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Six Reasons Why You Shouldn’t Take FIRE Too Far

The following is a guest post from Sam at How to FIRE.

If you’re not already familiar with the FIRE movement, there’s a good chance that you soon will be. It is a concept that is gathering pace, with people all over the world looking to achieve financial freedom. FIRE is an acronym that stands for “Financial Independence Retire Early,” but what exactly is it, and is there a risk of going too far?

What Does It Take To Achieve Financial Independence?

FIRE is a financial movement, which can involve working towards early retirement by saving a substantial amount of your income. Typically, people retire at the age of around 60-70, but many FIRE followers pursue early retirement. They often aim to retire in their 20s, 30s, or 40s instead.

The ultimate goal for FIRE enthusiasts is to be financially independent, but this usually means making significant sacrifices along the way. Every person is different, but generally speaking, someone who embraces the FIRE movement will try and save up to 70% of their annual income and utilize a FIRE calculator to track their progress. In addition to living frugally, FIRE followers also look for ways to invest in their long-term future.

Saving up to 70% of your annual salary is undoubtedly difficult for many people, but there are additional concerns. For some, saving can become an obsession, and it can impact every area of your life. If all you think about is saving and working towards early retirement, there is a risk of taking it too far and suffering in the short-term. There are many positives to being financially independent, but it’s crucial to be aware of the potential dangers of letting FIRE take over. This guide will examine some of the main reasons you should proceed with caution and avoid taking FIRE too far.

Why Shouldn’t You Take FIRE Too Far?

Being financially independent and giving up your job at 36 may seem like the ultimate life goal, but what happens if your plans start to infringe on your quality of life in the present? Sure, some short-term sacrifices are completely tolerable and expected. But, here are six reasons to consider adopting a measured approach to FIRE.

1. You’ll End Up Working a Job You Hate Just for the Paycheck

To be able to save enough to retire at an early age, there’s a chance that you’ll end up doing a job you don’t particularly enjoy just for the wage. There are apparent benefits to earning a high salary, but if you’re working long hours or don’t have any passion or enthusiasm for the job you do every day, you might start to dread getting up in the mornings. You’ll want to quit your job every day, and this routine will leave you wondering whether your efforts are really worthwhile.

The average person spends around 37 hours a week at work, and if you add overtime, that’s an awful lot of time to devote to doing something you don’t like. If every day is a challenge, and you never arrive at or leave work with a smile on your face, even the thought of retiring early may not be enough to keep you motivated.

2. Minimalism Gets Weird Sometimes

Many people choose to live frugally, but there’s a difference between trying to save money and adopting an extreme approach to budgeting. Minimalism is designed to simplify financial management, and it can offer a raft of benefits. If you’re on a mission to save, there’s a lot to be said for identifying priorities and setting boundaries in other areas. The trouble is that there’s always a risk of taking minimalism to a point where life can become a little weird.

Financial experts are all for people making an effort to save. But you’ve probably taken it too far if you’re recycling Ziploc bags time and time again, surviving on tasteless, bland meals because they’re cheap, or rushing to take advantage of yellow sticker sections at the store after a 12-hour day at work. Saving may be the priority, but it shouldn’t impede your health or enjoyment of life.

3. FOMO is Real

FOMO (fear of missing out) is a relatively new concept, but it’s one that can be a genuine consequence of following the FIRE movement. If you’re saving every single cent you can, intending to enjoy financial freedom in the future, it’s highly likely that you’ll miss out on both the big and small stuff now. However, financial independence and early retirement is certainly an admirable goal, and one that I have made for myself.

Sticking to your plan is crucial, but where do you draw the line when deciding whether something is worth spending money? Are you going to miss out on opportunities or experiences that may never come around again because you don’t want to part with any more cash than you absolutely have to?

It’s incredibly beneficial to think about the future, but going too far with FIRE means that you might miss out on the present. While your friends and family are socializing, going to weddings, organizing trips together and celebrating births, marriages, and landmark birthdays, for example, is it worth missing out to retire as early as possible?

4. A Lack of Flexibility Contributes to Disappointment

When you take control of your finances, you have a say as to how you spend your money. If you jump on board the FIRE movement approach, though, flexibility in terms of spending can seem significantly reduced in some aspects. Most people who follow FIRE try and save up to 70% of their income, withdrawing around 4% of their savings and investment gains.

If you take FIRE too far, life can become very rigid and routine. A lack of flexibility could compromise your freedom, contributing to disappointment. There’s also a worry that once you adopt a way of life that complies with FIRE guidelines, there’s no way back. If you want to change your mind either during the saving process or once you’ve retired, would you have the strength and conviction to do that?

5. Someone Else’s FIRE Timeline May Not Be Realistic For You

If you search for content related to FIRE on the Internet, you’ll find all kinds of stories and video clips that talk about retiring in your 20s, but this is not a realistic timeline for the vast majority of people. Everyone is different in terms of their expectations and the amount of money they’re able or willing to save. What works for one person may not be viable for another, and sometimes, timelines can encourage people to set unrealistic targets and to put excessive pressure on themselves. The reality is that you should only ever follow a timeline that is relevant to your situation.

6. Mental Health and Wellbeing Should Be a Top Priority

We live in a day and age where there are too many stressors, which can cause significant anxiety and depression in everyday life. Sometimes the pressure of hitting a specific savings target and spending goal can be too much to bear. Even worse, not accomplishing them regularly can contribute to immense guilt, which isn’t helped by the blunt expectations laid out by web gurus.

Putting this pressure on yourself and having a one-track mind can take a serious toll on your mental health and wellbeing. While you may be motivated and energized by the idea of achieving financial independence and even early retirement, there’s always a risk of becoming too consumed by saving and scrimping. If things don’t go to plan, this can be detrimental to your health and happiness.

Balance FIRE With Living for Today

There are many benefits to saving money and planning for the future. Reaching financial freedom is one of the best things you can do for yourself. But, it is possible to take FIRE too far. In truth, you’re already making much better progress than the majority of the population by taking control of your finances. So, try to relax and enjoy your journey while setting realistic targets. Don’t miss out on the present because you’re too fixated on the future.

Often, the best way to strike a balance between now and the years to come is to practice intentionality. You can be intentional in both your spending and savings. There are some things in your life that won’t be worth spending money on, and others in which you should spend unapologetically. For instance, I value traveling the world, so I use travel hacking to make it a possibility. In essence, only spend money on what you value, so you don’t miss out on what is truly important. This is how you can have the best of both worlds.

15 Personal Finance Rules to Live By

The following is a guest post from Marc at VitalDollar.com.

Have you ever wondered what separates those who are successful financially with those who are not? Have you felt like your income should allow you to live a much more comfortable life than what you are experiencing?

Personal finance doesn’t have to be complicated. There are a few basic rules that you should follow, and if you do that, everything else falls into place.

This article covers some of the most basic and most powerful financial rules that should impact your everyday life.

1. Spend Less Than You Earn

Arguably, the most important financial rule is to spend less than you earn. Regardless of how much money you make, it’s impossible to get ahead if you’re spending it all. Even worse, you could be going backward and accumulating debt if you’re spending more than you earn.

Lifestyle creep is when your spending increases at the same rate as your income. Ideally, as you progress through your career your income will rise. If you’re able to minimize lifestyle creep and keep your expenses at the same level, you’ll be able to save and invest the excess.

Ultimately, how much you keep is far more important than how much you earn. Someone with a $50,000 income can wind up in a better spot than someone with a $500,000 income based on how much is spent and how much is kept.

2. Know Where Your Money is Going

Establishing a budget is common financial advice. A budget gives you control over the way your money is spent, which helps you to make the most of the money that you have.

While budgeting is important, it’s equally important to track your expenses. If you’re not tracking your expenses, you won’t know if you are truly sticking to the budget.

Knowing where your money is going is a critical aspect of managing your money wisely. If you haven’t budgeted or tracked your expenses in the past, it can be an eye-opening experience. When you see how you are really spending money, you’ll probably be able to quickly identify a few areas where you’re spending too much and could easily cut back (with a little bit of discipline).

3. Avoid Impulse Purchases

Most people spend their money based on emotions. Impulse buys can be small things (like picking up a few items when you’re checking out at grocery store, or it can be bigger things like a timeshare.

Large impulse purchases can obviously have a damaging impact on your finances, but even the small purchases add up.

To get control over the small impulse buys you can commit to grocery shopping with a list, and sticking to the things on your list.

For larger purchases, get in the habit of waiting at least 24 hours (or longer, if possible) before making a buying decision. When you take time to evaluate the purchase based on all of the factors involved, you’ll often find that you don’t really want or need that thing that you almost bought. You’ll reduce buyer’s remorse and keep more money in your pocket.

4. Shop Around

Get in the habit of comparing prices and looking for the best options. This can be useful for anything from buying a new TV to buying a car, but it can also apply to things like your monthly recurring bills.

Some of the easiest ways to save money involve switching or eliminating monthly payments. For example, switching to a discounted wireless provider allowed my wife and me to cut our bill in half, resulting in more than $800 per year in savings.

When you reduce your recurring monthly (or yearly) expenses you will be saving money on an on-going basis, so even small savings can add up.

Some of the things you can shop around for include insurance, utilities (if you live in a de-regulated state), and TV service. Cable TV can be very expensive, and there are a number of cable alternatives that will significantly reduce your bill.

5. Establish an Emergency Fund

An emergency fund isn’t the most exciting part of a personal financial plan, but it’s important. You never know when an emergency could arise, so it’s best to be prepared.

We don’t like to think about the possibility of losing a job, experiencing major health issues, or dealing with family situations that could impact us financially, but these types of things happen all the time.

An emergency fund is money set aside for something unexpected that cannot be planned for or predicted. For example, paying for new brakes on your car is not something that should be paid out of an emergency fund because you can plan for that expense, even if you don’t know exactly when it will be needed.

Most experts suggest that you have enough money in an emergency fund to cover at least 3-6 months worth of living expenses. If you’re at a higher risk (a family living on a single income, or anyone with an unpredictable income), you should be at the higher end of that range.

6. Start Saving for Retirement Now

It’s never too early to start saving for retirement. Many young people don’t take retirement savings seriously because they think they’ll deal with it later. But the younger you are, the more time you have for your investments to grow and compound. The younger years are the best time to be saving for retirement, thanks to compounding interest.

Regardless of what age you are, if you haven’t already started to save for retirement, you should start now. And if you have already started, it wouldn’t hurt to increase your savings.

7. Save Wherever Possible

There are a lot of different ways to save money. If you’re always looking for ways to cut expenses and increase your savings rate, you’ll find plenty of opportunities.

One fun way to find new ways to save is to take a money saving challenge. There are plenty of different options, like the popular 52-week money challenge. With this one, you’ll save $1 the first week, $2 the 2nd week, $3 the third week, and so on. By the end of 52 weeks, you will have saved $1,378!

8. Eliminate Debt

Debt is one of the most common financial problems. High-interest debt, like credit card debt, is especially damaging and challenging to overcome. Other debt like student loans, car loans, and personal loans may not be as bad as credit card debt, but it can still prevent you from saving and getting ahead.

Paying off consumer debt will free up more money in your monthly budget, so you’ll be able to save and invest more each month.

There are a few different approaches that you can take for paying off debt. Two of the most popular options are the debt snowball and the debt avalanche. With the debt snowball approach, you will pay off the smallest debts first, giving you some confidence from “quick wins”. With the debt avalanche approach, you will pay off the highest interest debt first. You can see a comparison of the debt snowball and debt avalanche here.

Paying off debt is a key step, but you also need to avoid more debt in the future.

9. Know Your Priorities

Many people think that personal finance can be boring because it always involves cutting back or saving money. In reality, you don’t need to cut back in every aspect of your life. The key is to know your priorities. Save in the areas that aren’t as important to you and you’ll have more money for the things that matter the most.

You don’t need to feel guilty about spending money, and knowing your priorities can help with that. If you know that you’ve been cutting back in other areas so you’ll have the money to afford the things that mean the most to you, you can manage your money confidently.

10. Maximize Your Income

Reducing your expenses is great, but increasing your income can be even more powerful. You can only cut back so much. At some point, you’ll run out of ways to reduce your expenses, or you’ll see only very small savings from your efforts. However, you can always make more money.

