How to Be a Financial Stud

by Brett & Kate McKay on May 26, 2009 · 24 comments

in Money & Career

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Editor’s note: This is a guest post from Jeff Rose. We last heard from Mr. Rose when he was kind enough to give us a glimpse into the life of a financial planner. Today he fills us in on how to be financially studly.

Jeff Rose is an Illinois Certified Financial Planner and co-founder of Alliance Investment Planning Group. He is also the author of Good Financial Cents, a financial planning and investment blog. You can also learn more about Jeff at his website Jeff Rose Financial.

Throughout a man’s life, he is presented with opportunities to leave his mark. The title that all men desire and hope that their name is mentioned in the same breath as is the unmistakable title of “Stud.” In grade school, being a stud was making the starting five of the basketball team and being the first to french kiss a girl. In high school, it was cruising around in your slick hot rod, leading the football team to state, and landing the hottest cheerleader on the team. College introduced the beer bong and how much cooler your parties were than the one down the street. After graduation and well into your career, the next studly phase of your life begins. At this point in your life, women don’t care how much you “could” bench press, the fact that you did 21 shots in one night (and lived to tell about it), or that you almost won the state championship in 2004. They want a man who has control of their finances and has a plan in place. They want a financial stud.

Have Some Cash

You better have some cash in your wallet and in the bank. I make it a point to always have at least $100-$200 cash in my wallet. For me, that’s weird to say because I’ve always been an ATM guy. I keep cash on hand for times that debit cards just won’t work. Whether it’s buying the next round, leaving a generous tip, or simplifying the splitting of a dinner bill, having some cash on hand looks impressive.

But don’t just keep cash in your wallet. You want to make sure you have a decent amount of cash stashed away in your savings account as an emergency fund as well. Having a decent amount of money in your savings is a sign that you are financially responsible and have the discipline to be able to put some money away. How much is enough? 3 months of your monthly household expenses is a start, but to be a true financial stud you should be somewhere in the 6-8 month range. If you want to feel like Arnold Schwarzenegger is his prime, then 12 months will give you “the pump” you’re looking for.

Got Debt? Get Rid Of It

Whether young or old, there’s nothing less attractive than having extra baggage. Even worse than having flabby love handles is having a mountain of debt. Just to confirm, I had a fellow female blogger, Mrs. Micah, give me her take on what makes a man a financial stud. Mrs. Micah says, “I think that being debt-free is sexy. It shows you can look after yourself, it frees up your future together, etc.” For anybody that has struggled with debt, I know how burdensome it can be. It’s even worse when you have to pass that burden on to your significant other. If you have debt, then having an action plan to get out of it will keep your stud credentials.

Forget the Bench Press…Max Out the Roth IRA

For the younger investor, maxing out your Roth IRA each year is the equivalent of being able to bench press 415 for reps. Let’s say that by the age of 25 you are able to sock away the maximum Roth IRA limit of $5,000. If you continue to do so for 30 years, averaging 8% return, you’ll have a $600,000 tax free nest egg waiting for you at retirement. And when you’re finally put out to pasture, you’ll be one happy stud.

Become a 401k Expert

Many times I hear of people just picking funds in their 401k because of what their co-workers are doing or because they thought the fund sounded cool. Whatever you do, do not be that guy. I had a friend in his early 20′s who was putting most of his money in the “Total Return Fund” because it sounded the most aggressive. Newsflash: it was 100% bond fund. Granted, it helped him prevent major losses in the past year, but for a long term strategy, it’s not the way to go. Don’t get your 401k advice from chats around the water cooler; head to Google and do some research.

Budgets Are Sexy

A financial stud doesn’t spend just to spend. A man needs to know where his money is going month to month. If spreadsheets aren’t your thing, try writing down your bills so you can see how much money is really going out each month.

