Over the years, I’ve spent a lot of time reading about investing. I started with the foundation, debated the strategies, spoke with investment advisors, and everything in between. Out of this, three things became clear to me.
I will never consistently beat the market nor do I care to try.
A simple, consistent contribution strategy with an average stock market return rate over time will make me very wealthy.
Not investing or deferring investment dollars until later is one of the worst financial decisions I can make.
I’m no expert by any means nor am I trying to sell you anything except for the fact that investing doesn’t have to be difficult.
Because I feel strongly about this, I’ve compiled some must-read articles on investing in the section below. If you don’t feel like reading articles on investing, and want an easy answer, skip to the end.
With investing, it seems that less is more for most people. According to Warren Buffett, that’s 99% of people. If you resonate with having a simple strategy that makes you wealthy, here’s the even simpler advice experts give.
Set aside as much as you can in investment accounts (i.e. 10-15% of your gross income). Start with your 401(k) up to your employer match (free money) then look elsewhere.
Invest all of your money in a low-cost stock index fund, such as Vanguard’s VTSMX.
Continue investing as much money as possible over the years. Don’t touch any of it until retirement.
Ignore the news and ignore your fund performance.
Don’t believe me? Good. Start reading. This is too important to ignore.
Don’t you want to stop wondering whether or not you’re doing the right thing? Don’t let others determine your strategy or project their “wisdom” onto you without investigating yourself. Take some time and dive in! I promise it’s not that difficult.
Know of an article that you think I should include or read? Send it my way! I’d be happy to consider adding it here.
The main reason I started our debt-free journey was out of fear. The fear of not having enough to make choices on my own terms or without the influence of money. That changed when I learned to reconnect with my why.
As you can imagine, fear is a terrible source of fuel but it can serve as a great firestarter. This fear evolved over time. Soon after, my why for wanting to master my personal finances was to feel the freedom of choice to take epic risks in life, live spontaneously, and never feel as if money influences who I am as a person or what I choose to do.
If you’ve always said you want to get better or make a positive change with your money, why haven’t you done it yet? Chances are you don’t have a strong enough why to spring you into action.
If this is the case, I hope the rest of this article helps you find that fire within. Because if your financial choices are not aligned with your values, no amount of money in the world will make you happy. The path usually starts with you getting out of your own way.
Change the invisible script that’s holding you back
When you think about money, what internal story plays in your head? These are what Ramit Sethi calls invisible scripts that wreak havoc on your progress.
While invisible scripts relate to more than just money, the invisible scripts focused around money are often associated with less than ideal financial outcomes, financial behaviors, and other aspects of financial health. Oftentimes, these are handed down from our family members and stem from childhood experiences that we carry with us.
Have you ever found yourself stating any of the following? Here’s just a few.
I work hard, so I deserve this nice apartment!
Everybody has debt so what’s the problem with putting everything on credit cards?
I have a real job now so I’ve earned this new car!
I’ll never be able to afford XYZ so what does it matter how I spend my money?
That works for them but that will never work for me.
It must be nice! They get all the breaks!
I’m young and want to do all these things so I can put investing/saving off until later.
Money is the root of all evil and having a lot of it is selfish.
Wealthy people are greedy and corrupt. There is virtue in living with less.
If any of these scripts play in your head, it’s time to challenge them. You’ve grown as a person since you first heard these, haven’t you? Do you really believe these? When’s the last time you stopped to think about your own attitudes about money not what was handed down to you?
A quality relationship with money is one worth having given the fact that it will be influential until you leave this earth.It’s time to choose wealthy behaviors and thoughts. No matter how small.
Choose to get 1% better each day or week, not unrealistically better in a short amount of time. Instead of overwhelming yourself with many tasks in the beginning, spread your lessons over the course of a week to give yourself space to think. It might not seem like much, but those 1% improvements start compounding on each other. Make them positive. Do the pre-work.
Try starting a money journal or an internet article bookmark folder related to money. Write down one thing that interests you about money, relevant or not to becoming debt-free. Save just one article a day to read each day of the week or bookmark a couple to read at a set time on a set day. Try batching about 30 minutes to an hour of time, to go over some of the stuff you’re trying to understand. Then on Sunday, reflect on what you took away from these and figure out how to work it into your financial strategy, whatever it is. Slow is smooth and smooth is fast. These tiny actions over time will lead to a rich life.
I truly believe that the following things are really all you need for an epic financial life.
Invest 10-15% of your income
Spend less than you earn (i.e. budget)
Avoid big debts over time
Budget/save/spend for beautiful experiences vs. stuff
Grow as a human to earn more and live simpler
If you are already committed to doing these things, it’s only a matter of time until you make progress. If you’re doing these things and not progressing, think back to your invisible scripts. Find ways to implement these things however it best fits you. Plain and simple.
Remember F-U Money
There is this concept of F-U money that I absolutely love and relates well with freedom of choice. To illustrate this principle in a fun way, I’d like to share an outstanding must-watch YouTube clip from JL Collins, financial expert and author of the Simple Path to Wealth (one of only two books I’d recommend relating to personal finance).
In the video, he replaces himself with John Goodman from the movie The Gambler and edits the script for the topic. It’s absolutely fantastic and hilarious.
It’s a no-bullshit way of telling you exactly what to do similar to what’s highlighted above.
Reconnect with your why
I’m slowly learning that solutions only start to present themselves when you take action towards what you want. Instead of being distracted by what you’re “supposed” to want, focus instead on implementing the steps that lead to the life you really want.
Freedom of choice is not about buying stuff. It’s about being able to make a decision not out of fear, but in a way that supports who you are. Don’t you want to be in the position of F-U? Try that as your why the next time you think about swiping your credit card for something you don’t really want.
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Are you more of a visual learner? Well, then I have just the article for you! When it came to making a positive change with our personal finances, I was amazed at how eye-opening financial pictures and calculators helped put things in perspective.
The pictures within the article you’re thinking about reading probably aren’t anything you haven’t seen from me yet. They tell a similar story. Paying massive interest sucks and doing the minimum with your personal finances can cost you thousands of dollars over time.
If these pictures don’t make you think or inspire change even a little bit, well, I guess we’ll try something else next time!
Minimum student loan payments over time
If I stuck with what I was handed in terms of student loan payments over a 20 year payoff period, with a monthly payment of $251 per month, my original $33,000 in student loans would have cost me an additional $27,000 in interest.