There are a few different ways to go about increasing your income. One of the best ways is to get a raise, because you’ll be getting more money for the same amount of work. See this guide for advice related to asking for a raise.

If getting a raise isn’t possible, you may be able to find a higher-paying job, either with your current employer or with a different employer. Working overtime may also be an option, depending on your job.

If getting more money through your job isn’t possible, starting a side hustle can be a great decision. There are all kinds of things you can do for money, and there are options that will fit with any schedule. If you have a traditional Monday through Friday job, you can see this list of the best weekend jobs.

11. Don’t Buy Too Much House

Housing is the biggest expense in most budgets. One of the most common financial mistakes is spending too much for a house.

Don’t assume that you can afford a house just because the bank approved the mortgage. Even if you can afford to make the mortgage payment, buying too much house will reduce the amount that you’re able to save and invest.

Be sure that you’re living well within your means and buy a home that will still leave plenty of breathing room in the budget.

12. Pay Attention to Fees

Investment fees may seem small, but they can have a damaging long-term impact on your results. NerdWallet analyzed the impact of fees and found that a 1% investment fee could cost more than $590,000 over 40 years of savings.

Check the details of any investment to be sure about the fees that will be assessed. Opt for low-fee investments when possible. Vanguard and Fidelity both offer excellent mutual funds and ETFs with very low fees.

13. Invest in Income-Generating Assets

Income-generating assets are ideal for retirement because they can (potentially) replace the income from your job.

There are a lot of different types of income-generating assets, including real estate. Rental properties and real estate crowdfunding are two popular options for generating income from real estate investments. It’s even possible to invest in real estate without using your own money.

Aside from real estate, investing in dividend stocks is another popular option.

14. Set Goals

Setting financial goals is extremely important because without goals you will lack direction. Goals help you to have something to work towards, increase your motivation, and give you something to gauge your progress.

You can work backward from your goals and create a plan that allows you to reach those goals. If you stick with your plan, you’ll find that you make consistent progress and goals that seemed lofty will seem much more achievable over time.

15. Get Help if You Need It

When it comes to your finances, you can either take a DIY approach, or you can hire a financial advisor. If you feel overwhelmed, or if you’d simply like a little bit of help or advice from a professional, you may want to consider hiring someone.

If you make an effort to live by the financial rules covered in this article, you’ll be well on your way. If this all seems overwhelming, don’t feel like you need to become a financial expert overnight. Start with the first rule of spending less than you earn. The impact of simply following that one rule will go a long way.

Why Having a Positive Money Mindset Can Help You Become Wealthy

The following is a guest post from DollarSprout.

When it comes to building wealth, there are many technical steps and strategies you can follow. And if those technical strategies are what you are lacking, there is no shortage of expert information available.

One piece that is often forgotten, however, is the impact an optimistic money mindset can have on your financial success. It’s an important topic to discuss, as more and more research is showing just how beneficial a positive money mindset can be for building wealth.

What is a Money Mindset?

In general, your mindset is made up of your attitude and beliefs. Therefore, your money mindset is the attitude and beliefs with which you approach money.

Your money mindset is at the core of how you make financial decisions and whether or not you achieve your financial goals.

Your money mindset is incredibly personal to you, and there are so many factors that might go into it. In general, however, there are two basic money mindsets a person might have: an abundance mindset or a scarcity mindset.

Abundance Mindset

When you have an abundance mindset, you believe there are plenty of resources (i.e. money) to go around. You’re optimistic about your financial future. You aren’t worried about spending your money, because you’re confident you’ll continue to earn more. You are generous with your money when it comes to helping others, but you’re also diligent about saving to reach your financial goals.

Scarcity Mindset

When you have a scarcity mindset, you believe there aren’t enough resources to go around. In this case, that resource would be money. You’re pessimistic about your financial future. When you see others making money, you believe there will be less left for you. You’re selfish with your money, but don’t seem to hold onto it for long.

How is Our Money Mindset Formed?

Many of our central money affirmations come from observing the subconscious messages we received from our parents. If your parents often made negative comments about their financial situation or spoke jealously about others who were financially better off than they were, then it’s likely that would have contributed to your scarcity mindset.

Your own life experiences since childhood have also played a part in forming your current money mindset. If you feel that money has not come easily to you as an adult, your experiences are reaffirming your scarcity mindset.

Why Your Money Mindset Matters

In general, a positive mindset about money is likely to result in better financial outcomes. A survey conducted by a University of Pennsylvania researcher, in conjunction with Frost Bank, showed that those with an optimistic mindset were significantly more likely to see financial health and to engage in healthier financial habits.

Let’s discuss a few specific ways in which your money mindset can influence your financial success.

An Abundance Mindset Leads to Business Success

Those with an optimistic money mindset are more likely to take financial risks, because they really believe they will reach financial success. Because of this, those with a positive money affirmations are more likely to start their own business or seek advancement in their current career.

According to a study published by the National Bureau of Economic Research in 2010, those considered optimists are 40% more likely to get a promotion, six times more likely to be highly engaged with their work, and five times less likely to burn out. A different study done at the University of Pennsylvania found that optimistic salespeople considerably outsell those with a pessimistic mindset.

Though your level of optimism around money certainly isn’t something that can be quantified in the same way as the amount of money in your bank account or the size of your paycheck, there’s a clear trend that shows having an optimistic money mindset pays off.

A Scarcity Mindset Leads to Lack of Action

Someone who lives with a scarcity mindset feels that no matter what actions they take, financial success is not coming their way. Because of this, your mindset might be stopping you from taking any action at all!

If you truly don’t believe you’ll reach any financial goals you set, you’ll be less likely to set goals such as paying off debt or saving for a downpayment on a home. And by failing to reach those financial milestones, your mind will use that as evidence to reaffirm your already pessimistic financial mindset.

A Scarcity Mindset Can Be Harmful to Relationships

Those with a scarcity mindset believe there is only so much to go around. So when they see someone else reaching financial success, they are likely to believe, at least on some level, that the result is less money for them.

This mindset can, and almost certainly does, lead to feelings of jealousy and resentment toward those who are financially better off than we are. And when those we are feeling jealous and resentful of are our friends or family, this mindset can take a toll on our relationships.

How to Develop an Optimistic Money Mindset

Now that we’ve established how important it is to have an optimistic money mindset, you are surely curious about how you can improve your own money mindset.

1. Identify Your Current Beliefs About Money

In order to change your beliefs around money, you first need to identify the beliefs that have been holding you back so far. Try to write down all of your beliefs about money, and the role that money has played in your life so far.

What did your parents teach you about money? Do you believe that a lack of money has held you back from achieving certain things in your life? Do you feel a significant amount of stress about your lack of money or your financial future?

Remember, this isn’t about how much money you have. This is about how you think about your money. You might be surprised by the answers you come up with here, especially if you think of yourself as a relatively optimistic person, but find you actually have a pessimistic money mindset.

2. Rewrite Your Money Money Beliefs

You’ve completed an important step by identifying your current beliefs and mindset toward money. But you’re not done yet! Once you’ve identified your current beliefs, it’s important to challenge and rewrite those beliefs. You can replace your money blocks and create a new mindset that truly serves you and your bank account in the future.

Take each of your biggest money blocks and write a new, positive money affirmation to challenge it. Work on writing or saying those affirmations on a daily basis to help shift your mindset.

3. Show Gratitude for the Money You Have

By taking time to show gratitude for the money you have, you can focus on the abundance in your life instead of the limitations. Studies, including one done by Harvard Medical School, have shown that practicing gratitude on a daily basis can increase your happiness and optimism.

By showing gratitude for your money and by increasing your optimism around money, you’ll be able to boost your money mindset and believe that more money is coming your way.

4. Set Financial Goals

Those with a scarcity mindset worry that money is temporary and that they don’t have more money coming their way in the future. You can challenge those beliefs by setting financial goals for your future.

If your current mindset tells you that you’ll struggle financially and that your situation cannot be fixed, then believing in a long-term financial goal is likely far outside your comfort zone.

Sticking to these long-term financial goals will really force you to reevaluate and rework your current money habits, having a long-term impact on both your bank account and your mindset.

5. Practice Being Generous With Your Resources

Researchers with the academic journal Psychological Science found that the more generous you are with your time, the more time you feel that you personally have. They go so far as to suggest that if someone feels they don’t have enough time in the day, they could rectify this by giving some of their time away by volunteering or helping a friend. It gives you an abundance mindset about time.

We could apply the same principle to money and assume that the more money you give away, the more abundance you have around money. And by opening yourself up to even more money abundance, you’re setting yourself up for more financial success in the future.

Conclusion

Most of us don’t pay much attention to the mindset with which we approach money. But more and more research has shown that it’s an important factor in long-term financial success.

Having an optimistic money mindset allows you to set big goals for the future, invest in yourself, and truly live with the belief that financial success is coming your way.

Though it will take a lot of mindset work on your part, the steps above can leave you well on your way to a more positive money mindset.

LINK by Prudential Review - Your Roadmap for Investing, Insurance, and Financial Direction

The following is a guest post from Hank Coleman at Money Q&A.

This review is sponsored by Prudential. All opinions are from the author.

Personal finance is just that - personal. In today's world of smartphone apps and fintech, it's often hard for consumers to receive detailed and actionable financial strategies online. But, that's precisely what LINK by Prudential is doing for its customers.

LINK by Prudential is an experience that combines online, phone, and video chats to help you develop your own financial roadmap for success. And, because Prudential backs LINK with its insurance, investing, and financial planning experience, you can shop for financial products and solutions to your problems all from one company.

LINK isn’t just about algorithms deciding which investments you should purchase and how much insurance coverage you need. There are real people on the other end of the phone or computer screen to help you every step of the way.

While other companies and apps rely exclusively on customer questionnaires and algorithms to provide their financial advice and product recommendations, LINK by Prudential combines advanced technologies with personalized support from highly qualified, human advisors.

Your Roadmap

LINK by Prudential helps you to develop a roadmap based on you and your family’s financial goals as well as your timeline, wherever you may be along the path.

The team at LINK works with you to look at your investing, insurance, and retirement needs. And, they look at the whole picture.

While many fintech companies and app-based financial services offer guidance, but most only focus on one aspect of your financial life. But, with LINK, you have a team in Prudential that looks at your inputs and offers financial guidance.

There are many ways that you can connect with the team at LINK by Prudential initially and on an ongoing basis. Customers can receive help and advice through several different options such as phone calls with financial professionals, web videos and online resources, and video calls with an advisor.

The amount of access and ways to connect with financial professionals who are on your team is not typical for the financial industry. That is, of course, unless you have a lot of money to invest or assets to manage where you can hire your own financial advisor. You’ll struggle to find the same access to professionals who'll answer your phone calls and emails at there similar financial services companies.

Additionally, after you set up your financial roadmap, you have several ways that you can implement your plan. When you decide on products or services for your plan, you can purchase the investments and insurance directly through the LINK by Prudential web portal or remotely over the phone with advisers.

Creating Your Plan

When you sign up for LINK by Prudential, you begin with an initial session either online or over the phone. The initial session helps you to create your customized roadmap. It starts with you answering questions to help LINK understand your financial goals.

A knowledgeable advisor can help you create your LINK roadmap – or you can choose to do it on your own. Your LINK by Prudential roadmap is a strategy to help you meet your financial goals and typically includes things such as:

• Life insurance options to protect your family
• Investments products to reach your goals
• Action steps to take for retirement
• Charting your progress

Your Prudential LINK advisors help you break up short and long-term goals into manageable pieces, based on your current financial situation and tolerance for risk. They can also help you adjust your strategy when your situation changes later down the road, and they’re always available to answer questions or provide feedback as needed.

The Personal Touch of LINK by Prudential

Like weight loss and New Year’s Resolutions, many people struggle with sticking to their goals. You need help. You often need someone to walk you through things, help you track your progress, and then hold you accountable - much like a personal trainer.

LINK by Prudential is like your personal trainer but for your finances. The team at LINK can help you build a roadmap or plan for your financial goals. They walk you through everything and are available to answer questions. They can also help you purchase the product you need for your plan.

