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
- Formal schooling for a specific trade/profession can help you “lock in” a certain market wage.
- Life-long self-education is far more important than formal education, so keep learning.
- Work hard. You can’t put in average efforts and expect better-than-average results.
- Build multiple streams of income in addition to your primary form of income from your 9-5.
- Be an owner rather than an employee. One way to do this is through a side hustle.
- Save early and save often. As your income grows, minimize lifestyle creep.
- Keep your fixed recurring expenses low in order to preserve some financial wiggle room.
- Delay major expenditures until after you’ve surpassed your major financial milestones.
- Spend money on things that have lasting value, not on material possessions.
- If you can’t pay cash for it, you can’t afford it. The only exception is a house (20% down).
- Marry well, marry once, and stay married. Be on the same page on religion, money, kids, and sex.
- Credit cards aren’t for people who need it. They’re for people who don’t need it.
Maximize Return on Your Money
- Be financially literate (more important than formal education, your profession, or income).
- Accept the average market return using a well-diversified mix of index funds and ETFs.
- Minimize investment expenses. Anything more than 0.5% is too much.
- Max out your tax-advantaged accounts (i.e. 401K, IRA, HSA).
- Minimize your taxes.
Minimize Potential Catastrophes
- Understand insurance (i.e. the goal of car insurance isn’t to pay as little as possible).
- Don’t mix insurance and investments (i.e. whole life / universal life insurance).
- 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.
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?