Edition #26: What’s A Life Changing Amount of Money?

Plus: 4% Rule, Cooking as a Financial Skill, Investing a little vs a lot
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written by oz chen

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My brain is still recovering from the rave I went to on July 4th. Delta variant be damned, it was great to be maskless and dancing with thousands of other people.

Here’s a blurry pic from a drone light show. “We back baby!”

My 30 days of writing challenge is still sailing. A nice bonus is that I now have over 200 followers – mostly from other people in the writing challenge. Yeah, I’m kiiiind of a big deal now.

Here are a couple things I’ve learned so far in this challenge:

  • Consistent output, at some cost. By the time you read this, I would’ve produced 17 mini essays (all collected in this Twitter thread.) It’s definitely honed my ability to write “off the cuff” – but these are hot takes that don’t require research. I’m still trying to find a way to carve out time for longer-form pieces and projects, like book reviews.
     
  • Visual essays work: Using Twitter analytics, I can tell how many people engage with my media – typically the image of the essay I attach. The engagement on these essays tell me more about people interacting than simply likes.
     
  • I’m still slower at writing than I’d like. Atomic essays should take me 1 hour but I’ve been averaging 2 hours. Yikes! I got this visual countdown clock to help me be better about time.

This week, I’ll highlight some of the atomic essays that have done well, and talk about life changing money, the 4% rule, and a low vs high capital investing.

🤔 What is a life changing amount of money to you?

You win $1000. What do you do with that money? Most of you reading this will probably do something responsible like invest it or pay off bills. Now what if you had a $1 million windfall?

I think of money like a stream of water. A small trickle and it’s easy to quench your thirst. But once the stream starts running, you’ll want to have a system in place to divert that water to where it needs to go.

That’s why everyone could benefit from applying Maslow’s hierarchy to finance. After covering basic needs, it’s helpful to distinguish how we might use money to find validation or self-actualization.

This analogy is most clearly seen with the plight of lottery winners. Without a system in place, lottery winners end up in more debt after burning through their winnings.

Here are some of the things I’d do:

  • Create a community area with a coffee shop, events space, and a free coworking space for underprivileged entrepreneurs
  • Dedicate myself to a cause like water security, environmental protection or homelessness
  • Take my closest friends on an all-expenses paid VIP trip to EDC and epic experiences

I want to know from you – what do you consider a life changing amount of money, and what would you do with it? If you’re looking for a way to calculate what “life changing” amount of money means, read on for a starting point.

⚠️ Caution with the 4% rule

In the FIRE (financial independence, retire early) circles, the 4% rule gets a lot of play. Here’s the math underpinning those assumptions:

  • Take your annual living expenses, let’s say it’s $60,000 (or $5k/month)
  • Divide that figure by 4%, and you’ll get your target retirement number: $1,500,000. (Or, just multiply by 25).
  • You *should* be able to withdraw 4% from the portfolio for the next 25 years. There should be even more money leftover assuming the initial capital was invested in a portfolio of at least 50% stocks.

Other than assuming stock market & bond returns (which can fluctuate a lot), the 4% rule does not account for taxes. Physician on Fire blogs that after accounting for taxes, he actually needs to multiply his original nest egg number by 33. In our example, that’d be $1,980,000 instead of $1.5m.

You can try this savings withdrawal calculator to fine tune your situation.

When it comes to personal finance, question anything that’s labeled a “rule” – it’s more likely that it’s a framework to make an educated case, rather than a catch all that applies to every individual situation.

🍳 Cooking: the most underrated financial skill

For those who think cooking is a “fancy skill,” it helps to reframe it as a “financial skill.” Here are some mindset shifts if you want to unlock this skill as a money-saving skill:

Variety of meals matter less than you think
When I was eating out more I looked at my monthly statements and saw the same places pop up over and over again: Chipotle and In-and-Out. I realized my palette wasn’t fancy (read: basic). I only needed to how to cook a few meals I like to eat repeatedly.

You don’t have to be a great cook
Twice a day, I stir fry veggies and protein. Not impressive at all, but it’s delicious, healthy and takes me 15 minutes. When the time it takes you to go from ingredients to meal takes less time than a DoorDash order, you’ll be incentivized to cook more.

It’s also easier to establish a healthy diet when you know what goes into your meals.

Like these tips? I included 1 more mindset shift in this visual essay.

💼 Where to invest when you have a little versus a lot

Imagine that a broke college kid has $1000 in his bank account. He might be drawn to the quick riches of meme stocks. But I’d rather advise him to look other investments with higher ROI that he can control.

Maybe this person is interested in web design and can pay for a course and new software instead. That can lead to freelance opportunities or money making opportunities that make even great stock returns look pitiful. A 50% return on $1000 in the stock market is nothing compared to potentially making thousands more from income-generating skills. 

That line of thinking has lead me to this distinction:

  • Low capital: invest in yourself like training, equipment, and career advancement
  • High capital: invest in other people through stocks, crypto, and other forms of leverage.

Investing in other people broadly means putting your money in efforts created by other people – stocks are levers for other people’s time.

Obviously, these are not mutually exclusive. Investing is easier and more attractive than ever, and drawing in the youths.

While I think it’s great to start investing early (I wish I did), I wonder – if starting capital isn’t high, it’s worth looking beyond stocks to other life investments.

See the full essay here.


Random: “Men, what is it about sundresses that you like so much?” Watch this hilarious response

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