And, then LINK helps you monitor the plan along the way. As things change in your life and your goals and timeline shifts, they can also help you adjust and rebalance things.

Personal finances are personal. It takes more than an algorithm and a questionnaire to plan for your financial future. There are so many factors like your goals, income, debts, retirement dreams, and the like that need to factor into your decisions along the way.

LINK by Prudential is an excellent alternative to the smartphone apps and other online fintech solutions that focus on only one part of personal finance. You need a highly personalized approach to accomplish your financial goals that include consistent access to human advisors at every stage along your journey.

What I like most about LINK by Prudential is that you don't merely get much of the standard, vague advice from others such as simply “save more” or “pay off your debts”. Instead, you get advice that you can take action with right away. With LINK, you get actual, realistic strategies to help you achieve your goals.

A lot of financial smartphone apps and websites tell you the steps that you should take to accomplish your goals. But, LINK has a team of advisors along with a great site and in-person assistance (if needed) that helps you determine exactly how to achieve your goals.

The Power Of $25 A Day To Reach Your Financial Goals

The following is a guest post by Scott from Making Momentum.

After listening to countless hours of the best personal finance podcasts and pouring over the top recommended books on money, there were two concepts ever-present.

Manage your spending like the Millionaire Next Door and continue to diversify your income streams or make focused efforts to grow existing ones. If you can compound wins through the 1-2 punch of those concepts, you will expedite the timelines to reach your financial goals.

Small shifts in your mindset and habits with money can change the landscape of your finances without depriving your quality of life or have you pursuing get rich quick schemes.

A simple $25 a day swing in cash flow can truly alter your financial trajectory.

It can sound a little daunting when you expand that out to $750 a month or $9,100 a year. However, setting that micro-goal of freeing up $25 each day through more mindful spending and side hustles to earn extra cash, makes it more manageable.

Start Saving More Money On The Big Three

Generally the first steps to more mindful spending is tracking your current cash flow, setting a budget and then monitoring and adjusting. After you have that money management system in place you can start to identify opportunities to save more.

The big three expenses make up over 50% of the average family’s household budget. What are the big three? Housing, transportation and food.

With that in mind, the best place to focus your time and efforts are those big three. The opportunity for bigger savings are around these line items and there are some proven tactics to do so.

Housing

1. Be realistic with size and space requirements you (and your family) need. With more space comes higher rental or purchasing costs but also more furniture, increased utility costs and more upkeep.
2. If you’re renting, the simplest solution can often be to get a roommate, especially as young professional, to reduce overall living expenses.
3. As a homeowner, you can house hack by renting out a room (or basement) to drastically cut your mortgage payment.

Transportation

1. Walk or take public transportation when feasible to work, errands or shorter distance trips.
2. Negotiate your car insurance rates by doing some competitor pricing research and share those details with your current provider in a simple phone call.
3. Form a ridesharing group among coworkers living in the same area as you. This helps pool gas money, parking and wear and tear on your vehicles.
4. Purchase a well maintained used vehicle in cash and avoid the negative cash flow of interest paid on financing or leasing.
5. Start travel hacking with rewards credit cards and by taking advantage of the travel system. There are a number of ways to help yourself see this amazing world for free (or deeply discounted prices).

Food

1. Make a shopping list based on sales, stick to that list, bulk cook at home and meal prep your work lunches.
2. Stack cash back and discounts with digital coupons, cash back apps and a cash back credit card.
3. When eating out take advantage of specials, daily deals, happy hours, purchase discounted gift cards online and control that liquor expense.

All of the above sound like pretty simple solutions for saving money on housing, transportation and food. However, putting them into action and sticking to a more mindful spending approach is the pitfall for many.

Most personal finance advice will focus on the saving and frugality aspects of money management. Which is great as it’s generally a more attainable place to start for most. Unfortunately, it’s finite and you can only scale back so much.

The other side of equation is earning more money.

The first place to start is your career and maximizing those earnings through a focused approach. Your career is a million dollar asset and for 99.9% of the population it will be their number 1 income source throughout their life.

However in this scenario around the power of $25 a day, we’re going to consider side hustles and other income streams.

How To Start Side Hustling To Make More Money

Personal finances are personal and the same can be said for side hustles. Your skills, experiences, interests and lifestyle might skew what fits best for you. But the goal and benefit remains the same. Earning more money through side hustles, building passive income and growing your career salary will help you reach your financial goals (much sooner).

Set a goal of making $1,000 fast and you’ll be hooked as your debt falls, savings grow and investment accounts begin to swell.

Here are five places to consider, test and start:

1. Monetize your drive to and from work by using Uber’s “Driver Destination” feature. You will only be given riders in the general direction you’re travelling to or from work.
2. Freelance the skills and experiences you already have on websites like Upwork and Freelancer as a way to make money online from home.
3. Take advantage of your mornings, evenings and weekends to make money in the gig economy. From deliveries and mystery shopping to tutoring, there are dozens of avenues to earn more money on a flexible schedule.
4. Use services like Rover or Wag to make money from walking or looking after dogs.
5. Leverage the assets you own to generate income. Rent a room on Airbnb, invest in crowdfunding real estate or take part in peer-to-peer lending. Even your car and driveway can be monetized with sites Turo and Just Park.

The opportunities are endless if you’re willing to make side hustling a priority and find the time to do so. The first step is to just get started.

As you gain experience and find your strengths, the ideal scenario is you can scale your side hustle efforts to something that might grow to generate a full-time income or supplement your finances in retirement.

The Power Of $25 A Day On Your Financial Goals & Timelines

Assuming you’ve unlocked an additional net gain of $25 in daily cash flow based on more meaningful spending and earning more money, let’s see what impact that can have on your financial goals.

These examples are not the optimal scenarios or a picture-perfect representation of paying off debt or investing. These are meant to highlight what can be feasible by opening up that $25 shift in daily cash flow.

Debt Repayment Timelines

Based on the staggering statistics around student loan debt, this hypothetical example will assume you’re committed to paying of that debt and operating with the following:

• Outstanding balance: $30,000
• Interest rate: 5.5%
• Current Monthly Payment: $500

The expected timeline for repayment would be approx. 71 months. This would have you paying $5,162 in total interest over this time.

Let’s now explore the power of $25 a day based on the better money management and side hustling we’ve discussed above. That $25 a day is essentially $750 per month (give or take on the number of days) to be routed towards your financial goals.

Assuming every dollar of that was redirected into our student loan repayment:

• Outstanding balance: $30,000
• Interest rate: 5.5%
• New Monthly Payment: $1,250

The expected timeline for repayment is now approx. 26 months. The amount of interest paid has decreased to $1,885. The power of $25 a day has reduced your debt repayment timeline to almost one third of the original and saved you over $3,200 in interest.

Want to experiment based on your own financial situation? Run the numbers with this Credit Karma debt calculator and see how $25 a day impacts your timelines.

Investing Growth

Next up, let’s consider the power of $25 a day as it pertains to compound interest and your investments. You’re debt free and earning a reasonable salary that allows you to put a portion of your income towards retirement. For this example we have the following:

• Starting Balance: $5,000
• Current Monthly Contributions: $500
• Rate of Return: 6.0%
• Timeline: 30 years

Over that 30 year period of consistent $500 monthly contributions and an average rate of return of 6.0%, your investments will grow to over $532,370.

How does the power of $25 a day impact that assuming it’s all being funnelled into your investment account?

• Starting Balance: $5,000
• New Monthly Contributions: $1,250
• Rate of Return: 6.0%
• Timeline: 30 years

The positive cash flow from your more mindful spending and side hustles have allowed your investments to now grow to $1,285,757. Over 30 years, $25 a day generates you over a $750,000 difference in returns when compared to the original scenario.

Pretty powerful, right?

Personal finances are personal, so test the numbers based on your own situation with this Smart Asset investment calculator.

Conclusion On The Power Of $25

Imagine the power of $40, $60 or $100 daily after seeing what $25 a day can do to reach your financial goals. The numbers in these examples are almost arbitrary and only meant to inspire taking a different approach to your mindset around spending and earning.

The next time you pull out the debit or credit card ask yourself if this is the best course of action for your money. What else could this $20 or $100 help you achieve?

When you’re evaluating the free time you have based on your current lifestyle, what could you be doing to earn more money or diversify your income streams?

Don’t underestimate what a $25 a day swing in cash flow can do for your financial goals.

Three Mental Models for Personal Finance

The following is a guest post from The Master Dukes of Dollars. The two bloggers held court frequently, delving into lifestyle and personal finance discussions as they searched for ways to live an optimal life, eventually deciding to invite a global audience into their mindsets by establishing their own blog together. They believe anyone can build their financial kingdom – start building today!

In our adventure through life, we are constantly making decisions. In fact - a study was done that left me flabbergasted. I mean, who would have thought on an average day, adults make an estimated 35,000 decisions every day!!

Make Independent Decisions Through Rational Thinking

Now many of these decisions are on things that have little consequence, where our habits take over and only a small amount of energy is expended when making them. It's easy for me to decide whether or not my coffee mug will be within reach during breakfast each day - it always is!

But life isn't always so easy, and with the short-cuts we've developed as humans to tackle the onslaught of decisions each day, it is in our best interest to take big decisions heavily! That's where rational thinking comes in. Rational thinking is our ability to draw unbiased conclusions by using logic, rules, and data to justify them.

By utilizing this process, you are able to handle life's tough decisions and we sincerely believe that there's power in doing so. Why? Because we have subconscious biases that go into every decision made. Add a few mental models all happening at once - generalization fallacies, headline nostalgia or emotional responses - you have a lollapalooza effect leading to actions (or beliefs) that may not be beneficial to you!

Want a few examples of news being emotionally charged? Check out Joshua Kennon's article on statistics.

With rational thinking in mind, a new concept can be introduced to help how we make better decisions - Mental Models!

What are Mental Models?

Mental Models are your toolbox for making decisions! Here's a quick video to give a quick overview.

To summarize mental models:

• Big ideas from cross-disciplinary sources (psychology, engineering, etc.)
• Applied in various disciplines to help understand the world
• When many 4-5 of these mental models all affect one situation, we call it a lollapalooza!

Where Did Mental Models Come From?

Mental models were made famous by Warren Buffet's partner in crime, Charlie Munger. He gave a speech on cognitive biases and how they can influence decision making, even on those who are experts on leadership or physics.

Further, he mentions them throughout a talk he gave to graduates of USC. Charlie believes understanding the world from this broad perspective gives you opportunity to make fast, smart, and reliable decisions - sometimes even finding answers quicker than those who specialize in their field. Which of course can be a very dangerous tool, in other words, use your rational thinking wisely.

Charlie has said because of these mental models and the latticework of them entangled within his brain, he has been awarded with great success in investing and business. He says one can never underestimate the power of incentives, ignore the potential second order effects of decisions or forget the self-bias (story below) each one of us tangles with in our daily decisions.

Learning new mental models is a life-long journey; but that shouldn’t cause any stress, because those who are successful also happen to be life-long learners!

A Mental Model Story...

Account for self-serving bias of others, and use it in persuasion - quote from Charlie Munger's Speech to UCC Graduates in 2007:

"I watched the brilliant Harvard Law School trained general counsel of Salomon lose his career, and what he did was when the CEO became aware that some underling had done something wrong, the general counsel said, “Gee, we don’t have any legal duty to report this but I think it’s what we should do it’s our moral duty.”

Of course, the general counsel was totally correct but of course it didn’t work; it was a very unpleasant thing for the CEO to do and he put it off and put it off and of course everything eroded into a major scandal and down went the CEO and the general counsel with him.

The correct answer in situations like that was given by Ben Franklin, he said, “If you want to persuade, appeal to interest not to reason.” The self-serving bias is so extreme. If the general counsel had said, “Look this is going to erupt, it’s something that will destroy you, take away your money, take away your status…it’s a perfect disaster,” it would have worked!

This story shows the power of using mental models in your life, because sometimes it can be detrimental to your career if you don't!"

Three Mental Models to Heed in Personal Finance

1. Compounding: Amount = (Principle)(interest^(rate of interest*time in years)

• Ideas, money, relationships can grow exponentially through compounding!
• Using the mental model of compound interest in your investments can lead to huge retirement results, the most important factory? Time! Start early!

