How to Become Financially Secure By Someone Actually Doing It

MichaelEducation, Family, Habits, How to, Misc55 Comments

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Today I have a special guest post by my friend and fellow PF blogger, Tim Kim, over at TubofCash.com.

Just below you’ll find a specific guide on how to become financially secure.  It’s followed up by his family’s story on how he’s doing this today.  Enjoy!


GUIDE: How to Become Financially Secure

Maximize Income

  1. Formal schooling for a specific trade/profession can help you “lock in” a certain market wage.
  2. Life-long self-education is far more important than formal education, so keep learning.
  3. Work hard. You can’t put in average efforts and expect better-than-average results.
  4. Build multiple streams of income in addition to your primary form of income from your 9-5.
  5. Be an owner rather than an employee. One way to do this is through a side hustle.

Minimize Expenses

  1. How to become financially secureSave early and save often. As your income grows, minimize lifestyle creep.
  2. Keep your fixed recurring expenses low in order to preserve some financial wiggle room.
  3. Delay major expenditures until after you’ve surpassed your major financial milestones.
  4. Spend money on things that have lasting value, not on material possessions.
  5. If you can’t pay cash for it, you can’t afford it. The only exception is a house (20% down).
  6. Marry well, marry once, and stay married. Be on the same page on religion, money, kids, and sex.
  7. Credit cards aren’t for people who need it. They’re for people who don’t need it.

Maximize Return on Your Money

  1. Be financially literate (more important than formal education, your profession, or income).
  2. Accept the average market return using a well-diversified mix of index funds and ETFs.
  3. Minimize investment expenses. Anything more than 0.5% is too much.
  4. Max out your tax-advantaged accounts (i.e. 401K, IRA, HSA).
  5. Minimize your taxes.

Minimize Potential Catastrophes

  1. Understand insurance (i.e. the goal of car insurance isn’t to pay as little as possible).
  2. Don’t mix insurance and investments (i.e. whole life / universal life insurance).
  3. No one cares about your money as much as you do so do your full due diligence.

Case Study – The Kims Journey to Financial Security

Maximize Income – The Kims

My wife is an RN (registered nurse). She’ll be done with her NP (nurse practitioner) schooling end of this month. So right around the corner! RN’s command a market wage of roughly $70K-$90K in Los Angeles. NP’s make between $100K-$140K. They can also make more than this if they work per diem as either an NP or RN at other facilities.

And this is what I mean by “locking in” a certain market wage. If you have the education and especially a license, you can more easily rely on a certain market wage. I personally don’t have a locked-in market wage so it’s nice having a spouse that has a license that practically guarantees a stable salary.

I’m a VP at my current company (more specifically, VP Procurement) so I head the Purchasing and Inventory departments. Even though VP’s command a high wage ($150-200K market wage) it’s not as “locked-in” as a licensed vocation and thus, not as transferable to another company.

I also do a ton of side hustles and we also receive income from our investments. These two non-primary sources of incomes bring in between $65-90K a year. So as a household, we bring in between $300-400K a year.

Minimize Expenses – The Kims

We save roughly 30% of our income. We can save more or we can save less. But we feel that this is a happy middle ground where we’re not overly tightening our belts, and at the same time, we’re saving enough to snowball our investments.

We also have a very cheap house. It’s a condo worth roughly $550K that we put 20% down on. This price range for a home is considered super cheap in our HCOL area. The median house price in Los Angeles and Orange Country is between $700-800K. New single family home constructions in Orange County go for $900K+. We can afford a lot more, but we don’t want to be house rich, cash poor.

We also drive modest cars. Both of us drive Honda Accords. In Los Angeles and Orange County, especially in the Korean community, people make a big deal about image. The vast majority of them drive luxury vehicles. We don’t because we know that cars are liabilities.

As far as marital compatibility goes, we’re very fortunate to be as aligned as we are. My wife and I have been married for 7 years. We’re both Christians. We both agree on every facet of raising a kid and a family. We also never fight about money. I don’t recall the last time we fought about money.

Maximize Return on your Money – The Kims

I’m the money guy in our family. My wife trusts me 100%. And it’s fortunate that I’m naturally enthusiastic about money, so it doesn’t feel like a burden. I’m always reading books, watching instructional videos, and listening to podcasts so that I can learn more and more about business, finance, investments, and money in general.

As for our portfolio, the bulk of our investments are in Vanguard index funds, which have super low expense ratios (some are as low as 0.04%!). We also max out all of our available tax advantaged accounts for both of us. Anything left over goes to our taxable account where I buy mostly low-fee ETF’s. We’re 100% in equities, and currently tilting towards both developed international markets and emerging markets.

