What are the best financial decisions that you’ve made?

While I don’t think that I’ve got all of my financial decisions right, there certainly some things that I think I’ve done well.
I posted last week about financial decisions that I would change if given a chance. There are some things that I’ve done that I’m happy to have done and if given the opportunity arose would gladly do the same again.

Saving aggressively at an early age

It goes without saying but if you don’t have a consistent pattern of saving, your ability to earn productive returns on your capital is just not possible.

I made the decision very early on that I would aggressively save surplus income wherever I had the opportunity. That meant choosing to consciously live a fairly disciplined life in terms of illuminating unnecessary spending and accumulation for my life.

Frankly that was a fairly easy choice for me to make because that was consistent with the way that I had been brought up, but being able to implement this as a principal in my life has led me to save at rates that I imagine may difficult for some to comprehend.

The funny thing about saving is it becomes habitual and the more you save the more you feel like you want to save more, so it’s this virtuous cycle that ultimately provides great disposable income at your discretion to manage as you choose.

Investing in productive assets to the exclusion of everything else

While an aggressive pattern of savings was the linchpin to whatever success I have today, equally as important in my view was a conscious decision to choose productive asset classes such as investment in equities and investment in real estate to accelerate wealth creation.

In particular a focus on dividend paying investments has enabled a very nice passive income stream that I feel confident provides a safety net of support for any unforeseen circumstances. Avoiding bonds has really helped provide a significant boost to the rate of wealth creation.

Funnily enough I don’t feel that the exclusion of bonds in my portfolio has necessarily saddled the portfolio with greater risk because over time I’ve developed greater confidence in the types of investments that I make and the types of businesses that I own. I’ve been steadily reorienting my portfolio to businesses that are cash rich, debt-free and provide high returns on invested capital. These are the kinds of businesses that tend to prosper over the long run.

Investing in myself through additional education

I didn’t make the decision to pursue a higher level of education lightly. In fact that was what originally brought me to the US. Having made that decision and having seen the opportunities that it’s provided me I can say that it was the best decision that I have made.  This is not only in terms of providing me with greater financial security and accelerating a pathway to financial independence but also for the quality-of-life factors that that decision has led to.

The ability to work in an area that’s consistent with one’s passion seems to be an opportunity that very few of us are able to get for one reason or another. We are either chasing jobs because of an economic need to do so or stuck in jobs that we have no desire to do but which are only available because of our qualifications.
I understand what Warren Buffett says when he feels like he “Tap Dances to work” . That’s truly a unique feeling and is worth its weight in gold for the peace of mind that provides.

Understanding tax structuring

Taking the time to familiarize myself with how income is taxed, how wages are taxed and how productive assets are taxed was one of the best things that I’ve been able to do for myself. It’s lead to productive decisions that are maximizing my take-home cash flow and ensuring that I concentrate my capital allocation to those activities that will be more tax efficient.

Tax laws are rather arcane, painful to read and difficult to understand. Taking the time to familiarize yourself with them will improve your net pay. At the end of the day it doesn’t matter what you have as gross income if you’re unable to take a significant portion of that home.

I’m aggressively contributing to tax sheltered vehicles like the 401(k) and an FSA and other healthcare accounts. These are options that are generally available to most people but a lack of awareness in terms of how they’re structured and how they benefit you economically seems to hold back many people from utilizing these options to the maximum extent possible.

I’ve mentioned here previously the favorable taxation treatment for dividend income and long-term capital gains. Ultimately it’s my objective to derive the majority of my income from these two sources. The benefits of doing so will enable a retirement or financial independence at a much lower gross income than the equivalent “wage or salary sourced amount”.

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