2. Confirmation Bias: Reading, researching, and reflecting only on information that confirms pre-existing beliefs or ideas

• If you only reading articles or evidence that go with your thinking such as investing in index funds, you lose the opportunity in other options that may come up in the future!
• Learn from the various ideas and situations in personal finance, which then help you solidify or change your own beliefs!

3. Association: Humans associate feelings to intangible objects

• When diamond rings are mentioned, one thinks of expensive and long lasting, flawless gems, marriage, and love. This was purposely done by the diamond industry marketing campaigns to drive sales.
• Consumerism in the USA has associated spending with happiness, and as others in the community know - this just isn't the case. Keep this in mind the next time you’re on Amazon or taking a trip to Target!

These three are just the tip of the mental model iceberg. The more you learn, the better they can be utilized as you accelerate your path to freedom.

Concluding Thoughts

Personal finance and rational thinking go hand in hand. Mental models help you drive better decisions in your career and life, which lead to compounding results (see what I did there?)! Saving high percentages of income is much easier when your level of income continuously increases! Bosses and businesses love rational thinking, and by taking advantage of mental models – you can become the employee they love because of it!

First time hearing about mental models? That's quite alright. Start conquering them today!

If you are interested in reading more about mental models, we recommend two resources:

• Joshua Kennon's Mental Models 
• Mental Model Dictionary 

 

Long Game - Save Money and Win Some While You’re At It

Putting money into a savings account...that’s pretty boring. Going to Vegas and winning at the blackjack table...now that’s a rush! Unfortunately, gambling at the casino is eventual financial suicide and we all know it...so it’s best to just stay away from the tables.

But what if you could meet your savings goals, and then by doing so, you’d actually have a chance at winning games with cash prizes?? Believe it or not, it’s absolutely possible with a new start-up called, “Long Game”.

A new start-up out of San Francisco, Long Game is one of the first apps that actually makes saving fun. Sure, Mint can help you track your money, and Digit gets you to put a few pennies into savings here and there, but admit it, your life is still pretty dull even with these technological advances in your financial life.

You need to grow up you know it. It’s time to build up a savings account for your unknown future emergencies and your upcoming large purchases. Not a few pennies, not even a few dollars....tens of thousands of dollars.

Long Game is key to getting you there. Let me explain how and why.

What Long Game Does For You

The process is actually pretty simple:

1. Open an account with Long Game and deposit some money, you’ll earn 0.1% - a common savings account interest rate
2. Set savings goals in the app and hit them
3. You’ll earn coins for the money you deposit and the goals you hit
4. Use those coins to enter drawings and play games to give yourself a chance at winning hundreds of dollars (and maybe even $1,000,000 according to the site)!! The more coins you submit in the drawing, the better chance you’ll have at winning.

How Is This Possible?

Sounds a little sketchy, right? I mean c’mon, how does Long Game get the money for all these prizes? You must be paying for it somehow, right?

Wrong.

The setup is actually pretty simple.

Most banks earn 3% (at least) on your money that’s sitting in the bank. They give you 0.1% to park it there, and then they lend it to someone else, which yields them much more than 0.1%.

Most banks pocket all the earnings, but Long Game found a few banks that want to help people win in life. So these banks give Long Game a portion of those 3% earnings. Long Game then sets up games for you to win and earn some of those gifted bank dollars!

It’s really pretty ingenious actually.

• You get the chance to win some decent money,
• Long Game makes a few bucks (I assume), and
• The banks get loyal customers that are flooding their accounts with money because they’re suddenly pumped about saving!

Beautiful. Simply beautiful.

The One Disadvantage and the Many Positives of Long Game

So is there a downside to Long Game? I can personally only think of one.

There are high-yield saving accounts out there that can pay you 1% or more on your money, but you know what? What’s better? Making 1% on $100 (and still being bored out of your mind and saving practically nothing each month) or getting pumped about saving money, putting thousands of dollars into your account, and truly winning with your finances? I don’t know about you, but if I were struggling to save money, I’d choose the latter...

Other Kick-Butt Reasons to Get Started With Long Game

So yeah, you could win some money through Long Game, but is that it? Is that the only draw? Nope, not even close.

• Long Game is FDIC insured, so don’t worry about your money - it’s not going anywhere.
• You get 300 free coins when you set up your account and link to your bank
• In your 1st week, get up to 3 free coins for every $1 you deposit and 40 free coins for every $1 Autosaved

This all means that you’ve got more incentive to get started with a bang, and better odds of winning prizes out of the gate.

What About You? When Will You Get Started With Long Game?

There’s really not much of a downside here. If you’re still listless with money and just can’t seem to get any of it into the bank at the end of each month, I’d say it’s time to try something new. You never know, you might just get hooked (which means that you’ll just want to save more money so that you can earn more coins to have a better shot at winning more games!) and save more money than you ever thought possible!

Sure, you might become a Long Game addict, but at least it’s an addiction that’s helping you win at your financial life!

Are you ready to get started with Long Game? Why or why not? Give us your opinion in the comments below!

Are You Financially Average?

Budgets are Sexy asks if you are financially average and shares these ten financial averages in the US:

#1. The average American gross household income is $71,258
#2. The average American household with debt owes $132,529
#3. The average American gave $5,491 to charity in 2015
#4. The average American has a FICO credit score of 700
#5. The average American’s 401(k) balance is $96,288
#6. The average personal savings rate in the U.S. is 5.5%
#7. Only 18% of Americans actively contribute to an IRA
#8. The average American’s tax refund in 2016 was $2,860.
#9. The average American pays an effective federal income tax rate of 13.5%
#10. The average American’s Social Security retirement benefit is $1,363/mo

Here are my thoughts on these:

1. I'm surprised that the income number is so high. I thought it was more like $55k. Anyway, this gives me more hope for Americans overall. With an income of $71k a year, you can certainly build wealth over time.

That said, I passed $71k in income pretty early in my career, probably five years of so out of grad school -- and that was in early 1990's dollars. Yes, earning a good salary is a great way to grow net worth. If you don't believe me, just read what millionaires have to say. 

2. We paid off our mortgage over 20 years ago and haven't looked back since.

3. We gave away 26% of our gross income over the 20 years we were building wealth. Even today in retirement we give 20% or so away per year, though we do it through assets (not income) using a donor advised fund.

We are big believers in helping others as much as we can, so giving has always been a big part of our family, as has volunteering.

4. Last time I checked, our credit scores were near 800.

5. I maxed out my 401k for many, many years and surpassed $96k a long time ago.

6. We saved 36% of our gross income. This was pretty good back in the day but many of today's early retirees make that look like slacking.

7. I contributed as much as I could to all my retirement accounts.

8. Our tax refunds had wild swings since we had so much going one every year -- especially after we bought our rental properties. I'm looking forward to the day when my tax return isn't 150 pages. (Yet another reason I use a CPA to do my taxes.)

9. My federal tax rate was way over 13.5% for many years, but one benefit of retirement is that it should be lower now. :)

10. I haven't looked at my Social Security benefits since I have a couple decades before I'll claim them. I'm not even sure they'll be around at that time (which is why I don't have any financial plans based on needing them). That said, if they are around, I should get a decent amount since I paid the max amount to Social Security for many years.

How about you? How do you stack up on these measures?

What’s the Best Measure of Financial Success?

The following is a guest post from Aaron of Personal Finance for Beginners.

If you’ve just started to focus on your personal finances, it can be difficult to know where to start. There are many important areas of money management – debt, budgeting, saving, investing – that make it hard to decide where to prioritize your attention and how you should measure your progress.

In this post, we’ll take a look at pros and cons behind four of the most popular numbers used to evaluate your financial success:

• Credit score
• Income
• Savings rate
• Net worth

Improving any one of these metrics has the potential to improve your financial wellness – but is there one number that rules them all?

Credit score

Your credit score is a number that lenders use to measure how responsible you are with managing debt. A credit score is calculated from five major factors. The two most important factors are making your payments on time each month (payment history) and how much you owe in relation to your total available lines of credit (credit utilization).

Pros: What are the benefits of having the highest credit score possible? Having a high credit score qualifies you for the lowest interest rates available on your mortgage, auto loan, student loans, etc. You don’t need a perfect credit score, but having an “excellent score” (750+) can save you thousands of dollars in accrued interest over your lifetime.

Cons: While having a good credit score is important when you’re buying a house or applying for any other loan, its impact is fairly small in the big picture of your personal finances. A bad credit score will likely hold you back from achieving some of your financial goals far more than a good credit score will be able to help you. 

Having good credit opens the door to new financial opportunities and flexibility, but nobody is becoming wealthy or retiring from a perfect credit score alone – it’s just a tool.

Income

What individuals do you see in your mind when asked to think of people who are “rich?” When talking about the affluent in our society and culture, we aren’t always talking about those with a massive net worth – we often imagine the “big earners” like actors, musicians, or tech giant executives.

Because most of us depend on a salary for our income, getting a raise or promotion is the most common way to increase this the number. It’s not the only the way to increase your income, however. You can also take on a second job, find a side hustle that suits your interests, or start your own business.

Pros: Increasing your income allows you to reach your financial goals more quickly. A high income can give you the option to enjoy a higher quality of living, covering your “needs,” “wants,” and even a few luxuries depending on just how much you earn. You can pay down any debt, max out your investment accounts, and have cash available on hand should a good financial opportunity present itself. 

Cons: Increasing your income doesn’t guarantee financial success. Just take a look at the celebrities, professional athletes, and lottery winners who receive seven-figure paychecks – many find themselves broke and filing for bankruptcy just a few years later.

How do you adjust your finances after you get a raise? Any dollar without a purpose is likely to go to waste. Without a budget and long-term financial plan, you can find yourself struggling without financial uncertainty regardless of your income level.

Savings rate

Savings rate is likely to be the least commonly discussed financial metric of the four mentioned in this post. Your savings rate is the percentage of your take-home income that you’re contributing toward retirement.

While your savings rate may not receive the same attention as your income or net worth, it’s a popular measuring stick especially among those who are pursuing an early retirement.

Pros: For most people, the end goal of personal finance is reaching financial independence. After you reach financial independence, you may want to continue developing your career, find a different job or volunteer work that better fits your values, or transition into “play lots of golf” or “go travel the world” retirement. Regardless of your end goal, your savings rate is the best direct predictor of how long it’ll take you to pass the finish line.

Cons: Maintaining a high savings rate often depends on keeping your spending low. Even if you’re able to establish a high savings rate early in your career, it’s hard to forecast how a major life decision, such as marriage, children, or relocating to a city with a higher cost of living might cause your living expenses to skyrocket your spending and completely shift your measure of success.

Net worth

Your net worth is the sum of all of your assets minus all your liabilities. This number provides a snapshot of your financial situation at any specific point in time (as it fluctuates in real-time with any personal transactions or changes in the market). If you’ve ever wanted to be a millionaire, it’s your net worth that needs to reach a million dollars!

Pros: Your net worth offers a balanced understanding of your financial situation by considering both the positives (assets) and negatives (liabilities). Unlike the other metrics we’ve discussed, your net worth is by far the most comprehensive. Calculating your net worth requires reviewing all of your financial information in one place, which is becoming easier than ever with tools like Mint or Personal Capital.

Cons: A high net worth, just like a high income, only holds value if you know how to make it work for you. To really optimize your finances, you still need to drill down deeper to identify areas of improvement. If you have significant amounts of student loan or consumer debt, you may have a negative net worth that takes years to reach the positive. Sometimes it’s easier to focus on other financial metrics that can be improved more quickly.

Conclusion

There’s a brief overview of four major measures of financial success. Each number can have a major impact on your finances in its own right, and your interest in each metric will likely shift as your progress through your financial journey.

Here’s how I’d rank these four metrics by importance:

1. Net worth
2. Savings rate
3. Income
4. Credit score

When all is said and done, your net worth dictates when you reach financial independence. It also indicates success in the other metrics: you’ve been able to hold on to the income you’ve earned by saving money, investing toward retirement, and acquiring assets.

Do you agree that net worth is the most important measure of financial success? Why or why not?