Fortunately, a simple calculator can help you see why you might want to speed this payoff period up.
Even if you paid a little bit extra each month, you could cut this time and interest cost in half. What would you do with $13,500?
PS. If you’re serious about finally tackling your student loans, I wrote in-depth about this in a previous article.
Credit Card Payoff and interest
Do you know why your minimum payment is so low? Because the credit card companies love to make money off of you and everyone else with the high-interest rates they charge.
If numbers don’t convince you, maybe your hatred for large corporations taking advantage of you will. Also consider the fact of the harmful ways they are using your money to push their own financial agendas.
Below is a picture of a simple credit card repayment scenario and a link to a calculator too.
The fine print of literally anything…like your credit card
I call this photo the dangers of the fine print. How often do we read it?
Take a look at this simple example of a credit card statement. Not only will I get charged $38 penalty for a late payment, but they will also increase my Annual Percentage Rate (APR) by about 7-10% and lock it in at 29.99% APR moving forward.
Your 30-year mortgage interest payments
I like to play around in Excel when it relates to personal financial planning because I’m a numbers guy. I found this awesome preset mortgage calculator and amortization table online through Vertex42 excel templates.
All you need is some basic inputs that you can find across the internet (or call a mortgage broker as I did) to run your scenarios. Everything is preset and the numbers will change as you type them in.
Whether you have a mortgage or are considering one, you should run some numbers for yourself. Seriously though. Check this bad boy out.
Future Roth IRA (or any investment) over time
A Roth IRA is a wonderful investment vehicle. It gains interest tax-free over the course of your life. This means all of the money you save now is never taxed after age 59 1/2. This is important because lord knows what the tax rate will be by the time you’re that old.
Although the limit right now is $6,000 per year, Bankrate’s calculator is working off of the past numbers so that’s why we’re using $5500 per year. The numbers are illustrative so keep that in mind.
At $5,500 per year or $458 per month, you’d have…
$615,000 in tax-free money that’s completely yours to use how you wish.
Now think of this. Multiply these savings times two if you are married because you both can have a Roth IRA and the total is nearly $1.2 million by age 60! If you did nothing else with your investments (i.e. contribute to your 401k through work) you’d still be pretty well off by retirement. But you want to be epic so do a little bit more elsewhere.
You may have asked yourself once or twice: should I get an investment advisor? I’m not here to bash investment advisors that you pay to manage your money. Especially if it means the difference between you not investing at all.
However, despite all of the curated marketing material explaining why you should, the simple fact is that time and time again, study after study, billionaire after billionaire, book after book, show that most investment firms/advisors don’t usually beat the market over a 10-30 year time period. In fact, they end up quite comparable to that of a low-cost mutual fund investment account (i.e. Vanguard) for the average investor. JL Collins, the author of the book Simple Path to Wealth (100% recommend this book), wrote a fantastic article about why he doesn’t like investment advisors if you’re interested in seeing why this is.
I’ll try to keep this statement simple. If you start with $0, invest $6,000 per year starting at age 30 in a Roth IRA with Vanguard your expense ratio (i.e. fees) would be approximately .14%. Compared to an investment advisor, you’d be paying anywhere between 1 and 2% per year in fees.
Let’s assume that history repeats itself, which means no advisor will gain a significant interest increase beyond what the market returns (i.e. your mutual fund) over the long term.
The picture below shows three scenarios. In fee 1, you see a typical Vanguard setup (that you set and forget) which has an annual fee of 0.14%. If you went with an investment advisor who charged 1%, again assuming they don’t beat the market over 30 years, you’d have $95,724 less for the same average return rate over 30 years. And if they charge 2% per year, well, you can see how that eats into your returns.
Now, lets talk bigger money using the same scenario but with more money invested each year. The difference is even more substantial.
Stock market returns ebb and flow over time and just as fees add up exponentially over time. Another way to look at this is if an advisor was able to get you an extra 1-2% return beyond what the market did, it would be offset by the fees being charged in the fine print. You don’t typically find out (if at all) until many years later that the rate of return was pretty similar. Most don’t know at all.
All I’m saying is to be wary of fancy marketing material and pressure to be advised. If you desire simplicity, it may be best not to chance it for what you would probably get anyway with a set it and forget it Target Rate Fund or a DIY investment approach (assuming you do your homework).
Of course, there are exceptions but if you’re guaranteed extra returns just by hiring an advisor you might read more and reconsider your investment options. It’s hard to outsmart a game millions of people are playing against corporate America and wall street. Taking the “average” will still pay off quite nice without the added risk and extra fees.
Why not get a high yield online savings account?
Online savings accounts are super simple and there are many perks including no minimums or fees (I use a Discover Online Savings account). Although the rate of return fluctuates between 1 and 1.5%, that number is 1-1.5% higher than what most big banks will give you for your money just sitting there.
Banks are ripping you off free money that you could gain elsewhere via any online savings account and they are built around bullying you with penalties and fees to do so.
Vs. Your current big banks interest yields (I.e. Chase gives me .01% on their savings account)
Sure, its not a slam dunk, and the interest gained is not going to help you retire but it does get you a nice little bonus for doing absolutely nothing. Hell, I earned $200 last year because of it for just having money sit in a savings account.
There’s tons of flexibility with these and you can have as many as you want. Check them out.
In personal finance and life, you must remember to play the long game and you can understand the future better by using simple calculators and tools. The long game is subtle and can work against you over time.
Personal finance is a game you play over the course of your entire life. The decisions you make today could really add up in the future. So why not have a “learn it-set-it, and check-it” attitude as you progress through life?
Broke people ask how much per month. Rich people ask how much total.
The simple objective of this article is to get you a little bit interested in some online calculators to see how your strategy stacks up. These tools will answer some important questions you may have wondered about and hopefully inspire you to take the first step towards a better financial future.
On a Friday morning, I found $20 on the ground in a Starbucks parking lot on my way out. This isn’t the first time I’ve found money on the ground. I’m excited at first as I look around and laugh to myself how cool this is but after the excitement wears off, the anxiety sets in. What should I do with this money?
