How to End Up With More Money After Quitting Your Job
In my first ever post I wrote, I want "freedom from the worry of coming back from my travels with $0.00 in my bank account."
Awesome news. After traveling for 4 months, with no job, I have more money today than when I quit my job. (*Updated numbers at the bottom of article.)
How is that even possible?
I know. It shocked me too. But it's the simple power of investing.
Every dollar that you put in an investment is meant to make another dollar.
Would I rather spend my money on some new Vans sneakers or would I rather spend it on a money printing machine—aka an investment?
Way more often than not, I choose the money printing machine, and the freedom that comes from it.
Now I'm not planning to use the money from my investments anytime soon.
I plan to add to and let my investments grow until I have 25-30 times my annual spending invested in index funds. At that point, I will consider using ~4% of my total investments to fund part or all of my lifestyle cost. (The 4% Rule.)
Until then I am in the wealth accumulation phase of life, and am looking to purchase as many shares as possible.
To really get the benefits from my money printing machine—investing—I had to understand how it works.
The first thing I had to comprehend is that the market only goes up.
Yes, it's true. The market doesn't just go up a little or once in a while. It goes up relentlessly long term.
Here's a historical view of our eldest index, the Dow Jones, from 1928 to September 2016.
Up and to the right. Relentlessly. Long term.
This happens because of human ingenuity. Ever since the invention of the wheel, humans have been creating better products and services to sell to the world.
With the new cars still getting the same gas mileage as Ford's 1914 Model T and clunky, self-checkout machines that never, ever work at our stores, I think we have a long, long way to go.
Looking at the chart with a short term view though, there are most definitely dips in the market.
Those dips come with real, intense problems, but they are natural cycles.
I just have to be tough enough to stomach the ride. When the market dips, or even tanks, the last thing I should think of doing is "selling off" my investments.
I have positive cash flow coming in each month from a job and have a 6+ month emergency fund stashed away in a savings account. There is fundamentally no reason for me to even consider selling.
As an investor in the wealth accumulation phase of life, when the market tanks, I should be lighting off fireworks with excitement.
Stocks just went on sale, and I should take that dip to purchasing as many shares as possible (buy low!). Think, would you rather buy 100 bikes at $1,000 a piece or 100 bikes at $500?
During those down turns, my net worth may drop by 20-+30%. But will the number of shares I own decrease? Nope. The number of shares I have, no matter what happens in the market, stays the same.
If the market dips I put on my tough cupcake hat and buy more stock because I know the stock market will continue its long term trek upwards. Maybe I celebrate because I'm getting stock on sale.
What type of funds do this? Index funds. The ones that do it best are the ones with the lowest expense ratio, like Vanguard's VTSAX (or VTSMX if you don't have $10,000 to invest just yet).
I could try to pick hot stocks, but if I did this I'd end up on the negative expectancy side of the investing equation. And so, I have no reason at all to do this.
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Expectancy is, in simple terms, the chance of something happening times payout for all possible outcomes.
So if your outcome has negative expectancy it has a negative expected payout based on reviewing all possible outcomes.
(I summarized why passive index investing statistically beats trying to pick hot stock with a fun story based on William F. Sharpe's famous educational publication, The Arithmetic of Active Management.)
Do not let the financial world scare you away. It is ridiculously simpler than they make it.
I got here in just over three years by stashing +50% of every paycheck. By doing that, I'm starting to see the effects of compounding (investing) lightyears ahead of my peers. It's insanely exciting, and I am so grateful and stoked to for the freedom.
Take control, own your hidden green, and go get 'em!
*Update April 26, 2017, my net worth has grown to $175,000. That's without more than a few hundred dollars trickling in each month.
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