Why I Quit Wall Street to Do What I Love

This is a guest post by Millionaire Mob, a blog focused on investing in dividend growth stocks and travel hacking. 

It was August 2011. I was freshly out of undergraduate school and about to start my first day working as an investment banker for a large bank in Chicago. I was eager, motivated and ready to do whatever it took to be the next finance king. The cover of Fortune magazine was so close. I could just see it. 

After over 6 years of the grueling gauntlet of financial modeling slavery, I realized that isn’t the way to financial success or making a difference in this world. 

Why isn’t a gauntlet of modeling and pitch decks the way of living? 

First off, it didn’t take me a long time to realize that I would never truly see the world from an open eyes perspective if I spent 14 hours a day working on a financial model or PowerPoint presentation. The paychecks are great. The ‘bonus day’ is great where you would receive 100% (or more) of your salary in the form of a bonus. 

All that came at a price including your Vice President emailing you at midnight telling you that you did everything wrong in a presentation or waking up in the morning saying that you need to recreate an entire deck because it ‘wasn’t even close to being client ready.’ Or, the culture of people bragging how much they earned and how much would be spent in one night. 

I found myself being the complete opposite. Wearing beaten down shoes to saving every dollar to pay down student loans. Or, save enough to buy a reasonable home.  

I realized this wasn’t the way to truly enjoy the life you live. We all only have one life to live. Making a difference and working with people that also want to change the world is important. 

One quote comes to mind that really summed up my experience:

“Being the richest man in the cemetery doesn’t matter to me … Going to bed at night saying we’ve done something wonderful… that’s what matters to me.”-Steve Jobs

I truly learned a lot working in investment banking. You learn several points that are invaluable and can be leveraged into new ventures such as:

• You often work with and build relationships with C-Level executives
• There is the ability to learn a number of different tasks, such as creating a model to help determine if your client should continue to open more stores in a certain location or not
• You are never hungry. Imagine eating every meal at your desk. Every meal is basically expensed and so there’s no shortage of food to go around. My stomach expanded as a result…

I knew this wasn’t sustainable. I had to find a better way, but also pay the bills. 

What is the better way forward for freedom (financially too)?

I found myself back to the drawing board. What can I do that I can make a difference AND learn at the same time? Why can’t I take my lessons learned and skills to do a greater good of providing financial expertise to others that have less experience? This lead me to becoming an entrepreneur or a multi-tasked side hustler. 

The true meaning of financial freedom (to me) is building an income to cover all of your expenses, traveling the world and learning every day. I’ve been able to keep my expenses as low as possible for travel experiences via travel hacking. This enables me to continue my path of saving and investing. 

In addition, our favorite way to secure the most optimal total return is by investing in dividend growth stocks and using all additional income to reinvest in a dividend growth portfolio. The future of work is no longer in a traditional cubicle or desk. The future of work is collaborative and shared work. The freelancer economy is growing at a rapid rate. Find ways to get involved now and start earning some side hustle income to build a better financial future. 

When you think about your next move, ask yourself is the timing right? You need to ensure that you’ve built a sustainable future and/or reliable income before making the big move. Develop a prudent plan to hit your goals and do what you love. I like to think of the 3P’s for financial freedom: Patience, Planning and Progress. Obtaining financial freedom is easy. 

1. The hard part is getting started on your plan.
2. The patience is execution of the plan. 
3. The progress is the end goal and your ultimate achievement of financial freedom. By achieving financial freedom, you are free to do what you love. 

Do what you love and love what you do

How do you find out what you ultimately want to do in life? Whatever hobbies you have in life, you can earn a living off of. For me, this is travel.

I suggest following the below steps to achieve financial freedom and ultimately live a better lifestyle:

• Stay up to-date on the latest and greatest opportunities in personal finance
• Provide prudent research and guidance to help people secure their financial future
• Find ways for people to grow their nest egg through solid investment advice without the financial incentive
• Search for the best travel experiences, so you can go out and enjoy the best things in life

By doing what you love, you put yourself in a position for success at day one. This success is enabled by unlocking your abilities with your passion. I’m a firm believer of if you love what you are doing, you should never worry about money. The money will follow. Focus on doing high-quality work that helps others. Build a source of income that enables you to unlock your true passion. 

What are you doing to achieve financial independence? Remove the ‘work’ component to your work life balance equation… by having a life. Don’t be afraid to do something crazy. 

Feeling Poor Despite Good Earnings

The following is a guest post from The Financial Journeyman.

Do you earn a high salary or a high combined high household income and feel like you cannot get ahead? The average household income in 2017 was $59,000 for Americans. There are many households who earn $150,000, $250,000, or much more and feel like they cannot get ahead of their spending habits.

When I hear about these households, one thing comes to mind. They do not know how to budget. The salary amount that a family earns is only part of the equation. Without having a well-planned budget as part of your financial plan, it does not matter if your household income exceeds $1,000,000.

Earnings are finite. If you spend what you earn, you will always feel poor. If you spend more than you earn, you will be poor.

Like with most topics in personal finance, there is a solution. The solution is simple, but it might not be easy. It is not easy because it will require a person to make changes to how they budget and spend. When setting up a budget, there are a few general guidelines to follow as to how much you should be spending per category.

To keep it simple, let’s examine how a household should budget a net annual income of $100,000 per year (after taxes). That would come out to $8,333 per month.

Below are some budgeting guidelines to break the feeling of not being able to get ahead:

Housing

Housing costs should not exceed 25% of your budget. That comes out to 2,083 per month. That does not mean you can take out a mortgage where the payments equal $2,083 per month. This amount must cover all your housing expenses. This amount needs to cover taxes, insurance, and miscellaneous expenses.

For those who rent, the same percentage applies. 25% needs to cover rent, renter’s insurance, deposits, or any other expenses. Rent can be almost as expensive as a mortgage in desirable neighbors. The one break that renters do get is that renters insurance is far less expensive than home owners insurance.

Housing is the largest percentage category in this template. For most people, it is normally their largest expense. If you are exceeding 25%, you might have bought too much house or are living in a neighborhood that is beyond your means. To fix this, the best option is to downsize to a home that is more suited for your earnings.

Transportation

Transportation costs should not exceed 11% of your annual salary. That comes out to $916 per month. If you live in an urban area this percentage is for public transportation. If you own one or more cars, this amount needs to cover car payments, fuel, insurance, and repairs.

Food

Your food budget should not exceed 14% of your budget. That would allow you to spend $1,166 per month on food. That is a generous amount. Even with a family of four, that amount can be reduced to $800 per month. Look for coupons. Eat out less. Use coupons when you do go to a restaurant. Buy your groceries at Aldi or other discount stores. There are plenty of ways to save money in this category.

Entertainment

Entertainment is a want and not a need. It should be capped at 5% of your budget. That would allow you to spend $416 per month on entertainment. This includes TV, internet, movies, books, ball games, nights out with friends. There are many great ways to maximize your entertainment budget. Cut the cable cord and use streaming sources. Rent books from the public library. Watch the game at home instead of paying for high price tickets. Have pot-luck dinners with friends instead of going out to eat at fancy restaurants. That 5% can be stretched a long way and provide you with a tremendous amount of fun if you manage it correctly.

Savings and Investing

Your savings rate should be at least 15% of your budget. You might think this rate is high, but this is how much you need to save if you plan on being able to have a decent quality of life in retirement and to be financially independent. 15% would equal $1,249 per month. First, create an emergency fund with 3-6 months’ worth of expenses. While you are building up your emergency fund, be sure to invest the required amount in your employer’s retirement plan to capture the matching contributions. After you have your emergency fund established, contribute this allocation of your budget to your retirement accounts (401K/IRA).

Healthcare

Healthcare costs can range between 5-10% of your household budget. That would equal $416 at 5% or $832 at 10%. The difference between 5% and 10% would be the size of your household. If you have children and are on a family plan, it would be closer to 10%. If you are in the 5% range, consider allocating the other 5% into a Health Savings Account (HAS) for future healthcare costs.

Everything Else

You have 20% left. Make it count. This is to be used to cover utilities, personal expenses, phone, charity, consumer debt, vacation fund, education fund, and whatever else you need to pay for. The good news is that you are left with $1,666 to cover these other expenses. Try to get creative and get the most for your money. Shop around for the lowest cost utilities provider as well as reducing consumption. Cut coupons and look for sales on personal items. Charity can be money, but you can also volunteer your time. Pay off consumer debt. Practice travel hacking and vacation for free. You already pay high taxes, so you might as well take advantage of the public education system. Get creative and do more with less. With some effort, you can spend far less than 20% in this category.

Conclusion

By having a budget, you know how much you should be spending and saving. Without a budget, it is easy to spend more than you earn, not have adequate savings, and fall into debt. If that is your current situation, it is easy to empathize with your feelings of not being able to get ahead even though you earn an above average salary.

The above template is a good place to start. Here is how to use it. Take all your spending and bills from last month. Add them to the categories that best matches the expenses. Calculate your household net income for the month. Measure what your percentages are compared to what is recommended. Once you see where your money is being spent, it is much easier to optimize your budget.

Every household has different and unique situations. If you find that your percentages are way out of line with what is suggested, don’t panic or judge yourself harshly. It might take one year or longer to get your budget optimized to reflect the suggested percentages.

When dealing in percentages, you can track progress. As you start adjusting your budget, track the improvements you are making. A positive increase in savings or reducing an expense by 1% is a step in the right direction. This is not about being perfect. It is about right sizing your life to fit your income.

 

What's It Take to "Make It"?

Here's a very interesting post and infographic on what people think it takes to "make it" in America. 

2,000 people were asked what “making it” means to them. Their answers provide some interesting results.

Here are a few of the money-related ones and my thoughts on them:

Average annual income: Now: $57,426; Made it: $147,104

So while the average person in the survey makes $57k, they feel they would have "made it" is they earned $147k.

Wow, that's a big gap.

And one that is not achievable by most people.

According to WalletHacks, the top 5% of earners earn $130k or more.

So in other words, the vast majority will never "make it" to their desired income.

That said, if they want to, they need to get started asap at growing their careers as well as begin a side hustle.

Average home value: Now: $248k; Made it: $461k

First of all, these people are either living in high cost-of-living areas or they want HUGE houses! Yikes!

They should be careful since houses costing over $300k can actually lower your net worth.

Second, I think I have "made it" and I've never owned a home I purchased for over $400k (my current home might be worth that now, but I bought it for under $400k -- and we don't live in the high rent district).

That said, I do own $600k of rental property, so don't know if they're counting that (I assume not).

Average car value: Now: $15,789; Made it: $41,986

Uh, no.

Really? Really, America?

Maybe it's because they associate "making it" with an expensive, luxury car. Otherwise, I don't get it.

Two other pieces of information worth sharing:

• My state, Colorado, was listed as the #3 "made it" state. Oh yes...
• They asked people what it took to be "above average" in status. Women were more likely to say "income" while men were more likely to say "freedom". Interesting. That said, freedom and income are interrelated.

Check out the piece for a ton more interesting facts presented in a very nice infographic.

Three Questions to Determine Financial Literacy

A recent Freakonomics podcast listed three questions to determine financial literacy developed by an economist who teaches at George Washington University.

They are:

Question 1: Suppose you have $100 in a savings account and the interest rate was 2 percent per year. After 5 years, how much do you think you would have in the account if you left the money to grow? A) More than $102. B) Exactly $102. C) Less than $102. Or, if you really want to play along, D) I don’t know.

Question 2: Imagine that the interest rate on your savings account was 1 percent per year and inflation was 2 percent per year. After one year, how much would you be able to buy with the money in this account? A) More than today. B) Exactly the same as today. C) Less than today. Or, D) I don’t know.

Question 3: Do you think the following statement is true or false: buying a single company stock usually provides a safer return than a stock mutual fund.

And the answers:

Answer 1: A), more than $102. Because 2 percent interest on $100 in a year is $2, so after year 1 you have $102 — and then over the remaining four years, the interest grows on that $102, and so on. And that’s why compound interest has been called “the eighth wonder of the world.”

Answer 2: The answer is “less than today” because if inflation is 2 percent, prices go up 2 percent. But if you only earned 1 percent in your saving account, you basically can buy less.