I don’t need the $20 and spending or saving it feels unsatisfying to me. On one side of my brain, I think about all of the nice ways I could treat myself. On the other, I think about how I could make an impact through some random acts of kindness for a friend, stranger, family, or donate to a cause. One time I decided to save it for the “right moment” and used it for myself when I was in a pinch only days later. Never again.
While I understand giving and practice it at the base level, I’m no saint and I won’t pretend to be. I’ve never really learned about the full spectrum of giving and have been selfish over the years. I’m learning that there is no “right moment” to give. Found money or time shouldn’t be the only time to be generous.
I have much to learn about giving. How about you?
What would you do with found money?
I continued to wonder about what purpose I could give this money on my drive home. Had I thought of it in the parking lot, I think it would have been cool to walk into the Starbucks and give the barista the $20 and tell her to pay for as many orders as possible. Then I thought, while a random act of kindness could start a fun chain, those folks coming into Starbucks probably don’t need it either.
Then shit gets real. I pulled up to a stop light on my typical route home and saw a homeless person panhandling on the corner. He’s holding a sign that says “hungry, anything will help.” Surely this is a good candidate for the found money?
I’ve always been skeptical of street-corner panhandlers. Sometimes I wonder if it would be better to buy food or gift clothes or something else useful instead of offering money. I’ve always thought about approaching the homeless people in the park near our apartment and introducing myself and asking these questions: What would provide the biggest impact on your lives? Is it food? Money for food? Clothing? Accessories/tools? Is it better to eliminate choice or just give money?
It feels wrong to think this way. Whether with this example or any other opportunity. Is it? Aren’t I taking away the freedom of choice money offers? Who am I to play the martyr and determining the ideal circumstance of gifting?
A short story
I recall a time when I was at a work conference in San Fran and I was eating breakfast at a Corner Bakery. As I walked in, I saw what I assumed to be a homeless person standing out in front. As I ate my breakfast, I thought about following my past intuition and giving food instead of money on my way out.
So I saved the buttered toast in a napkin and offered the food to the woman as I left. She looked curiously at it and nodded her head motioning that she did not want it. Did I wrongfully project a need onto someone I thought might be happy to receive a gesture like this because it was easier for me to do so?
I kept driving.
Giving isn’t always convenient
It’s safe to say we’ve all had both good and bad experiences related to giving. Ask Michelle about her experience of buying a meal for a homeless person who asked her to.
Or maybe you’ve felt like me thinking there’s a more ideal way to give $20, even when its found money. This depends on the person and the situation and I’m not just talking about giving to the homeless. The same applies to a church offering, any cause, any person, time, work, etc. Thinking about the external impact of to justify doing something selfless is not a mindset in life I want to live with.
Giving is not about ROI and the amount isn’t the most important thing. Nor is it about a fear-based gesture that comes from pressure or force. While $20 isn’t much the intention behind it is a vote toward the person you want to be and what you want to stand for. Many people (including me from time to time) convince themselves that once they create money or success, that’s when they will become generous and giving.
Maybe the reason that success or money hasn’t come is that by holding on and hoarding money is what’s keeping us from creating abundance in the first place. When we hold something back out of fear and believe we don’t have enough to give, aren’t we creating an internal vibration of lack?
The art of the gift
I believe I am a generous person but there’s a lot I need to improve on. Sometimes I wrongfully forget that the external results are not what matters if the intention comes from the heart. This experience has encouraged me to reflect on giving. After all, the happiest people are those that do more giving without expectations of receiving. Ironically, when you give, the Universe rewards you if you remain open-minded.
I believe giving is about hope and is practiced in many forms. Giving your time, attention, money, or skills, to a person or a cause or anything else that’s selfless without the expectation of return is the foundation. Don’t we all hope that someone struggling or someone having a shitty day can experience one of those special receiving moments of life? Even with the simplest of gesture like a smile or a genuine conversation?
Hope to me is that no matter how shitty things are, good things can happen at any moment. And if they happen to one person, one place, in some other way, then what’s stopping you from the chance to receive an equally wonderful gift from God or the Universe? No gift or moment is any more special than you determine it to be from another. An open heart and mind make it so.
What if we all thought that something small doesn’t really make a difference? Nothing great in life would be achieved. Small collective actions with the optimistic belief that we are not alone is what creates a better world.
If we could change ourselves, the tendencies in the world would also change. As a man changes his own nature, so does the attitude of the world change towards him. We need not wait to see what others do. It’s the action, not the fruit of the action, that’s important. You have to do the right thing. It may not be in your power, may not be in your time, that there’ll be any fruit. But that doesn’t mean you stop doing the right thing. You may never know what results come from your action. But if you do nothing, there will be no result.
I decided two weeks ago to stuff this found money away and wait for an opportunity to use it. It’s not much and it doesn’t give me a free pass to slack off until the next time I find the money. We can never know how much time we have in life so its best to spread joy and gifts as much as possible.
This time, I think I know what cause I’ll donate to because Black Lives Matter!
One thing we all have in common with COVID-19 is an unprecedented disruption to our normal lives. If you view things as happening for you instead of to you, unprecedented times provide good opportunities to do some unconventional thinking.
This article highlights 6 unconventional financial questions to think about and help you discover more about your epic life in the process.
1. What would I do with $10 million?
What would I want to do, have, and be if I had $10 million in the bank? How much does my dream life – or the life you might be deferring to retirement – really cost if I pay on a monthly basis?
I got this one from Tim Ferriss. The problem people face sometimes is the trap of workaholism by way of insane hours and constant stress. They may be making great money during that time but when they have a chance to step back and reflect, they might wonder what it’s all for. Is the money worth it? Maybe happiness is a better target than financial success after all.
Whether you’re in this place or not, the Target Monthly Income (TMI) exercise is a great way to figure out how much your dream life would really cost.
Chances are that the ultimate TMI figure will be lower than expected, and it will decrease over time as you trade more and more “having” for once-in-a-lifetime “doing.” Check out this exercise on Tim’s blog about lifestyle costing and TMI.
2. How much of my money is going to…?
I believe that if you want to build wealth and become debt-free, you need to know where you’re money is going. Budgeting doesn’t have to be a boring, traditional, gut-wrenching process. I’ve always been adamant about changing the stigma around budgeting and try to inspire myself and others in a way that results in action and commitment.
