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I know it is hard to imagine, but you most certainly can scrape by on $165,000 a year (sorry, my sarcasm font is broken). The title to this section is of course a bit ludicrous but it still illustrates some good points. The first thing he recommends here is (I hope you are sitting down) to make a budget. It is a very standard suggestion in a finance book, but here are the steps he lays out:
This certainly sounds a whole lot like what we detailed in our Budget blog: Here. Of course it does, budgeting is the easiest thing to do to set yourself up for success, but it is also one of the hardest things to stick to. Now that you have a budget (and hopefully a bit in the surplus column) it is time to start saving. Having liquid cash helps twice, once when you have it for emergencies, and twice when you are not paying interest on a short term loan to get you out of a hole. Large unexpected items are much easier to handle when you do not need to scramble and figure out where you are going to get the money for them.
Now that your emergency fund is setup, start identifying debt and paying it off if you have it. There are numerous methods (see here for our blog on it) but the important part is really starting to pay it down, and continuing to do so consistently. Also, keep an eye on your lifestyle inflation, if you make $25,000 a year, live like you make 20. If you get a raise, adjust where needed, but still make sure you live like you make less. You never want to rely on 100% of your income if you can avoid it.
Trust No One
Here we move from our budget to something else that you probably know but do not think about. Trust no one but yourself when it comes to your finances, even then, always do your research and read the fine print. One example, just because Alex Trebek tells you to buy life insurance, make sure you determine if you need it. There are any number of areas where this apply:
The Case for Cowardice
Savings accounts are boring and not sexy, but they are safe and provide some (albeit very low) return on your cash. Personally, I find they are useless due to the return being far below inflation, but that is for another article. If you are going to invest in the stock market, do not let fear make your decisions, that is a sure fire way to invest at the top and sell at the bottom. When you decide to get into the market, ask yourself these 3 questions:
If you are going the safe investment with low return route, you have a few options.
I am now going to hit you with a bunch of bond types, and a short descriptions. Probably best to treat this like an appendix.
To end this section, if you are not leveraging the power of interest, and you are saving 20% of your take home pay your entire working life. You will end up with only 9 years in retirement. You need to look at ways for your money to make money or you will run out very quickly.
I am just a regular guy who does far to much research on financial independence and early retirement (FI/RE). I look forward to sharing my journey with you all.