Minimize Potential Catastrophes – The Kims

I’m big on insurance. I always tell people that more than becoming rich, the far more important goal is to not become poor. And not having adequate insurance is one of the most foolish things a person can do. The more you have, the more you want to ensure what you already have so that you don’t end up losing everything to some unforeseen circumstance.

So we max out our car insurance to the max possible amounts, and on top of that, we have a few million dollar umbrella insurance tacked on top of that just in case. The reason why we have so much umbrella insurance isn’t that we have a few million dollars. It’s because we want to protect our future cash flow from a potential lawsuit (i.e. wage garnishment).

We also have laddered term life insurance in the millions of dollars, and we’ll continue to ladder on additional term insurances as we get more children. We also have disability insurance in case one of us gets hurt. And lastly, we have malpractice insurance for my wife, since she will be practicing as an NP. We live in a very litigious society, so it’s critical to have adequate protection.

Final Thoughts

Well, there you have it.  A succinct guide on how to become financially secure by Tim who is actually living this right now.

Readers, which of these are you currently practicing?  Are there any that you find more challenging to do than others?

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Michael

Hi, I have been blessed to take an early retirement in my mid-30's so I can focus on becoming a better father, blogger, and investor.

My goal is to help you find your personal path to financial freedom, and to enjoy the entire journey.

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55 Comments on “How to Become Financially Secure By Someone Actually Doing It”

  1. What a great case study! I have been following Tim and his wife’s journey over at Tub of Cash, but it is great to see some more details here!

    I find that minimizing potential catastrophes can be a hard thing to focus on. I am in my late 20s and Mr. Adventure Rich is in his 30s. It can be easy to just say “oh- we’re young” or “that won’t happen to us”, but in reality, anything could happen at any time! So we have had to be a bit more intentional on the “minimizing risk” side of the house.

    ~Mrs. Adventure Rich

    1. Often, insurance is cheaper when you’re younger, so lock in the good rates! Thanks for reading!

      1. The other thing is you want to lock in the rates long-term before any sort of health issues crop up. I didn’t get my current life insurance until about a month after my doc found a congenital heart issue that may require surgery years down the road. That basically doubled my monthly premium. If I had gotten locked in before that happened, when I was blissfully ignorant, I could have saved hundreds of dollars a year for a very long time – and gotten even more coverage for my dollar. That lesson taught me the importance of covering my butt on the rest of my insurance policies!

          1. It’s all fixable. Better to know about it and get checked out every so often than wake up dead. I’ll write a post about all of it sometime. I pay for the highest insurance coverage, so I’m not eligible for an HSA, which is one of those nice-to-have investment vehicles. To your point about protection, though, for young people who are healthy and figure they don’t need insurance, man it doesn’t take much for that to change in the blink of an eye. I’d much rather pay a few bucks more for the good stuff and limit my risk than save a few bucks and take my chances with the healthcare or court system.

  2. Really enjoyed this! Such a great guide! I love the maximize your return on your money because it encompasses so much of what makes solid investments – from your 401K, to low cost index funds, to your education, maximizing your income and limiting your expenses. Great guide and thanks for sharing!

  3. A fantastic primer on how to get a hold of your finances. 🙂 For many people, like me, I think it starts with getting yourself out of debt so you can actually leverage the power of having money in your bank account–that doesn’t belong to someone else.

    1. MPP, good point about getting out of debt. Sometimes those of us who haven’t experienced that tend to overlook that. The cool thing is that I’ve found if you can move past substantial debt, wealth creation is much easier on the other side.

    2. Yep, agreed with Michael here. If you’re able to get yourself out of debt, you have the know-how to generate wealth once you’re back in black. Thanks for reading!

  4. I would add being on the same page with your wife regarding where you want to live. If your family is in Cali and she really loves Texas, then you should have that discussion.

    Waiting to buy big purchases (homes) until you hit financial milestones is a great point too. I did not do this and kick myself in the butt everyday wishing I had. Will it make a difference in 20 years? Probably not, but I feel the pressure now and that is a very real feeling.

    I enjoyed the article. Good summary!

    1. Agreed, houses are awesome, but they’re awfully stressful. I don’t like stretching to have to make the bills. I like having lots of wiggle room. Thanks for reading!

  5. Spectacular read and insight on the Kim family! Does your condo have fees? My friend said his condo doesn’t offer as much “stuff” so the fees are under $200 whereas another friend has a condo fee of $400 and another another friend $800. That’s insane to me the fees are that high to pay for a gym and ping pong tables etc. And their condos are around the same area and appreciating value at the same pace.

    I think my hubby and I are on the same page but we had to work out the kinks to get here (and still some ways to go.)

    1. I don’t know about Tim’s condo fees, but my condo in San Diego is $400 like yours. It definitely takes a bite into the rental profits!