Instead of tracking every purchase, focus on splitting up your income into three to four main categories: fixed costs (i.e. housing, transportation, insurance, groceries, etc.) guilt-free spending money and debt payments. Start by understanding how much you are spending in the budget categories to get a baseline. This helps you understand your habits and may inspire you to change them. The picture below provides a pretty typical breakdown for Americans.
If your spending categories are much higher than suggested, ask yourself why. The goal here is to identify what is essential and what is not. Its time to learn how to build a budget that doesn’t suck.
3. Am I happy with my tax withholding?
You might have heard financial folks telling you not to give the government an interest-free loan. If so, they are referring to the amount of money that’s withheld from your paycheck to cover your tax liability. Otherwise known as the money you give to the government each month ahead of time that you could get now instead.
Everybody pays taxes and how much depends on your specific situation. Your tax liability factors in your filing status, health insurance, tax bracket, 401k, HSA, etc. If around tax time it’s determined that you owe more than a $1000 to the IRS (under-withheld), you pay that number and usually a penalty. However, more Americans end up over withholding and receiving a significant tax refund come April. But you do have the option of not doing that.
What would you do with that extra money per month that gets pushed off until April? Let’s say you typically receive $2,500 back come April. Assuming you get paid bi-weekly (26 paychecks per year), that would be an extra $96/paycheck or $192/month. If you were to dial in your withholding, you could free that money up for yourself. What would you do with this extra money each month? How would it impact your lifestyle or the life you want to live?
Of course, you could invest it to which it would grow exponentially greater over time than if you got a big check in April. Or, you could fund your hobbies, afford some luxury you’ve been putting off, etc.
When you think about this for your own life, would you rather have a steady source of extra income over a full year or receive a one-time payment? If you do like the big refund option, think about how you’ve spent that big chunk over the years. Did it make you happy or did it pay off the debt you accumulated buying stuff that wasn’t worth it?
Think about what would add more value to your life and adjust your withholding accordingly. You could start by playing with the IRS Tax Withholding calculator to see the impact on your situation.
4. Are there pain points to solve?
A true pain point is one, no matter how small and negligible, that adds up over time and annoys the shit out of you distracting you from being present or making progress. Now that is a situation where you justify spending your money.
A super successful serial entrepreneur once said, “If you’ve got enough money to solve a problem, you don’t have a problem.” It’s often true that early in our lives, we spend most of our time trying to earn money. As life goes on, we start to see time as more valuable because time is nonrenewable.
When we have few funds and many wants, it can be challenging to prioritize what to buy. One trick might be to identify what in your life is causing you inconvenience and throwing money at it to solve it.
5. How much do you need to start and continually support your creative hobby?
I’ve realized over the years how important stoking our creativity is and how flexible creative outlets can be. Years back when I was looking for a new hobby, I decided on learning guitar. I researched reviews, lessons, and the like and figured out how much I would really need to get started. Once I had that, I put money aside to get there. Simple.
A key part of retirement planning is to answer the question: “How much do I need to retire?” The answer varies by individual, and it depends largely on your income now and the lifestyle you want in retirement.
What you “should have by age X” is total bullshit and it depends on your financial goals in life. You should be responsible for how you plan for retirement but don’t buy into comparing yourself to where you should be. If you live right, a lot of your would-be expenses in retirement won’t be there because your goal is not to be a broke American.
Many people view financial planning as an extremely boring subject. It doesn’t have to be when you ask or research better questions. It’s a lot more fun to seek unconventional ways of thinking and learn more about the people you admire who seem to have it all.
Chances are they went the opposite direction in life by thinking unconventionally. All of the exercises listed above can exist with boring financial spreadsheets and inspire you to take action towards your big life.
If you think I talk a lot about loving where you live and moving, it’s because I believe these are fundamental to our growth as people. I believe that moving is a right of passage that exponentially advances your life. If you lack funds, time, or effort to travel, maybe you should just move. I’m going to try to convince you once again in this article.
People say moving is expensive and risky but cant the same be said about the anxiety of saving for on travel “while the time is right”? Have you actually penciled the numbers on what it would take to move? How about the opportunity costs over your life of staying put? Worse yet, have you ever traveled but felt that something was missing?
I’m not naive enough not to say how white privileged I am to have had tremendous opportunities in life. I am very sympathetic that some folks really do have compelling and sometimes heartbreaking reasons not to move. This article may not be for you and please don’t take it personally.
For the rest, how’s complaining about where you live working out for you? Will a vacation really solve the cynicism of traveling to escape the stagnant situation you feel you’re in? Did the pandemic just ruin all your travel for a while? It may be time to capitalize on these “unprecedented” times.
Am I saying move instead of travel? No. Allow me to explain below.
Why do people travel anyway?
A few of the big reasons people travel are:
To learn and experience something unfamiliar and leave with new skills or knowledge.
Getting in touch with yourself and an opportunity to reflect on your life. You get the needed time and space to let your mind wander and take stock. Traveling is one of the best ways to learn more about yourself. You’ll come home knowing yourself better, and with a fresh perspective on what you want out of life.
Building and strengthening relationships and the shared experience of travel brings people together.
Sense of adventurethat humans crave new experiences and travel lets us tap into that craving.
Time to reflect on the many ways people live life. Meeting people from other places will show you that your world view isn’t the same as everyone else’s.
Think of moving as the lazy person’s approach to traveling. Why not move somewhere that puts you in prime position to visit all of the places you say you want to visit? Then, all of the “travel” you do is decreased significantly. Your travel becomes mini-adventures that are drivable and more affordable.
For example, one of the many reasons we chose Arizona aside from the yearly weather was the abundance of outdoorsy things to do within 2, 3, and 4-hour drives. Using an 8-10 hour drive I was pretty much required to do in the midwest as the most I would want to do in a day, Phoenix provides significantly more opportunities for amazing things than Des Moines does.
When you put yourself in an area you want to explore, everything becomes cheaper, and more travel opportunities to great cities, the ocean, national parks, etc. become readily available and less daunting.
Advancing your life and the hassle you make it to be
A few of the big things that stop people are:
Loneliness of not knowing anyone
Moving away from family
People usually think of the hassle of moving rather than the brilliant ways it could all work out.
From a job perspective, there are usually great opportunities where you might be looking to move. In fact, moving is a natural pivot for a possible career change.
