Okay, let's get to audience questions first one.
Hey, David, could you lay out a basic financial
plan for someone who works and is middle class but just has no idea what to do?
I understand lots of people aren't in a position to save any money, but it would be great to
hear you talk about what middle class people should be doing.
Yeah, I, I, I've hesitated to do this, number one
because I don't want to be condescending to anybody, uh, based on their financial situation.
And also because I don't want to be giving financial advice.
So let me say none of this, this is all hypothetical.
It's not advice for anyone specific situation, but some basic principles are, if you don't
have $1,000 in an emergency fund, you need $1,000 in an emergency fund and not having
it, I would consider an emergency.
You need to significantly curtail all spending until you have that thousand dollars.
We did a story not long ago about how some very high percentage of Americans would not
be able to afford an unexpected $400 expense without like putting it on a credit card or
borrowing from friends.
That's a real problem.
So you need $1,000 because of the healthcare system we have, you probably in addition to
the thousand should also have whatever your deductible is.
If your deductible yearly is $2,000 on health insurance, you probably want that in addition
to the thousand dollar emergency fund.
That's just a reality.
And then you want to be working towards a three to six month, uh, not now.
It's no longer an emergency fund, but sort of an income replacement fund.
The ideal scenario would be to have six months of, if you, if your income went to zero, you
could split pay for everything you're currently paying for for six months.
That would be a great place to be.
And whether that's practical for different people really depends on their situation.
You want to avoid high interest credit card debt.
It you ideally would just be paying, I use my credit card like a debit card, I use it
for frequent flyer miles and I pay it off every month.
Not everybody can do that.
I understand that.
But you want to be avoiding any fees and interests that are not necessarily because it's just
takes away it's money.
You're just giving away to financial institutions.
And then you do want to think a little bit about your sort of general asset allocation.
And this includes thinking about retirement plans, what, how much cash should you have
versus money in tax deferred investment accounts versus in real estate for example.
So again, everybody's situation is very different.
Just having cash, uh, you know, having a whole bunch of cash and then not really contributing
to anything that is going to grow in terms of a retirement account or an investment account
is not particularly wise.
I'm being deliberately vague again because I am not giving specific financial advice.
Uh, but as an example, I used to invest in mutual funds in real estate investment trusts,
rei teas, reets as they're called, and it's like a proxy for investing in real estate.
When I actually started, uh, getting involved in, in real estate directly with properties
that I'm involved with, uh, I realized it's too much real estate.
I should stop investing in the rates and maybe look at reallocating that to something else.
My philosophy on investing is don't pick stocks, look for the lowest cost, broadest mutual
funds, and figure out what is your balance between stocks and bonds.
There are lots of tools out there.
One says you take a, the number one 20 and subtract or no, you take the number 100 and
subtract your age and that's the percent you want to be in stock.
So if you're in, if you're 30 years old, you want to be 70% in stocks, which actually seems
a little bit conservative maybe for my taste, but there's all these tools that will help
you figure that out.
Uh, when it comes to things like mortgages, very often, uh, it is not logical to take
a huge chunk of money and pay off the mortgage if you actually figure out the numbers financially
because there is a tax benefit to paying mortgage interest.
And if your mortgage is 4% and you can invest in something that historically returned 7%
you're better off taking the money and putting it into the investment instead of into the
mortgage.
But everybody's situation is different.
There's a sort of psychological value to paying down or paying off a mortgage, which what
might make it the right thing for some people, even if they are effectively accepting a lower
return as a result.
So these, it's really hard to have a, a, a sort of overarching financial plan.
But my sort of tips in general are you need $1,000 right away, plus your health insurance
exposure, exposure, the amount you're exposed to health insurance spending in an emergency
fund, working towards six months of expenses in case you are nothing for six months.
You want to ensure that you are not on the Hedonic treadmill and that your expenses are
properly attuned to your income and you don't want to start spending more every time you
make a little more.
Don't get into the cycle of living beyond your means in terms of using high interest
credit card debt for anything other than absolute necessities.
Again, if you use it like a debit card to accrue points and you pay it off and fold,
that's okay.
Uh, and then you want to be contributing as much as you can in the most advantaged way
possible towards retirement.
So if your employer offers a 50% match up to 6% of your income, you, if you can afford
it, want to be contributing 6% of your income to that retirement plan to get the 3% from
your employer because that's quote free money.
Of course nothing is really free.
You can make the case that your salary is lower because your employer is already accounting
for that in the offer to match your contributions 50 cents on the dollar up to 6% but still
it's money that's available and you want to be taking advantage of that.
Um, and, and really a lot of this stuff comes to do, comes back to the tax impact.
So it is important to read up on or have an accountant that can advise you.
For example, about with the recent Trump tax reform, now that there has been a limit placed
on the deductability of certain types of taxes, is it as advantageous to have that mortgage
or would it be better to look at paying it down and investing the money elsewhere, et
cetera.
This is all very vague stuff, but I hope I'm at least telling you sort of like a basic
framework that I apply.
Uh, and again, when it comes to any kind of investment, one of your top priorities should
be reduce the cost, vanguard and betterment without giving any particular endorsements,
have fees that are so low, sometimes 0.0 3.05% compared to what sometimes or one or 2% management
fees for similar asset allocation in other institutions.
So pay very, very close attention to that.
Okay.
That does it for that.
A question.
Let's move on and I'm glad to take more questions about this.
Someone actually had the idea, David, you should do on your twitch stream when whenever
you launch it, you should just do like personal finance stuff.
Since your background is in personal finance from Grad school, it's an interesting idea.
I think I'm just kind of out of the game and I wouldn't really be the right person to be
giving that kind of advice, which could be funny in a sense, but I also don't want to
damage anybody's financial circumstances.