From 401(k)s to mortgage payments, What the Rich Know That You Don’t.

On last week’s blog post, I went in knee deep on a singular concept that drives all that we do at AZOTH, “Don’t be Different. Be Only.”

[in case you missed it, here’s a copy.]

We mean this shit. When AZOTH 2.0 starts flowing and powering our system like a v12 Engine, you start to value things like Productivity. Leadership. Power. You value forging yourself into a specimen that unapologetically dusts the former you into ashes. This is AZOTH.

So let’s get right to it.

We’ve talked a lot about mindset here. And we need that. But once you’ve gone through the wringer, the question is, what do you do with it? Today, I’m going to flip the script and provide some practical advice.

[Caution: This is a long ass E-mail, and once you start you’re not going to want to stop.]

Let’s Talk Money.

Two weeks ago, we invited a good friend Tyrone Jackson to speak about money: Investing in stocks, how to get started with $500, and grow your account. Then we invited our Tribe Member and Wall Street Shark Sal Medina (fuck, this dude has a story to tell) to open up a Q&A thread for all things trading.
[Here’s how to Join the AZOTH Tribe]

The purpose: Money.

There’s not a week that goes by where someone doesn’t slide into my DMs after listening to an Episode of the Enlightened Millennial Podcast or reading one of our Instagram Blogs tells me,

I should “live a little” and that I’ll burn out or that “profits aren’t everything.” My answer is simple: I work like a psychotic so while everyone can get what they can, I get what I want.

Money buys options and options mean freedom. Freedom is as American as it gets. Our Founding Fathers etched it as the second most important thing after “life” in the Declaration of Independence. It’s your duty to make sure you’re free.

Get a Job Where You Learn Like Hell + Tied To Profitability

First off, if you’re young, don’t have a job, have a shitty job, and so forth, real financial advice isn’t for you. The advice you need is obvious: get a job. A good one. One where you’re learning like hell, given massive responsibility, and are respected, with a potential to grow. Even better? Where the company’s profitability is tied and correlated to your income through commissions or any other structure. That’s the magic formula.

Even the most ruthless investors negotiate like hell for 1–2% royalties when putting in millions into companies. Why? Because they have control over their finances. More they put in, more they get out. Let that sink in.

Of course not everyone will be so lucky to find an option like that, and a specific post about what degrees or credentials to pursue, how to get into certain fields, how to network, how to write a resume, how to interview — that’s beyond the scope of what I’m writing today, which is more about what to do with the money you’re earning and how to prioritize your financial endeavors.

Save for a 6 Month Reserve

The very first thing you need to do with your paychecks is to save money. Make a budget and figure out what you’re spending each month. As an aside, keep your monthly expenditures low. You need a place to live, a used car that you preferably buy with cash to get you to work, an old non-state-of-the-art computer that connects to the internet, an old non-state-of-the-art cell phone, a cheap gym membership, clothes for work and the gym (depending on your job, work clothes can double as clothes for going out), food and water, and if you really want to splurge, maybe a used iPad so you can do work on the go.

You don’t want to go insane, so you can go out from time to time, have hobbies, and so on, but if you’re spending a hundred bucks a weekend drinking and trying to pick up people tail, you’re wasting something valuable for something totally worthless.

Anyway, figure out how much you spend each month, and save money to build up a reserve. You want to have a minimum of 3 months of your expenses in the bank, preferably 6. Not 3–6 months of paychecks (we’re not buying an engagement ring — your expenses times 3–6.) Your paycheck should far exceed your expenses. If not, you need budgeting advice, not financial advice. Or a less shitty job.

Why should you do this? Because when shit hits the fan and you actually have built up the skills and confidence to leave your shitty 9–5 to work in a place where you can grow like a maniac, you can. The option to walk away to pursue something bigger than your pencil-neck boss pushing you around at HR will be your first taste of freedom. Fuck, I can taste it while writing these words.

To get back to my point, once you have six months of living stashed away in the bank (put this in a separate account if you don’t have the discipline to not touch it when it’s in your general savings account), you have the freedom to be more aggressive with the rest of your money.

Time is Your Biggest Asset

But the saving doesn’t stop once you get to six months of costs. From that point on, you should be saving 10% of your gross income, minimum. 12–15% is a better goal. 20% if you can afford it, but that requires some serious quality-of-life sacrifices. In this context, “saving” doesn’t mean a bank account. At this point, you should be moving on to investment vehicles, retirement accounts, and so on. You can still keep extra cash, set aside in a separate account for projects you want to save for, like getting a house, building something, buying something, going somewhere. But try to stash at least 10% of your income somewhere it can grow. And start this young. Because time is your most valuable asset. Your toxic friends figured that out a long time ago, too. That’s why they’re always after your time.

The Dre Beats you bought last week? Don’t think of it as a $400 check. Think of it as a month you slaved away in the office that you’ll never get back. But it’s not just the month you worked. That extra month of income you didn’t save today will turn into several years of extra working before you can retire. The worst part is that you bought it to show off to get validation from someone else, and at the end of it all you realized they still think you’re a worthless piece of shit, who owns a pair of Dre Beats.

With Low Interest Rates, Don’t Pay Off Your Mortgage & Debts

Time is your most valuable asset. A lot of people will write an extra check to their bank every month toward their mortgage, because we’re all told that this adds up. You’ll pay off your house sooner, and just think what you’ll be able to do in 20 years instead of 30 when you have an extra $2000 a month! You can bank that! But look at it this way: saving 500$ every month today, in your 20s or 30s, and just paying the minimum to avoid getting foreclosed on, will net you far, far more money than paying off your house, then saving $2000 a month starting in your 50s.