From a financial perspective, depending on how much shit you’ve accumulated in your life, a move is probably equal to the cost of taking a decent-sized vacation. On the plus side, you get an incredible opportunity to cut all the stuff that’s secretly been causing you anxiety. There’s too much stuff and the accumulation of it is not what a happy life is about. This is your chance to start anew and seek only the things that light you up both financially and personally. A one BR apartment will teach you a lot of important lessons in life.
Loneliness of moving is a big one. Whether you are introvert or extrovert, the internet has made it super easy to connect and meet people. However, one of the great opportunities of moving is spending time reflecting and alone.
When in your life have you had time to spend alone to reflect on your entire life, invest in personal growth (without feeling judged), and explore personal interests? When you eliminate choices in your life, life becomes simpler for you to reframe positively.
Remember these too
The bold claim of moving being too expensive is cynical and an excuse people tell themselves to avoid taking a risk. More often than not, if you were to open up the financial box people are living in you could find many things that if cut or changed would open other doors.
When you look at life through the lens of supporting you or with a growth mindset, the challenges or “problems” always have a reasonable solution. There’s always an affordable way to think about things and you must always consider the future potential. This is hard work.
We forget about how much traveling can be a pain in the ass too.
How many times have you traveled to a place and it was a logistical disaster? Or when you pour your heart and soul into planning a perfect trip only to spend an equal amount of time judging whether it was what you hoped or met your expectations. Add this on top of the fact you may barely be able to afford to travel, you spend most of your time fighting your conscious mind about how much you’re spending and what you want to spend it on. That’s stressful.
Maybe you should just move
Of course you still want to travel and experience things but what if instead, you found a setup in a desirable city in a great location that was relative to your current place in affordability? What if you knew a friend who you might want to grow closer within a city and took a leap there?
Want to get the ball rolling? Step one is to take a vacation to a desirable place and feel the experience. Don’t have expectations of finding a place to live. Don’t judge it on what you like and dislike. Just be there with it. Explore and let your mind wander about what moving, in general, would be like.
Follow your bliss. What lights you up? For me, it’s hiking. So I put myself in a place I can do it year-round.
How’s your financial situation? Moving might be able to help when you remove the negative patterns that keep happening.
How’s your growth as a person progressing? Do you seek fresh ideas, people, and an opportunity to embrace being a newbie again? Have you ever spent time alone consistently to remove all stimulus and get to the core of who you are?
How about mini-adventures? Is there a place you’d love to go to see many things in one 8-10 hour drive radius? What if mini-travel becomes more about free things for a while while you get on your feet with your new place and get out of debt?
How’s your job? Think of your life over a 30 year productive time span. Would 2 years (if it didn’t work out) really make a difference? When’s the last time you took a chance?
What have you always desired in a place you live? Nature? Amazing weather? The ocean? Let your mind wander in a way that puts you in this place.
Moving can be a form of travel and it can be difficult. But when in life have the easy things been the most rewarding? If you are thinking you can’t travel or that you want to travel more, I would suggest doing both by moving AND traveling through mini-adventures!
There’s a natural progression of transition points in life. College, a first job…moving! I’m a firm believer that everybody needs a fresh start from time to time to put things in perspective. That’s what moving is to me. A chance to be in a place where you have room to grow free from the negative influences and complacency that’s been brewing over the years.
Like everything in life, you learn from the decisions you make and there are always chances to pivot. Say you move and it really sucks. Well, time to learn, pivot, and grow even more through adversity. No matter all of the reasons you have not to do something there are an equal amount of reasons to do something.
Wealth is the power to choose. Financial wealth is the power to choose how to spend money. Social wealth is the power to choose who to hang out with. Time wealth is the power to choose how to spend your day. Mental wealth is the power to choose how to spend your attention.
I regularly spend a good chunk of money on things that others probably wouldn’t. Chances are, my rich life and financial freedom are similar in some ways to yours and different in others. But I’m willing to bet we all agree that no one wants to be a slave to debt and that spending your money freely without anxiety, guilt, and stress without incurring unhealthy debt is an admirable goal.
A rich life may have some debt but the goal should always be directed at avoiding unhealthy debt. Most importantly, while still living abundantly without unknowingly hardwiring scarcity into your psyche. Avoiding the scarcity mindset is a tough task because our brains are wired to see the negative more so than the positive. I’ve learned that when your spending is aligned with your values, scarcity doesn’t show up as often.
In this article, I’d like to give a look into what Ramit Sethi calls Money Dials and how we’ve applied this to our own life on our path towards financial freedom. I hope it inspires you to think differently about your own financial journey.
Ramit Sethi has a name for the things we choose to spend our money on that lights us up in life. He calls them money dials or guilt-free spending. You could also think of these as your values that define who you are. These might include:
They can be big or small depending on where you’re at in your financial situation. And they are all yours. If done in a healthy way, you’ve earned the right to never be judged. The key is finding areas in your life to spend your money responsibly in a way that aligns with the person you are and who you want to become. Without any added guilt for doing so.
It does mean cutting the bogus stuff out of your life you don’t really care about any way to make more room for the good.
An example of my money dial
I get overjoyed when I find a business owner, food place, brand, etc. that I trust and admire. It’s a great feeling getting to know someone and/or exploring the business they’ve built. Its more fun when you learn by asking tons of questions about it and they’re OK with it! One of these examples for me is my wine shop, the Hidden Track Bottle Shop.
They have an outstanding selection of wines, many of which are natural wines (an important feature to the wines I drink), that are carefully curated from across the world. The best part of my rich life involves letting them fully guide my decisions without worrying about price. All I have to do is fumble my way into describing what it is I’m looking for and trust them to select the wine.
Here’s the kicker. I don’t say, under $10, $15, or $20 or ask about price when they suggest something. I love the feeling of giving them the sole power to decide for me only to find out what that price is at the counter and not flinch. It brings me joy to see the expression on their face and excitement in the way they talk about their suggestions. Fortunately, they know me so I won’t get too crazy with the price but there’s no anxiety, debate, or hesitation.
Passion like that is rare and hard to find and it’s beautiful to be a part of. I get the satisfaction of believing that I’ve empowered them to experience feelings of happiness and career satisfaction. This is just one of the many ways of using your money in a way that provides value to the world and people. And when price doesn’t run your life, that’s a rich life. Even if you play a low stakes game like this.
Now, how do you get here or justify this when you’re deep in debt?
