Learning From Literature

First to a Million by Dan Sheeks

Cover of First to a Million by Dan Sheeks

First to a Million: A Teenager’s Guide to Achieving Early Financial Independence by Dan Sheeks is a personal finance book published in 2021.

Since financial literacy is not taught in school, many believe the only available path is to work until you are old, then retire. Sheeks introduces another option; spend your years doing what is most important to you (like traveling, spending time with your family, or bettering the world) instead of waiting until you retire at age 65. Becoming financially independent does not mean you have to stop working, but it means you have control over your most valuable asset: your TIME.

In the book, Dan Sheeks explains how to achieve financial independence, even at a young age (think able to retire by 25). While tailored to younger adults, this book is helpful for people of all ages.

Purchase the book by clicking this link!

Enjoy!

Table of Contents

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Part 1 – The Standard Path And A Different Option 

Why Financial Independence?
  • Don’t have rely on work
  • Control over your time – You can start doing only things you are seriously passionate about like:
    • Starting your own business
    • Volunteer
    • Spend time with family
    • Learn something new / Explore a favorite hobby
    • Travel
    • Continue with your job because you love it
  • Financial Independence buys you your time
The Truth About Jobs
  • Average US salary worker = 49 hours / week (even higher for younger people)
    • 25% of US salary workers = 60+ hours / week
  • A $50k salary for 49 weeks
    • 40 hours / week = $25.51 per hour
    • 60 hours / week = $17.01 per hour
    • 80 hours / week = $12.76 per hour
  • Jobs vs Financial Independence
    • Job → if you like your coworkers, social interactions are fun
    • FI → you can socialize with whomever you want, whenever you want
    • Jobs → can provide financial security through paychecks, retirement accounts, stock options, and the like
    • FI → you have achieved financial security without a job
    • Job → can give time off, sick pay, and vacation time
    • FI → every day can be a day off if you wish
    • Job → can offer an avenue for furthering your education and challenging yourself mentally
    • FI → you can spend your time taking courses, reading, and adding to your knowledge however you choose
    • Job → can provide health insurance at a very low cost, sometimes free
    • FI → you’ll have other options for obtaining low-cost health insurance, but if you want, you could stay at your job solely for the health insurance
Financial Independence Equation

Passive Income + Sustainable Asset Withdrawal > Living Expenses 

  • Passive Income – income you earn without working
    • Example – Rental Properties
  • Sustainable Asset Withdrawal – can make regular withdrawals for a given period of time without depleting the asset
    • If you have $10,000 in a bank account and withdraw $100 a month for a period of 8 years (easily sustainable)
  • Living expenses – cost of life
    • Housing, transportation, food, etc.
4 Mechanisms of FI
  1. Earn more
  2. Spend less
  3. Save the difference
  4. Invest wisely 

Part 2 – The FI Foundation

Happiness
  • List the top 10 things that make you happy
    • Chances are more of your 10 things cost time rather than money (spending time with family and friends)
    • Others might cost money but still need time (vacations)
    • FI gives you the opportunity for both
  • FI helps you combine:
    • Answer – What do you see yourself doing in 15 years?
    • Answer – If you could do anything, what would you be doing?
  • Happiness is your overall goal – define what that looks like in your life
The Concept of Enough
  • There’s a point where buying more decreases happiness
  • Focus on the things in your “Top 10 Happiness List” from above and don’t spend money on other stuff just because you can
  • In a seminar, people were asked to rank their happiness on a scale from 1-5 and how much more income would they need to be happy
    • With the room full of different incomes levels, all ranked their happiness around the same and said they needed about 50% more than their current income
    • Shows that higher income doesn’t mean higher happiness – the “rich” people answered the same as the lower-income people
Your Why of FI
  • Know your “Why of FI” to keep you motivated – why do you want financial independence?
    • Lower Level Why’s
      • Most are probably time related
      • Freedom to explore opportunities, not have a boss, travel, spend time with family 
    • Higher Level Why’s
      • Less self-based and oftentimes more motivating
      • Mentor young people, start a nonprofit, volunteer
The Entrepreneurial Mindset – Why Doesn’t Everyone Do It?

To reach FI at an early age, you need:

  • Propensity for going against “normal”
  • Insatiable thirst for knowledge 
  • Ability to pull the trigger at the right time 
  • Have unusually low fear of failure

“I’ve missed more than 9,000 shots in my career. I’ve lost almost 300 games. Twenty-six times I’ve been trusted to take the game-winning shot and missed. I’ve failed over and over and over again in my life. And that is why I succeed.”

– Michael Jordan

Part 3- The Keys To FI

The Compounding Effect

“Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it.”