      That’s great your husband and you worked through your kinks, Lily!

    2. My HOA fees are a little south of $400. Yeah it adds to the monthly “tab” but I’m happy I don’t have to tend to anything outside. We have regular pest control, people tending to the grass and gardens, pool, spa, bbq area, basketball court, and other common areas, etc. And even then, our mortgage + HOA fees + property tax is lower than most apartments around here with the same amount of beds and baths. It’s crazy.

  6. One thing that I know for a fact is this: it’s easier to follow everything in this guide when you’re a dual-income household making well over $300K per year. Pursuing financial independence is so much easier when you and your spouse make a lot and think the same way. Unfortunately, too many of us don’t live in this scenario. It’s nice to see Tim lives below his means. It’ll give him freedom and I don’t mean financial freedom. Money buys choices. If you have more of it, you have more choices.

    1. It’s true that DINKs have a financial advantage sometimes, but it’s certainly possible to do it with kids also. The great thing is kids are happy playing with dirt if you have no money for toys. 😉

    2. Darren I agree. Can’t deny that the more you make, the easier it is to save. That said, there are a ton of people, especially in the PF community, who are super savers and have done well without big incomes. I know it’s easier for me to say, and I’m sure it’s harder for those with lower income; on the flip side, I think everyone has the ability to make more. If living in a developed country like the US, it’s do-able. I immigrated here with nothing. Missionary parents so no trust fund or elite connections. So if I could do it, I think anyone else can. I’m also very average. I’m not that smart.

  7. Nice article! I like how you recognize the importance of insurance. I am the same way, especially on the property side. A lot of people are so anxious for lawsuits these days. Terrible but that’s the world we live in.

    1. Gotta protect the downside! The utility of additional dollars, over a certain point, diminishes. Thanks for reading!

  8. Wow! I was tracking with the solid tips offered in the guide, but then pretty blown away with the case study. Thank you, Tim, for sharing and Michael for hosting the post. Great example of putting the concepts into practice.

  9. Charleen,
    I have been following Tim on IG and blog for 4 months now. I thoroughly enjoyed this financial alert blog. Lots of great information. Thanks for sharing. My husband and I are working on being debt free. One card at a time. Keep up the great work.

  10. Hi Tim, this is one of the best how to guide I’ve seen about personal finance. Succinct, to the point, and effective! I like how you use the Kims family as a great example of how your guide to financial success works! Good to you see and Michael collaborating 😉

  11. Awesome post. I know a lot of people on the road to financial independence/security save 50-75% of their income. The fact that you and your wife make so much is a testament to how making more money allows you to live with many of the luxuries of life while still putting away more than what a lot of people make in a year.

    As always, very inspirational and informative post!

  12. It’s good to be reminded of some of the simpler ideas in personal finance – those are the ones that have the best returns time and time again!

    Thanks for your guest post!

  13. Great guest post with excellent tips to become financially secure. I’m definitely curious to learn more about the side hustles that make $60k to $90k. That’s pretty awesome when combined with two high incomes.

  14. Nice post guys. I’d definitely like to know more about your side hustles.

    My wife and I are both clinical pharmacists, so I understand the “locking in a wage” thing. That was one reason why I left the uncertain world of finance, for the more secure/stable healthcare field.

    One thing I’d like to add, and it kind of goes against the FIRE community, is being an employee has a lot of great benefits with health insurance, disability ins, 401k matching, pension, etc. Having great health insurance is important as mentioned above, so not having to pay for it out of pocket is nice. The “golden handcuffs” to staying at a job… I guess as they call it…

  15. This post pretty much sums it all. Next stop is self discipline which is one of the toughest part of this ride. Excellent post and I really love this part, I’m the money guy in our family. My wife trusts me 100%. This is very important in becoming financially successful and I sure do know the feeling of this so-called spousal trust.

    1. I think self-discipline is best sipped slowly. Before you know it, you’ll have a habit of success and it won’t be called self-discipline anymore. 🙂

  16. Great post with a very detailed breakdown of what we should all be doing, or at least, should be trying to do. Maximizing income resonates with me as almost every year of my professional career I have tried to maximize my income. Doing so has continued to pay off again and again while many of my peers have staid stagnant at the same job at roughly the same income. Keep pushing!

  17. I appreciate this blog it helps people to have financial freedom . thank you Mr. Kim and Mr. Michael , Glad you have this article.

  18. I’m definitely focused on maximizing my income potential. I own a small business with work I enjoy, but I supplement that income with a temp gig. I’ve been developing a skill that mainly benefits the temp gig and will double my pay rate there. Once I lock that in, I will buy the cheapest condo available in my HCOL area and focus on using the high pay rate to invest and subsidize my business and lifestyle. It feels great and my girlfriend is entirely on board.

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