Don’t just take my word for it. Check out J. Money’s blog, Budgets Are Sexy, to get a grip on your finances. Here’s what J. Money says, “Short answer: Budgets = Confidence = Manly. Long answer: Maintaining a budget is key in becoming financially studly. If you know where your money is coming and going, you’ll know your strengths & limitations. And if you know your strengths & limitations, you can outwit your opponent at any time! Plus, you’ll be able to make quick decisions on the spot which girls love. And you know what else girls love? Confidence. And this, my friend, is what the budget gives you.”

Don’t Get Superman Syndrome

Life insurance when you’re single isn’t really that important, but when a family is involved, it should take precedence. Face it, there is a 100% chance you are going to die. Last time I checked, that’s better odds than Sea Biscuit at the Kentucky Derby. The last thing you want to do is croak too soon and leave your family in financial distress. Let me give you you an example. I had a married couple as clients where the husband was physically fit. He was not overweight, exercised regularly and didn’t smoke. He was a doctor whose financial resume qualified him as a legitimate stud. Unfortunately, an unexpected massive heart attack left the wife and their two kids without a father. Thankfully, the father was wise enough to have enough life insurance for his wife to pay off what little debt they had left, pay the kids’ way through college, and give the wife the option not to have to work the rest of her life. Dealing with the loss of a loved one is tough enough, but adding unnecessary financial burden can leave a mourning family in shambles.

Are you a financial stud?  Don’t worry it’s not too late.  If you are missing some of these studly qualities, make a commitment to make some changes.  You’ll go from a “dud” to “stud” in no time.

If you enjoyed Jeff’s post, read more of his stuff at Good Financial Cents, and subscribe to his RSS feed.

{ 24 comments… read them below or add one }

1 Jackson May 26, 2009 at 8:18 pm

I second the cash advice. Especially if you frequent little hole in the wall restaurants. A couple times I’ve been to little ethnic restaurants and felt like a total dope when I’ve gone to pay and realized they didn’t take plastic and had to explain to people who don’t understand much English that I had to go to an ATM and then I would come back and pay the bill. Embarrassing.

2 David May 26, 2009 at 8:18 pm

very nice thankx

3 five May 26, 2009 at 8:41 pm

Can you explain why I’d want to keep 12 months of expenses liquid? Even in the worst case scenarios, breaking into your carries minor penalties compared to the losses you’d expect if you didn’t invest 12 months of money.

4 Jeff Rose May 26, 2009 at 8:54 pm

@ five

I don’t always just classify my savings for just “emergency purposes”. I like to think of it as a mix for emergencies as well as opportunities. I’m an investor by heart and one thing I’ve learned in my short years thus far is that “cash is king”. I’ve missed out on a few opportunities (real estate, business, and stocks) because I didn’t have the cash (without putting my true emergency funds at risk). Granted this is to be expected for a younger 30 year old, but still frustrating. Granted their are lines of credit that are available, but cash will always speak in volumes. And what does that eventually make you? You guessed it….a financial stud. :)

5 mythago May 26, 2009 at 10:25 pm

Jeff, I’m surprised that you put so much weight on life insurance and don’t mention disability at all. Younger people are far more likely to become disabled than die – and disability can create a serious financial drain (rather than an absence) on your family.

6 Handy~Andy May 27, 2009 at 12:47 am

Get cheap life insurance from Rainbow at http://www.rainbowgrp.co.uk/Insurance/LifeInsuranceMain.aspx

7 Chuckie Jackson May 27, 2009 at 2:59 am

I fully respect the author’s knowledge on financial matters. However, a great deal of these ideas sound similar too Dave Ramsey’s financial peace university “baby steps.” These just have different names. Not that there is anything wrong with this at all, good financial advice is what we need right now, no matter who it comes from. Thanks and have a great day.

8 Chuckie Jackson May 27, 2009 at 3:11 am

Dave Ramsey’s Baby Steps:….

$1,000 to start an Emergency Fund….

Pay off all debt using the Debt Snowball….

3 to 6 months of expenses in savings….

Invest 15% of household income into Roth IRAs and pre-tax retirement….

College funding for children….

Pay off home early….

Build wealth and give!….

Invest in mutual funds and real estate….