I wasn’t always OK with spending over $12.88 on a bottle of wine. I used to penny-pinch like it was my job, even when I could afford something. I used to be stingy and fixate on numbers. I constantly worried about the balances in our checking/savings accounts and the impact of our purchases on them.
But these are the small things that make up my rich life. Sure, “live like no one else now so you can live like no one else later” is an admirable and successful model but the at all costs mindset can program scarcity. Yes, there are opportunity costs, but where do they end?
There’s always something to pay for or there’s never enough. If you choose to put off your rich life until someday, you’re deferring the amazing life you can have now with a modest couple of dollars.
Your financial happiness lies within your ability to feel the rightness of your financial decisions as they relate to who you are as a person. It takes introspection to identify those money habits that are hindering your ability to eliminate debt and move toward a richer life. The world is an abundant place and when you see it that way, you open up the possibility of receiving (and giving) wonderful gifts without scarcity.
Although I followed parts of the Dave Ramsey model and respected it, I always made room for my money dials. There was usually a lesser option that gave me the freedom Dave won’t. If you challenge the system while maintaining 100% respect for it, you might be able to incorporate a little this and that mindset in your debt payoff strategy.
Try starting with a simple debt-payoff strategy just beyond the minimum payment threshold so that its programs in your body and mind that you’re serious. Just enough to convince yourself you have skin in the game. Stick with that level for a period of time to build a baseline of competency. From there, you can slowly progress because you see your number getting lower and lower. I found the excel amortization schedule especially helpful for accountability.
Next, start adding a little more each month. Try adding just $10, $20, or $30 extra towards your debt to reinforce your commitment to your goal in your psyche. No matter how long it takes, it takes constant action in a way that supports your values and intentions. If you program your mind to see how the debt is slowly dissipating, rather than how far you have to go, you’re training yourself to see progress. As you see progress, you’ll learn more about yourself and your values which helps you avoid the scarcity mindset.
Becoming debt-free won’t be an aspirational goal until you begin shifting your mind to understanding your desires, wants, and needs. Debt isn’t the answer by itself. Where in your life do you see a limited amount of return on investment? When in your life have you spent money thinking it would provide lasting happiness but it only produced anxiety and loss?
Start to identify these experiences in your mind and approach them with an inquisitive nature. What’s going on inside your mind just before you click purchase, or when you feel yourself starting to want? Are you experiencing a moment of weakness? Did something stressful happen which has caused you to be more impulsive about this? Have you always impulse-bought to cheer yourself up when you’re feeling sad?
If you think of yourself as a resourceful person, more answers will come to you as it relates to the amazing things you want to do. There are ways to pay down your debt at an aggressive pace while fine-tuning your money dials.
If you never realize your money management or debt is a problem, you’re hindering yourself from becoming the best version of yourself. Wealth gives you freedom of choice and the choices become infinitely greater without shackles.
Your personal finances won’t magically sort themselves out overnight. Start to identify the negative thought patterns around money and the invisible scripts that run your life. Adjust your spending to align with who you are as a person in a way that brings you joy consistently throughout your life, with or without debt.
Never forget that there are more than monetary ways to give back and receive an abundance of life. We all have gifts to share and the simplest gestures of kindness make the world a better place.
I’ve never blindly accepted homeownership as better than renting, even over the long term. It depends on many variables including where you live, what your housing preference is, maintenance, interest, and most importantly, what you might do with the difference between your rent payment and mortgage payments.
Everywhere you turn, you’re going to find tons of reasons why you should buy a house, especially those who stand to make money from your decision. If you don’t do your own research, you could be making a huge financial mistake by check off a box of things you should do.
I’m not saying that buying a home is a bad investment. Neither is renting. You’re still paying for a service/foundational need without baggage after all. Like everything else, bad investments are made when you don’t understand the process and all the other variables and opportunity costs in play. Maybe your financial freedom doesn’t include homeownership because of all the baggage that comes with it.
In my own research on the matter, I found some great resources related to home buying and provided the best below. I hope this article helps educate and becomes a one-stop shop for both those considering homeownership and people who currently have a home.
Don’t be fooled into blindly accepting that buying a home is the only way to financial freedom. Financial freedom varies from person to person and we shouldn’t let people shame us into buying homes.
Maybe not having the stress of homeownership is actually a better strategy for your health, which in turn keeps you less stressed, which in turn saves you thousands in medical bills, which in turn enables you to invest lots of money, which in turn helps you retire early, and the trickle effect goes on! As wild as that seems, it may not be too far off.
While on the other hand, homeownership could be a slam dunk and keep you from getting screwed by the rental companies, crappy landlords, build a family comfortably and enable you to put down roots in a place you love with comfortable payments below that of renting. If you love tinkering, home maintenance, and repairs, then you should probably buy a home.
If you’ve ever been interested in home buying, you might start with some of these articles. I hope they challenge your existing beliefs about homeownership and get you thinking about your own financial freedom.
Spend extravagantly on the things you love and cut mercilessly on the things you don’t
Ramit Sethi, I will teach you to be rich
Cars are not things I love or care deeply about so I made a decision a long time ago to spend as little as I possibly can on them. For me this meant, only buying used cars. But maybe you’re different. Maybe a brand new car lights you up. Maybe you’re being smart about it and will end up better off than my strategy in the long term.
If you read past the catchiness of Ramit’s statement you would find it’s rooted in conscious spending and does not give you a free pass to be frivolous everywhere in your budget. Everything in life comes with an opportunity cost. Your big car payment comes at the expense of your fully funded vacation, fancy shoes, baseball card collection, yoga membership, etc. If you’re not careful, the opportunity costs of coerced spending decisions that provide little value to you (like cars for me) will leave you unfulfilled and broke.
How do you think we were able to pay off our student loans so quickly and everything in between? How might you think we are living debt free and now really putting a financial plan in place to experience the things that bring us immense joy? The past 10 years have gone by in a flash and because of our decision to strive toward living true to our values, we’ve managed to save over $25,000 on car payments alone. You can too.
Forget about any debt you might have for now. Reflect on this simple financial principle and begin to identify the areas in your life you want to spend more on and those you don’t. If you’re disciplined in the areas that provide little value, you’re better able to spend guilt-free in the areas that bring you joy! If you do this without carrying a balance on your credit card over time, maybe that’s enough for a great financial life.
