The Basics of Financial Independence

This list is actually in order starting with the most important item first:

1. Set aside 6-12 months of expenses in a savings account as a rainy day fund.
2. Pay off any debts you have. Start with the highest interest debts and work down until all is paid off.
3. Maximize your savings rate. I recommend starting with spending less since there you have the most control but finding ways (side gigs, promotions, etc) to earn more is just as important. Another angle on this is getting the most out of your employer via pension/401K contributions, tuition reimbursements for education/training that will improve your earning potential, corporate discounts on existing bills (cellphone plans, childcare, etc).
4. Invest in a low-cost (as low as humanly possible, aim for < 0.20%), tax-efficient (bonds in tax advantaged accounts such as IRAs/HSAs/401Ks), diversified (Total Bond, Total US, Total Int'l OR a Target Date fund to save all the stress), balanced (for your time horizon, 80-20 is a great starting point) index portfolio.
5. Time...let it marinate. The sooner you get done with #1 (you can weather storms), #2 (you are debt free), #3 (you have grown your earnings AND/OR lowered your expenses so you are investing more), and #4 (your investments are growing with very little headwinds from fees and taxes) the quicker you can be financially independent.

And the above list is such that if you just get the first 1, or first 2, or first 3 done, you are better off for it. Don't look at it as a all or none to prevent you from starting. Best of luck.

Doom & gloom entry

I started off the year by calling the economy "a$$". I have argued since the 2nd half of 2007 that the bailouts would only prolong this a$$ economy. While it is real hard to say with any certainty what will happen when a new Congress and President lead the country in 2009 I have to admit that even if they did everything right I still have a good chance of being right on this new prediction. Drum roll please!

The economy will be super-a$$ due to all the bailouts and most importantly the pending bailout of the US auto makers. With each new bailout, confidence further drops in the Gov't's ability to right the ship and the bailout of US auto makers will be the nail in the coffin. I have yet to meet anyone who supports that bailout (US auto makers) but the Liberals won Congress & the White House on the backs of the Unions so I will be SHOCKED if that bailout doesn't take place. Plus, what logical justification can one give why you bailout one industry and not the other or one company and not the other??

And when I say super-a$$ I mean everything but Depression Era which translates into the economy being worse than everything seen in the US between now and the Great Depression. And now for an ounce of perspective for those who think the worse is behind us.

From a market investment perspective the Great Depression lasted much longer than the ten years (1929-1939) your history book dictates:
Day 1 (9/3/1929): Pre-crash high (381).
7 weeks later (10/24/1929): Black Thursday-- crash begins (300).
3 years later (7/8/1932): Crash low (41).
25 years later (11/23/1954): Pre crash high attained (381).

While I don't believe cycles last that long today I do think that even a fifth (5 years which also happens to be my estimate for this downturn, plus or minus 2 years) of that 25yr period listed above would be much more than the average person thinks this downturn would last. I hope you note this blog entry and use it to call me a fool if it turns out I am wrong. Oh what a happy fool I would be in that case.

Will we ever make it back?

As you probably guessed by now I am from the islands, better yet a West Indian. And yeah, I did come to the States for the sole purpose of getting an education. Yeah, you can say I fell for the song and dance. What? You didn't know it was a song and dance. WOW! Here, let me break it down for you.

The Song and Dance
Roughly 15 years ago or so on a warm island far, far away from HERE I was docking my boat after some morning fishing (actually caught three large tuna and a dozen yellow tail) when I saw this guy just point blank staring at me. While I was washing down my boat he came over and introduced himself as an American investment banker.
The American complimented me on the quality of my fish and asked, “How long did it take you to catch them?”
I replied, “Only a little while.”
The American then asked, “Why didn't you stay out longer and catch more fish?”
I replied, “I have enough to support myself, my girlfriend and my side thing.”
The American then asked, "But what do you do with the rest of your time?"
I replied, "I sleep late, fish a little, have fun with my girlfriend, have some more fun with my side thing, hang out with my friends & family each evening where we drink rum and play dominoes. I have a full and rewarding life."
The American scoffed, "I am a UCF/Tufts/Brandeis graduate and I can help. You should spend more time fishing and with the proceeds buy a bigger boat. With the proceeds from the bigger boat you will buy several boats. Eventually you will have a fleet of fishing boats. Instead of selling your catch to a middleman you will sell directly to the processor, eventually opening your own cannery. You will control the product, processing and distribution. However, you will need to leave this small island and move to Orlando, then eventually mASSachusetts where you will run your expanding enterprise."
I asked, "But how long will all this take?"
To which the American replied, "15-20 years."
I asked, "But what then?"
The American laughed and said that's the best part. "When the time is right you will announce an IPO and sell your company stock to the public and become very rich, you will make millions."
I was immediately flabbergasted and started to stutter, "Mi-mi-millions!!…Then what?"
The American said, "Then you will retire. Move to a small Caribbean island where you would sleep late, fish a little, have fun with your girlfriend, have some more fun with your side thing, hang out with your friends & family each evening where you drink rum and play dominoes."

I will say it again, WILL WE EVER MAKE IT BACK??