Master Your Money With the Financial Triangle!
Updated: Feb 22, 2019
Stolen viciously from Millennial Revolution
Just like so many things in life, Financial Independence can be grossly oversimplified to a triangle infographic. But like other good infographics that have come before it, this one hits on a universal truth: In order to accomplish your financial goals, you have to get a handle on Income, Expenses, and Investments. Any imbalance can send you spiraling into working forever or bankruptcy.
Let me explain. Let's say you have done your homework and understand the power of index fund investing, and you're itching to invest so you can capitalize on those sweet sweet benefits of compound interest. You have a good job and good income because you're a hustler! But you also have a brutal Persian Rug and Luxury Car habit that is destroying your monthly budget because you love pretty things. If you spend all your income, no matter what your income is, you won't have money to invest, so you'll never really be able to retire.
The same is true if you are a great saver, and have a good income, but try to time the market and invest in individual stocks. It doesn't help you to lose the money you've saved by speculation. Now, you might get lucky, and it could pay off big, but as Warren Buffet just showed, index funds beat even the best investors over a moderately long time frame. If financial "advisors" who are after your sweet sweet fees get their hooks in you with their fancy vocabulary and nice suits, you could suffer this same fate and never reach your goals.
It also clearly follows that if you've got the investing thing down, and know how to save lots of money because you read Mrs. Frugalwoods, but don't earn enough to save anything, you obviously won't be able to have the money you need to invest, and you'll just keep plugging away at getting that boulder up the hill.
(The rocks want to come down the mountain, don't be that guy)
For me, I think I'm moderately good at all 3. But I could definitely improve.
My income is good, but I could have moved to Saudi Arabia or tried to get a job in a city that isn't expensive and made a lot more. I could take every tutoring gig that is thrown my way, they pay well. But I don't enjoy it, so I haven't tutored in like 8 years. Instead I play music on the side and sometimes do photography, both of which don't pay great, but I love a LOT more. I also don't want to live in Saudi Arabia or a lot of other places that would give higher salary, they usually have to lure you there with the money, and I am very happy here.
(this is 10 minutes from my apartment)
I save money pretty well, mostly because I've figured out what I want to spend it on in order to be happy, and a lot of the things that I could spend money on just don't interest me. I am happiest when I'm teaching and playing music and cooking and reading (and recently playing Civilizations 6). I love hanging out with a few close friends and jamming out, doing photography or playing chess. I don't need VIP Bottle Service or a Mercedes, and I HATE going to clubs and not being able to hear or order a drink. My closets are already full of clothes, I don't need any more. As long as I have my comfy couch and a good book or awesome TV show, I'm good. As Mr. Money Mustache says, luxury is a drug, and I try to avoid it so I don't get hooked.
But I could do better. I don't cook for myself very much these days, although that goes in cycles. I buy lunch every day at work. Those are two cardinal sins in the frugality world, and I flaunt them every day. But I like the variety and ease of my food decisions. I could have bought a cheaper car (although my 2016 Nissan Juke with 4000 km certainly didn't break the bank) or shared an apartment with 5 people, as is common here in Dubai. But I know what I need to be happy, and taking those drastic measures would have driven me to depression, or at least I wouldn't be the Happiest Teacher anymore.
I'm happy with my knowledge of investing. I've decided on my asset allocation and when I rebalance, and I know which index funds best fit my financial goals. I've read the research and know the numbers. I do it myself to avoid getting fleeced by sharks in suits. I've seen good returns during the last year, and I have confidence, based on the math, that (over time) the numbers will only get better.
For where I am in my life right now, I'm happy with how each side of my triangle is functioning. I don't want to tutor or do side hustles I'm not passionate about. I'll stick with music and photography, thanks! I could probably cook more, and I'm sure I will at some future point. But I'm saving over 50% of my salary already, and that will allow me to reach my target date of financial independence by age 50. Both of those will help me to invest, and if I keep investing correctly, that end should take care of itself.
What about you? Is there one side of the triangle you could improve on? Do you have tips and tricks that could help other people? Write them in the comments, and subscribe for more updates and posts.
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Disclaimer: The views expressed is provided as a general source of information only and should not be considered to be personal investment advice or solicitation to buy or sell securities. Investors considering any investment should consult with their investment advisor to ensure that it is suitable for the investor’s circumstances and risk tolerance before making any investment decisions. The information contained in this blog was obtained from sources believe to be reliable, however, we cannot represent that it is accurate or complete.