As for our example, read on for the detailed story in today’s Financial Friday.
The used cars route
Since I started driving, I’ve owned and driven (still driving) a total of three cars. Frank, the 2001 5-speed Focus with no A/C, Shania, Michelles Pontiac G6 that became our only car for a long while, and Frank Jr., the 2012 Ford Focus that allegedly needs a new transmission worth more than the car itself. It’s safe to say, I’ve never placed a lot of value in these machines.
Fortunately, I’ve been pretty lucky over the years. Frank Sr. cost approximately $2,000 and was a gift from my parents while I was still in college in 2010. Shania cost us $4,000 to pay off between Michelle and me when we got serious about our money together in 2014. Lastly, Frank Jr. is a salvaged car we paid $5,000 (bought from a friend) with the partial proceeds of our selling our Des Moines house before moving to Arizona. In 2018, we added a 2009 Ford Mustang Convertible, Beyonce, which cost us $5,000 thanks to the kindness of Michelle’s Dad ensuring that she stays ballin’.
Adding up these purchase costs, we’ve spent a total of $14,000 (not including maintenance) on cars since 2013 and had less than a year of car payments over that time. Subtract that from the typical $39,890 you’ll read about below following a concerning millennial strategy, we end up saving $25,890 over a 10 year period. Which equals about half of our combined total debt when we first combined our finances in 2014.
One way to think about opportunity cost
Opportunity cost should be a big consideration in your financial life. As it relates to car buying, I’ve wrangled up some numbers to illustrate my point.
Let’s assume that Michelle and I followed the average millennial path which implies that you need/deserve a new car every 5 years (i.e. paid off car). If this car has an average car payment of $300 per month over 60 months (5 years) with a measly 3% interest, it would cost me a total of $18,328 in car payments plus interest from 2010-2015.
Feeling the pressure we usually do from society, this paid off car without car payments makes it a perfect time to trade it in and upgrade to something a little more “adult-ish” since I’m making more money now.
Instead of getting a similar $17,000 used car like the first time around, I choose to step my game up. Plus, I can get a little bit of trade-in value for my current car. This means that I sell the current car for $5,000 and buy a $25,000 ride with a bunch of gizmos (I don’t really need) and a sunroof! Because of the trade-in value, my loan only cost $20,000 at 3% interest for 60 months.
From 2015 to 2020, I will end up paying a total of $21,562 in car payments and interest with a monthly payment of $359.
It’s not always individual decisions that have a major impact. Its the small, unquestioned ones that add up over time.
You know the drill – Add the numbers
Time to add these up. If you went the two-car payment route over the past 10 years, you’d have spent a total of $18,328 (1st car) + $21,562 (2nd car) = $39,890 on car payments. Now, subtract the $14,000 we paid by driving a couple of modest wheels from the fancy cars and you get the savings of $25,890 highlighted above.
As the vicious cycle continues for the rest of your days. It doesn’t have to if you ask yourself a few simple questions:
How important is the car I drive?
Does this monthly car payment add value to my life?
What would I rather spend my hard-earned dollars on?
How could I test a new path?
If after this exercise you decide it’s in your best interest to follow the car buying model above, then you’ve earned the right to do so free from judgment.
While I do strongly believe cars are one of the silent killers to any budget, maybe they’re a wanted expense in your budget. Nevertheless, understanding the total cost of car ownership is something you might want to spend a little time learning about.
For those who place more value in other things aside from the car you drive, why are you living outside of your values and paying for a car that will never make you as happy as that trip you want to take, or that job you want but pays less, or that golf membership, shoe collection, CrossFit membership, etc?
Sure you need a reliable car but if you’re racking up debt to live big elsewhere in your budget because of your car expense, do you really need a top tier car with a big payment right now? If cars contribute to your “rich life” then you should buy them and not apologize for it. Be sure to really contemplate if you are tricking yourself into these invisible scripts. But maybe you might want to wait until you’ve nailed down the foundation of your personal finance systems.
Remember that there’s a tremendous opportunity cost that comes with tying yourself up financially to depreciating “assets” like cars. And if the fancy car ownership is not in line with your values, it might be time to consider alternative options.
Don’t wait. Think about this before you get in your car. Sit in there for a minute and think, how much value is this machine providing me? Is it worth the cost?
The worst has happened. You lose your job because of a circumstance far beyond your control. Maybe you even have to go on unemployment to make ends meet. Life is full of curveballs, but they don’t seem to break as much if you are living within your means.
It’s typically only when things get tough do we realize the American way, or our way is not so sustainable financially. Society will have you believe that car loans, a fancy house and credit card debt is the American way. In fact, the financial health (i.e. GDP) of our country depends on it.
I’m talking about spending outside of your means for housing, on your car, and with a credit card for things, you can’t yet afford – the three silent budget killers that tend to increase with lifestyle creep.
The purpose of this article is to show you how much would-be money adds up over time by living more within your means. That is not buying the advertising, the great deals, and all of the things America justifies you having or needing. If you spend a little less in just three major money categories, you’ll be significantly better off over the long term and stack more dollars. How would you like to save or get back an additional $11,616 per year?
The numbers show that the millennial generation – people between ages 23 and 38 – fall victim to the following:
An average of $4,712 each in credit card debt in Q1 2019, according to Experian data
A quarter of millennials say most of their debt is credit cards, not student loans. Furthermore, Despite credit cards being the biggest source of debt for 1 in 4 millennials, about 22% don’t know the interest rate they’re being charged. This isn’t an issue if you don’t carry a balance but for those who do, the interest rate for a credit card is typically between 18-28% per year.
Worse yet, most indebted Americans surveyed (34%) don’t know how much of their monthly income goes toward paying down their personal debt. If you look at your budget, it’s no secret that these extras or “averages” add up in big ways. Sometimes even in ways that seem completely wasteful or that don’t provide the value you paid for them. It’s time to take the first step to learn the numbers. Even if you don’t like numbers, there are many simple tools and calculators out there that will do this for you. Or ask me, I’ll work with you.
Remember I talked about the three silent killers? We are going to break these down that illustrates how the would-be (opportunity cost) payments add up.
First, your credit card
For the purposes of this article, we’ll use the average millennial credit card debt. This means you’re carrying a balance of an average of $4,712 at an average of 24% interest, and your minimum payment is $200. Remember, what I’m trying to show is the dangers of carrying a balance over time and the power of that $200 not going towards a credit card payment. And how much you lose in interest.
