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The top 5 places to invest your cash right now

Where should you put your next investable dollar?  This is often the key question I answer for clients, and clarifying this for yourself will do wonders for your financial situation. Here’s where I think most people should put their money in order of priority.  Generally you should max out the first item on the list before going down to the others, but your situation could vary, so make your own assessment or get help from a competent advisor.

Assumptions

1) You have some cash to put towards these things.  If you don’t, you need to start here so that you can fix and automate your spending, then save some money to free up cash to invest or pay down debt.

2) You are not endangering your health, have proper levels of insurance, and aren’t making yourself miserable by living like a total pauper because you’re following my wealth-building suggestions to the extreme.

3) You’ll tailor this order to your own personal situation.  That said, I strongly recommend following items 1 & 2 in that exact order.

Where you should be putting your money

Okay, ready?  Numero Uno for where your money should go is….

1) Employer 401k matching

If you’ve read my articles on retirement, you’ve heard me say this before: don’t leave free money on the table!  What type of return do you  historically get from a risk-free investment?  Treasury bonds return about 1-2% as of writing.  What is your employer match return?  If you get matching of 50 cents on the dollar up to 6% of your salary, your return on that first 6% saved is an instantaneous, huge, risk-free 50%!!! There’s no better investment in the world that I’m aware of.  Max this out no matter what!

2) High-interest debt, like a credit card

Some readers might quibble with this as #2. I can hear them now: “What!? Paying off your credit card balance is always the first thing you should do!”  There may be emotional benefits to making this #1 that you should consider, but  if your employer matching is 50% instantly, and your credit card rate is 25% annually, you’ll do way better to first max out your 401k matching.  After that, put the rest of your cash towards that VISA balance.

Other readers might take the opposite tack: “I’ve saved for X instead, why should I ‘lose’ that money paying off my debt?” Paying off high-interest debt is the best investment you can make. Where else can you get a guaranteed return of double-digit interest? You can’t! You should do this immediately even if it means depleting a cash cushion such as an emergency fund, having to build back up a house downpayment (you’re not ready to buy if you have credit card debt!), or postponing some other purchase. You can always put things back on your credit cards if you must.

3) Emergency fund (a couple months’ living expenses + your auto and health insurance deductibles)

You need to have some money socked away for unforeseen expenses or losses of income.  A short-term stash of cash to tide you over if you lose a job, get sick, or have to replace something valuable, like a car, is invaluable for financial stability.  The general rule for insurance is to insure things which you wouldn’t be able to replace relatively quickly and that would cause you hardship if you had to go without them.  This includes your home, life, health, and your car or jewelry, depending on the retail value of these items and your personal savings.  (Make sure to avoid useless insurance.)

Expenses you can afford should be ‘self-insured’ by your emergency fund or other savings.  Raising insurance deductibles and banking the difference in premiums is a good way to self-insure against small losses ranging from a few hundred to a few thousand dollars.  Store emergency money for unexpected car repairs, insurance deductibles (which can be large if you have catastrophic, HSA-eligible health insurance), or high vet bills for your disgustingly-cute Cavalier King Charles spaniel.

Whether you need more or less living expenses saved depends on how steady your income is & how many liquid assets you already have (like non-retirement stocks that you could tap.)  The more financially secure you already are, the less of an emergency fund you need: a self-employed person with few liquid assets needs more emergency funds than a union schoolteacher with 20 years seniority and a sizable investment account.

Like all short-term (less than 3-5 year) savings, your emergency fund should be investing in cash or a short-term bond fund.  High-interest savings accounts like the kind from Capital One 360 are great for very short-term savings since the principal is guaranteed by the FDIC. Bond funds, which may vary slightly in principle but generally yield a higher return than savings accounts, work better for money that might sit there longer than a year.

For those with incomes low enough to be able to contribute to a Roth IRA, I strongly recommend dumping your emergency fund into a Roth IRA and investing in cash to kill two birds with one stone: simultaneously taking advantage of tax-advantaged retirement savings but also giving yourself the ability to withdraw the contributions (but NOT the earnings) at any time with no penalties or taxes. I describe this tip in more detail here.

