sure, there will always be someone making more money than you, but THEY AREN'T YOU. And chances are, if they're making lot more money than the market, they're taking on foolish risks that will eventually bite them in the ass. Steer clear of get rich quick schemes and keep it simple.