Personal Finance Literacy and Why it Matters
Today, Jason from Winning Personal Finance is dropping by to chat with us about various facets personal finance literacy and why they matter to him. The different aspects of personal finance that he touches upon are all extensions of personal finance literacy. However, it’s important to note that without action, knowing every personal finance trick in the book is useless. Jason has efficiently optimized his finances to live the life he wants to live now and in the future.
Jason started Winning Personal Finance to help you make profitable and efficient financial decisions, accomplish your goals and live your dreams. The site focuses on investing, saving, efficient spending, tax optimization and other “money” topics. Jason is in his mid 30’s and lives in New Jersey with his wife and two boys.
Why Should I Care About Personal Finance Anyway?
Hi, I’m Jason, and I have a problem. I’m obsessed with personal finance and winning.
To most, learning about taxes, insurance and investments are tedious requirements of adulting.
To me, they are fascinating. Why?
Because I want to live a fantastic life. Making the right decisions in these areas are the key factors for me – and you – to take control of our money and increase our options in life. The more options we have, the more likely we are to live the life we want. By putting all the pieces together correctly, you’re winning.
I want to win. Don’t you?
Now you know why you should care and we can get to the meat of this post.
Moose asked me to share a little about some key personal finance decisions I’ve made. The goal of each choice is to maximize my (and my wife’s) overall long-term happiness.
Pay Off Debt or Invest
This topic seems to be polarizing. I’ve been fascinated with it since I started following the personal finance community. Almost all of us have to make this decision at some point.
Between student loans and home mortgages, most consumers choose to borrow to live the life they want.
Moose: Jason and I are of the same mind when it comes to this topic. Once you’ve read this guest post, check out my related post Should You Pay Off All Your Debt?
The only debt I have is a home mortgage with a very reasonable 3.625% rate. I’m still about a decade from financial independence. If my investments tank tomorrow, there’s plenty of time for them to rebound before I need the money.
My number one money goal is to reach financial independence and no longer need to work. I want to achieve this as quickly as possible while still enjoying my life today.
Based on historical returns, I expect my investments to outpace the interest I’d save by paying down my mortgage faster. According to my favorite MSoLife post, my logic is sound because my interest rate is well below the IHR that Moose tracks.
I know that my investment returns are not guaranteed. I also know that the interest savings from applying the money to my mortgage would be. But remember, my goal is to reduce the time to financial independence. I’m willing to roll the dice a bit to do so when the math is on my side.
Two Incomes or One
My first son was born in 2014. The next year, my wife and I made a big move.
We decided that the status quo of two incomes, lots of stress and very little quality family time wasn’t worth it. My wife was a top performer in a highly lucrative career. We did not make the decision lightly for her to resign. Doing so significantly slowed down our retirement savings.
To make the move, we needed to relocate further from my job in NYC. We also made many other substantial budget cuts. But the result was remarkable. It feels great that my wife can be home with both of our boys every day.
That is a “boys” plural. Our second son joined the family in 2017. Mrs. WPF has her hands full now!
The ironic side note to this story is that the move to cut our income in half probably put us closer to financial independence. Yup, even while we are saving less. How is that possible?
You see, we cut our lifestyle so much that building savings to support our new lower annual expenses is a much more manageable target. When you cut your spending in half, you also cut your needs in half!
Buy a Home
I bought a home in 2007 at the age of 24. It was probably a mistake.
Moose: I bought two houses in 2006. They were collossal mistakes but forced me to learn a lot. More on that in an upcoming post!
If you look at the year, you might think the mistake was the timing right before the great recession. I guess that’s part of it, but not what I’m referencing. I think the big mistake was poor planning.
Our first home was not the type of place I wanted to put down roots. It was tiny. Measuring about 500 square feet. There were minimal closets, no laundry facility, and difficult on-street parking. My plan when it was purchased was to live there for five years before upgrading.
