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Category: Money (page 1 of 3)

Simple Guidance For Investing

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.

  1. I will never consistently beat the market nor do I care to try.
  2. A simple, consistent contribution strategy with an average stock market return rate over time will make me very wealthy.
  3. 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.

Simple guidance for investing

Stock Series – Everything you need to know about the stock market

Types of Investment Accounts explained

Ladder of investing by Ramit Sethi

Easiest Investment Options – Index and Target Rate Funds

Don’t panic when the stock market drops meditation

How much do you need to retire?

The 4% distribution rule

The multiply by 25 times your annual expenses rule of thumb

Investing myths

Investing can and should be very simple for 99% of people

The simplest strategy of all

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.

Start today

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.

If You’re Not Progressing, Reconnect With Your Why

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? 

Becoming wealthy is a conscious choice that you must make. Stop complaining about not being able to do something when your actions don’t support what it is you want to do.

It takes small change

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. 

You should watch this

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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Eye-Opening Financial Pictures Meant To Inspire Action

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.

Student loan interest over time

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.

A simple credit card calculator

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?

eye opening financial pictures
A snap shot from my credit card statement

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.

eye opening financial pictures
All of this in a pre-made Excel spreadsheet

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…

eye opening financial pictures
Roth IRA calculator

$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.

Check out this Roth IRA calculator for yourself!

Investment advisors and fees over time

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.

An example

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.

eye opening financial pictures
$6k per year investment scenarios

Now, lets talk bigger money using the same scenario but with more money invested each year. The difference is even more substantial.

eye opening financial pictures
$10k per yaear investment scenarios

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.

Take a look below what a simple savings strategy can net you over time. Here’s the calculator.

eye opening financial pictures
This is your online savings account with 1.2% per year

Vs. Your current big banks interest yields (I.e. Chase gives me .01% on their savings account)

eye opening financial pictures
This is your big bank with .01% per year

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.

Conclusion

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.

Dave Ramsey

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.

6 Unconventional Financial Questions to Ask Yourself

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.

financial questions
Recommended Budget Categories

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.

Instead of putting off your creative side, put a financial plan into action that enables you to scratch that itch. Having a creative outlet is one of the many facets of a great life. Chase Jarvis has a pretty fantastic book called Creative Calling: Establish a Daily Practice, Infuse Your World with Meaning, and Succeed in Work + Life that you might start with.

7. What do I really need in retirement?

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.

Mr. Money Mustache has many fantastic articles including one called The Shockingly Simple Math Behind Early Retirement and another called the 4% rule. Try starting here. The goal is to figure out a baseline now thinking about the rich life you really want in retirement.

Conclusion

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.

Balancing Money Dials and Debt

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.

James Clear

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.

Money Dials

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:

  • Travel
  • Health/fitness memberships
  • Relationships
  • Self-improvement
  • Personal collections

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?

It’s tough

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.

Start here

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. 

Go deeper

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. 

Keep going

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.

The Best Articles on Buying A Home

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.

The best articles on buying a home

Home affordability calculator

NY Times Rent vs. buy calculator

The opportunity cost of a renting vs. owning

Why the rent vs. buy debate is pointless

An amazing downloadable pre-set Excel spreadsheet to crunch your house numbers

Hidden costs to owning a home

House advice from Mr. Money Mustache

Buying fixer uppers vs. move in ready

Pay off your mortgage early or invest the extra payments?

House hacking

Estimating house appreciation

Private Mortgage Insurance (PMI)

A financial planner who chooses never to buy a house

Sorry, rentals won’t make you rich by Pro Flipper, Brandon Turner

Bad reasons to buy a home

Pause investing to save for a down payment?

What does your financial freedom look like?

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.

Lessons Learned From Over 10 Years of Driving Used Cars

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.

Maybe not.

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.

used cars
Your first car payment estimate. Johnny is growin’ up!

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.

Your second new car payment in 10 years

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.

In summary

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 Financial Power Of Living Within Your Means

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?

Millennial Debt

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
  • An average auto loan balance of $18,201, according to Experian data from the second quarter (Q2) of 2019
  • Spend beyond 30% (up to 36%) of their household income on housing – whether gross or take-home pay

According to a business insider article on millennial personal finance,

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.

Business insider

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.

This is Credit Karma’s online credit card payment calculator

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.

Rough car debt calculations

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.

Quick Recap

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.

Excel table of housing cost estimates as a percent of your gross salary

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.

Your Student Loans and A Few Financial Moves To Consider Right Now

How’s everyone doing? Are we tired of the word “unprecedented” being used at the beginning and throughout everything we’re reading?

unprecendented
There’s always a chart

How about this $2.2 Trillion recent CARES Act? Do you know what that means for you and what financial moves to consider right now?