Note: I don’t work for Dave Ramsey or anything, I am just taking his FPU course. I am not trying to put down the author of this post, I think its great that his ideas are supported by someone with such financial prowess as Mr. Ramsey. Also, I got this directly from Dave Ramsey’s website.

9 Eric May 27, 2009 at 4:30 am

There is no secret ingredient to being financial stable. This article sounds similar to many others because these principles are constant and will never change. Hundreds of years from now, we will be hearing the same advice. Our problem is that many of us are not disciplined enough to follow the plan.

I thought this was a great piece on how to keep yourself financially stable. I appreciate all the advice and echo what was said. In conjunction with this article and site, I have free financial advice located on my site including an explanation of life insurance and which products to buy. Check it out:
http://www.dollarstep.com

10 Luís Guilherme May 27, 2009 at 4:37 am

I would also advice using a software such as GNUCash (which is free for your computer or USB Stick via portableapps.com ), which helps a lot (without the need to spend hours preparing spreadsheets, it does it for you) in having a income/outcome history. It can even be used for small businesses.

It may seem a good idea to buy trustworthy emergent countries dept papers. They pay a good amount per year and are fantastic for making a long-term fund. In Brazil, they are paying a interest rate of about 12%/y.

11 Jeff Rose May 27, 2009 at 5:06 am

@ mythago

You’re absolutely right. As any author/blogger, I tend to speak mainly from experience. While the statistics do echo what you say, I personally have not encountered that at all. On the flip side, I have had been witness to to several unexpected deaths. (the one I reference in the article just happened about a month ago). Thanks for the input!

12 Matt May 27, 2009 at 5:17 am

I think carrying around large sums of money is a bad idea. I keep anywhere between $0 and $20 in my wallet and have never had trouble. Unless you are traveling or doing business on the black market, I can’t think of a reason for an individual to carry $100-200 at all times. Yes, it’s impressive and perhaps even manly, but for this same reason it puts you in danger, because you will develop a reputation as someone who carries cash.

You can pay for practically anything with a credit card, which helps you manage your spending, as long as you are responsible (paying it off each month). A credit card, if stolen, is backed by the issuer.

13 cory huff May 27, 2009 at 5:38 am

I don’t carry quite that much cash around, but I do the rest of those things. I tell you what, my wife is sure grateful that she married a financial stud. It makes life a lot less stressful.

It does take a while to build up that savings account, but maxing out my retirement sure is a good feeling.

14 Jon Brown May 27, 2009 at 6:05 am

I am rather new to AOM so I am not sure if you have discussed budgeting tools before. I found mint.com about three months ago and I was really able to reign in on my spending. Does anyone else know of good (free) budgeting tools?
As far as carrying cash I don’t. I live near the slums in a major city and carrying anything more than $20 is just irresponsible.

15 Marshall Jones May 27, 2009 at 6:10 am

Jeff,

Thanks for the great article. In response to a few comments, “what about disability?”, “too much cash”, “buy Brazilian bonds”, please remeber that this is a brief blog – not a book.

To another point that is the same advice and will always be the same advice – you’re exactly right! We know everyone knows this, but it takes a stud to do it!

I am a Financial Advisor in Texas and these simple rules keep a lot of clients out of a lot of trouble and also help them take advantage of opportunities when they come along. I thank your for this piece.

And for the record, I always carry between $200 to $400 in cash, but I do so in a money clip with the largest bills in the middle, ones on the outside and the rest descending in amount on the inside. Easy to keep up with and I don’t look like a pimp or a mark.

16 Kyle May 27, 2009 at 6:47 am

I think it’s funny that people say this sounds like Dave Ramsey as if Dave Ramsey invented the ideas of saving money or starting a college fund. These ideas have been around for a century or more. It’s like people who go apeshiz for Crossfit as if doing pull-ups and squats was just invented. There’s no need to put a brand on good advice. “Studs” don’t need brands.

17 Mark Loest May 27, 2009 at 9:58 am

What about charitable giving? It is essential from the very beginning and very manly.

18 Hitler May 27, 2009 at 1:32 pm

It’s much harder to be a financial stud when the game is rigged by government and banking against you. The monetary system has poverty and debt built into it.