One thing I learned in my old age is that where you live should be about more than money. Sure, money should be a factor, you don’t want to overspend and end up in a hole. But you should not buy a home only for financial purposes. There is nothing wrong with renting if you’re not ready to settle down in a place long term.
I’m a big fan of home ownership in general. I own my current residence today. When I bought this one, I planned to stay a long time.
I believe that when you invest, whether in stocks or real estate, you should anticipate holding the investment forever.
If you are about to buy a home that you hope to tolerate for five years or less, think twice. The fees of a transfer could easily offset any price appreciation benefit in a short time frame. Worse yet, the value could go down and if heavily leveraged (read mortgage) you could lose your down payment.
What to Drive
The purpose of a car is to safely get you and your required cargo from point A to point B. Any features above and beyond that are a luxury. Outside of the personal finance community, this seems to be super controversial. We Americans love our luxury cars.
I have no problem with luxuries. I think we should spend our resources on the items and experiences that are most important to us.
Unfortunately, none of us can have every luxury we want. If certain vehicle luxuries are important to you, find a way to fit them in your life. But know what they are costing.
I attribute much of the wealth I’ve accumulated to my vehicle choice. I drive a 2006 Nissan Altima that I’ve had since 2009. I’ve never had a car payment.
My Rockstar Finance featured post on the cost of car ownership looks at the spending habits of my alter ego Bernie, who started buying new cars every five years at the age of 22. Let’s just say the results were, well, expensive.
Make sure you know the true cost of any vehicle you buy or own.
How I Invest
Like with everything else, when I invest, I’d like to get maximum value for the lowest possible cost. Thankfully, these days you can do precisely that with index funds. I have accounts at Vanguard and Fidelity. Both keep the costs of my investments low while providing choices for significant diversification.
As I’m still early on my path, my asset allocation is more than 90% in equities (including REITs). I sometimes question if it’s too low. As I said above, I have a long timeline to invest. Over long timeframes, equities have outperformed other asset classes.
Why I Save
I like future me and don’t want him to hate current me!!!
Time matters in investing. The sooner my money gets invested, the more it will work for me. Once reaching a certain level of wealth, my money will make more money than I’m capable of earning by trading my time for money.
That’s the dream!
Once in a while, I realize how lucky I am to do the work I do. I’m well paid. I sit in a temperature controlled office. I do work that can be stimulating and interesting. I don’t have the stress of making life or death decisions. Even with all the benefits of my job, I HATE needing it.
My Thoughts on Touching FIRE
I’m not one of the people who is trying to retire early and sit on a beach doing nothing the rest of my life. I want to be productive.
My dream is to use my time helping others reach financial independence.
I also would not mind relocating to the mountains to ski, bike, and hike every day ☺!
The landscape for financial planning careers is…probably complicated to discuss here. I haven’t yet found a way to break into the industry professionally while sticking to my ideals. Once I’m financially independent, however, I won’t have to worry about money anymore and setting up this business the way I want will be much easier.
Live a Little
Money is a tool. Nothing more. When used correctly, it can help you live the life you want. As I said at the start, that’s the point. Living the life you want.
YOLO (You only live once – yes, I’m not that far into my old age). There is no second chance. If I wanted to, I could sell everything I own and move my family into a trailer somewhere. We can eat rice and beans for every meal. We could sell our car and take public transit everywhere. We can get by on less and be financially independent sooner. Heck, if we cut enough, we can be there now.
Moose: I was a big fan of FIYOLO– “fuck it, you only live once” well before Drake and crew popularized YOLO. I’m twirling my waxed hipster mustache right now.
BUT, I don’t want to live in a trailer. I’d love to have financial freedom but only on my terms and with the lifestyle I want.
Bringing It All Together
You should care about personal finance because figuring it out is key to living the life you want. Decisions should be made by carefully balancing the math, emotions, future goals and living for today. Finding that balance may not be easy, but it’s worth it. If you can, you’re Winning Personal Finance!
Check out my guest post at Winning Personal Finance! Pay Off Debt or Invest