In this article, I’d like to chat only about student loans and emergency savings right now as it relates to the current crisis. The remainder of the article is some info on what you need to know and some possible steps to take towards coming out of this in as best financial shape as you can.

One expert’s simple advice

For those of you who may know already, my go-to financial resource is Ramit Sethi from the brand I Will Teach You To Be Rich. He’s been a financial expert for over 15 years and has written a fantastic book along with an insane amount of content relating to the world of finance. What is he saying about all of this?

Your number one priority right now should be to build up at least 1-year of emergency savings

Ramit Sethi, I will teach you to be rich

This is coming from a guy who religiously preaches about never stopping your investments during a recession and the like. That gives you a sense that this situation is in fact a little bit different.

So, if you are looking for a simple answer to what to do with your money, it is to save everything you can at all costs. This means suspending or stopping all luxuries and non-essential spending until you have at least 6-12 months of emergency savings.

This would also mean temporarily pausing (but not selling) your investment contributions despite the benefits of not doing it. And this may also mean postponing your debt payoff if and only if you can get your lenders to pause interests. Some Credit Card Companies may just let you do that.

Again, this is not permanent. It’s a temporary plan to pool as much cash as you can in case the storm continues.

Some actions to consider

  1. Cut the fat, buckle down, and save that cash up.
  2. Call your credit card company, mortgage company, etc. and ask them to suspend all payments or interest. If they say no, keep pushing for something beneficial. If they are good companies, they’ll value your long term business.

Info on the recent federal student loan relief

Yes, we are in crisis mode but all is not lost. For those who do have student loans left to pay, there has been some relief from the government.

As you know, on March 27, 2020, the president signed the CARES Act, which provided broad relief in response to the COVID-19 for federal student loan borrowers whose loans are owned by the U.S. Department of Education (ED).

While the provisions of the CARES Act that affect federal student loans are temporary, you will get relief until Sept. 30, 2020, for the time being if you have Federal Loans which includes:

  • William D. Ford Federal Direct Loan (Direct Loan) Program,
  • Federal Family Education Loan (FFEL) Program
  • Federal Perkins Loan (Perkins Loan) Program loans.

The interest rate and status changes apply only to your federally owned. If you have other federal student loans that are not owned by ED and/or have private loans, you’ll need to contact the servicers of those loans to discuss potential relief options.

Here’s what that entails and some actions you might take:

  • The interest rate on the loans drops to 0% for this period
    • Interest rate and status changes apply only to federal loans
      • ACTION: Ensure which of your loans qualify – online or by phone
    • Given the 0% interest rate, any payments you make during this period will be applied to paying down the principal amount of your loans 
  • Automatic Billpay Forbearance
    • Auto debit/pay should have been automatically disabled and you are not required to make monthly payments on your loans during this period
    • ACTION: Take a look at your account to see how this is working and if it is working correctly. Find out what that would mean if you do want to keep making payments or update this auto-pay option
  • Payments you would have been required to make between March 13, 2020, and Sept. 30, 2020, will count toward loan forgiveness (i.e. PSLF) if you’re in it

A few other financial options?

Maybe you don’t want to save 6 months of emergency expenses or you already have that. Or maybe you want to keep saving modestly while paying off your debt.

The three options that appear to be the best are outlined below. The one you choose will depend on your specific situation.

  1. Hold off on paying your loans and possibly your other debt
    • Double-check the credit card payment pauses first. Did this work? Make sure you know before deciding
    • Save all money you’re paying on debt like your life depends on it and only pay the minimum payments you have to make
  2. Keep paying down your loans if you feel comfortable with your emergency savings
    • Manually pay your loans in the same amount you’ve been auto-paying
      • You already have been spending this money every month, so you won’t miss it
      • Depending on what your loan balances are, 6-months of principal-only payments will take a significant chunk out of that total and get you closer to paying those things off
  3. Take the money you’re using to pay towards your loans and in this order:
    • Pay off any other debt (i.e. credit cards, car, etc.). Your credit card interest rate is likely much higher than your student loans
    • Build up your emergency fund to
    • Invest it after your 6-12 month emergency fund is built
  4. (Optional) Follow step 1 and then refinance your loans after the crisis
    • Loan rates are tied to 10-yr Treasury Note, so rates for Student Loans could soon drop significantly to all-time lows
    • This may require you to go from a federal loan to a private-market loan
      • Pro: lower loan interest rate = savings in the long-term
      • Cons: you give up repayment flexibility and loan forgiveness plans
    • Note – If your loans are nearly paid off, this doesn’t make much sense since the fees you’d pay to refinance would likely be more than the money you save in interest. 

Conclusion

Yeah, it sucks right now and yeah, it could definitely get worse. If you are looking for the simplest solution with your finances right now, it seems that you already know the answer. Save the hell out of your money and don’t be reckless.