4) Tax-advantaged retirement accounts (401ks, Roth or Traditional IRAs)

After you’ve maxed out your employer retirement matching, paid off your high-interest debts, and stored money for emergencies, it’s time to go back to saving for your retirement because of the huge tax advantages offered. In rough numbers, if you’re making less than $100 K as a couple or $50 K as an individual (i.e.: likely in the 12% tax bracket for 2021), max out your Roth IRA and/or Roth 401k at work. If you make more than that/are in the 22% or higher income brackets, I would max our your regular 401k first, then switch to maxing out your Roth IRA next if your income is low enough to qualify (your tax software will tell you this at the end of the year. You can still contribute for last year up until your tax filing date.)

If you make too much to contribute to a Roth IRA, use the backdoor Roth IRA [article coming soon] method IF you either have no Traditional IRAs with pre-tax money in them or can put all your Traditional/Rollover IRA money into your 401k plan to avoid paying taxes on it.

If you don’t have a retirement plan at work, use the appropriate IRA (Roth or Traditional) instead. If you’re self-employed, open an Individual 401k.

Read this to know what investment option to choose.

After maxing out your 401k and Roth IRA/backdoor Roth, if you also have HSA-eligible health insurance, max out your HSA as well. If you make enough to be in the 22% tax bracket or above, put the HSA ahead of your Roth IRA in terms of priority.

Putting money into a tax-free retirement vehicle is critical to building up a nest egg for the future.  Assuming you’re in the 24% tax bracket, an investment in a tax-advantaged retirement account made when you’re 25 will be worth about 50% MORE in real dollars when you’re 65 than would an equivalent investment in a taxable account.

To complete step 4, if you’re under 50, in 2021 you’ll be investing $20,500 in 2021 in your 401k if you’re under 50, $6,000 in your Roth IRA, and $3,200 in your HSA if you have single coverage, or $7,200 if your family is covered by your HSA insurance for the entire tax year in question (generally speaking.)

That’s around $30 K in annual savings, which is rarefied territory for more Americans, but very doable for anyone making at least $75 K or more as an individual, or couples making more than $150 K. You just gotta save more.

5) ‘Regular’ taxable investment accounts & short-term savings for big purchases

After you’ve maxed out your retirement options, it’s time to open a plain ol’ taxable investment account for long-term savings. I like to think of these as early retirement accounts; the more you sock away now, the quicker you can exit the rat race.

You should also be saving regularly for big purchases like a house, wedding, vacation or new car.  For these shorter-term items, use the banking system I recommend and create a savings account for each major purchase, and label it accordingly.

You might rank a short-term savings goal as higher priority than maxing out your retirement accounts. For example, maybe you want to buy a house and can’t save up the downpayment while maxing out all your tax-advantaged sources.  That’s fine, but do NOT neglect your retirement.  Investing early, even with just a little bit of money, is the most important factor to building wealth.  Saving for retirement will be way easier if you start today with whatever you can.

Now go do it!

Take each step one at a time until you’ve finished it, then move on to the next one.  If you’re maxing out steps 1 – 4 and contributing something in step 5, you’re doing very well and on your way to financial independence.

Now that you know where to put your money, find out WHAT to invest it in here.

How to cut your grocery bill in half and save $1,000s

After the main four things I do to build wealth rapidly, and after cutting my cable/internet and cell phone bills down to the bone, AND after taking 15 minutes to optimize my auto insurance, groceries are the next place I save big compared to my peers. Yes, grocery shopping doesn’t sounds like a sexy way to save money– although if you slim down doing it, maybe it does…?–, but it’s very effective, potentially saving you thousands per year.

The way my wife and I shop for food can be boiled down (get it?) to seven rules of thumb. Feel free to implement any of them, since all will help you get your food bills under control.

Pick the right grocery stores

Before we get into the rules, one of the most important things is to shop at the right places for the right things. Costco is an excellent all-around choice for everything, so if you wanted to simplify your life and do all your shopping at one store, embrace the public boon that is the Costco corporation.

If you live in a city or otherwise have access to a small vegetable mart (usually run by and frequented by immigrants), that’s a great bet for cheap produce. For staples like milk, meat, dairy, eggs, and canned or dried foods, shopping the sale prices at chain supermarkets like Kroger or Safeway/Von’s. Asian supermarkets are also great for produce as well as Asian staples like rice, coconut milk, soy sauce, etc.

