Start Here!!!

Welcome to Engineering a Fortune. Over the years I have found that many people are curious about my investing knowledge so I designed this site with the goal of sharing my knowledge and experiences as I work towards Financial Independence (or FI). 

For those new to the concept, FI is the idea that your investments are capable of producing enough income so that you no longer have to work to survive, thus giving you the freedom to do whatever you want. There are many schools of thought to how to achieve FI and I believe my journey will be one that is more typical of the average working adult. I won't be giving up on social outings or skipping vacations. Nor will I be making $250k a year. I will just be making smarter decisions and putting my money to work for me and I want to help show people that you can do this too.

So where do you start?

The first steps are things people already know and are (for most people) relatively boring to read about. Everyone knows you need to make more money than you spend, everyone knows that debt is a drag on their lives. Why do people live beyond their means and carry so much debt as a result then?

Well, the simple answer is that it is far too easy to get in and live in debt today. Mortgages, car loans, student loans, personal loans, and especially credit cards put most of us into corners that we need to fight our way out of if we ever want to get to FI. So the short and dirty of it is, pay off your credit cards and loans (mortgages are okay in my book as you *may* make some money on it) and reduce your costs to less than you make. Invest the rest until your returns pay for your life. Simple in concept yet difficult to accomplish. A point of extra emphasis, credit cards are absolutely the worst, do not carry a balance on them if you have any means to pay them off and do not invest after-tax money if you are carrying credit card debt because it is a losing proposition.

Now on to the Good Part

You can do this and it is easier than you think. I know, I'm halfway there! So what does it take to reach financial freedom and how best to get there?

#1. The best way? Max your 401 (or another tax-advantaged account if you don't have a 401k). In the very least invest as much as your company matches. A 401k match is an immediate 100% gain. If you don't match, you are literally throwing away money. In either case, you should be trying to make more now then you will be spending in retirement. Therefore, you pay less in taxes overall by putting that into a 401k now. And don't worry about the penalty for taking out the money once you hit FI, there is a great tool in the 72t rule that you and I can use to pull out that money penalty-free. 

#2. Where do you put it? Your company 401k should offer an S&P500 index fund. This is a collection of stocks in the 500 largest companies on the US stock market. This can be a relatively safe and easy place to invest as the largest companies also tend to be the most stable. Sound way too easy and boring? Listen to Warren Buffett who is one of the greatest investors in US history as he tells people they should just buy index funds. Or check out this awesome chart of how investing in the S&P 500 would have over tripled your investment in 10 years without doing any work!

Sourced from www.morningstar.com

#3. But what about stock market crashes/wars/coronavirus/etc? DO NOT PANIC!!! Even when the stock market goes down, you aren't losing. Are you losing value, yes, but losing shares? No. And you can always regain value. 

How about an illustrative analogy. You have 10 apples today. They are worth $4 each, so you have $40 in value. This week the market goes down, suddenly apples are $1 each, so now you have only $10 in value but you still have 10 apples. Next week the market goes back up, apples are worth $4.50, and now you still have 10 apples or a value of $45. Just replace apples with stock and you can see why so many people lose so much to fear. Don't sell on fear, even the greatest drops in history have recovered. The "Great Recession" of 2008 took only 5 years to recover, and if you put any money into the index during that time, you won big.

#4. What can you do to get to FI faster? There are quite a few things you can do. Start reading. Find more blogs, more articles, more tools to help you understand finance and use that to your advantage.

Take some classes. Better yourself as an investment. Perhaps in service of a promotion or starting a side business.

Spend less. The longer you focus on your finances the savvier you will be. Remember, still live your life but use your newfound knowledge to make better-informed decisions.

Invest the savings from your success. Get a taxable account and invest more. Maybe even experiment a little with some different investment types.

#5. Position your investments for your FI plan and execute it. Personally, I am looking for passive income via dividend streams. Maybe you would rather buy, hold, and sell. Either way, make sure you are knowledgeable about your plan so you can execute it properly.

#6. Enjoy your freedom.

Not So Difficult

Money is not mysterious, investing is no longer for the wealthy only, and despite what some people may tell you, you are capable of achieving FI. Whether this is your first article about FI or you are a seasoned veteran I would like to thank you for visiting my site and  I invite you to follow my journey as I work towards Engineering A Fortune.