NWP Monthly Digest | August 2023
Enjoy Your Life
Greetings and Happy Summer, dear readers.
This month’s newsletter is coming to you live from Lake Powell in Utah. I’m blessed to be given this time with my family, including my in-laws (minus one brother-in-law, who couldn’t make it this year). Aside from the 105-degree temperatures on day one and the copious amounts of scorpions, it’s been perfect.
This is our first time back here since 2012, and we’ve added two more cousins (my nephews) since that trip.
I love spending time with my father-in-law for a lot of reasons, not the least of which being his generosity with his time, knowledge, and wisdom. In my conversations with him this week (in between him taking care of all the boats and the new fishermen in the family), he reminded me of one incredibly important fact with regards to personal finance: there is no one correct way to take care of your money.
I get a lot of questions like, “how much is enough?”, or “do you know how much I need to save?”, or, a worse version of that same question, “what kind of returns do I need to generate to have enough to retire?”
My least favorite type of article that the financial media like to run quite often is usually titled with something like:
This is How Much You Should Have Saved at Each Decade of Your Life to Retire Comfortably
Something to make 95% of the population unnecessarily uncomfortable and ill informed. What a great combination!
There is more than one way to milk a cow, as we like to say.
FATHERLY-IN-LAW ADVICE
My father-in-law was telling me a story about the 1980s and his first private-sector job in Grand Junction. We were discussing the oil shale bust in western Colorado in 1982 and the damage done to the economy quite literally overnight. As is the case with every bust, a boom preceded it.
In the middle of the boom, Exxon decided to build a city of 30,000 people where there wasn’t one before in the small town of Parachute. The level of construction was astronomical, and the trickle-down was felt all over the western slope of Colorado. And then, with the stroke of a pen, the entire endeavor was terminated. Thousands of people lost their jobs and their livelihoods as Exxon pulled out of the project.
My father-in-law survived the carnage and was one of the only salespeople that his company kept. And that’s where this story begins. Two years after he felt lucky to have not been laid off, he decided to take a 50% pay cut to go and work for the Federal Government.
Not many people voluntarily take 50% pay cuts, but my father-in-law felt like he was gaining so much more with the benefits provided to government employees, most notably the pension and the stability.
By contrast, one individual he worked with at his former company stayed in his position, continued to make a much larger salary in the private sector, and, as my father-in-law put it, “is still working there right now, complaining every day that he doesn’t have enough money to retire and will never have enough money to retire.”
Because of his inherent generosity, he also used to take every new employee in his department and tell them the very basics of successful personal finance which are still rock solid today as they were then:
When you get paid every two weeks, take some money and buy a loaf of bread and some peanut butter first.
Then pay half of your rent.
Then put 20% of what’s left in the savings account.
You can enjoy and spend to your heart’s content whatever is left over.
When you’re young and just getting started, it’s almost impossible to argue with this logic. You don’t need fancy food in your fridge, and he was making sure that they did the important things first: food on the table, roof over your head, saving for a rainy day.
My in-laws are incredibly smart with their money, and neither one made a six-figure salary in their entire careers. They buy the things they want and they travel whenever they feel like it, but they never buy things to impress other people or stuff that they don’t need. They retired early and have enjoyed every minute of financial independence. They are superheroes.
WHAT REALLY MATTERS
Derek Sivers - a writer, musician, and entrepreneur - tells a wonderful story about the day he became rich. Many people ask Sivers what it was like as he created his company CD Baby and then subsequently sold it for millions of dollars. But, as Sivers opines, that wasn’t the day he knew he was rich.
As a young man in New York City, Sivers was still chasing the dream of working by day and trying to make it big as a musician at night. One day while coming home from work, he realized that all he needed was enough money to pay his rent, put some basic food on the plate, and occasionally buy some clothes.
“I had a day job in midtown Manhattan paying $20K per year — about minimum wage. On weekends I would earn $150 per day performing circus shows for kids, though I’d spend about $50 in bus fare to get to the gigs. I was sharing a three-bedroom apartment with two other roommates in Queens, so our rent was $333 per month each. I made peanut butter sandwiches for three meals a day, and at night maybe some eggs. I never ate out, and never took a taxi. My cost of living was about $1000/month, and I was earning $1800/month. I did this for two years, and saved up $12,000. I was 22 years old.
Once I had $12,000 I could quit my job and become a full-time musician. I knew I could get a few gigs per month to pay my cost of living. So I was free. I quit my job a month later, and never had a job again.” ~ Derek Sivers
Sivers had learned that “being rich” isn’t about how much money you make and, especially, isn’t about how much money you spend. It’s about the money you keep and the independence that comes with being able to do what you want to do, when you want to do it.
