I've been a wealth advisor for 20 years — here are 10 of the best pieces of money advice I can give you
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Jonathan DeYoe has been a financial advisor in San Francisco for the past two decades, giving him a first-row seat to the unprecedented explosion of wealth creation ushered in by tech industry. Here are his 10 best pieces of money advice.
1. Put your money where your happiness is.
It is an incredible understatement to say the San Francisco Bay Area is an expensive place to live. Whether you come from money or just joined Facebook, you will have to make trade-offs to keep your head above water here — make the tradeoffs that are appropriate for you.
You don’t have to drive a Tesla, you aren’t required to live in a rad pad in the Mission, and you don’t need designer duds or the newest iGadget. Give up the trappings of success that hold no personal meaning for you and focus your financial resources on activities and affordable luxuries that build your particular brand of happiness, like a rock-climbing course and killer burritos.
2. Invest in yourself early and often.
If you are an engineer or scientist, you must stay on top of your technical game, but don’t hesitate to spend money on coaching or classes to develop your communication and leadership skills, as well.
If you are a professional, constantly hone your craft. Read broadly within your industry, enroll in continuing education, obtain advanced professional designations, and find opportunities to network with new people.
The dollars you dedicate to increasing your intellectual capacity and enhancing your ability to work well with others can boost your income substantially. Lifelong learning and professional development both lead to long-term success. The sooner you embark upon rigorous self-improvement, the longer you’ll enjoy the fruits of your labors, so invest in yourself now.
3. Don’t count your chickens before they’re hatched.
Equity compensation in the form of RSUs and stock-options can be a wonderful addition to your income and asset base. Over the years, I have seen many folks become wealthy through their company stock programs.
However, I have watched just as many stock compensation packages go up in smoke. Never forget that your stock has NO real value until you are fully vested and someone is willing to give you cash money for it on the open market. Just because a VC gives your company a sky-high valuation does not mean you’ll receive that valuation if (not when) the stock ever trades publicly.
Do not borrow against your stock. Do not pledge your stock as collateral to buy a massive house on Russian Hill. Do not count your stock among your REAL assets until it is actually part of your real assets. Better yet, don’t even count the eggs in your basket until you’ve hatched and sold them.
4. Get your foot in the front door.
Yes. The cost of housing in the Bay Area is ridiculous! When I read a 2015 San Francisco Chronicle article claiming that a Mountain View, California, resident was renting a tent in their backyard with bathroom access but no kitchen privileges for $900, I knew that we had all gone off the deep-end.
Today the median sales price for San Francisco homes is over $1.1 Million! No one is happy about real estate prices in the greater Bay Area, but if you are planning to stay here for five to seven years or more, consider buying a home. It doesn’t have to be beautiful or close-in. Alameda and Contra Costa counties are still relatively affordable. Just get your foot in the front door.
If you stay on the sidelines, don’t be surprised if the market continues to run away from you. Expect rare short-term dips, like we saw in 2008-2009, to effervesce quickly due to decades of housing policy that limited building.
And while many cities have strong rent-control laws, remaining a renter means your housing costs will continue to grow — perhaps pricing you out of the rental market and into that tent in someone’s backyard.
5. Turn a passion into a side hustle into a business.
First and foremost, do not neglect your day job. If your 9-to-5 office gig pays the bills and affords you ample pocket money, pursuing your passion for cooking by taking a second job as a sous-chef in a neighborhood restaurant won’t help you get ahead. You will burn out.
Nonetheless, there are hundreds of creative ways to capitalize on your hidden and not so hidden talents. My 11-year-old son bakes pies for neighbors, cat sits, and walks dogs. If you like baking or pets, why not?
You prefer to drive? Try Lyft or Uber. You love to write? Start a blog and learn how to drive traffic with social media. You’re a crack web designer? Register on freelance sites like Upwork or Hired.com. You have a spare bedroom? You get the idea!kropic1/Shutterstock
6. Create a financial road map.
Where do you want to go in life? As with any journey, if you have a specific destination in mind, you will need to take specific steps to get there. Planning your route is essential.
