Pay Yourself First

• Tom discovered that the “Pay Yourself First” philosophy advocated that you should set aside 10% of your income each month before spending it on anything else.
• He recognized that this was something that his supervisor at General Motors was not doing, and that was preventing him from becoming financially independent.
• Tom learned that investing in the stock market can help you to make a decent amount of money into a massive amount if done properly.
• He learned that it is important to invest real money, rather than just theorizing about it with a stock market simulator.
• Tom started off by investing in speculative tips from Reddit which lead to high initial returns, but he experienced a rapid decline in capital due to his approach. generationally expensive”, and he was certainly scared of that.

The Intelligent Investor’s Road to $1,000,000 – Stage 2

Tom managed to go from $0 – $20,000 in almost exactly two years by saving $1,000 from his paycheck each month, and making mistakes investing in unprofitable-nano-biotech-companies, as well as losing $1,000 in brokerage commissions trading a lot in the beginning

• Tom’s father offered to chip in an additional $10,000 if Tom wanted to purchase his own place, but Robert Kiyosaki’s advice of acquiring assets meant Tom politely declined
• What characterises the second stage is that a good chunk of the $100,000 must originate from stock market returns
• Tom followed Warren Buffett’s mantra of only investing in what he understood and doing back-of-the-envelope DCF analysis. He refrained from “brilliant or advanced investments,” as he looked for “1-foot bars [he] could step over”
• Tom was then presented with an “amazing investment opportunity” that proved to be too much for him, so he ended up only investing 500$. He aimed to not make “generationally expensive” mistakes by picking up stocks form companies like Google and Microsoft with low P/Es compared to their peers

How Tom Increased his Savings while Working

• Tom worked at General Motors and managed to increase his savings from $1,000 to $1,500 per month.
• Tom moved in with his girlfriend, Sarah, which helped him increase his savings rate significantly, as they split the rent on a home together.
• At the same time, his responsibilities at work increased, giving him higher salary with which to save.

Lessons on Wealth and Frugality

• Remember Charlie Munger’s advice that the “first $100,000 is a bitch”.
• Being orderly with one’s expenses is important in increasing savings rate.
• Take advantage of cost efficient living options, such as sharing rent or household duties.
• Understand the opportunity cost of your decisions, such as when it comes to materialistic things.
• Beware of the power of habits; once you open the gate of your stock market account and let a chunk of money out of it, it may be difficult to close it again.

The Importance of Patience

• Tom had mentally prepared for the S&P 500 stock market crash that happened right before he turned 31
• The crash resulted in Tom being back at stage 2, with wealth below $100,000
• Tom was advised to keep swimming and stick to his process even when returns weren’t very good and investments felt discouraging
• Tom refused to splurge in the stock market, picking up exceptional companies in bargain prices
• Tom made 30% and 45% returns on the stock market in the following two years
• Tom was rewarded with returns that beat the market by an average of 8% per year
• Patience was essential in this period as it took time for additional deposits to have an impact on the portfolio value

Earning Financial Independence

• Tom’s boss wasn’t happy when he wanted to return, but eventually let him back in.
• Despite this, his retirement was still nowhere in sight.
• The point of Tom’s story is to demonstrate that anyone can earn more than him with enough effort and intention.

Warren Buffett: Making $1 Million by Age 31

• The story of Warren Buffett is extraordinary compared to that of the “normal guy”, Tom.
• Buffett made his first $1,000,000 by the age of 31.
• It can be learned from Buffett’s success that, with enough hard work and focus, anyone can achieve financial independence in record time.