My Approach to Money and Investing

How I manage my money

This is all based on many dozens of books, websites, and videos from financial experts, but I'm not your financial advisor so don't expect to take ShadyGrover to court if you do something dumb.

  1. Create a balanced household budget, if possible, based on the costs and income from the past 12 months. If income is less than expenses, cut as many expenses as possible. Review the budget once a year.
  2. Get a checking account without any monthly fees. Have all income and and expenses come out of this fund, to make it easier to track the balance. I recommend credit unions over big banks for better rates and customer service and a track record of not almost destroying the global economy. Some of the worst customer service I've ever had came from Suntrust (now Truist) and Wells Fargo. Bank of America, Chase, Citibank and other big for-profit banks are constantly in the news being fined for pulling some shady garbage. Credit unions are federally insured just like bank accounts, but the profit goes to you instead of Wall Street.
  3. Instead of buying checks from the bank, I’ve used Checks.com and it’s cheaper and worked well.
  4. Save $1,000 for a starter emergency fund, either in your checking account or separately.
  5. Get a credit card with cash back and no fees when the balance is paid off, and set all of your bills to autopay on it (at least those that do not charge extra for this). I use Capital One Quicksilver. Have the monthly credit card bills autopay from the main checking account. If it’s too difficult to control spending, then use cash or debit cards for everything except the autopay bills.
  6. Pay down any debts. I focused on paying down student loans before general debt and higher interest rates before lower ones first. If it’s hard to stay optimistic about the process, then focusing on the debts with the smallest balances first for a feeling of progress is also an option, although it will take longer overall.
  7. When not actively applying for a loan or credit card, I keep my credit frozen to keep people from stealing it.
  8. If matching funds for good retirement programs or other expenses are available at work, then max those out. Depending on your income, debts, and interest rates, it may make sense to do some of this before the previous step.
  9. Save 6 months of expenses in the emergency fund.
  10. Invest in one or more of the following:
    • Series I savings bonds: A savings bond is an investment in the Government, offered by the United States Treasury, which pays you interest in exchange for borrowing your money. The amount of interest that an I savings bond pays is calculated to match the increase in a collection of items that is meant to reflect what a typical person might buy, including food, utilities, and rent. So if everything gets expensive (also known as inflation), your savings bond earns more interest. These are issued by the and great for times of high inflation, with no risk and no state taxes.
    • Roth IRAs: available through banks and credit unions, as well as brokerages like Schwab, TD Ameritrade, and others. You can put up to $6,000 per year into one of these accounts. The big advantage is never having to pay taxes on the earnings. Traditional IRAs are also an option when you would like to reduce your taxable income now and pay taxes later. If your income dips, however, you can convert them to Roths. Within an IRA of either kind, you can hold stocks, bonds, CDs, index and mutual funds, and other investments; of these, only the CDs and cash options are without significant risk. With a self-directed IRA, other options like real estate and precious metals are also available.
    • Certificates of Deposit (CD’s): A low risk option, at one time ING offered 6% rates, but not anymore.
    • Items that can pay for themselves :
      • Save Energy and Water: Switching out your shower heads, lightbulbs, pressure cookers, insulating curtains, and other items can pay for themselves in time. Check with your utility companies, many will offer free items, checkups, rebates, or other assistance to help you use less.
      • Food and Cooking: If you can items that allow you to buy food cheaper or cook things instead of buying them (freezers or costco memberships for bulk food purchases, a good wafflemaker and waffle mix instead of frozen waffles, etc.)
      • Solar panels : each state has different rules, but depending on where you are they’ll give you money to save money; be sure to check that the company allows you to keep the renewable energy generation credits, which can be sold on an open market. While the cost of solar panels has gone down, and may continue to, some of the materials in the current types of solar panels may be more expensive in the future.
      • Entertainment items : For example, a good video game can provide hundreds of hours of fun cheaper than going to concerts or movies. Getting a Roku or other streaming device and cutting your cable bill can save you hundreds per year.
      • Security: video camera systems to avoiding breakins, dash cams, etc. can pay for themselves. Check with your insurance company, some of these items may reduce your monthly rates too.
    • Real estate you expect to maintain or increase in value, especially if you can live in it and get a good mortgage. Avoid mortgages with changing interest rates, and don’t buy more than your budget will allow.
    • College Funds , 529 plans
    • Increased earning potential (graduate degrees, equipment for a small business, etc.)
For any of the above, think about how much you’ll save vs. how much it costs (your return on investment) as well as the relative risk. In times of high inflation (increasing prices) also consider that buying an item now may be cheaper than the same item in the future. During times of deflation (decreasing prices, for instance during 2008-2009), items may be less expensive in the future.

Additional Websites, Apps and Software

Investing

Types of Investing

  1. Gambling: Take a guess with minimal information, and see where it goes. If you like your car, you go and buy stock in that company at whatever price it is, hoping that the company will earn a lot of money and go up in value. This is a dumb way to invest, but a lot of people do it.
  2. Follow the Herd: Very similar to gambling, but you base it on what everybody else is doing. You buy what everybody else has been buying, and sell what everybody else has been selling. This is also a very bad way to invest, but quite popular.
  3. Trading/Technical Analysis: This approach means looking at graphs of prices for a stock, and then deciding to buy or sell based on which way the graph is going. I have no idea why this would work, but some people make money off of it. Ultimately, I think it’s a lot of work and stress every hour to make something slightly more expensive for the next person.
  4. Value Investing: For me, this is the type of investing that makes the most sense. First, you think of yourself as owning a piece of the business. Then you research and understand the current state of a business, and see if it has factors that make it less likely to lose money or go out of business than others. If it does, then you make a reasonable estimate for how much money the business will earn in the future, and calculate what the present value is of all the money today. Then you buy stock if is selling for less than that price (plus a little extra for a margin of safety). If done right, then the companies will generate profits and grow, and the stock will increase in value, or you'll get paid cash dividends. This is the approach that Warren Buffett and many other extremely wealthy people have used for decades. Here's more about what I think about value investing, and how I do it.
  5. Actively Managed Hedge Funds/Mutual Funds: With this, you pay an "expert" to do one or more of the previous options, usually with many different types of stocks, and they charge you fees. The effectiveness is totally in the hands of the experts here, and the risks and rewards are totally based on them. Most do not do better than index funds or throwing darts at a list of stocks, but some do.
  6. Index investing : With this approach, you buy a little piece of a large number of stocks from a list, such as the S&P 500 or Russell 3000. The most common indexes are capital weighted, meaning that when a stock goes up in price, you buy more, and when the price goes down, you sell until your ownership matches the index. Meanwhile, most of the companies you hold are supposed to go up in value, and many will pay cash dividends. If you assume that the price of a company reflects how well it's going to do in the future (which I don't and you probably shouldn't), then this approach has been an inexpensive and effective way to invest.Here's more about what I think about index investing.

Books I Recommend: