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What did I learn?

Dave Ramsey’s “Total Money Makeover” is a booked packed with old school, tried and tested methods to get one into a good financial position. The concept of the book is that cash flow is king and that debt is a leak. In order to get to a great financial standing one must eliminated debt, live on a budget and invest to grow wealth. Thus to accomplish he provides 7 baby steps to get you there, I’m currently following a plan inspired from this, it’s pretty much the same with some modifications.

Note: He recommends that you stop all investment activities and start back up investing at step 4. While this might be better in most cases, I’m not sure if I’ll follow that part. I’ve got to run a model to see how it work out in my case.

1. Save $1000 for a starter emergency fund
2. Pay off all debt in the debt snowball
3. Save 3-6 months of expenses in a fully funded emergency fund
4. Invest 15% of your household income into retirements
5. Save for children’s college fund
6. Pay mortgage early
7. Build wealth and give

Save $1000 for a starter emergency fund

When starting the baby steps, you take a vow that to no longer use debt or credit, given that one of the most common uses of credit card is as an emergency. The first step is to have a small emergency fund of $1000 dollars at all times to cover any emergency that might pop up. One you’ve got this and an emergency occurs, you come back to this step until you’ve rebuilt the fund.

Pay off all debt in the debt snowball

This process is behavior modification, list all your debts that are less than 50% of your annual household income from largest to greatest. Then pay the minimum on all but the smallest one,  then find all available moneys to pay towards that one. Once smallest debt is paid off use the money paying towards that one and apply it to next one, so on and so forth. Now in order to accomplish this there is one habit that needs to be developed and that is living on  a budget. The budget is a plan for your money that, so you tell it where to go, and every dollar has to be accounted for.

Note the debt snowball while mathematically is not the best way to eliminate debt, that would be based off highest interest rate to lowest, it’s psychologically superior as it provides small wins early. 

Save 3-6 months of expenses in a fully funded emergency fund

Now after having paid off all your debts, it’s time to fully fund an emergency fund. Think of this as an insurance, you’re not looking to make money off this money, this money just needs to be readily available, in case an emergency happens. The goal is 3 to 6 months, this would be dependent on you and your family, whatever makes you feel more secure. One suggestion is that if you’re in a commission only job, then shoot to have a 6 month fund. My wife and I have chosen to opt for the a 6 month emergency fund.

Invest 15% of your household income into retirements

It’s now time to start back up on your retirement investing. The suggestion here is to invest 15% of the household income into good growth mutual funds. Keep in mind you’re investing for the long term. The suggestion here are funds that have a history of providing an average return of 12% per year on the long run.

College Fund / Pay off Mortgage

The next two steps can be done at once and in any order depending on your situation.

Save for children’s college fund: Normally through the use of a 529 investment fund as to take advantage of market grow, instead of prepaying which is the same as paying at the rate of the tuition growth.

Pay mortgage early: The idea here is that if you already have a mortgage find put all surplus money to paying it off. Or, if you don’t have a house save up for a large down payment and if you need to borrow on it get a 15 year mortgage. Make sure that the mortgage does not make up more than 1/4 of your household income.

Build Wealth and Give

With the house paid off, and children’s tuition taken cared off, it’s time to just build wealth and give. This can be done by increasing generosity, and investment contributions.

Learn more at Ramsey Solution

What I Learned

Extreme ownership was a book about leadership in a team setting from 2 navy seals that now run a consulting agency for business leaders. In short the book teaches a number of things about running a  team, from experiences hard learned while deployed at war. The list below is what I got out it.

1. Ownership (taking responsibility)
   • realize in everything you are responsible for your own outcomes, and the outcomes of your team. It is important not to pass the blame around, or blame circumstance for your outcomes, realize that if you’re not getting the results you need, it’s probably cause you did something wrong; there’s something you don’t understand or didn’t account for, and there’s more you need to learn. Step up and take ownership, and it I’ll propagate throughout off levels the team.
   • The book gives plenty of examples from war/ consulting clients on how taking extreme ownership from at leadership, propagates to throughout the team. It also allows people to see you as a responsible person, not one afraid to fail.
2. Goal settings
   • When setting goals it is important to be mission focused, and set small simple milestones that will lead towards a greater goal. Keeping tasks small and simple allows for easier goal tracking and accountability from yourself and that of your team. Just as important to setting goals is to create an plan, and execute according to it. The process of making a process of making  a plan should be standardized and repeatable, so that all members and teams can align with the plan and can be properly communicated.
3. Decision making
   • If you’re not getting your desired outcome is because you’re not making the right decisions. When making decisions it is important to understand the mission objectives, and the wider impact your decisions have on the mission.
   • It’s also important to note, when working with others decision they make that have impacted you, are usually not a direct offence to you. People normally make decision to improve the current situation, and in some cases don’t think of the repercussions. Be mindful when making decisions, keep the mission objectives in mind and think about what your decision might affect.
4. Understanding others
   • When working with a team, and/or interacting with other teams it’s necessary to see things from their point of view. This allows you to understand their situations, their way of thinking and decision making. Learn to cover and move, know your team, as you’re responsible for their outcome and have their back.
5. Prioritizing
   • When executing a mission/goal, attack each task from highest to lowest priority. To do so you need to know what’s the expected outcome of each task, and how it helps you achieve the goal at hand.
6. Decentralized Command
   • Teams that are too big don’t get don’t tend to be efficient. According to the authors the ideal size for team should be 5-6 folks. This means you’ll normally have to rely on other teams, to get things done. The proper way to delegate among, different teams, by decentralized command.
   • Have leaders of individual teams, in-charge of executing specific tasks. They need to step up and be accountable for the performance of their teams. Leadership is responsible for the correct delegation, and accountable for the totality of the outcome. Think of a military scenario: Alpha team, assigned to task 1, Bravo team, assigned to task 2, and so on.
7. Analyzing outcomes
   • After each task/milestone completion, it’s important to do an operational debrief. Looking back at:
     • What was done?
     • How it was done?
     • Where did you succeed?
     • Where did you fail?
     • What could have been done better?
     • Hindsight is 20/20, so take time learn from the lessons of the past, and improve your future.
8. Discipline
   • Build habits and routines that can liberate you from indecisiveness, like if X then Y is the standard response. Building discipline can be hard, but once the routines are set, it provides you freedom. Freedom from too many decision or indecision, freedom in time and builds a character that can conquer temptations. Treat all new habits you’re trying to develop as a battle which you aim to win.
   • The alarm clock goes off, are you disciplined enough to get up and win the day?

