What to do with money when you have it.

I got a GREAT question about Financial Sorcery today:

“You have written a lot about getting out of debt, finding work, and managing money. I am 30 years old, I have a great job, no debt, and have no real money problems. My question is: What Now? Just buy stuff and put a roof overhead. I read your chapter on retirement but other than that, you don’t really go into much for those of us that have money already”. 

I have actually been thinking a lot about this lately. Turning 40 has be scrambling to play catch up to people that caught on the the fact that money matters earlier in their lives than I did. I wish I had been thinking about this stuff when I was 30!

Here then is my list of four facets of financial fitness.

RETIREMENT

I have family members that retired comfortably in their 60’s and used their time to contribute to their community, give to family, and enjoy life. I also have family that is busting ass with no end in sight as they climb into their 70’s. Guess which ones I am going to emulate? I don’t know about you, but I am not interested in being a greeter at Wall Mart when I am 75.

For those of you who are maybe in your mid-20’s and reading this blog, and don’t think too much about that time of your life, there are two important things that I want you to remind yourself daily.

1. NOW is the time to invest. Read my book, take a look at the performance of the S&P over the last 20 years, than go and play with an interest calculator. Small investments now, will outweigh larger investments made later in life.

2. It is too easy to view old age, as some short thing that you have to cope with at the end of your life. People regularly live to be 90 years old these days. If you are 65 and live till 90, that is TWENTY FIVE YEARS OF BEING OLD. Those of you who are 25 now: that is your entire life up to this point. Trust me, you don’t want to be scrambling to make ends meet.

KIDS

Once mine and my wifes retirement is handled it’s time to think of the kids. If you have kids, young kids, now is the time to put away money for them. If you understand compound interest you understand that small investments early will pay off more than larger investments later on. Me, I am focusing on the Utah 529 for the twins college. This is kind of like an IRA for college: zero taxes on gains and tax deductions on the investments.

When the kids get old enough to start working I will start Roth IRA’s for them both and invest whatever I can up to the limit of $5000 a year. Roths are great because you pay taxes on the initial investment rather than the final amount. If you start when your kids are 20 years old contribute $50000 a year  for ten years, that 50,000 will yield $737,000 if it is left alone till they are $65.

Grab a copy of Financial Sorcery to learn how to use sorcery to assist your investment strategy and guard against loss.

CHARITABLE GIVING AND SPIRITUAL INVESTING

One of the points that I keep trying to make is that when you decide that you cannot serve spirit and mammon, you are left with two options: renounce money and materialism, or master it. Most of us are not going to become monks or homeless mystics, so that leaves mastery as the best option. But what good is mastering money if you are not using it for a greater good? Surely if we are serious about using money to support our values and spirituality that includes both charitable giving and wise investment into businesses that making the world better.

GETTING READY FOR THE SHIT TO GO DOWN

The one thing you can count on is that every so often the shit will hit the fan. When it does, life goes a lot smoother when you are prepared, and money is a big part of that preparation. For example, you might want to make preparations for:

•  Market Crashes: Keep some money (I shoot for roughly six months of living expenses) in extremely low risk investments like CD’s. Obviously the older you get, the higher percentage you place into low risk products.
• Currency Devaluation and Capital Controls: I don’t believe that the USD is going collapse in my lifetime, BUT, I also wouldn’t bet on it. If you have the means to place funds outside of your home country than it is not a bad idea. Unfortunately, most international banks are not keen on opening accounts for US citizens anymore BUT if you can swing a second citizenship*, or are investing enough money (at least half a million) it is doable. Sadly the law allowing people born in the area of the United States that was part of the Louisiana Purchase get French Citizenship was closed in 2006. The REALLY paranoid however keep money in actual gold bars and store them overseas in secret locations.
• Natural Disaster: Having food, generators, water, ready cash, and a bug-out-bag for everyone in the family seems like a better and better idea every day. I know I was happy that I was prepared for Hurricane Sandy last week, and hope to be prepared for whatever comes next. Just as with the example above, the truly paranoid will want a foreign passport (makes it easier to leave the area in case of a disaster) and bundles of cash or gold hidden away for when the shit goes down.
• Divorce, Law Suits, Etc: If you got it like that, but you are a serial husband or magnet for liability you may need to take some steps to keep it like that. Wrap up your important assets in a bunch of LLC’s that are all owned by an Asset management groups, which is in turn owned by a Holding Company based in Delaware. By the time the lawyers figure out who owns what and time limitations on collections will have passed.
• Your Own Death: Yeah, yeah, you have life insurance from your job, but is it enough for your family to maintain their lives, or is it just barely going to cover your burial?