If you ask the average American how much money it takes “to be rich”, the answer is almost invariably a little more than what they have right now. Most of the time, it’s just a variation of “keeping up with the Jones’s”…
Well, if we just had a little more money we could buy that Tesla…
Well, maybe if we could go to Disneyland as much as the Armstrong’s up the street…
I know I’d be happy if I could just get a raise…
The truth is, however, that being happy isn’t necessarily about buying more things or taking more trips. It’s about being able to distinguish what you really need vs. what you think you want.
WHAT I’M NOT SAYING
I love cars. I love travelling, especially with my wife and kids. I love giving my kids everything they want. I’m not immune to any of these things. I’m not saying that you should never spend money. I am saying you should figure out what you really need to survive and exist harmoniously with the world.
The advice my father-in-law would give to the young folks just starting out isn’t necessarily unique, but it’s brilliant in its simplicity. It’s just a variation on the very popular 50-30-20 model of household budgeting:
50% of your take-home pay on your NEEDS (home, food, utilities, transportation)
20% for SAVINGS (combo of retirement and emergency reserve)
30% for your WANTS (everything else)
If you’re carrying unwanted debt, then use half of your savings to pay down debt and save 10%.
If you have kids, be mindful of saving to help them pay for college but not at the expense of your own savings rate.
This will help most people get to the finish line with enough money to retire and be financially independent.
But you know what else works? Building a small business and selling it for millions of dollars. While they are scarce these days, working in a position that provides you a pension is another great way to have money in retirement. And, not that you have much to do with it, but inheriting some wealth is a pretty popular way to have more money in the future, too.
THE BOTTOM LINE
The ability to be good with your money is doing your level best not to allow the devastating “lifestyle creep” to take over as your income goes up.
“Lifestyle creep” is an insidious disease that develops as you make more money. More money comes in and, inevitably, your ability to distinguish between NEEDS and WANTS erodes.
I need that bigger house…
I need that Tesla…
I need to send my kids to that fancy private school/college/university…
If I convince you of anything today, I want to convince you to SAVE MORE MONEY, whether you know what you’re going to do with it someday (retire, college for the kids, buy a house) or you have no idea at all. Saving money slays the dragon of lifestyle creep without ever having to even think about it, and your savings rate is the most important KPI (key performance indicator) you should be keeping track of.
When it comes to windfalls, like bonuses, stock options, and large commissions, I would argue you should go above and beyond 20%, saving at least half, if not 60% of those big cash in-flows and use the rest to buy something you really want or take that amazing trip. You need to find that happy medium of enjoying the present without simultaneously hurting your future. And while it may be simple to write about, it’s not so easy to accomplish without some hefty analysis and guidance.
Noble Wealth Pro Tip of the Month
Mid-way through the year is the best time to review your paystubs.
I said the same thing last year, but getting to know your paystub and checking in with it multiple times yearly is incredibly empowering from a personal financial perspective.
With your mid-year paystub and some basic math, you can figure out if you’re withholding enough for taxes, maxing out your 401k and/or HSA, and tracking to receive your full company match.
And, finally, a bonus tip of the month: enjoy your life. My father-in-law commented, somewhat offhanded that this may be “the last time” we make this family trip to Lake Powell, which is simultaneously prescient and heartbreaking.
Days turn into weeks, weeks to months, then years fade away. Eventually, we all run out of time. My youngest son turned 15 on this trip and played one of my favorite songs the other night by the Flaming Lips. I’ll leave you all with this:
Do you realize? That everyone you know, someday, will die.
But instead of saying all of your goodbyes,
let them know you realize that life goes fast.
It’s hard to make the good things last.
Realize that the sun doesn’t go down,
it’s just an illusion caused by the world spinning ‘round.
Things We’re Reading and Enjoying
These Are the Plunderers: How Private Equity Runs - and Wrecks - America, by Gretchen Morgenson & Joshua Rosner
Much has been written about the widening gulf between rich and poor, the pernicious effects our deepening income inequality has on the US’s well-being, and how our style of capitalism has failed to provide a living wage for so many Americans. But nothing has fully detailed the crucial role a small cohort of elite financiers has played in this dispiriting outcome over the past thirty years. Pulitzer Prize–winning journalist and bestselling author Gretchen Morgenson, with coauthor Joshua Rosner, unmask the small group of celebrated Wall Street financiers, and their government enablers, who use excessive debt and dubious practices to undermine our nation’s economy for their own enrichment: private equity.
-Your team at Noble Wealth Partners
“There is nothing noble about being superior to your fellow man. True nobility is being superior to your former self.” - Ernest Hemingway