What I learned?

To win at the Game of Money, you need to understand the game and master it, and to master it you need to know what’s your goal, and where the game is played. The book suggest you take the time to name your goal, so find out the price of your dream; How much money do you need? Then it breaks down the paths along the dream. The book also breaks down strategies, on investing systematically to build your wealth (the game is played in the market).

What’s Your Goal?

Milestones of wealth:

• Financial Security
  • Home, utilities, food, transportation, and insurance all covered for the rest of your life
  • Costs of above, with your current lifestyle x 12 x 20
• Financial Vitality
  • Leisure activities, and luxury indulgences 1/2 of these costs covered for the rest of your life
• Financial Independence
  • How much money do you need to maintain your current lifestyle, covered for the rest of your life
  • Your current monthly costs for everything x 12 x 20
• Financial Freedom
  • Independence + 1 or  2 significant luxuries, ie. Second house, sports car
• Absolute Financial Freedom
  • Enough money to cover the above, plus all your indulgences, and give

Let’s break these down for my current situation:

Costs	Monthly	Annual	Investment Goal to Cover it
Mortgage, Insurance, and Taxes	$2,443.68	$29,324.16	$586,483.20
Food	$500.00	$6,000.00	$120,000.00
Utilities	$615.00	$7,380.00	$147,600.00
Phone	$250.00	$3,000.00	$60,000.00
Electricity	$150.00	$1,800.00	$36,000.00
Cable	$215.00	$2,580.00	$51,600.00
Car	$490.00	$5,880.00	$117,600.00
Gas	$120.00	$1,440.00	$28,800.00
Car Insurance	$270.00	$3,240.00	$64,800.00
Life Insurance	$80.00	$960.00	$19,200.00
Financial Security	$4,518.68	$54,224.16	$1,084,483.20
1/2 Luxuries \ Indulgences Total	$750.00	$9,000.00	$180,000.00
Gym	$150.00	$1,800.00	$36,000.00
Date Nights	$200.00	$2,400.00	$48,000.00
Hangouts	$100.00	$1,200.00	$24,000.00
Shooting	$50.00	$600.00	$12,000.00
Travel	$1,000.00	$12,000.00	$240,000.00
Financial Security	$5,268.68	$63,224.16	$1,264,483.20
Financial Independence	$6,018.68	$72,224.16	$1,444,483.20
Significant Luxuries	$4,500.00	$54,000.00	$1,080,000.00
Second Home	$3,000.00	$36,000.00	$720,000.00
Used Luxury Car	$500.00	$6,000.00	$120,000.00
More Travel	$1,000.00	$12,000.00	$240,000.00
Financial Freedom	$10,518.68	$126,224.16	$2,524,483.20

Note, this is based on my current, would need to be updated if I have any life changes in my life, such as family size increase. I might also be missing a couple of items, but for now these might be good targets.

Where and how the game is played?

The game as mentioned above is played in the market, as you probably won’t earn your way to wealth. You’ll need to invest, if you’re hesitant on investing/trading remember you’re already a financial trader (trading time for money), not the best investment as you’ll eventually run out of time. Tony Robins suggest systematically investing 10-15% of your income monthly (if you think this is too much the book goes into different methods to grow into it), into a retirement account, invested into diversified index funds. Index funds are suggested as overall most actively managed funds don’t beat the market, and have higher fees to boot.

Diversification, through asset allocation:

There are different assets classes one can invest, and they fall between 2 main buckets Security and Risk/Growth, and you should be diversified between asset classes and buckets. Throughout Money Master the Game, Tony Robins interviews many of the world’s most successful investors, and asks them for investment strategies and asset allocations. Below are 2 of the Asset allocations from the book:

• David Swanson:
  • Domestic Stocks 20% – Risk/Growth
  • International Stocks 20% – Risk/Growth
  • Emerging Stock Markets 10% – Risk/Growth
  • REITs 20%- Risk/Growth
  • Long Term US Treasury 15% – Security
  • TIPS 15% – Security
• Ray Dalio’s:  All Season’s Portfolio
  • 4 Seasons of Investment, and asset classes that do well in each season
    1. Higher than expected economic growth: stocks, corporate bonds, & commodities/gold
    2. Higher than expected inflation: commodities/gold, TIPs
    3. Lower than expected economic growth: treasury bonds, TIPs
    4. Lower than expected inflation (deflation): treasury bonds, stocks
  • Suggested asset allocation:
    • Stocks, 30%
    • Intermediate government bonds 7-15 years, 15%
    • Long term government bonds 20-25 years, 40%
    • Gold, 7.5%
    • Commodities, 7.5%

What else?

Money Master the Game, also discusses a few different topics not covered above.

• Different investment vehicles and their viability for building wealth
• Differences between fiduciaries and brokers
• Tax advantages of different strategies and investments types
• Essential human needs, and their psychological aspects in building wealth
• Strategies to speed up earnings, and investing
• Has and emphasis on giving, doing more for others

More on some of these topics to come at a later time.