– Albert Einstein
  • 10,000 – 10% = 1,0000 → 11,000 – 10% = 1,100 → 12,100 – 10% = 1,210
    • You earn more and more without doing anything!
Real Assets vs Fake Assets
  • Real Assets – generates income or increases net worth
    • Investment rental properties, stocks, etc.
  • Fake Assets – decreases net worth through expenses / depreciation
    • Cars, clothes, electronics 
    • Cars are the worst fake asset → fast depreciation so you’re paying more than it’s worth + decreasing net worth
Good Debt vs. Bad Debt
  • Bad Debt – used to acquire fake assets 
  • Good Debt – used to acquire real assets
Credit Score
  • How likely/good you are at paying back a loan
    • You need a credit score to acquire:
      • Housing
      • Apply for any loan including car
      • Get insurance
      • Start a utility account
      • And more
  • Scores range from 300-850
    • The higher the better
    • Over 720 is considered excellent
  • Your score is made of:
    • 35% – payment history
    • 30% – amount owed
    • 15% – length of history
    • 10% – new credit in recent months 
    • 10% – types of credit 
Credit Cards
  • Pretty much necessary to build up a high credit score
  • 2 rules:
    • Always make the monthly payments on time
    • Never buy something that you don’t have the money for right at that moment
  • Uses:
    • Build credit score
    • Track expenses
    • Security against misuse (not responsible for fraud – call the credit company immediately)
    • Collect rewards (some offer cashback and/or travel points)
    • Cover emergencies 
    • Convenience 
Income vs. Wealth
  • Income does not equal wealth
    • Income – money bringing in
    • Wealth – money you hang on to
  • Income is not a sign of financial security
    • The average salary for an NBA player last year was over $8 million
    • Over 60% of basketball players go broke within five years of retirement
Passive Income
  • Active income – worked for money
  • Passive income – income when not working
    • rental properties, books, dividends, laundromats, vending machines, etc
  • Portfolio Income – income from investments 

Part 4 – How to Pursue FI: Earning and Spending 

Earn More
  • Think – How many hours do you waste a day? (watching TV, etc.)
  • To earn more → You have to be more productive → You have to manage your time better

4 Income Categories

  1. Full-time or Part-time job –
    • Continuous + steady paycheck
  2. “Next-Level” jobs
    1. Jobs that introduce you to the world of investing (assistant to financial mentor, etc)
  3. Jobs In College
    1. Gives you time while working to multitask
  4. Side Hustle
    1. Easy-To-Start
      1. Babysitting, tutor, etc.
    2. Worth-The-Work
      1. Develop website, fix computers, teach English online, etc.
    3. Make sure it is something you are passionate about or you will get burned out; you are working for yourself and need motivation
Spend Less
  • Spend money only on things you value
  • Don’t buy things to impress others
  • Spending money to show you have money is the fastest way to have less money (The Psychology of Money by Morgan Housel describes the underlying behaviors on all financial matters)
  • Track expenses to see if there’s an improvement area

Saving on the “Big 3” expenses is more important than cutting out little things, like coffee

1 – Housing (house hack!) 

  • House hacking is where you live in one of the rooms or units of a property and lease out the rest, using your tenants’ rents to pay for your mortgage and related expenses

2 – Transport (remember, a car is the worst fake asset)

3 – Food (don’t eat out as much)

Part 5 – How to Pursue FI: Save and Invest 

Save the difference
  • Most spend all they make but that income is not ensured forever
    • Allen Iverson, Mike Tyson, Johnny Depp, 50 Cent 
  • Don’t try to keep up with friends – there will always be someone ahead of you
  • Savings rate is one of the top indicators for future financial success, not investment performance
  • Normally people save last, whatever is left over
    • Save – 1st
    • Pay necessities  – 2nd
    • Buy wants – 3rd 

3 Savings Accounts 

  1. Emergency Fund
  2. Future Investment Fund
  3. “Fun” Fund
Invest Wisely

Investing – the purchase of an asset in expectation that it will provide income / increase in value in the future

FI Equation = Passive Income + Sustainable Asset Withdrawal > Living Expenses 

Investing is the way to increase passive income and savings for sustainable asset withdrawal

  • Three Warren Buffet quotes:
    • “The important thing is to know what you know and know what you don’t know.”
    • “Never invest in a business you cannot understand.”
    • “There is nothing wrong with a ‘know nothing’ investor who realizes it. The problem is when you are a ‘know nothing’ investor but you think you know something.”

In How I Invest My Money by Joshua Brown and Brian Portnoy, 25 financial professionals are interviewed on their investing strategies

2 of the Simplest and Safest Ways to Invest 

“Basically, any attempts to pick the times to buy or sell, I think, are a mistake for 99 percent of the population.”

Warren Buffet
  • Index Funds (for sustainable asset withdrawal)
    • Sheeks explains in simple terms what stocks, mutual funds, and index funds actually ARE
    • Do not try to “time” the market
      • 85%+ of active-trading experts underperform the market
      • If you leave your investment in the correct index funds, you will succeed over the long run
      • Your portfolio will swing up and down but Morgan Housel in The Psychology of Money recommends to view volatility as the fee for getting to receive long-term gains
    • 4% rule
      • Widely-used percentage that you can withdraw a year without depleting your asset
      • 1 million dollars saved = $40,000 / yr to spend in retirement
      • annual expenses / .04 = FI number
  • Real Estate (for passive income)
    • 4 necesities:
      • Income history (to get a loan)
      • Credit score (to get a loan)
      • Learn (before you rush and make a huge mistake)
      • Save (down payment and correlated expenses)
    • Pros
      • Cash Flow
      • Appreciation
      • Tax Benefits (the government wants to provide housing so they give rental property owners huge tax breaks)
      • Control
      • Leverage
      • Passive Income
      • Forced Appreciation (increase in value due to investor activities like upgrades)
    • Cons
      • Market Downturns
      • Leverage
      • Long-Term
      • Not Liquid
      • Not 100% Passive
      • Bookkeeping Needed (it isn’t hard once learned)
      • Reliance On Others — tenants, contractors, etc

The optimal combination of index funds and real estate depends on you!

The final section of the book covers:
  • Chapters 26 and 27 — College
    • Should you go? And if you do, what’s the best strategy for getting your degree without giving up your early FI goals?
  • Chapter 28 — the pros and cons of being a teenager on a pathway to early FI
  • Chapter 29 — the FI Freak Checklist

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