Good morning or evening wherever you are and Happy New Year!

Let me guess. You had a big night, woke up and had an epiphany. You need to get your life back on track.

If the thing you need to fix is money-related and you don’t know where to start, here are the ten steps you need to follow in order to go from debt-addled stressburger to solvent, chillaxed man-with-a plan:

1. Don’t get into (more) debt

Stop living on credit. Cut your cards if you must. Avoid fintech products that are glorified credit cards.

From now on, don’t buy anything until you can afford cash up front.

You must fix this or you will not get anywhere because those interest payments are dragging you backwards.

2. Make a frugal budget

This is an extract from The Poor Man’s Guide to Financial Freedom: A Realistic, 10-Step Manual to Building Liberating Wealth on a Small to Medium Budget.

Why Stock Picking is Bad

Do you know who can pick stocks well enough to beat the average market return, i.e. that which a dartboard, a monkey or an index fund could do?  You know who? 

This is an extract from The Poor Man’s Guide to Financial Freedom: A Realistic, 10-Step Manual to Building Liberating Wealth on a Small to Medium Budget.

Stock Market Indexes

We already learned about some of the stock markets around the world.  An ‘index’ is something that measures the change in such a market.  An ‘index fund’ invests broadly in order to match the performance of that index.

Are you with me?  No?  Okay, here’s an example:

On his excellent finance blog, JL Collins lists the five laws of con, reproduced here with my commentary:

1. EVERYBODY can be conned.

Even me. Even you. Those who think they are at no risk, are at the highest risk because they will be complacent.

2. You are likely to be conned in an area of your expertise.

Given Law 1, it makes sense, right? You’ll think yourself an expert and let your guard down. The art curator being sold a painting or the mechanic being sold a car should be especially cautious.

Read More

I’ve got a mate. He’s married with a kid. He’s okay with money but his wife is atrocious.

Each month he hands over all the money she’ll need for household expenses. Each month she ends up asking for more, saying she’s run out, even though he’s done the budget, gone over it with her a million times and figured how how much they ought to be spending on each item.

Hello past-people.

How are you? I am fine.

My blog began in 2015. Using newly discovered tachyon particles, I am writing to my seventeen initial readers from the year 2021 to give you tips for flourishing over the next few years.

Be aware that BIG THINGS are coming up, not all of them good. The Time Lords have forbidden me from giving you specifics, but I am allowed to give general advice that will help you to get through.

The economic sunshine will not last forever.

You have time to prepare.

Follow the ten steps to financial freedom that will enable you to get through no matter what happens, especially the first four, foundational steps:

This is an extract from The Poor Man’s Guide to Financial Freedom: A Realistic, 10-Step Manual to Building Liberating Wealth on a Small to Medium Budget.

Further Reading

I do not necessarily endorse the content of these websites and books.  It’s good to get another point of view.

Websites

[Edit: I’ve removed some of these links as they’ve become over-commercialized, feminized and/or pozzed. One was mostly about vaccines and climate change! They’ll be gone from the second edition of the book.]

Introductory and general information

This is an extract from The Poor Man’s Guide to Financial Freedom: A Realistic, 10-Step Manual to Building Liberating Wealth on a Small to Medium Budget.

Conclusion

Let’s finish by recapping each step and figuring out where you are and what you still need to do.

Review of the Introduction

Many people lack any level of financial freedom, even if they have a relatively high income, because they are unable to manage their money.  They live paycheck to paycheck, borrow heavily, and an unforeseen incident can cause disaster.  They feel that they are on a treadmill that they can’t get off, even for a moment.  Many wealthy people have had to file for bankruptcy because they could not get their finances in order.

By following the steps in this book, you can achieve a much greater degree of independence and financial freedom.

This is an extract from The Poor Man’s Guide to Financial Freedom: A Realistic, 10-Step Manual to Building Liberating Wealth on a Small to Medium Budget.

Bad Reasons for Changing Your Investments

There are two really, really bad reasons for changing your investments.  They are: (a) panic, and (b) greed.

The most common is panic.

This is an extract from The Poor Man’s Guide to Financial Freedom: A Realistic, 10-Step Manual to Building Liberating Wealth on a Small to Medium Budget.