Answer 3: False. Because a single company is a lot riskier than a basket of stocks. Don’t put all of your eggs in one basket.

Want to guess how financially literate Americans are (those who got all three questions correct)?

Around 30 percent of the respondents got all three questions right.

Ok, I'm not sure these questions should be the test to determine financial literacy, but supposedly they are predictive of it even when more questions are asked. So what do I know?

And is anyone really surprised anyway to learn that Americans aren't 90% financially literate?

So, how did you do on the test?

Top 7 Most Common Financial Mistakes

Investopedia lists the seven most common financial mistakes as follows:

• Mistake No. 1: Excessive/Frivolous Spending
• Mistake No. 2: Never-Ending Payments
• Mistake No. 3: Living on Borrowed Money
• Mistake No. 4: Buying a New Car
• Mistake No. 5: Spending Too Much on Your House
• Mistake No. 6: Treating Your Home Equity Like a Piggy Bank
• Mistake No. 7: Living Paycheck to Paycheck

My thoughts on these:

• Over-spending is the worst money mistake anyone can make. If you're an over-spender you are likely doomed to a low net worth, later retirement, and a few other nasty financial consequences. Unfortunately, it's very common.
• I think it's ok to have monthly payments as long as you get good value from the service. We belong to a gym but between my wife and me we are there 50 times a month -- making it well worth the price. If you pay for something and never use it, that's a completely different story.
• Debt costs a fortune and is a terrible money mistake in its own right. We paid off our mortgage over 20 years ago and haven't looked back.
• Personally, I like new cars and buy them. I then drive them forever. If you know how to get a good price on a new car you can buy them for very reasonable prices.
• Yes, buying too large of a home is a killer in several ways -- the cost itself, associated costs (insurance, taxes, maintenance), and keeping-up-with-the-neighbors costs. In fact, the more expensive a house you get, the less likely you are to become wealthy.
• I can't believe so many people regularly take equity out of their homes. It simply prolongs your mortgage and greatly increases its cost.
• Everyone needs to create some margin. If you're living paycheck to paycheck, it's time to review your budget to see if you can either earn more or spend less.

Anything to add?

Busy Isn’t Better: How Our Go-Go-Go Lifestyles Hurt Our Finances

This post is written by Chelsea, an investment professional and personal finance nerd who founded the personal finance blog Mama Fish Saves. Over at Mama Fish Saves Chelsea aims to provide families with the simple answers to all the money questions they didn’t learn in school, including the basics of budgeting, investing, increasing income, and raising financially smart kids!

Busy has become a lifestyle. A false virtue synonymous with important and valued. It’s invaded our workspaces, our homes, and our relationships by making every moment that isn’t multi-tasked somehow unproductive. The answer to, “How are you doing?” has not so subtly shifted from, “Doing well, thanks, how are you?” to “Oh man, I am so busy!”

Adverse aspects of the busy mindset have been covered in the media and by productivity gurus everywhere. However, we may have overlooked a major part of our lives that faces a long-term risk from all that go-go-go: our finances.

Busy means we prioritize the urgent over the important

Have you ever had a major task to do and suddenly you find yourself changing that flickering light bulb in the kitchen or cleaning the tile grout in your shower? Sure, those things need to be done. They’ve been on your to-do list for days! But do they need to be done now? Probably not. This “productive procrastination” dynamic is multiplied tenfold when the necessary task is something that won’t impact us for 20 or more years. Most often, our retirement.

A few weeks ago, a good friend reached out to me to ask if I could look at her and her spouse’s investments. They worked with a financial advisor from their brokerage a few times a year but wanted a second opinion on fund choice and asset allocation.

When she sent over their figures, I was shocked. While she was invested in all index and target date retirement funds, she and her husband were paying a weighted average of 1.15% in fees! I called her immediately to tell her that we could talk about asset allocation, but she had a bigger problem.

I explained that since their $54,000 in investments were all in Roth and Rollover Traditional IRAs, they could roll everything into Vanguard, with no tax impact, and lower their fees from 1.15% to 0.16% in an equivalent Target Date fund. Plus, if she was willing to try a three-fund portfolio we could reduce their costs to a weighted average of 0.05%! Even if she and her husband never invested another penny, this simple move would mean over $50,000 more in their retirement account in 25 years.

She told me she had to talk to her husband and she would get back to me. Over a week later, I hadn’t heard from her. When I gave her a call, she apologized and said they hadn’t had time to think about it. “We’re just really busy right now. Can we talk about it again in a few months?” I love her dearly, but I won’t be holding my breath waiting for that call. Just like that estate planning lawyer’s business card has been gathering dust on my desk since my son’s birth, moving investments or writing wills tends to take a back seat to all the little things that seem more urgent.

When we cram our schedules full each and every day, down to the most minute activities, we don’t leave ourselves time to consider the future. We don’t have the mental capacity or mental quiet to question the tasks we are doing. We just do. As the old saying goes, “too busy chopping wood to sharpen the axe.”

However, if we want to reach our goals, we need to spend our energy smarter. Running on the treadmill burns calories, but it doesn’t get you anywhere. Give yourself the breaks you need to realize where you could swap 20 minutes virtually clipping $0.50 grocery coupons for 20 minutes saving your future self $50,000.

Busy means we confuse complicated for sophisticated

In a world where busy is a virtue, many of us end up placing chaos on a pedestal. Instead of looking for the simple solutions, we accept the complicated ones, especially when it comes to the difficult areas of our lives. These confusing and chaotic solutions so closely match our view of the problem, they just make sense! But for many people, money and investing pop to the top of their tough questions list. A place where chaos can destroy your wealth.

Investing is hard for a newbie. It is filled with jargon you need to know, endless “advisors” trying to sell you products you don’t need, and all that terrifying risk! It is overwhelming. So when your friendly neighborhood personal finance blogger tells you the key to building wealth boils down to a few easy steps, they might as well be telling you to jump out of a plane. Typical responses include, “Invest in only one to three funds?” and “Keep investing even when the market is crashing!?” and “Do the same thing for 20 years?!” Not exactly a celebration of the beauty of simplicity.

A “busy” life means one where we don’t stop moving. We listen to podcasts while we run, check email at our child’s soccer game, and yes our spouses while we fold the laundry. When busy is our normal, patience and consistency is hard. We’ve learned to crave instant gratification and to view constant tweaks and improvements as progress. If we aren’t shifting our investment strategy with every change in the wind, what will we say when our neighbor asks if we bought stock in Amazon?

In our lives of busy, we forget that investing is like gardening. Yes, you have to prune back what isn’t working. Find ways to improve your budget, earn more, and invest more if you want to reach your goals faster. But if you dig up the seeds every time your bounty doesn’t sprout overnight, you’ll never grow a thing. Consistency and dedication are worth far more than busy.

Busy means we waste time we could be using for development

Parkinson’s law - the idea that work expands to fill the time available for its completion - explains how Elon Musk manages to be the micromanaging CEO of two multi-billion dollar businesses, a father to five, and working out a few times a week, all while I can’t find time in my schedule for meal planning. For one, I’m sure he spends way less time cruising Twitter than I do.

As soon as the word “busy” comes out of our mouths, we make it the truth. We say that our schedules are full and they become full. It isn’t some magic spell, but just by telling ourselves we are busy we allow our lives to fill up around the tasks on our to-do list. Even if our to-do list is full of pointless things like, “clean Facebook friends list,” and “triple check fantasy football lineup.”

We only have so many hours in the day and those who are best at building wealth know how to spend those hours wisely. They spend hours reading to boost their knowledge instead of watching TV, developing skills to increase their earnings power, reviewing their goals, and thoughtfully considering how they want their lives to look in the future.

Continuous learning is a key to long-term financial success. When it comes down to the question of “save more or earn more” there is an upper bound on how much more you can save, but no limit on how much you can earn. Making time for developing and learning is an investment in yourself. It will allow you to be opened up to new ideas and lessons, a way to find a career path or advancement opportunity to increase your overall satisfaction as well as your worth. There is a reason the average CEO reads 50-60 nonfiction books a year! But if you can’t stop saying you’re “busy,” you may miss the easy opportunities for growth!

How to break the busy mindset to build wealth

In today’s societies of smartphones, watches that alert you to every text and new update, and constant other stimulation that keeps our minds in overdrive it can be very, very hard to break the busy mindset. It is still something I work on every day. But to help get you started, here is what has worked for me.

First, take the time to make a budgeting and investment plan. Find the time in your schedule to be thoughtful, e.g. not the eight minutes slammed dinner and getting your daughter to her basketball game. Remember, simple is better! Then, when a news headline or neighbor with a stock idea has you wanting to throw the whole plan out the window, sleep on it. Jot the idea down and give yourself 24 hours to decide how it fits in with your plan. Have your goals changed? Is there a reason this idea doesn’t fit in with your current plan? What could it mean for your future if you're wrong about this new path? When you have a financial plan developed from a rational state of mind to compare the idea with, and when you’ve given the idea time to breathe, you may be less likely to throw the baby out with the bath water.

Second, make time. We get done the things we believe we need to get done. Try to prioritize your to-do list not by how long each thing will take, but on how much its completion will impact your life. When I started to keep track more carefully, I found that I was terrible at predicting how long things would take. Things I hadn’t done before were way overestimated in my mind. Not because they were really complicated, but because their virtue of being new to me led me to cautiously overstate them. When real priorities were at the top of the list, they just got done!

Finally, and perhaps most importantly, let’s all make a pact to stop constantly saying we’re busy! Our friends, our sanity, and our future selves will thank us for it.

Eight Steps to Be Financially Healthy

Nerdwallet lists three steps to be financially healthy as follows:

• You can manage your day-to-day financial life
• You can absorb a financial shock
• You’re on track to meet your financial goals

They then list eight behaviors that help as:

• You spend less than you earn.
• You pay bills on time.
• You have a decent emergency fund.
• You’re on track with retirement savings.
• Your debt load is sustainable.
• You don’t routinely carry credit card or other high-rate debt.
• You have good credit scores.
• You’re appropriately insured.

We've met all of these for as long as I can remember -- for 20 years at least.

The article says only about 10% of people nailed every one of these, so that's rare. Debt, retirement, and emergency funds seem to be the killers for most people.

These are really, really basic. I'm surprised the percentage who meets them all isn't higher.

How about you? Which of these do you do well and where do you need to improve a bit?

How's Your State Performing?

Not too long ago I received an email from WalletHub with a couple of survey results.

The first listed 2017’s states with the best and worst taxpayer ROI.

The best ten are:

1 - New Hampshire
2 - South Dakota
3 - Florida
4 - Virginia
5 - Alaska
6 - Colorado
7 - Utah
8 - Missouri
9 - Texas
10 - Nebraska

And the worst ten are:

40 - West Virginia
41 - Vermont
42 - Nevada
43 - Wyoming
44 - Delaware
45 - Arkansas
46 - New York
47 - California
48 - New Mexico
49 - Hawaii
50 - North Dakota

I was pleased with these results since my state (Colorado) was in the top ten. I guess I'm getting a good bang-for-my-buck tax-wise.

They also sent me a list of 2017’s most and least financially literate states.

The best ten are:

1 - New Hampshire
2 - Minnesota
3 - North Dakota
4 - Maine
5 - Virginia
6 - Maryland
7 - New Jersey
8 - Illinois
9 - Colorado
10 - Montana

And the worst ten are:

41 - Arkansas
42 - Nevada
43 - Tennessee
44 - New Mexico
45 - Alaska
46 - Oklahoma
47 - Mississippi
48 - Kentucky
49 - Rhode Island
50 - District of Columbia
51 - Louisiana

Some thoughts on this:

• My state is again in the top ten! Woo hoo!
• New Hampshire heads both top ten lists. Those people must have their act together!
• Virginia is also in the top ten for both.
• Arkansas, Nevada, and New Mexico were on both worst ten lists. Ugh.
• Alaska and North Dakota had split results -- once on the best ten and once on the worst ten.

Those are my thoughts and how my state performed. How did yours do?

Habit of the Wealthy: Getting Up Early

Here's a video on how the wealthy get up early. 

It says they rise three hours before they go to work and use that extra time to advance their lives and their fortunes.

