The Ultimate Guide to Personal Finance

Then, you know exactly what you have left to spend (guilt-free) each month.

$5 latte? Sure! A round of drinks with friends? Absolutely.

The Hidden World of Conscious Spending: How you can save hundreds per month while still buying what you love

I’m not the guy who wags his finger and tells you, “No, you can’t do that. It costs too much.”

I say, “Okay, so you want to buy that expensive pair of shoes? Cool, let me show you how you can actually get it.”

Unlike most people in the personal finance world, I actually spend lots of money eating out and traveling, and never feel guilty.

Rather than taking a simplistic view of “don’t spend money on ANY expensive things,” there’s a much more nuanced approach to spending.

It starts with this mindset.

The only problem is most people aren’t deciding what’s important to them and what’s not.

Let’s take a look at a case study to see how you can decide what’s important to you and build a plan of Conscious Spending.

Case Study: How my friend spends $21,000 per year on just going out

My friend spends over $21,000/year going out. Most people’s reaction to that: “OH MY GOD, THAT’S SO MUCH*#%(#%(#%!”

But let’s break it down and see. Is it really extreme?

Let’s say you go out 4x/week – to dinners and bars – and spend an average of $100/night.

I’m being conservative with the numbers here, since a dinner can run $60/person and drinks could be $12 each. I’m not including bottle service, which might cost $800 or $1,000. (He lives in a big city.) That’s easily $400/week.

Now, this guy also makes a healthy six-figure salary, and he’s invested quite a bit in his 401(k) and outside investments (including real estate). The key here is that he works such long hours that he’s only really free Friday and Saturday nights. And so he goes out. Hard.

In just a couple of years, this guy has saved more than almost any of my friends. But he’s also spent more on going out than anybody I know.

And although $21,000 sounds outrageous on the surface, you have to take context into consideration.

For example, look at his spending by percentage: Just for easy calculations, if we assume that this guy makes $210,000/year net, his going-out budget is roughly 10% of his income.

For my friends who make $35,000/year, you can be damn sure that they’re spending more than $3,500/year ($67/week) on going out.

But my other friend has a plan and he’s decided to spend his money this way.

Most of us are not consciously thinking about our spending.

By that, I mean we’re not being proactive about planning where our money should go.

We’re going through life doing whatever, and inferring our spending patterns from the bills we get at the end of the month.

We not only lack a prescriptive budget (“I want to spend 20% on my retirement account, 10% on savings, 20% on going out…”), we even lack a descriptive budget (“Where the hell is my money going?”).

You can spend on the things you love, too, but it takes a plan. And it’s really as simple as that.

How you can make your own Conscious Spending Plan

This can be hard, but I’ll try to make it as painless as possible.

First, categorize your spending: Know where your money goes so you’re in complete control of every decision. Conscious Spending is about making a plan on how you want to spend your money.

Then, optimize your spending to fit these recommendations:

You can read the first chapter for free – just tell me where to send it:

No matter what stage of life you’re in, the most important thing and my goal is to get you started and make it easy to maintain your investments.

By doing just those two things, you’ll be on the way to getting rich.

And setting up your investment accounts is an excellent first step toward actually investing (we’ll cover how you can below).

But, the first thing to note is that you don’t have to be rich to open an investment account.

Most account providers actually waive the minimums if you set up automatic transfers (which is what we’re all about).

Investing is NOT about stock picking

Really it’s not. Nobody can reliably pick stocks that will outperform the market over the long term. Thinking you can beat the market is an easy way to make mistakes and become overconfident in your abilities.

Even “experts” cannot guess where a stock will go next. Just turn on CNBC and watch the dazzled looks on the pundits’ faces when they make a wrong call on a stock.

Plus, having to pay attention to the latest hot stock or every micro-change in the market is risky and involves a lot of guesswork.

I prefer investing in low-cost, diversified funds consistently, rather than chasing stocks and relying on guesswork to get through.

That’s the same strategy recommended by Nobel Laureates and billionaire investors, like Warren Buffett.

With this strategy, you can effectively trick yourself into investing because it requires no work on your end.

Retirement accounts, quite simply, give you huge tax/growth advantages in exchange for your promise to save and invest for the long term.

Now, this doesn’t mean that you have to hold the same portfolio for 30 years. You can buy and sell shares of almost anything as often as you want. But with a few exceptions, you have to leave the money in your account until you get near retirement age.

Here’s how the magical benefits work:

In a retirement account, you get big tax benefits. While 10% or 20% may not seem like much in 1 year, when you compound that over 30 years, it becomes a gigantic amount.

In fact, if you were to start a retirement account next week, two things will happen: (1) You will be more financially prepared than 99% of your peers, and (2) you will be rich.

Yeah, I said it: If you start a retirement account in your early 20s or 30s and fund it regularly, you will be rich.

Let’s look at a simple comparison of investing in a retirement account vs. just investing in a regular, taxable account:

A 401(k) is a type of retirement account. If you work for a company, chances are you already have a 401(k) offered to you.

Here’s how a 401(k) works: You put pre-tax money into the account, meaning you haven’t paid taxes on it yet.

Let’s look at why that’s important. In regular, taxable investment accounts, you pay taxes on your income and then invest it.

So for every $100 you make, you might actually only be able to invest $85 of it. 15% (or whatever, depending on your tax rate) goes to the tax man.

A 401(k) is different. You can invest the entire $100 and let it grow for about 30 years. That extra ~15% turns out to make a huge difference as it gets compounded more and more.

There are a lot:

• You get to put pre-tax money to work (i.e., money you haven’t paid taxes on yet, so there’s more of it to grow).
• Your company might offer an insanely lucrative 401(k) match, which you must take.
• And it’s not that hard to set up – your company does most of the work. In fact you can instruct them to automatically withdraw a certain amount from every paycheck.
• Don’t worry about switching jobs: If you leave your company later, you can take your 401(k) with you.

And be aggressive with how much you contribute to your 401(k) because every dollar you invest now is worth many more times that in the future.