23 January 2021

The Power of Little Bits

It's winter where I'm at, and as I stare out the window by my computer, nature is telling us all so with a fresh blanket of snow, ice, and freezing fog. 

Definitely not my cup of tea. 
I'd rather be here, where "snow" is something
they put in a paper cone and douse
with fruit flavorings!)

That photo is one I took on the island of Caye Caulker in Belize close to this time last year. The topic of this post is how I got there: the power of little bits. 

The "little bits" I'm referring to is the series of investments I've made over roughly the past twenty years, and continue to make. Up until about the last five or six years, my income has never been much more than what one would probably describe as "average" in the context of the U.S. economy. I was a W-2 wage earner getting paid whatever the market and a boss deemed "enough" before I started my own business and grew it. For the most part, my pre-entrepreneur income was "enough", defined as "bills paid, debts serviced, lights on, food in the fridge", with a little left over. 

That "little left over" part is what I used to lay the foundation of where I'm at now, and what enabled me to just go to Belize for a couple weeks last year. Where a lot of people take the little left over part of their income and spend it on fun in the here-and-now, I made the decision to start accumulating assets. Those assets now pay for my fun (and a majority of my day-to-day expenses).

All I had at first were little bits, so I started building a little at a time. 

I've tried to tell people about this stuff over the years, people that for various reasons I perceived as being receptive to the ideas behind the things I've done that have led to me doing things like flying south and hanging out in the sun, not producing anything, but receiving income the whole time anyway (dividends, mainly, but also via a little remote work, some newer side stuff I'm growing). 

For the most part, people are interested in this stuff, but then flat out reject all of it when they find out some work is involved, for a variety of "reasons" that generally amount to "that sounds hard!" The few that are still interested past that point, they often lose their remaining interest when they realize that the results I'm enjoying now won't manifest overnight (some version of "that takes too long!"). 

What it always seems to come down to is that a majority of people believe they need "life-changing money" right now to make the kind of lifestyle I'm beginning to enjoy possible, and the impression I've gotten from most of these discussions is that they think it needs to arrive via some stroke of luck (perhaps why there seems to be so many about these days who believe that "rich" people don't earn their wealth through work). So, for lack of a sudden huge lump sum immediately in-hand, they just retreat into their current lives and use their little bits to get some immediate gratification. 

I'll be honest: getting immediate gratification with those little bits IS more fun than using them to acquire assets. That's because at any point in the process, plugging those little bits into the asset column on one's balance sheet typically does not make a major, immediate impact, both in terms of net worth and passive income. In the very beginning, and for several years following, "the needle" barely moves and it is easy to perceive it all as pointless. The thoughts go something like: "I just bought $5 worth of XYZ stock at a 4% yield and got a whopping 1.7 cents per month of new income... Yipee, I could have had a cheeseburger. I really want a cheeseburger." I know, I was there in the beginning.

Quick question: if you never get started on something, how much progress do you make toward that goal?

Yes, starting out sucks. Staying consistent with something that appears to have no near term impact, sucks. Delaying gratification, possibly for years, also sucks. 

You know what sucks even more?

Letting your time slip by and one day finding yourself with a body that can't just go make some more money at work anymore, but still having a functioning brain that remembers all the big things you wanted to do, all of the useless, momentary crap you blew your energy on over the years instead, then ultimately going out old, frustrated, poor, and full of regret.

Think about that. Visualize that being you some day in the future. Is the "cheeseburger" still appetizing?

Now I'd like to clear up one thing here before moving on: I am not one of those "stop buying lattes and become a millionaire in 30 years" guys. I do not believe that the road to riches is total self-denial. The guys out there preaching that, they're probably lying: they still buy cheeseburgers and lattes, they just use the money they get from selling you bullshit .pdf "courses" that tell you to do that. Trying to turn yourself into an extreme ascetic in pursuit of wealth is bound to fail as it's an ideological contradiction: why the hell are you pursuing personal wealth, for your own use and enjoyment, if you are practicing self-denial? You're not doing the former in order to do the latter, so any such attempts will ultimately fail since its incoherent behavior. Most people who go this route make it for a little while, then the dam breaks and binge indulgences tend to wipe out most or all of their progress. Rinse, repeat.

This is also not intended to motivate you with fear. That never works. This isn't about running away from something that scares you (the awful thought I described above for example), this is about running toward the things that you want. Positive building, not fearful hoarding.

I believe in living now, and living even better later. It can be done, and those little bits are how you pull it off. 

You've probably heard "pay yourself first" before. Generally that comes with a rule-of-thumb recommendation to set aside 10% of everything you take in for saving and investing. That's the basic idea of using your little bits, but don't get stuck on any particular percentage. Rather, what you should aim to do is make investing your surpluses a habit, be they large or small. If you can't swing 10% right now, fine, do 9%. Or 8, or 7, or... you get the idea. Anything above "zero" and you're in the game.

On that note, a quick thought to consider: the difference between you and "the 1%" is not your wealth vs. their wealth, it's what you do with your free cash and what they do with theirs; do what they do (keep reading!). 