Hard to say what happens during or after this. Beyond saving, there are simple ways to take advantage of the student loan relief fund and the stimulus check you might be getting. If you are interested in chatting or seeing more numbers, I’d be happy to brainstorm with you.


Kudos to Ben Liptak for the inspiration.

8-Steps On How To Get Out Of Debt

You’ve been meaning to get out of debt. You (and society) have been telling yourself that for years! The bad news is that someday never comes. The good news is you get to decide on what terms this happens. But, do you actually know how to get out of debt?

There are two important points to make upfront as it relates to debt-freedom.

  1. Debt freedom should never come at the price of your values
  2. Your life doesn’t get magically better because you have no debt or you become rich. You have to commit to personal growth and redefine your values as part of the journey.

Below is a list of what I believe to be the 8-core principles on how to get out of debt. If you don’t where to start, try these first before you read another boring article on budgeting.

1. find your debt payoff date

Knowing the month you make your final debt payment is your most powerful weapon. It provides you with the excitement, anger, and motivation you need to get going. It changes the statement “I’ll never be out of debt” into an exact month. And it becomes your responsibility to make it happen by then.

Fortunately, this information can be found for free and takes little effort. No more excuses.

The point of knowing this information is to help you on your journey of self-discovery and to put your life in perspective. Forget about all other pieces of information I’ve written on this blog for a moment. This step right here is the most transformational thing you can do for your financial situation. Combined with a commitment, you will be unstoppable. I promise. All you have to do is input the numbers.

Action: If you really want to become debt-free, you need to know when you actually will be debt-free, even if you keep on the path of business as usual. I wrote an entire article on how you can use a free tool to find this out. It’s so simple to do, guys.

Look at the video. It will help I promise. I’m begging you to do this. Start paying attention to the interest, the years of your life, the extra payments you can make, and everything in between. If you see it for yourself and you play with it, you will believe it can happen. And if it doesn’t help you, stop reading my stuff, call me to yell at me that I don’t know shit about personal finance or send me hate mail to vent your frustrations. I’ll post a video of me begging you to do this if I have to.

2. set up and automate the tracking of your spending. 

I’m not saying build a budget here. I repeat, don’t do that. Put aside everything you’re thinking about your budget at this point. All you should do at this stage is get a free Mint account, link your cards and accounts. The program will compile everything you’ve spent over the past 90 days and try to categorize it.

Hell, feel free to go to then live another 2 months doing what you’ve been doing. Just set it and forget it and let the program do its job behind the scenes. That’s it. It’s done.

Action: Sign up for Mint and link all of your stuff. Slowly, start looking and playing around it over the next month categorizing stuff and get an idea what the hell you’ve been spending your money on. Don’t start budgeting. Don’t start adding ridiculous shit the program also provides. Set it and forget it.

Then, slowly start to see the impact and the totals. Slowly become more aware of your tendencies and spending habits.

3. Review recommended budget spending categories.

You’ve heard build a budget a million times yet it hasn’t worked for you. That’s fine. All I am suggesting here is to look up the recommended spending as a percentage of your income in a number of different categories. Although they are based on averages, the category spending averages help you understand and benchmark your current spending to help you determine your priorities and how you might think about making a change. 

Let me be perfectly clear. Everyone is different. If you are purposefully choosing a higher percentage in any category because it brings you joy, i.e. housing or car, and deliberately spending less in another category, then you do you. The purpose of this exercise is to become more aware of your current habits. And if you are overstretching and shit hits the fan, will you be able to pay your rent/mortgage?

Action: Take a look at some basic information and budgeting styles. What are people suggesting? Find a baseline that you’re comfortable with. Even if it means just saving or investing 5%. You have to start somewhere and any adjustment can be an improvement in the right direction. Check out the following:

If you want to make a budget after looking at these, be sure to make it in a way that works for you.

4. Get Right with your values and cut the fluff.

When I say this, I’m suggesting you find the meaningless purchases you have made over the past months. The ones that provided you zero value, made you upset, resulted in a fight, or the ones you ended up scratching your head over.

Think about these purchases as the ones you have to justify buying. The 3’s, 4’s, or even 6’s (out of 10) that you could have lived without. What you need in your life are the 10’s. Whether it be financially or with any other aspect of your life. The 10 spot decisions or choices are the most impactful and are what lead you towards greater happiness and alignment with your true self.

Please note that I suggest avoiding seeing financial freedom solely through the lens of sacrifice. You don’t have to cut out your daily coffees, your cable subscription or the number of shoes you buy. If these are part of your “guilt-free” spending money, then have at it and frame it that way. If these are your 10’s, then let’s go.