19 Doctor S May 27, 2009 at 5:37 pm

Look at this. My ace J Money from BudgetsAreSexy puts me onto a new blog that is right down my alley, since you know, I am a man. Great post.

My favorite point of all is to Become a 401K Expert. I work for a mutual fund company myself and it has provided me with the basic knowledge to help others with the fundamentals of retirement. Being 25 years old and thinking about retirement too is a great state mind of to possess. The sad part is that many people my age lack a retirement account. Forward thinking is the way to go. Great site, a new read for me in the reader.

20 2cents May 28, 2009 at 5:11 pm

Great points, but one note: Jeff, while it has been your personal experience regarding death over disability, that cannot take away the fact that from an actuarial standpoint the average working American is 5x’s more likely to suffer a disability instead of a premature death. These studies are used by insurance companies to price their products and maintain profitability, which contains the largest of samples and 100+ years of stats.

You can have the greatest financial plan in the world, but if you require income to make that plan go and you become too sick or injured to continue to show up for work and collect a paycheck it all falls apart as income is the basis/ foundation for everything financial. A financial plan with no income protection is like a circus act without a net.

If you are 30 years old with an income of $100k, that means your ability to work is worth $3.5Million if you retire at 65, assuming zero raises. Do most 30 year olds have anything worth that? Why not insure your greatest asset?

My point is that when managing risk one should play the numbers to determine what type of coverage is most important and most Americans are underinsured (even if they have coverage at work) for the greatest risk they will ever face:

Over 51 million Americans are classified as disabled, representing 18 percent of the population.
U.S. Census Bureau, Public Information Office, November 2008

In the U.S., a disabling injury occurs every 1 second, a fatal injury occurs every 4 minutes.
National Safety Council, Injury Facts 2008 Ed.

One in 7 workers can expect to be disabled for five years or more before retirement.
“Commissioners Disability Table, 1998,” Health Insurance Association of America, the New York Times, February 2000

Long-term disabilities are primarily caused by illnesses such as cancer, heart disease and diabetes. According to the Centers for Disease Control and Prevention, these diseases cause major limitations in daily living for more than 25 million Americans (70% are caused by illness vs. injury).

21 Jeff Rose May 28, 2009 at 8:31 pm

@ 2cents

I think you misunderstood me when I said my post was speaking from experience didn’t mean that didn’t advocate disability insurance. I just haven’t experienced anybody that has gone through that therefore why it wasn’t mentioned.

Last year, my wife and I decided to take out a small disability policy. Partly, since I am a business owner and I have a tangible asset I could sell if I had to if I were disabled. We decided to go with a policy that would cover our house payment plus taxes. For the average Joe, that is not enough, but better than nothing.

The facts you mentioned are spot on and that’s what I typically share with folks (maybe not quite as detailed as you). Thanks for the insight. Good stuff. Very “studly”.

22 Synthetic Friday May 29, 2009 at 3:16 pm

Where’s this guy locking in that 8% annual return for the next 30 years in his Roth IRA? That guy should be managing your money!

So we’ve got our example stud invested in what here? 90% cash, 10% insurance?

23 mordecai kaonga June 18, 2009 at 1:33 am

its a good advice for us who growing into businesss

24 eric September 15, 2009 at 8:38 am

Two thoughts. First, where can you get that 8% return? Well, you could come close with the PIMCO Total Return Fund, which I assume is the fund mocked in the article, and which has returned an annualized average of 7.5% over the past decade. Meanwhile, had you been in pure equities for ten years, say a low-cost S&P500 matching fund, you would be looking at an annualized average of just under zero. So: mostly good advice in the article, except that recent events should remind us that making money in all equities all the time isn’t as easy as it’s cracked up to be. Even a 25-year-old needs a hedge.

Second, re: budgeting, for real you ought to look at Mint or Yodlee. There are security concerns, but I have gotten comfortable with them. I have used Yodlee for about a year and a half now, and it is the single most useful financial tool you’ll ever find. Bet.

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