I started out like this, setting aside 10% of everything I took in. It didn't always go perfectly, sometimes things came up and I unfortunately had to lower the percentage, or even scrap some investments to cover immediate needs. Definitely discouraging, but I pressed on. These days I invest a lot more than 10% of what I'm taking in, WAY more, and it's actually an inevitable side effect of the process I've been utilizing for years. I now perpetually acquire assets because for the most part I never sell (something for a future blog post, definitely).

I've used and continue to use a number of products and approaches to investing my little bits, investing in a lot of different markets (I do a little trading, too, but not much of my net worth is dedicated to trading since I prefer avoiding short term capital gains taxes, and I find the noise of short term price fluctuations annoying). 

One of the tools I began using years ago and still do is Acorns

Acorns has been around for a while, so you may have heard of it. For those who haven't, it is what's commonly called a "micro investment" platform that operates on "round-ups". There's now several entities out there that use this concept, but as far as I know, Acorns was the first. 

It goes like this: you create an Acorns account, which can be a regular brokerage account (taxable, but assets it contains are fully accessible to you at any age), or an IRA account (not taxable, but assets it contains can only be tapped without penalty after a certain age, and then may or may not be taxable depending on the IRA type). You then log in to Acorns and link credit and/or debit cards you regularly spend with to your account. Acorns then monitors your transactions and "rounds up" the total. When your round-ups total at least $5, the amount is drawn from your linked checking account and invested into the stock and bond portfolio you've selected for your account (Acorns has a short menu of portfolios to choose from, all you have to decide on is your risk preference; you don't have to research a bunch of stocks).

Using the proverbially denigrated latte as an example, if you buy one for $5.50 on one of your linked cards, Acorns will count .50 cents as a "round-up." Do that ten times, the total round-ups equal $5. Acorns then draws that from your linked checking account, invests it, then resets the round-up counter to zero and starts over.

This works with all of the purchases you put through your linked cards, but some merchants also offer to make bonus investments into your account if you shop with them through a partnership they have with Acorns. This can be earned via a shopping portal integrated into the Acorns site, or in some cases being credited to your account automatically for offline, "real world" purchases. One that I use all the time is a .25 cent bonus from Chevron (also Texaco) for fuel purchases of at least $20. Since I'm filling up my work trucks all the time, I take advantage of this. I need fuel anyway, my money is going to be spent on fuel regardless, so why not gain this additional little bit and add it to an asset that is paying me to own it? All I have to do is swipe one of my linked cards at the pump, and Chevron sends my .25 cent bonus to Acorns automatically. I've racked up dozens of these bonuses every month for years. It adds up.

This starts off slow at first, but then something else starts to happen: the various investments in your Acorns account begin paying dividends, which reinvest and buy more shares, which increases the value of the whole account and the amount of dividends you receive the next time around...

It's a simple system that works extremely well, in my experience, especially for using "little bits" to eventually grow something massive. The automatic nature of it is also a useful "hack" during the period of time when you're developing the investing habit, which later on you can utilize Acorns for, too, as choosing to invest additional sums of money into your account can be done any time you like. 

There are costs for this service, the lowest cost option being $1 per month (that's the one I'm using at this point in time). That fee and the round-ups are drawn from your linked checking account, so you do have to keep an eye on that and account for them in your checking ledger. For the $1 fee, Acorns handles investing your incoming funds, reinvesting dividends, even an occasional rebalancing of your portfolio, all automatically. Before you know it, dividends your investments earn will cover the fee anyway.

The Acorns referral link I've repeatedly provided here will give you a $5 sign-up bonus, invested into your new account. Your first little bit.

So in a sense, this is a way to have your latte and drink it, too. Not really possible but... you know what I mean. The little bits represented by round-ups get you your start. Over time as you watch your Acorns account grow, the reward center in your brain slowly rewires and eventually it is investing that brings you pleasure, not cheeseburgers, lattes, or whatever fleeting, momentary thing regularly crosses your path and your mind. It's not that you'll necessarily start totally rejecting those things (like I said, I don't believe in doing that), but that you may find your in-the-moment thinking changing and aligning with long term, larger goals and greater values, and end up choosing those things instead. Not rejection, not self-denial, but wanting something else more.

If you experience what I have over the years of doing this, one of the first things that changes in your "money thinking" as your investments grow is that worries about monthly bills fade away. Some time after that, fear about your job security begins to evaporate. A lot of things in life begin to look different, in a good way, as you mitigate or outright eliminate sources of financial stress from your life. Eventually you get to what people call the "abundance mindset" and you leave behind the "scarcity mindset" (perhaps another topic for a future post). 

You likely then have also established investing as a habit, meaning you have mastered the hardest part of all of this stuff and it didn't take "life changing money" falling into your lap to do it (which will likely never happen anyway; it's ok, you don't need it to). Next thing you know, your little bits have propelled you overseas, perhaps to Belize for a few weeks while back home there is snow and ice everywhere you look...

That's the power of little bits, and why I believe in them as much as I do. 

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