Mortgage interest rates are low today, so you can get away with this and come out ahead. The same applies to all of your debts. If you have a debt with an interest rate of 8% or higher, pay it off. Maybe pay off your 7% debts, too. It’s hard to get a solid 7–8% rate of return on most things today. But anything lower than that and you’re better off just making your regular minimum monthly payment and saving the money you’re thinking about paying toward a debt. Because when you pay extra money on that debt, your creditor takes that money, invests it, loans it out, gets interest on it, makes money on it — that could be your money. You’re better off making that money. You can still pay off your house in 20 years instead of 30 if you want, but do that by making shit tons of money today, then writing a big check in 19 years and 11 months. Not by paying an extra $500 a month to the bank. Because when that house is finally yours and all of your other debts are paid off, you won’t have shit saved away to retire, and you’ll already be 50.

Further, when you give money to your mortgagor or another creditor, that’s money you can’t access. Sure, you feel good about having more equity in your house, but you can’t do anything with that equity unless you want to sell your house, incurring closing costs, moving costs, etc. And let’s say you sell your house and turn a profit. What do you get with all of that equity you bought? The exact amount of money you put in back again. No growth. You pay your mortgage off, you get your profit, and you get your equity back. As an aside, you get a federal income tax deduction for paying interest on a home mortgage, so paying extra toward your principal can also make you have more taxable income.

401(k)s are a Scam

So you should be saving for retirement, right? Better dump all that money in your company’s 401(k) plan! Nope. 401(k)s are a scam. You should definitely put money into a 401(k), though. Exactly as much money as your employer matches, then not a penny more. Because that employer matching is free money — an instant 100% rate of return. But after that, pre-tax retirement accounts are a losing affair. Taxes never go down. They go up. When you’re in your 60s (assuming the government doesn’t keep raising the age when you can access a 401k), do you seriously think taxes are going to be lower than they are today? Or that dollars will be worth more?

Let’s say you do some math, and to live comfortably at retirement, you’re going to want $8000 per month. So $96,000 per year. When you pull that out of a 401k, you have to pay taxes on that money. So you don’t get 96k a year. To get that 96k you need, you actually have to pull about 120k out of your account. And that’s assuming taxes aren’t boatloads higher by then. It’s just a bad investment. An inefficient use of your money.

On the flip-side, a Roth IRA (or some companies offer a Roth 401k) can be a great vehicle. Roth accounts are actually such a good vehicle that the government is probably going to shit-can them before any of us reading get to retire.

Pay Attention to Stocks That Pay Dividends

When you finally get around to choosing stocks or mutual funds, pay attention to dividends (look for the word “value” in the title of the mutual fund, or do some research on a company’s stock history). Most financial guys focus on growth alone, which is a crap shoot. You buy something today and hope that years from now when you sell it, it’s worth more. You diversify what you’re buying so that if something tanks, you can offset the loss with gains from other things. Not a horrible strategy, but no growth.

If you focus on things that pay dividends, that dividend money can be banked, spent, used to invest in other things, or even automatically reinvested in whatever’s generating the dividends (which leads to more dividends next quarter).

Companies that pay dividends have to keep doing it. If they pay their shareholder dividends this quarter, then next quarter decide not to, their shareholders get pissed, a lot of them sell some stock off, the stock price goes down, and all of those fat cat CEOs lose money. Companies will bend over backward, and even borrow money, to make sure they get those dividends out every quarter because that’s how the people in charge keep the stock price from tanking. So dividends are like free money that helps to cushion you somewhat if stock prices go down. (Tyrone touched on this in the Tribe.)

Summation: The 3 20’s Approach:

The not-quite-accurate thing financial advisors will tell you, that still serves as a good illustration of how you should be thinking is the 3 20s approach: If you save 20% of your income for 20 years straight, you can retire in 20 years. That’s not really accurate for a lot of reasons, but the overarching premise is a good one: Time is valuable. More valuable than money.

Caution: You Will be Shamed But Don’t Give a Fuck.

Not paying off your mortgage and making your local bank rich? You will get shamed. Get ready for it.

But, having lived both sides of the coin, this is all a major shit test.

Not just this, but to attain any type of freedom will cause you to get shamed.

The real reason people will shame you because it’s hard.

Being a badass is difficult.

Be one anyway.

Become powerful beyond belief, be ruthless killer at work, obliterate anything in your sight,

And get rich as hell,

not because you’re needy and need a private jet and a fleet of exotic cars, but because you have standards and you deserve the best that life has to offer

and then some more.

Modesty is overrated, take everything instead.

This is AZOTH.

Strength and Honor,

-Prady Tewarie

ps. I don’t publish all my articles on here. Sign up here and my team will send you E-mail every morning with articles that I write.

Strength and Honor,

Prady Tewarie
Co-Host, The Enlightened Millennial Podcast
CEO & Founder
GetAZOTH.com
@seekingazoth

This Newsletter is brought to you by AZOTH, a productivity-driven nootropic supplement company dedicated to enhancing human productivity, optimizing peak mental performance, and pushing the boundaries of human potential. Find out more here.

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Let’s Talk Money: Why Everything You’ve Been Taught About Money is a Scam To Keep You Poor was originally published in AZOTH on Medium, where people are continuing the conversation by highlighting and responding to this story.