The picture above shows that you would pay $1723 in interest over 33 months which is $52 per month. Add that on top of your $200 minimum payment and you have $252 per month. This means that you would have an extra $252 a month if you chose not to buy stuff you can’t afford. Of course emergencies happen but you’re on the hook for all of the fancy upgrades, latest models, new outfits, the list goes on.
Remember, that $252 number for now.
Next up, your fancy car
Again, we are talking about the american way. The american way means you get a new job and you buy a new car. No questions asked. After all, you earned it right? As you guessed, your car comes with an opportunity cost too.
Remember, the average monthly car payment for a new vehicle is $554, and the average monthly payment for a used car is $391. Forget about interest on top of that for now. On a side note, if you really want to know how much you’re planning to pay in interest over the life of the loan for your car, take a look at Nerd Wallets Auto Loan Calculator.
The graph below is just showing some average numbers. Take them as you will but i’ve read they are probably not too far off.
Yes, you still need to drive a car but do you really need a fancy one? Sure maybe that is your rich life in the future but you got big dreams now, right? Do you need a $500 truck payment now when you have a mountain of debt to take care of that’s silently racking up interest?
So let’s say you have a $27,000 new car over a 60 month period with 4.5% interest. Your payment would roughly be $428.79 + $45 (interest) = $473.79 per month.
Now, run another scenario. What if instead of that $350-500 per month on a new car, you found some sweet used car for half the price? Lets say, $150 per month (plus maybe another $15 in interest) or even lower!
If you took the lesser option, the new car at $473 – $165 (modest used car with interest) = $308 dollars saved per month by choosing a lesser car option. If you have a huge car payment, you are robbing yourself of the opportunity cost to spending that money elsewhere. I’m not saying you should drive a beater your whole life. Find a cheaper ride and stack those dollars you’re saving and put them to better use towards your amazing life.
Remember that $308.
Again, what I’m trying to show is the opportunity cost of your decisions and reasoning that you’re an average American. So far we’ve got two would be payments to add up. Your credit card debt payment of $252 per month and the $308 car payment for a total of about $560 per month you’re saving.
You see where I’m going with this?
Finally, your housing
Dave Ramsey will tell you that housing should be no more than 25% of your take-home pay. I’m on board with anything between 25-30%.
Unfortunately, the government, mortgage lenders, realtors and people standing to make money off of you will suggest otherwise. The % allocated for housing ranges suggested by these folks is anywhere from 25% – 36% of your gross salary. This gross salary calculation difference is important.
The ratio or total dollar amount for your gross salary is significantly higher because your gross salary does not account for your taxes, health insurance, or retirement funds – all of which eat hundreds of dollars away from your take-home pay. Take a look at your paycheck in greater detail next time and play around with this calculation yourself.
I personally believe that this number should be only calculated based on take-home pay for a number of reasons but I digress. One of the bigger reasons folks believe that 25% of your take-home salary is most appropriate is because when shit hits the fan, you want to make sure you are able to make the payments and don’t lose your ass. Like what happened to a large number of folks during the 2008 – 2010 housing crash. How soon we forget. Do your homework and read about the 25% housing rule and you’ll get a better feel. Moving on.
Since I don’t have your take-home pay, I’ve used a gross income estimate in the table below to illustrate what this means for your housing budget.
The purpose of this chart is to show you the dollar difference between what society tells you you can afford vs. what you want to actually afford because it’s right for your own financial freedom.
Let’s say you make $50,000 a year and you’re a single dude. Since you’re single, you’ll just choose to rent for now. Going by the 25% housing rule, your place should be somewhere in the range of $1050 per month. But, if you are living a baller life and needing to live a life of luxury at 35% of your pay, that’s an extra $400 more per month than what you probably should be spending on housing. For now at least. After all, if you’re average, you’re probably in debt as the rest of America.
Remember that $400 extra a month you’re saving by not living above the 25% line.
Note on housing:
Before you yell at me and come after me with pitchforks, of course, there are exceptions for the big metros where housing costs and rents are ridiculously high. Of course, you might not have an option at a decent place for around 25% of your take-home pay or even gross pay.
If this is the case, you have to understand the implications for the rest of your budget or what happens when unexpected expenses in life come up. Spending more in one area should hypothetically mean you spend less in another without putting what you cant afford on your credit card!
Watch how it all adds up
Lets recap the would be or opportunity cost payments of the three silent killers.
Credit card – $252
Car payment – $308
Housing – $408
Total opportunity cost per month of living outside your means = $968 per month
That escalated quickly. Based on these pretty modest calculations, you can see how the three silent killers can add up quite significantly per month. Now, here is how you bring it all together.
For a total of $968 per month saved in would be payments, that is $11,616 saved per year for Mr. Solo Dolo and for Mr. and Mrs. Millennial Couple (assuming the average credit card debt and car per person with combined housing), $18,432 per year. What would you do with this money?
If you just saved this money over a 10 year period you would have over $100,000. If you invested just $500 per month, roughly half of this money savings into a Roth IRA at age 30, you would have over $550,000 at age 60 + $173,000 from the rest of this original $938 per month in your savings account over 30 years.
Can you say down payment on a house, epic trip, emergency savings for a job loss, a baller ass ride bought free and clear, great nights out, should I continue?
Gamify this. Think about your financial freedom and make it personal to you. Your amazing life depends on this.
Living within your means
Hopefully this article has helped you change your perspective on the three silent killers of life and how the “would be” costs can accumulate to something amazing. More often than not, living within your means does not mean pinching pennies. There are ways to live a fantastic life without spending extra for it! But until you define what financial freedom means to you, it’s hard to get motivated to make a positive change.
When the next shit storm comes, which it will, the government may not be in a position to bail us out like this. It may be a different shit storm. History repeats itself – whether that be a natural disaster, unemployment, pandemic, medical diagnosis, you name it. That leaves us with the critical task of putting ourselves in a better financial position to weather any storm, employed or not.
You always have a choice to make a change. Choose to live within your means in a way that aligns with your values and makes you happy without relying on debt to get you there. With smart financial decisions like investing on top of that, you position yourself to live an incredible life. It’s time to take a step towards the life you truly want to live with the financial freedom and happiness you deserve.