They spend a good portion of the morning reading to gain knowledge. They also exercise aerobically 20-30 minutes a day -- which also makes them smarter (the video goes into the biology of how this happens). Combine these two and you have smarter people who do more in life and their careers, and thus make more money.

A few thoughts:

• Spending extra time to grow your career is well worth the investment. That extra time could net you several million dollars extra over the course of your working lifetime.
• Exercising not only saves/extends your life but it can both save and make you more money. Good stuff!
• Put the above two points together and this is how getting up early can help you become wealthy.

I used to be a night owl and HATED the mornings. Then we had kids. :)

Slowly, over time, I began getting up earlier and earlier. I was reading (mostly) during this extra time, but some time was also allocated to thinking and planning.

More recently I read The Miracle Morning: The Not-So-Obvious Secret Guaranteed to Transform Your Life (Before 8AM) and have been more intentional with my early mornings.

Here's what I do now in the morning:

• Weigh myself (daily weigh-ins keep me accountable)
• Drink 24 oz of water and a protein shake
• Check my sites to make sure they are up, record daily stats, etc.
• Read for 15-30 minutes on personal finance and business
• Do a couple chess puzzles
• Head to work out

I get home about 10 am or so, having taken the long walk home (on nice days) and having 7,000 to 10,000 steps already under my belt.

Of course I can do this because I'm retired, but many of the principles can work for those employed as well. The idea is to get up earlier and use that time to accomplish the things in life you want to accomplish.

Any other early risers out there?

The Poor Gamble More than the Rich

Here's an interesting piece from Rich Habits which says the poor gamble more than the rich. Some details:

6% if the rich gambled regularly on the lottery vs. 77% of the poor and 16% of the rich gambled on sports at least once a week vs. 52% of the poor.

Someone (was it Dave Ramsey?) used to say that the lottery was a tax on people who were poor at math. Really, all gambling is. The odds are not in your favor. For each dollar you wager, you get back less than $1 on average. In many cases, much less.

I prefer to invest $1 and get $1+ back. I particularly like index funds and real estate but there are other ways to grow your money of course.

The poor seem content to take their money and lose it while the rich are content to take their money and grow it. Seems pretty intuitive, doesn't it?

I've never been a big gambler. In fact I can't remember if I've ever bought a lottery ticket or gambled at a casino. I have bet on games, but that was usually "$1 a game" with my dad around college bowl season.

If you look at gambling as entertainment, money you "spend" to have fun, then there is some justification for it. But most people go into it expecting to win more than they put in. This desire to get rich quickly is often their undoing. After all (again), the odds are not in favor of making more than is put in.

What's your take on gambling? Is it harmless entertainment or something that's keeping people from becoming wealthy?

Focus on Financial Tasks with the Biggest Payoffs

Here's an interesting article from the NY Times titled How to Pinch Pennies in the Right Places. But to me the piece is more about allocating time properly to tasks that have the biggest payoff.

The article highlights how people often are lured into spending time and effort to get a big percentage off a purchase but may then ignore a better opportunity with a lower perceived "deal" that's actually much more valuable.

Some thoughts that highlight the points:

Consider this situation: You’re shopping for headphones. An electronics store has the model you want for $50, a reasonable price. But a sales clerk says: “You know our other branch has this item on sale for $40.” Going to that store will take 30 minutes, and you can’t buy the headphones for that price online. Do you go to the other branch? Before you answer, consider a slightly modified version of the same situation: Instead of headphones, you are buying speakers. You go to the same store and find the model you want for $400. Again, the price seems reasonable but the sales clerk says it’s on sale at the other branch for $385. What do you do now? Research by Daniel Kahneman and Amos Tversky, the psychologists whose work helped spawn behavioral economics, suggests that people are more likely to make the trip for the $40 headphones than for the $385 speakers.

At first glance, this makes sense. By taking the trouble to go to the other store, you can save 20 percent on the headphones and only 3.75 percent on the speakers. The bigger percentage in savings is more appealing.

Though intuitive, this way of looking at the choices is mistaken. In each case it will take 30 minutes to save some money. But with the headphones, you save $10; with the speakers, you save $15. It’s as if you had two identical job offers, but one paid $20 an hour and the other $30. Yet you consistently chose the lower-paying job.

So you actually save more with the lower percentage off, but that's not how most consumers think.

Now this is bad enough when we're talking $5 here and there, but consider this trade-off:

This kind of foolish frugality is common. Consider how easy it is to fritter away time surfing the web for, say, a great deal on a $50 pair of jeans. Yet many of us spend no time at all on our investments. The result is that we barely glance at the fees charged by mutual funds: Without thinking much about it, we will choose a fund that charges an extra 0.25 percentage point rather than spend the time to find a cheaper one. That’s reasonable on the face of it. What’s a quarter of a percent? But that seemingly tiny percentage difference can easily amount to thousands of dollars of lost money. We brag to our friends about how much we saved on the jeans — “30 percent off!” — never mentioning (or even registering) the money we threw away on our investments.

This is where it's a real killer. Imagine what 0.25 percent over hundreds of thousands of dollars and a few decades is worth. And yet we spend our time saving on the jeans. Ugh.

The book The Millionaire Next Door: The Surprising Secrets of America's Wealthy (review) includes the ability to differentiate between perceived and real value as a key to growing wealth. Their #2 point (of seven) on how to become wealthy is as follows:

They allocate their time, energy, and money efficiently, in ways conducive to building wealth.

These people spend time and effort where they can gain big (careers, businesses, investments, etc.) and where they can save big (homes, cars, etc.). Sure, they'll take 30% off jeans too, but they won't do it at the expense of the big-ticket moves that really drive wealth.

How about you? Are you focusing your time and energy in the right financial areas?

No One Cares More About Your Money than You Do

Consider this a public service announcement.

I recently ran into a piece that asks who you can trust for financial advice. They never get around to answering the question so I will: you can trust yourself.

After that, everyone else, in some form or fashion, no matter how nice/knowledgeable/friendly they are, can't be completely trusted.

And by "completely trusted" I mean you can't simply hand your financial life over to someone and let them manage it for you. YOU must at least learn the basics of personal finance so you know how to oversee the fundamentals of your own finances. Otherwise you're a sitting duck for people looking to make your money their money.

Fortunately the keys to being successful financially aren't that difficult to understand. Yes, it will take you some time and effort to learn and apply these principles, but the results you'll get are well worth it.

THEN, once you understand personal finance for yourself, you can work with others (if you want to) to make the most of your money. But at that point you'll know enough that it will be difficult for them to take advantage of you.

Remember that no one cares about your money more than you do (or at least you should). Spend just a bit of time learning about the keys to financial success and you will be well rewarded for it.

To get started, here are a few books I'd recommend you consider:

• The Millionaire Next Door
• The Richest Man in Babylon
• Your Money or Your Life
• Bogleheads’ Guide to Investing

These are the best of the best in personal finance books IMO and all have benefited me greatly as I've grown my net worth. They will do the same for you.

Things to Never Keep in Your Wallet

Here's a post from Bankrate that lists things you should never keep in your wallet. 

They include:

1. Social Security Card
2. Birth Certificate or passport
3. Extra credit cards
4. PINs and passwords
5. Checks

Uh, I'm not sure who carries these things around with them anyway -- certainly not #1, #2, and #4.

Here's what I currently carry in my wallet:

• Cash -- anywhere from $50 to $100 (I'm the one expected to have cash in our family, though we seldom use it)
• Credit cards -- my three go-to cards
• Driver's license
• Costco membership card -- I technically don't have to carry this as I have the Costco credit card, but while Chase Freedom is offering 5% cash back on Costco purchases, I'm using it
• Fitness club membership card

That's it. Nice and neat in a wallet/money clip combo a bit bigger than a credit card.

So, what's in your wallet?

How Much Time Do You Spend Managing Your Finances?

Mixed Up Money spends one day a month managing her finances where she batches all of her financials tasks into a day at either the first or the end of the month.

I don't do the one day thing, but I can see the benefit of batching all the tasks at once. But to spend an entire day working on money stuff would be a bummer (especially since it would probably kill a Saturday) so I prefer to spread my tasks out. To that end, here's what I do:

• Once a week I pay all the bills received from the previous week, then update Quicken, adding in all my credit card charges, checks written, etc. as well as updating my stock values. This takes maybe an hour and involves charges/checks from my wife too.
• Once a month I review my investments to see how they are performing. I also update my real estate checking accounts (looking over revenue and expenses for the month) as well as any accounts earning interest or dividends. This might take an hour or so as well.
• There are various other tasks that hit now and then, but for the administrative parts of managing my finances, that's about it. Maybe five hours a month total.

That's how I manage my money. I try to keep it simple and quick. What's your process?

Money Magazine and Kiplinger: A Tale of Two Magazines

A few months back I subscribed to Money magazine. It had been years since I had a subscription to it but since I needed regular reading material for the sauna, I decided to take the plunge.

A month or so later I did the same with Kiplinger Personal Finance magazine.

It's been a decade since I used to rate the magazines against each other but there's such a stark contract to them now that I wanted to resurrect the old practice.

Money magazine is still as awesome as it's ever been. Full of good, useful content. In fact, I get several blog post ideas from every issue, making the magazine well worth the cost. They have tons of money-related stats which I especially like.

Kiplinger's was always #2 to Money back in the day, but boy has it taken a turn for the worse.

The articles were puff pieces with very little useful information. And the magazine was very thin -- not much content (or at least it seemed that way). It certainly made me think back to why I canceled my subscription in the first place.

Yes, I know I can get articles from both of these online (and I read there too -- in fact, Kiplinger seems better online than in print), but I need a physical copy for the sauna (some guys bring their phones in but I'm afraid the heat will hurt my phone).

How about you? Do you subscribe to any personal finance magazines? If so, what do you think of them?

Americans Have Way Too Much Credit Card Debt

I like to "collect" posts on various topics. Here are a few:

Posts about people who have a solid net worth despite having a low income. I like these posts because they show that you don't have to make a gazillion dollars to become wealthy. You simply need to spend less than you earn and invest that difference. Over time, your wealth will grow.

Some posts in this category include:

• Looks Like the Income Needed to Become Wealthy is Far Lower than Most People Think
• An Example of How to Get Rich on an Average Salary
• Another Example of Getting Rich on a Low Salary

Posts about how people with huge incomes go broke. These posts illustrate that no matter how much you make, you can spend it all and then some and go backwards financially. So while a high income is important, it does not guarantee financial success if you can't control your spending.

Some posts in this category include:

• More Rich People Who Lost it All
• Now $1 Million is Not Enough to Live On
• Seven Costly Pro Athlete Screw-ups
• Stars Who Have Lost Fortunes

Posts about how terrible Americans are at managing their money. These posts keep me writing. People out there simply don't know how to manage their money!!! Hopefully I can help them with that.

Some posts in this category include:

• How Many Americans Live Paycheck-to-Paycheck?
• Finances of the Average American
• Americans Stink at Money Management

Today's post falls in the last category.

Money Magazine's July issue says:

"Families haven't owed this much since the Great Recession. The Federal Reserve has found that high income families who carry a [credit card] balance owe more: $8,300 a year, on average. That's almost $1,500 in yearly debt costs."

Why, oh why, do people carry credit card balances -- especially if they have high incomes?

Credit cards should not cost you money -- they should help you MAKE money!!!

Stats like this do not surprise me any more, but they do make me wonder...

Americans Stink at Money Management

Here's a post that asks How Wise Are We With Money?

The answer: not wise at all.

Some key highlights (or lowlights, if you prefer):

• 3 in 10 have a long-term savings plan
• 2 in 3 adults don't have a budget
• 33% don't pay their bills on time
• 3 states require a personal finance class to graduate high school

As we've seen over the years here at FMF, this is just the tip of the iceberg. Pick any financial topic -- investing, retirement, emergency fund, etc. -- and there's way more bad news than good news.

It's amazing (in a bad way) that we are so bad off individually as a country when the basic concepts of money management are pretty simple to understand and implement.

What's the solution to this? Financial education? Forced savings? Eliminating the ability to borrow?

How about common sense, good judgment, and self-control?

Yes, I think I like those options better.

What's Your Top Financial Regret?

