The Moneysaurus

September 2018

Home Selling the Dream Money Basics Before You Invest Investing Basics How to Invest Other Resources

Welcome to The Moneysaurus; the ultimate one-page introduction to investing, financial independence (FI) and early retirement! This succinct guide serves as a place to consolidate and condense the best-of-the-best financial wisdom from around the web into a single, digestible resource.

Simply put, this guide will teach you how it's possible - and simple - to retire early.

Table of Contents

Part 1: Selling the Dream

First things first, I want to clarify that the end goal here is not just to quit your job and retire; the end goal is freedom. Once you have financial freedom, retirement is just one of many possible paths you can choose. Take a second and consider the following:

Sounds nice, yeah? For those that have embraced the tenets laid out within this guide, these what-if questions above aren't just hypothetical; the answers are being acted upon. Not only is this level of freedom achievable, but it’s surprisingly simple to obtain.

A lot of people incorrectly learn that money has one simple function; buying stuff! On the surface that assumption that might seem true, but there's a lot more to it. If you dig a little beyond the surface of buying-stuff, you'll find that money can provide much more utility. Most notably, money can provide freedom.

For much of my life I didn't understand this; I saw money as that simple, materialistic tool. When I entered the workforce and secured my first salaried job, I treated myself to a lot of stuff. Wonderfully useless stuff. Even so, I felt like I was making sound financial decisions; I had a few grand tucked away in an emergency fund, and I was putting a small percentage of each paycheck towards my company-sponsored 401(k). By most standards, I was doing everything just right. I enjoyed my job, and I was on track to retire comfortably at the ripe-old age of 65. I thought..

.. One day, I'll retire.
.. I'll retire at the old age of 65.
.. F##k this! There has to be a better way.

There is a better way. Welcome to Financial Independence.

To be Financial Independent (FI) means to have enough money such that you can live comfortably without needing any additional income. When your investments generate enough money to cover all of your living expenses, you're Financially Independent! More on that, later.

It doesn't matter if you are fresh out of college , approaching your golden years , massively in debt , or anywhere in between; I'll hold your hand and walk jog you through the fundamentals, and teach you how to easily invest your money and build wealth so that you can start living the life you want.

Part 2: Money Basics

Sadly, most common financial wisdom is total . If you think you know the basics, you might want to look again. Saving money shouldn't be an afterthought, or the thing you only do when you have leftover money at the end of each month. If you do the right things - embrace a humble life while prioritizing saving and investing - you won't have to wait until a past-ripe age to achieve financial freedom and finally have the option to retire.

Part 3: Before You Invest

You should never build your metaphoric house of finance on a shaky foundation. Before you start investing, you need to make sure you’re financially and mentally ready to do so.

Keep in mind that nothing said in this guide is gospel. Everyone's financial situation is its own unique snowflake, and there's no one-size-fits-all approach that will work for everyone. Instead, think of this guide as a framework for financial freedom. Follow the basic tenets, adjust the rest as needed, and success will surely follow.

Part 4: Investing Basics

Before we get into the how-to, here are some basic investment principles:

Part 5: What, Where and How to Invest

Within this guide there are a few different stages to consider when investing. It's important to start at the beginning and to not skip stages; if you jump ahead, you may miss out on a hefty tax benefit or other critical step that may lengthen your path to FI.

Note: The following strategy is optimized for simplicity, and not necessarily for efficiency. For a lazy investor like me, that’s a tradeoff I’m willing to take.

Stage 0: The Checklist

I understand that there are no guarantees when investing. See the disclaimer.
I track my expenses, and have a monthly budget.
I have no debt.
I have an emergency fund worth at least 3x my monthly expenses.
I have money to invest that I won't need in the immediate (~5-10 year) future.

And finally:

I know roughly how much money I need to have invested to be considered Financially Independent.

If you’re tracking your expenses as indicated above, then calculating this number is trivial. Take your monthly expenses, multiple it by 12 to get your annual expenses, and then multiply that by 25:

Monthly Expenses * 12 * 25 = Your Target FI Number

Knowing this number is critical. It allows you to track your progress, estimate your time until you reach FI, and most importantly it provides you with a real, definitive goal.

Stage 1: Employer Matching and Free Money

Usually, the best place to start investing is through employer-sponsored retirement programs (401(k)s, 403(b)s, etc) that include employer matching; some employers will match a percentage of the money that you contribute to these accounts. If your employer matches contributions, it's always a good idea take advantage of this; it's essentially free money! As noted before, these accounts also incentivize saving by lessening the tax burden of the individual.

Stage 2: IRAs

At this point, you should be happily taking all of the free money that you can via Stage 1. It’s now time to start investing money within an IRA. Traditional or Roth, it doesn’t matter; both have tax benefits. The wonderful Mad Fientist has a great article about that very topic that may help you decide what kind of IRA is right for you.

Once you’ve selected the type of IRA, opening it is quite simple. See How to open an IRA or Taxable Investment Account below for more info.