Seven rules to slash your food bill

  1. Buy in-season fruits and veggies for $1/lb or less on average. If you’re really pinching pennies, stretch them by eating them raw, or only small portions of them cooked. The idea here is to maximize flavorful and healthy calories per dollar, and veggies provide very few calories for the money, so you need to counterintuitively treat them as luxury items. Set yourself a veggie budget of around $20/week and you should be good. (That’s still 20 lbs of produce if you can stick to the rule!)
  2. Use vegetable/Canola oil for your cooking fat and salad dressing oil of choice, and more expensive oils like olive oil in smaller amounts for flavoring. Save and cook with meat fats that render out of your food (e.g.: delicious bacon grease. Great for frying greens or potatoes in, or even using in place of shortening in pancakes, but filter out the bits with a strainer for that.) Vegetable oil is basically the cheapest per calorie thing you can eat, and fat is good for you, including saturated fat, so go crazy on it. If you have a source of free fat, like beef or pork fat that a butcher will just give you, I highly recommend rendering your own tallow or lard and freezing the excess for long-term use.
  3. Buy cheaper meats on sale. Make pork and chicken your go-to meats and get them at $1/lb, or no more than $2/lb, then beef on sale ($3/lb ideally), then fish & lamb most sparingly. Meat with the bone-in or skin-on is not only cheaper, but tastier due to the presence of extra fat and the flavor from the bone. Plus, you can boil the bones to make much better broth than you can buy in the store.
  4. Make cheap carbs the bedrock of your meals, and buy them dried at $1/lb or less. (Note for Atkins/keto folks: if you’re trying to lose weight, sub the carbs for extra vegetable/animal fats instead, and up your vegetable budget as needed to soak up those fats.) Choose a carb or set of carbs that you like to eat, like rice or wheat-based products like pasta, or potatoes, and then buy them in bulk, especially dried ones like rice or wheat flour that keep. For us, rice is a great combo of taste, goes-with-what-we-cook, and ease of prep: just stick it in a rice cooker, add water, and set it. Cooking rice with a rice cooker is even easier than boiling pasta or potatoes, and far easier than baking bread. For price, white wheat flour is the cheapest thing in stores near us in Seattle at ~30 cents a pound at Costco. White rice can be had at Costco for $1 to 50 cents a pound. Pasta can be found on sale for 80 cents to $1 per pound, as can rolled oats if you like oatmeal. Potatoes and bread are significantly more per calorie than rice, dried pasta, or wheat flour. Potatoes need to be around 20 cents per pound to be cost competitive, and pre-made bread need to be about $1 per loaf to match $1/pound prices for dried grains.
  5. Get full-fat versions of all dairy products, including milk, yogurt, and cheeses, and stock up when they’re on sale. Going full-fat is healthier, and will also cut your cost per dairy calorie by 30 – 50% because you pay the same price for more food, since the fat is now included instead of stolen from you in a flavor-robbing crime against humanity.
  6. When food that keeps is on sale, load up! When meats or canned/dried goods go on sale, my wife and I load up our cupboards and freezers. I once bought 50 lbs of dried beans because they were on closeout for 50 cents a pound, a price I had never seen in recent memory, and we routinely buy 10 or 20 lbs at a time of, say, chicken thighs, because they dipped below $1/lb. If you eat cold cereal for breakfast, wait for sales or shop generic brands to buy boxes at $2/lb or less. Besides keeping the price per pound of all our staples low, this habit means we always have something to cook up readily at hand.
  7. Treat yourself sparingly with more expensive items like chocolate, booze, pre-made baked goods, or a pricier cut of steak or fish. Use the savings you get from the core staples of your cooking to finance the fun stuff.

If you follow these rules, you can easily keep your per person grocery spending to $200 a month, and still eat like kings: healthy food, fresh fruit and veggies, meat or dairy at every meal, and great tasting ingredients. For a couple, that means a monthly grocery budget of $500 or less. For a family of four, $800 – $1,000 or less. That’s assuming you’re eating nearly all of your meals at home. Families that eat out more frequently can spend even less on groceries, although of course they’ll spend more on food overall.

Read on if you want to get even nerdier details on how to save money on groceries, including more recommended price points for various items.

Ward’s Better Tomorrow Food Filosophy

The simple idea in each of the above rules is to center your diet around foods that cost the least per calorie, and are also tasty, healthy, and not-too-difficult to turn into meals. Because I’m a huge financial nerd, I’ve already cataloged a lot of foods by cost per calorie for you here, including notes on where to get them (again, Costco often has the best prices.)

Shop Smart

Shop Smart. Shop S-mart.

