The Simple Wealth Plan for People Who Aren't Interested In Finance

I'm glad you're here. This plan is going to be easy, and it's going to be simple. You don't have to learn a bunch about investing or how to manage money. In fact, once you put the plan into place, the less you touch it the better.

Side note: This page is meant to be a simple quick read. I didn't include a lot of background info. I am working on more comprehensive pages, but until those are done please email me any questions you have: [email protected]

There is a strange advantage that people who don't care about finances or investing enjoy. For me, who loves it, I do silly things like checking to see how my investments are doing daily. Things like that make me a worse investor.

Here's what a better investor would do:

1. Set up an automatic investment system
2. Increase the amount invested over time
3. Never sell
4. Only look at the balance once a year (maybe)
5. Once the balance reaches 25 times their annual expenses they retire.

And that's what you're going to do.

This process will likely take you less than 15 minutes total to set up. Then there will be the occasional maintenance when you increase the amount that is automatically invested. Besides that, the plan will work perfectly on its own.

Let's get started:

Set up an automatic investment system

(If you have a 401k option with your employer that includes an employer match, sub that in for the IRA recommendations below. Follow the same investing plan in the 401k. If you're already contributing up to the match then follow the instructions below for any additional cash you have to invest)

You are literally 5 minutes away from a completely automatic investing plan.

I'm going to use Schwab as an example here, but if you have at least $3000 you can start at Vanguard which is the best option for everyone. My reasoning is at the end of the page.

So first you open a Schwab account. Then open a Roth IRA (I include some important notes about this tax-efficient vehicle at the end of the page). Then put all the initial funds you've set aside into your Roth IRA.

Invest the balance in SWTSX, which is a total stock market index fund. The total market index will provide the best returns over 10+ years. You are basically buying a piece of every publicly traded company in the US. All their growth and profits become yours.

Next, set up automatic deposits either from your paycheck or from your bank account. Try to make it at least 10% of your income. 20% is even better. Then set up Schwab to automatically invest the money you are sending into SWTSX. Make sure you set the investment date to a few days after the transfer date to make sure it goes through correctly.

That's it. You've now set up your automatic investment plan.

You've just done something that most people won't; you've set yourself up for real wealth accumulation over time. Congratulate yourself, seriously.

Increase the amount invested over time

The idea is that you will build your skills to earn more money and learn how to live on less over time. Both are necessary for achieving financial freedom. It is easy to learn how to spend money once you get a raise. Don't let yourself learn how to spend it. Allocate half or more of each raise to your automatic investment plan.

Becoming more valuable is how you end up earning more money. Becoming more valuable is all about growing. How do you know where to find areas for growth? Follow the breadcrumb trail of what interests and excites you. It's the best way to grow into the life you truly desire (even if you don't know what it is yet).

I'm leaving this section brief, but I'll be adding resources for growing your skills to my site over time and will link them as they arrive.

Never Sell

Selling is the ONLY way you will lose money in this plan. Do not sell, even if you think you have a good reason. If you think you have a good enough reason, email me at [email protected]. Let's talk before you take that leap. You could be sacrificing months of work, or even delaying your financial freedom by years.

ESPECIALLY don't sell when markets go down. If you get scared and leave the market when it's down then you've lost the game. You've wasted months of saving and sacrifice for nothing. The market always goes up in the long term. Your shares are still valuable, even if the price fluctuates. Any time you sell you give up the growth that makes this plan successful.

I cannot emphasize it enough. IF YOU SELL YOU ARE LOSING THE GAME. There is no version of this plan that works if you sell on the way to financial freedom.

(Now if you do make a mistake and sell, you haven't completely lost. You can start working your way up again, but I use extreme language to communicate how bad of an idea it is. If you have a medical problem or something that's different. But there is NO EXCUSE for selling just because you're scared)

Only look at the balance once a year (maybe)

You don't need to look at your automatic investment plan, because you will never change anything about it (except increase it). You can admire it for how far you've come, but looking at it only puts you at risk of wanting to sell. Best to forget about it until it's reached the size that can support you.

Which of course means you'll have to look at it sometimes, just make it infrequent. As I covered above, selling is the only way you lose this game, so limiting the temptation is in our best interest.

It's exactly the same as putting candy on the table in front of you, or in the cabinet. In one option the bad choice is right in front of you and hard to ignore. In the other there is separation so the bad choice is easy to ignore.

Another benefit to looking once a year is that market corrections (dips of 10%) or even bear markets (dips of 20%) have a chance to level themselves out without scaring you. Corrections happen almost once a year, and bear markets happen every 3-5 years. Market crashes like 2008 (30-50% drops) will happen about every 10-20 years. These are a little crazier, and likely won't go away in a year.

These times are accompanied by widespread panic, even though they are the best buying opportunities. Ignore the noise, you know better. If you keep your eyes off your portfolio and keep investing the market lows will accelerate your progress to freedom. You're making a more intelligent choice than everyone panic selling, and you don't even need to think about it.

Once the balance reaches 25 times your annual income, you are free.

There was a study done that shows that if you remove 4% of a portfolio invested in the market each year to cover your expenses, your portfolio has over a 98% chance of surviving over 30 years without you having to add to it. (Source at the bottom of the page)

That is the principle behind the 25 times rule. If you need $50k to live per year (like my family does right now) you'll need $1.25 million to retire (50k is 4% of $1.25 million).

That's why I stressed limiting expenses is just as important as increasing how much you earn. If we found a way to live on $15,000 per year instead of $50,000 then we would only need $375,000 total.

That's it.

If you do all of that you are on your way to financial freedom in the simplest and easiest way possible. As long as you keep adding to your investment account and don't EVER sell until you've reached freedom you will get there.

Thanks for stopping by, please send me a note to [email protected] if you have any questions or ideas. I would love to chat.

Why is Vanguard the best option?

Vanguard is investor-owned and operates at cost so its incentive system lines up with yours. Commercial banks turn a profit which makes them inherently less ideal, but Schwab prides itself on accessibility to every investor, and in my opinion, it follows through.

IMPORTANT NOTES ABOUT ROTH IRAs

I suggested a Roth IRA for two reasons:

1. You pay taxes on the money invested, but your investments grow tax-free for the rest of your life. That means when you're financially free you won't have to worry about taxes taking a chunk of all your earnings as they do now.
2. If you find yourself financially free before age 60 then you can withdraw your contributions with no penalties.

However, they come with these caveats:

1. If you withdraw your earnings before age 60 will get a 10% penalty. Your IRA account tracks how much you have earned vs contributed, and always pays contributions out first. That means that there may be downsides to completely living on your investments that you should plan for.
2. You have to hold the Roth for more than 5 years to get the full tax-free and penalty-free treatment. That's true even if you start withdrawing after 60.

Sources:

1. Retirement Savings: Choosing a Withdrawal Rate that is Sustainable
2. I didn't reference him directly, but Jim Collins from www.jlcollinsnh.com is a huge inspiration for this strategy. I owe him so much. His book "The Simple Path To Wealth" is a great resource for learning about this strategy more deeply.