Action: Take a look at your mint budget and categorized transactions and think about the meaning and the value behind them. Are you fooling yourself into believing your shopping spree made you happy? Look around your house. Is the stuff in it just noise and clutter? Check your calendar. Are your priorities providing you value? Check out minimalism, intentional living, and similar ideas for starters below:

Start paying attention to the shit you buy and the value it’s providing you. More importantly, evaluate every decision in your life this way as well! This is the only way to figure out what you can live without and what is a necessity.

5. Analyze what you need to live on and how you can make more. 

Maybe after you’ve identified your categories and your spending, you realize you’re pretty content with your current income and expenses. In that case, stick to your plan! Otherwise, start looking at what’s essential to live on, the baseline number. Then, picture and plan out what you actually would like to live on beyond the essentials including investing 10-15% of your income. Maybe an extra 5k is all you need to justify your current spending habits and live more comfortably. Most excellent!

As for making more, I’m not talking about “the 30 ways to make extra money” doing odd jobs that take a lot of time. I’m talking about the big-ticket items like negotiating a higher salary at your current job or finding another that pays more. 

There’s more than one way to build wealth aside from just cutting your expenses. Sure, you can always make more money doing odd jobs but is that how you want to spend your free time?

Action: There are some fabulous scripts out there that will demonstrate how you might negotiate a raise. Here are a few eye-opening resources to check out:

Or you might just work towards creating or picking up a fun side gig. Take a look at these things before you start blindly cutting things and “reducing” your current standard of living.

6. Remove negative influences in your life. 

Do you honestly believe that you can trust your willpower after a poor night of sleep and wake up early (or late) to deal with a child and making yourself lunch and getting ready and dropping the kid off and working 8-10 hours a day at a job you might not like and commuting home 45 minutes and cooking dinner instead of something easier and available? Not unless you’ve built the right habits or have the right systems.

A strong habit or system will beat strong willpower over time. Remove the triggers like the junk food, credit cards (if you’re paying interest), the online shopping accounts, the negative phone calls where you complain to your friends, the social media on your phone, the blankets you cuddle up on the couch that make TV appealing. Unplug the tv, cut the memberships or whatever it is for you that is making it too easy to backslide and eliminate the triggers.

Or, the reverse can be true. If you want to do something, make it easier. Put all your gym clothes out on your floor before you go to bed and put your gym shoes at the base of your bed so this is the first thing you see and have to react to in the morning.

Action: Identify a negative influence or (positive) trigger in your life whether financially or not. Commit to removing it for a bit and see how it goes, a micro-sacrifice if you will. Or, think about what you can add in your life that would make this easier. Try testing the following:

  • Unplug the TV and put a book on the coffee table to get you to read because it’s easy and available and turning the tv on and hooking the shit up is not.
  • Leave your credit card turned off or on hold through your banking app. This will make you really think and make it painful to pull out your phone, log onto the app to turn it on before you choose to buy something

7. Connect to something deeper.

Why are you reading this article? What destination am I hoping to get to with my money? Try thinking about these things questions more in your life. Get a journal. Write about them. It’s time to do what I call schemin’ and dreamin’.

What is your financial freedom? Buying guilt-free guacamole or appetizers? Paying for a round of drinks? Or paying for your child’s college so they don’t end up in the same hole you were once in. Remember the 10’s you defined above.

Action: How can you scheme your way into becoming debt-free and living an amazing financial life? How can you get your cake and eat it too? Schemin’ and dreamin’ are not about finding ways to cut the shit. You have already done that. It’s about being optimistic about this thing working and what that means for your new life. Were looking to trigger that moment when you think holy shit, this could actually work if I do….

8. Set aside a small amount of time each week to do any of the above things. 

Think about something real quick finishing this article. Could you or would you set aside just 20-30 minutes of undivided attention each week towards creating a better financial future? Because many of these tasks can be done at your own pace and still have a meaningful impact. It may sound like an infomercial but just 20-30 minutes of dedicated, uninterrupted time to do these things may be all you need. 

Action: Set aside the time and pick any one or multiple of these steps above and start working. Tell your spouse, friends, girlfriend, children about this time. This is your sacred time for finances. This time is what you need to commit to your financial freedom and rich life. Make it fun. Do it over coffee at your favorite place. Make it whatever you want it to be. Start by doing or continuing any of the above 7-tips and making them work for you.

Conclusion

Starting is the hardest part sometimes and it can be overwhelming but, you get to choose the pace. Becoming debt-free is no different. While everyone and their brother will suggest doing it right now, which you probably should, they are just opinions and they don’t matter.

But if you do want to be wealthy and financial security is important, statistically speaking, the wealthiest people in the world don’t spend more than they make and pay excessive amounts in interest. The happiest people are often the most intentional people. They understand their values and live by them at all costs. 

Managing your money smartly helps you live more true to your values and take greater risks that lead you to a happier life. There’s a delicate balance we are all searching for and I believe that eliminating your debt intentionally will free you up to take better care of the other areas of your life.

Stay golden.