The more generalized rules for smart grocery shopping are:

  1. Shop by price per calorie/pound/unit, favoring cheap ingredients over expensive ones for the bulk of your meals.
  2. Use the weekly ads that you get from supermarket chains to know what’s on sale where (and to build a mental list of best prices), and plan your shopping accordingly.
  3. Know what a good deal is by keeping a mental– or physical– list of the best prices that things go on sale for (e.g.: $1/lb for chicken or pork, $1/dozen eggs, $2.50/lb butter, $0.50/pound for flour, $1/lb for pasta, etc), and know what stores to look in for what things.
  4. Load up like crazy when things are on sale at or below these best prices, especially if they’re not perishable.

Americans spend about half their food budgets on eating out, and the other half on eating in. I suspect wealthier folks like most of you reading this skew even higher on the eating out spending, so let me say at the outset that the best way for most people to save money in general, and on food in particular, is to eat more meals at home.

food-prices_fig10_450px

Once you’ve committed to doing that, or if you already eat a lot of meals at home, the next logical question is how much should you be spending on groceries, and how to save on them?

Know what to have on your everyday shopping list, and what price to buy it at

Load up when things are on sale, only buying below certain $s/pound or $s/unit rules

Get most of your food calories from things below $1 per meal (per 750 calories)

Veggies: Load up on cheap, in-season produce at local veggie marts, or Asian/Hispanic supermarkets, and cook them in fat or oil to boost cheap calories

Limit spending on things that either cost a lot more per calorie, or else aren’t good sources of calories for the money. The cheapest way to fill up is through fat, grains, and starchy vegetables like potatoes. There is a reason these are the staples of every single population, especially of the poor. Green, really any non-starchy, vegetables at most US supermarket prices might be/feel healthy, but buying them in excess won’t fill you up, and thus won’t help your food budget.

Meat: eat mostly skin-on, bone-in chicken and pork for $1 – $2/pound

For meats, the clear winners in terms of cost-effectiveness are bone-in, skin-on chicken and also pork (usually bone-in too.) At large supermarket chains in my city you can routinely find skin-on bone-in chicken thighs, leg quarters, or whole chickens for $1 a pound on sale (sometimes even $0.80), and even at full price it’s usually under $2/pound.

Delicious pork shoulder roasts, great for tacos, boiled dinners, or even St Louis steaks, can be had rarely for $1/lb, and often for $2/lb or less.

Even in the US where beef is relatively inexpensive, it usually costs at least 2-3x more than chicken or pork, and often much more if you’re going for higher-quality beef. Hamburger at $2/lb is a good deal, as are beef roasts for $3/lb. Occasionally Costco has T-bones or other steaks for ~$6/lb if you wanna splurge. St Patrick’s day brings cheap corned beef ($2.50/lb after the holiday) and often $3, or $4/lb, brisket that you can corn yourself if you’re so inclined.

Lamb and fish are even more expensive per calorie than beef. Shrimp and shellfish even more so. Beef, and especially lamb, are also terrible for the environment, if you wanted an extra incentive to cut back on those (sadly) delicious red meats.

Dairy & eggs – Look for weekly sales and load up, freeze butter and cheese when it’s on deep discount

Certain perishables that people use everyday like milk are hard to stock up on, but you can save a few bucks here and there by glancing at the weekly store ads you get in your mailbox. Sour cream, cottage cheese, cream, half and half and other fairly perishable dairy products should be bought like milk. (Sour cream unopened in the coldest part of your fridge, generally the back, will keep a long time.)

Eggs, however, keep for weeks or longer in your fridge, so load up when they go on sale. In Washington State, when a major pandemic is NOT in progress, large eggs can be had for $1/dozen on sale, or at least $1.50 – $2/dozen. At Costco here they’re always about $2/dozen.

For good quality cheddar or similar non-fancy pants cheeses, sales on 2 pound blocks can get you $3/lb, and you rarely should have to spend more than $4/pound. Darigold and Tillamook are excellent brands frequently on sale in the northwest.

Butter is usually $4 or $5 per pound, but in certain times of year and often during baking season (i.e: November) it’ll go on sale for a deep discount close to $2 or $2.50. Buy several pounds then and freeze it until you need it, ideally wrapper in gallon ziplocks to protect the flavor for longer storage. Buying unsalted butter gives you more cooking and baking flexibility since you can always add salt.

One of my two favorite financial bloggers, Mr. Money Mustache, has similar recommendations here.

So go out there and save big on your next grocery outing! And if you haven’t already, check out your local Costco. You’ll probably be an evangelizing convert like me for them once you go a few times.