Stage 3: Max that 401(k)

Once you’ve maxed out your IRA, then you are ready to start putting more money into your 401(k). Max it out!

Stage 4: Open a Taxable Investment Account

Now that you’re taking full advantage of all of the available tax-advantaged accounts, it’s time to open a standard, taxable investment account. Unlike an IRA or 401k, there’s no tax benefit here; unfortunately you’ve exhausted those.

The process for opening a traditional, taxable account is very similar to that of an IRA. You’ll open an account, repeatedly buy index funds, and wait!

See How to open an IRA or Taxable Investment Account below for more info.

Stage 5: Don't think. Just wait.

At this point you've opened all of the investments accounts you need, both tax-advantaged (401(k), HSA, IRA, etc.) and taxable. The grunt work is over. Cheers!

Now all you need to do is keep contributing to those buckets consistently and as often as possible. Make this a habit. An unbreakable routine. When it comes to investing in index funds, you should be on autopilot; no thought required. The only thing that is required is discipline. Just as you may have needed discipline to get out of the debt canyon, it's the tool you'll need to climb the FI mountain.

Remember, don't try to time the market. When the stock market waivers, you may be tempted to sell your shares and run. Don't. You may consider putting your contributions on hold. Don't.

Stick. To. The. Routine.

Once you've hit your target number - that number you calculated in Stage 0 - you're ready for the next stage.

Stage 6: FI and Post-FI Adjustments

Wow. If you've made it to this step, then let me offer you my sincerest congratulations! This is an epic accomplishment, and you deserve to be proud.

Hitting your target number is a remarkable achievement, but don't be surprised if it doesn't bring you the joy you expected. Remember, money does not equate to happiness. Fortunately you now have the freedom to pursue whatever does bring you happiness.

Now that you're FI, you may decide to quit your job and start living off of your investments. If this is the case, then don't forget to abide by The 4% Rule.

At this point, you might want to consider adding more bonds to your investment portfolio. Adding bond-market index funds to your portfolio will help stabilize your investments and smooth out some of the hills and valleys associated with the stock market

Vanguard Accounts: Post-retirement, consider an investment ratio around 70% VTSAX (stocks) to 30% VBTLX (bonds).

Robo-Advisor Accounts: Log in to your robo-advisor account and adjust your risk tolerance percentage within your account settings. Post-retirement, consider an investment ratio of 70% stocks to 30% bonds.

How to open an IRA or Taxable Investment Account

First, some good news; it’s incredibly simple. Investing in the U.S. has never been easier. With an internet connection you can open an account and start investing in just a few minutes flat.

There are really only a couple of paths that I consider effective and straightforward enough to recommend; both paths are easy to follow and require almost no maintenance.

The Vanguard Path

Manually invest in broad-market index funds.
  1. Open a personal investment account over at Vanguard. Vanguard is the best investment company, hands down. It's actually owned by the shareholders of its funds. This means that when the company is profitable, those profits go to the people who own Vanguard funds! But don't take my word for it, let me google it for you.
  2. If you have less than $10,000 to invest, buy the following index fund: VTSMXThis fund represents the entire U.S. stock market. When you own this index fund, you literally own a fraction of every publicly traded company in the United States. Cool, right? Once you have $10,000 invested in this fund, convert your shares to the "admiral" version of the fund to reduce your fees: VTSAX.

    If you have more than $10,000 to invest, you should instead invest in the "admiral" version from the beginning: VTSAX. Just like VTSMX, this fund represents the entire U.S. stock market, but has an added benefit of lower fees. The only catch is that it requires a minimum investment of $10,000.
  3. Buy more shares of VTSAX always and often. The best way to do this is to set up automatic investing via the Vanguard website and purchase additional shares each month.

The Robo-Advisor Path

Invest in index funds via a robo-advisor service such as Betterment or Wealthfront.
  1. Open an account with Betterment or Wealthfront. Both of these services are robo-advisors that provide you with low-cost, automated investments. When you open an account with either of these services, you'll be given a guided walk-though that will have you up and investing in no time.
  2. While you're young, be aggressive with your asset allocation. When investing through a robo-advisor, you'll get to select your risk tolerance; in other words, you'll get to select your ratio of stocks to bonds. If you're in your 20s or 30s, nothing's wrong with a 100%-stock-to-0%-bond ratio.
  3. Buy more shares always and often. The best way to do this is to set up automatic investing via the Betterment or Wealthfront websites/apps.

And that's it. Painless. There's really not much to it. There is no top-secret strategy, no market timing tip, and no black magic. It's all about investing early, consistently and letting compound interest do its sweet, sweet thing.

Part 6: Other

Great Financial Resources

This guide does not have depth, nor breadth. But that's intentional! There are already so many - almost too many - talented and intelligent bloggers out there writing about these very topics in brilliant, gory detail. Here are some of my favorites:

For legal purposes, please be aware that your use of the information provided by this website is at your own risk.
I guarantee absolutely nothing.
Please read the disclaimer.