Reevaluate

How often should you review your investments and consider whether you need to make alterations?

Once a year, or when your circumstances change, i.e. you have quintuplets or you lose both your legs in a lion-taming accident.  Fiddling with it any more frequently than that will probably be a waste of time and effort, and might be counterproductive.  A watched pot and all that.  Feel free to examine your investments frequently, but if you change them more than once or twice a year, you’re playing with them.  Hands off! 

This is an extract from The Poor Man’s Guide to Financial Freedom: A Realistic, 10-Step Manual to Building Liberating Wealth on a Small to Medium Budget.

Robo-Advisors

While it’s cute to imagine a robo-advisor as an actual, 1970s sci-fi style robot sitting in an office, wearing an adorable tie around its thick, metallic neck, and giving you financial advice in a camp C-3PO voice, disappointingly it is just a glorified financial calculator.  You plug in your data through a survey and an algorithm spits out suggestions based on your circumstances.  These are sometimes called ‘automated investment advisors’ or ‘digital advice platforms’, but ‘robo-advisor’ sounds much cooler, so let’s stick with that.

This is an extract from The Poor Man’s Guide to Financial Freedom: A Realistic, 10-Step Manual to Building Liberating Wealth on a Small to Medium Income.

The easiest way to spot a scam is to understand what returns are reasonable, and what returns are not.  Here is a quick recap:

Cash:  A term deposit or high interest account might provide a safe return of about 2-3% return in normal times, or 6% in special cases such as shortly after the Great Recession began. [Edit: cash rates now extremely low, often less than 1%.]

This is an extract from The Poor Man’s Guide to Financial Freedom: A Realistic, 10-Step Manual to Building Liberating Wealth on a Small to Medium Budget.

Continued from last week:

I’ve hopefully convinced you that it is not a good idea to wander into the office of your nearest financial advisor, turn your brain off and do whatever they say, any more than you would tell a new barber, ‘Do whatever you like!’  But now you may instead be thinking, financial planners are scary!  They’ll take all my money!  I’d better stay as far away from them as possible!

Relax.  Some financial advisors are excellent, most are satisfactory and only a few are downright dodgy.  Here is a step-by-step guide for finding a good advisor and for getting the most from their services:

This is an extract from The Poor Man’s Guide to Financial Freedom: A Realistic, 10-Step Manual to Building Liberating Wealth on a Small to Medium Budget.

Common Problems With Financial Advisors

These are the common problems you are likely to encounter:

1.  Some advisors get a commission (basically a kickback) for referring investors to specific funds.  That was probably why the advisor I described above was recommending me inappropriate margin loans.  For example, if your advisor recommends that you put $100,000 into the high-fee, hypothetical Adamantine Investment Fund, he might score a 1% commission if you go ahead with it.  That’s $1,000.  Worse, this might be a trailing commission.  That means he gets 1% for every year that you’re in the fund.  Five years later you may have increased your AIF investment to $200,000 and that advisor from ages ago who you’ve totally forgotten about is still helping himself to $2,000 every year! 

This is an extract from The Poor Man’s Guide to Financial Freedom: A Realistic, 10-Step Manual to Building Liberating Wealth on a Small to Medium Budget.

Step 9: Get Advice

No man is so wise that he can afford to wholly ignore the advice of others.

James Lendall Basford

By now you should have approximately worked out where you’d like to invest your money for the long term, based on your individual preferences and risk profile.  You’ll need to consult a financial advisor to ensure that the plan best suits your individual circumstances.  Advisors sometimes have access to financial products that you can’t access as an individual, and they can guide you on tax and other issues.  Most importantly, a good advisor will be much more expert than I am.  They have actual qualifications, you see.  So get advice.

This is an extract from The Poor Man’s Guide to Financial Freedom: A Realistic, 10-Step Manual to Building Liberating Wealth on a Small to Medium Budget.

Retirement Schemes

Developed countries generally have a retirement scheme, or multiple schemes, in order to provide incentives for individual retirement saving and to reduce the burden upon the state pension system.

These vary widely by country, and include the 401(k) and IRA, both Roth and traditional versions (in the US),[i] personal pensions (the UK),[ii] the RRSP (Canada),[iii] or superannuation (Australia[iv] and New Zealand[v]).