‘Tis the season to give! How to give to charity effectively.

I’m issuing my annual call for folks to help out those that are worse off than themselves this holiday season through charity.

For those who just want to do the most good for humanity for their buck, choose one of the top charities over at givewell.org, which is the best charity recommendation site I know of, and the only one that rigorously attempts to estimate the per dollar benefits of giving. If you’re not sure which top charity to pick, just give to their Maximum Impact Fund where they will use their expertise to distribute your gift to where it will do the most good at their discretion.

Why (and where) you should give

As comparatively wealthy members of the world, I believe folks like us have a moral duty to improve the lot of others in the world.  Even if you don’t agree with me on that, consider that helping others has been shown to do wonders for the person doing the helping.

If you don’t care specifically about whom your helping, I strongly recommend giving to causes that help those living in extreme poverty outside the US and other ‘first world’ countries.  This is because dollars go the furthest when helping those that have next to nothing.

You could save a life for about $3,000 (per Givewell.org) by purchasing mosquito nets to protect children in Africa, or you could spend $100,000 – $200,000 on cancer research to extend an American life by 3 – 6 months.  My goal is to save as many lives with my limited resources as I can, even if they belong to people whose names I will never know, and whose pictures I will never see. As a father, I imagine the pain of, say, losing a child to malaria is no less painful for an African as an American, so I choose to maximise children saved vs caring about where those children happened to be born (they didn’t get to choose their country!)

I believe that every human’s happiness is just as important as another’s, so I give internationally through charities recommended by Givewell to maximize the good that my dollars do in the world.

I still give token amounts to causes that are emotionally close to me or my friends & family (cancer, Alzheimer’s, a Boy’s & Girl’s recreational club in my neighborhood), but I feel that I have a responsibility to donate any significant amount in the most effective way possible, and that the human race as a whole will be better for it.

Give smart!

Something like less than 25% of charities measured are actually shown to produce social benefits, so it’s important to choose carefully when giving.  Givewell.org evaluates charities using rigorous standards and provides simple, easy-to-follow recommendations, so that you can be confident that your dollars will go a long way.

Take action

Every year several members of my family and I reduce our holiday stress & increase our feelings of well-being by forgoing large presents.  Instead, we commit the same amount of money we would have spent on gifts to worthy charitable causes.  I highly recommend you try this approach (or a hybrid version such as half gifts/half charity) with your own friends and family (excluding those under the age of 18 or so, of course :).)

This yearly activity has several benefits including 1) not having to find & shop for gifts for others, 2) not having to think up gift ideas for things you want others to buy you, 3) making you feel good about helping people, and 4) leaving you no worse off financially than if you bought presents instead.

So, pick a cause and do some good this season!  Click here to pick from a great list of worthy charities.

(And if you weren’t convinced, here’s more good press on Givewell from freakonomics.com.  You don’t just have to take my word for it!)

Happy holidays and happy giving!

I caught a Ponzi scheme

In early 2021 a client of mine mentioned that they were considering a ‘20% guaranteed’ investment called ‘Profit Connect Wealth Services.’ I briefly examined the company’s website which showed all kinds of fraudulent-looking, to-good-to-be-true claims (the website has since been seized by the SEC.)

“Yachts, ‘Fixed APR of 15 – 30%’, supercomputers!? How can I lose!?” Sigh…

My scam alert immediately went off and I did a little online digging, turning up this useful report from December 2020 from behindmlm.com that researches scammy MLM (multi-level marketing) type companies.

I agreed with behindmlm.com’s assessment that Profit Connect was likely committing securities fraud, and I duly reported them to the SEC and the Nevada securities commission– since that’s where the company was headquartered– on April 27th, 2021.

Three months later on July 20th the SEC announced that they had shut down Profit Connect for operating as a Ponzi scheme. I have no idea if my report helped, or if the SEC was already on the trail thanks to other reporters, but it feels good to have hopefully contributed a small ‘concerned citizen’ action that the guv’ment followed through on and took the bad guys down.

Hooray for the system working to protect the little guy, kudos to the SEC regulators for following up and taking relatively swift action, and props behindmlm.com for doing good work to protect people!

If you ever see ANYONE guaranteeing a return double that of the stock market, please check for your wallet and run the other way.

Have you ever fallen victim to an investment-related swindle, legal or otherwise? How did it go? What can we learn from your experience? Share in the comments below!