No one can afford to experience everything they want, but you can accomplish what is most important to you by creating a financial road map. Decide what tradeoffs you’re willing to make to achieve your goals. Take staycations until you’ve saved the down payment on a new house? Live with your old car six more months so that you can afford that new motorcycle next year? Drive Uber on week-ends to cover the cost of coding classes?
Where are you now? In debt? $20,000 away from that down payment? Underemployed? No need for shame. Accept your today and plan for a better tomorrow. What tradeoffs will you make? How much do you need to save? How are you going to get where you want to be? Planning makes things happen for you! NOT planning lets them happen to you.
7. Make your health a priority.
There are actually significant financial benefits to being healthy.
It probably comes as no surprise that healthier people have higher energy levels, improved resistance to illness, improved moods, higher self-esteem, better brain function, reduced fatigue, and less anxiety. But research indicates that healthier people may earn more and spend less, as well.
Good health while you’re young gives you the energy and focus to work harder and smarter, which can lead to better raises and more promotions, which translates into increased lifetime earnings. And good health later in life means fewer doctors visits, fewer medications, and hopefully decreased long-term care expenses as you age.
8. Save at least 10% of every dime you make.
Or, as the familiar saying goes, “Pay yourself first.”
Once you got your first “real” job and started earning more, you probably started spending more, too. If that trend continues every time you get a promotion or better job, you will never get ahead. At some point, you must make a conscious decision to save a specific portion of your income every single month. These savings will form the foundation upon which your entire financial life can be built.
Start by saving at least 10% of your gross salary every paycheck, and increase your savings 1% each year until you are saving 20% of your income. Use those initial savings to establish a cash emergency fund with six months to two years of living expenses. At the same time, take advantage of the tax breaks and “free” money you get from participating in your company’s 401(k) matching program. Next, pay-off your high interest debt. Then max out your 401(k), ROTH, and IRA combo, after consulting with your tax professional. The final step is to save even more in a taxable investment account and/or pay down your low interest debts.
9. Invest 90% of your liquid assets in an appropriately allocated, broadly diversified, and annually rebalanced basket of publicly traded securities.
I expect I will get some healthy Bay Area blow-back for this statement: Your investing prowess will not lead to “outperformance” in the long run.
Timing the markets, stock selection, and economic predictions may be an enduring part of the investment landscape, but none of those strategies offer a repeatable process for financial success. Luck often plays a much bigger role than skill when it comes to investment performance.
There is plenty of research on portfolio construction available to anyone willing to look. There is no evidence to support the idea that recent past performance will persist into the future or that folks dedicated to the timing and selection have been or will be successful doing so. Stock-picking requires repeated luck. Asset allocation, diversification, and rebalancing rely on something we can control, our consistent behavior, patience, and discipline.
10. Always be mindful of the big picture.
The course of human social and economic history expresses itself in a very long upward trend. That upward trend is often punctuated by short-term market upheavals, which are amplified by Wall Street and the financial press.
Stock markets and the financial media constantly over-correct in both directions in a seemingly endless cycle. Upside yields to downside. Excitement leads to despair. The good news? Today’s losses sow the seeds of future gain. You can’t consistently predict short-term outcomes because the economic and market details are ever-changing. Nonetheless, the big picture remains the same. Instead of reacting and over-reacting to the markets whims, be mindful of the big picture and stick to your thoughtfully constructed investment program and financial plan.
Jonathan K. DeYoe, AIF and CPWA, is the author of Mindful Money: Simple Practices for Reaching Your Financial Goals and Increasing Your Happiness Dividend. He is the founder and president of DeYoe Wealth Management in Berkeley, California, and blogs at the Happiness Dividend Blog. Financial planning and investment advisory services offered through DeYoe Wealth Management, Inc., a registered investment adviser.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations to any individual. For your individual planning and investing needs, please see your investment professional.
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