Here's an interesting piece where people are listing their top financial regrets. Included in the list:

• Buying a house too early
• Being too financially conservative
• Getting a payday loan
• Marriage (ha!)
• Not buying real estate in 2008
• Start saving earlier

Four of these are on the list of ten worst money mistakes anyone can make (#7, #5, #4, #3). Yikes!

My biggest financial regret is that I didn't start saving and investing sooner. I really got started about five or six years after school, so I effectively wasted those years. Ugh.

How about you? What's your biggest financial regret?

The Wealthy Look at Money Differently

The Business Insider says that the way millionaires view money is different from everyone else. Here are their thoughts and my comments on them:

1. The wealthy focus on earning.

I have to agree on this one. That's why I post so much about managing your career, growing your investments, and investing in real estate.

2. The wealthy use leverage.

I think this is true for the big business millionaires, but I think the millionaire next door types actually shy away from debt. I know I do.

3. The wealthy think about money in non-linear terms.

I'm not sure what they mean here other than "come up with a great idea that earns you a gazillion dollars." I like the thought, but not sure it's realistic for most people.

4. The wealthy see money through the eyes of logic.

Very true IMO. This is why the wealthy often say things like "spend less than you earn" and actually do it while most people say "that's common sense" and yet can't seem to pull it off.

5. The wealthy believe being rich is a right.

I don't think most wealthy people believe being rich is a right, but I do think they believe being wealthy (or at least significantly wealthier than you are now) is something attainable by almost everyone. They just need to take the right steps to get the results.

Anyway, that's my take on their views. What do you think?

Why People Have Money Problems

I recently received a GREAT email from an FMF reader that went as follows:

For once a straight shooting article from the mainstream financial press. It basically says people have money problems because:

• They spend too much on housing
• They spend too much on cars
• They spend too much on college

There are other factors, of course, but I agree these are the big ones. The other two that I'd add that nobody wants to touch are:

• Having kids out of wedlock
• Divorce

I LOVE it!!!! :)

I mentioned several of these in my post on the ten worst money moves anyone can make: marrying the wrong person was #7, buying too much house was #5, and over-spending was #1.

The house, car, and college are especially dangerous because of the amounts involved. It's one thing to over-spend on comic books and quite another entirely to over-spend on a house.

A few more thoughts from me:

• Here's how to buy a house and pay it off in ten years.
• Here's how to save money on a new car (You can also buy used, as I'm sure some of you will point out.)
• As for college, the key is to make the payoff exceed the investment. In other words, it needs to be a "good deal." $50,000 invested in college for a job that pays $75,000 a year is a lot better investment than a $200,000 cost for a degree that gets you a $20,000 a year job.

Anyone else have thoughts?

Top Ten Money Recommendations for Every Age

As you might imagine, I get lots of requests from publishers who want to send me a book to review on Free Money Finance. Of all the requests I get, I probably only bite on 25% of them (the ones I think I might be interested in.) And of those I request, I only end up writing about one in five (many have GREAT titles but their content is lacking).

Every once in a while I find a gem that I really like, and I'd put The Charles Schwab Guide to Finances After Fifty: Answers to Your Most Important Money Questions into this category. No, it wouldn't make it onto my shortlist of the best personal finance books ever but it might be good enough to make the expanded list of money books that can change your life. Yes, it's good.

Best of all, it's not just for people 50 and over. It's a question and answer format and many of the questions center around retirement. If 30-somethings read this book and applied its advice, they would be set in retirement and not have to face many of the issues those who haven't saved face.

At the beginning of the book the author lists what she calls "My Top Ten Recommendations for Every Age." These are money-related recommendations (of course) and they include:

1. Figure out your net worth.
2. Track your spending and make a budget.
3. Reduce your debt.
4. Create an emergency fund.
5. Determine if your retirement savings are on track.
6. Automate your finances.
7. Check in with your portfolio.
8. Review your insurance.
9. Create or update your estate plan.
10. Organize your records.

Love this list! It's very similar to my 30 steps to great finances. except that I go into a bit more detail (and 20 more items). :)

Anyway, I will be talking about this book off and on for a bit so I really just wanted to introduce it to you today. Let me know if you read (or have read) it and what you think of it.

Free E-Book on Finance Basics...Kind Of

A reader recently sent me an article titled The Key to Build Wealth? Start Slowly. The article itself was pretty basic, but also good, so when it mentioned that the author interviewed was giving his e-book away free on April 25, I made a note to check it out.

So I went to Amazon this morning, and the book is not free (as of this posting, maybe it will be later) but was still 99 cents. I don't have the time today to watch it hourly to see if it becomes free, but I thought I'd at least post a link and you could check it out as often as you like.

The book is If You Can: How Millennials Can Get Rich Slowly and based on the article, the content looks to be much better than the cover of the book. :)

Enjoy!

Top Money Resolutions for 2014

Money Magazine recently shared the top five money resolutions people have for 2014 as follows:

1. Simplify my finances

2. Save more for retirement

3. Pay down debt

4. Donate more to charity

5. Create and stick to a budget

Here's where I stand on these:

• I have been working on simplifying my finances for the past few years, namely reducing the number of investment accounts, credit cards, banks, etc. that I do business with. So I'm pretty set in this area.
• I have recently updated my retirement plan numbers and have a goal I want to save for 2014. It's a good-sized goal, but I think I can beat it.
• I have been debt free for almost 20 years now and I don't plan on taking on debt at this point.
• I have an annual budgeted amount both for giving to my church and outside charitable giving as well.
• I haven't had a budget in years, but this year I'm planning on making one, just to see how much potential retirement savings I can squeeze out of a year.

In addition to the above, here are other financial plans I have for 2014:

• Review my investments once a month just to make sure they are on track.
• Complete my (increasingly complicated) taxes. Yes, I'll be using a CPA.
• Complete a list of where all my accounts are, contact info, web passwords, etc. for my wife in case I pass away.
• Review my credit report twice.
• Update our will/estate plan.
• Complete my real estate remodels and manage properties as needed.

That's what I have planned for 2014. How about you?

Two Books that Will Change Your Financial Life

I get asked all the time if I can recommend a good book on money management. I can actually name two, but more on that in a minute.

I have read hundreds of books on all sorts of financial topics -- general money management, investing, retirement, and on and on. Unfortunately the vast majority of them aren't worth the paper they are printed on. They are poorly written and contain little valuable information.

That said, there are many books that stand out for one reason or another -- and I mean this in a positive way. They do have good information and are worth anyone's time in reading.

However, there are only two books that I believe warrant a whole-hearted endorsement from me. They are both general money management books and both, if read and applied, will change a person's financial life for the better (they have changed mine, that's for sure). In fact, if applied over a lifetime, they will almost certainly make a person wealthy.

The Millionaire Next Door

I first read The Millionaire Next Door: The Surprising Secrets of America's Wealthy shortly after it was published in 1996. I was out of graduate school, married, and a few years into my career. I had been working on eliminating debt from my life (yes, including my mortgage), but this book pushed my financial vision into over-drive.

The book's message is that most millionaires in America aren't the ones living in huge homes, driving expensive cars, and taking extravagant vacations. In reality the average American millionaire is just your typical guy next door. He's unassuming and someone most people would never pick as being wealthy. That's what made this book such a phenomenon -- its findings turned conventional thinking on its head.

The book highlights seven common denominators among those who successfully build wealth. They are:

1. They live well below their means.

2. They allocate their time, energy, and money efficiently, in ways conducive to building wealth.

3. They believe that financial independence is more important than displaying high social status.

4. Their parents did not provide economic outpatient care.

5. Their adult children are economically self-sufficient.

6. They are proficient in targeting market opportunities.

7. They chose the right occupation.

After reading the book, I applied every one of the learnings above except #5 (since I don't have adult children). And my finances benefitted greatly from doing so.

The Richest Man in Babylon

Shortly after reading The Millionaire Next Door, I stumbled upon The Richest Man in Babylon: George S. Clason's Bestselling Guide to Financial Success: Saving Money and Putting It to Work for You, an equally life-changing personal finance book.

The Richest Man in Babylon is a parable of a wealthy man in ancient Babylon who gives a friend "seven cures for a lean purse" as follows (along with a summary of each):

Cure #1: Start Thy Purse to Fattening - Save 10% of your income.

Cure #2: Control Thy Expenses - Keep spending low.

Cure #3: Make Thy Gold Multiply - Invest to grow your wealth.

Cure #4: Guard Thy Treasures from Loss - Don't lose money when you invest - protect your principal.

Cure #5: Make of Thy Dwelling a Profitable Investment - Own your own home.

Cure #6: Insure a Future Income - Turn your wealth into a retirement income.

Cure #7: Increase Thy Ability to Earn - Study to become wiser so you can make more money and manage it better.

Just look at those tips! All of them are extremely solid! I think we've heard a lot of these from the millionaires we've talked to.

Applying the concepts in these two books did one thing for me: made me a much, much better money manager. But really, if a person just read and applied either one of them over a decent period of time, he would be wealthy.

That's why I can wholeheartedly recommend these books to ANYONE looking for a good book on personal finances. If you haven't read either of them, do so immediately. Then do your loved ones a favor and have them read these -- especially your kids, relatives you have that are graduating college and high school, and so forth. Doing so will change their lives forever and the earlier someone begins applying these principles, the better!

30 Steps to Great Finances: Steps 28 through 30

Today we are finishing our list of the 30 steps anyone can take to have great finances.

If you are new to this series, please read through the steps we've already covered, starting with 30 Steps to Great Finances: Steps 1 through 3, before reading this post.

If you have been taking action since the beginning of this series, your finances are probably in much better shape now than they were earlier. 

The last three steps focus on some final ways to improve your finances. Take these steps, and you will be able to keep all of the good habits you have developed.

Let's get started.

Step 28: Automate Your Finances

You may think to get ahead financially, you must continuously make smart money decisions. Of course making smart money decisions is necessary. But you don't have to make great moves continually; many times you just need to make them once. One way you can take some of the burden off your shoulders is by automating your finances.

So what should you automate? Let's begin with the pay from your job. Contributing to an employer-matched 401k is the first no-brainer for an automatic deduction. Then have money taken from your check for things like flexible spending accounts, health savings accounts, and the like. From there you can send the rest of your check to your bank where it can be dispersed as you like (I have funds that go from my bank to Vanguard each month where they are automatically invested there.)

You can also save yourself a boatload of time (and potentially money -- you will never pay late fees) by automating payments of your monthly bills -- anything that's a recurring cost.

You can also fund any number of accounts automatically. You can build up your emergency fund, save for your next car, or put money away for your kid's college costs.

So try to automate as much of your finances as you can. It will make saving, investing, and managing your money much, much easier. And after a while, you won’t even notice that the money is not in your paycheck and is quietly growing your wealth through no further work on your part.  How sweet is that?

Just don’t be lazy. Don't "set it and forget it." You will still need to occasionally check/manage your accounts to make sure there are no unauthorized charges or other errors.

Step 29: Develop Long-Term Goals and Plans

Now that your finances are solid, you can develop long-term goals and plans. 

This isn't to say that you didn't have goals back when you started this process because you certainly did. But those were likely more along the lines of "get my finances in order" sort of goals. Now that your finances are in order, you're looking at a whole new world of possibilities.

So what do you want to accomplish? Don’t be afraid to dream big. Do you want to retire at 50? Do you want to buy that "special" car you've wanted since you were 13? Do you want to create your own non-profit to help disadvantaged youth in your area? Do you want to do some special things with your family (like take a cruise)? Do you want to completely fund college for your kids?

Whatever you'd like to do, write down your plans.  Trust me, you’re much more likely to accomplish goals when you write them down instead of just thinking about them. Once you have them written down, be sure to review them regularly to make sure you keep a focus on your priorities.

Step 30: Establish Regular Tracking and Review of Both Your Net Worth and Spending

Way back in Step 1 we discussed computing your net worth.  Now that your finances have improved, you should calculate your net worth at least every year. (Personally, I compute it monthly, but I'm a bit anal about money management.) 

Why?

Because it's a measure of your progress. You can see how healthy your finances are (or aren't) and make adjustments accordingly. Hopefully you can watch your financial situation improve every year -- which will likely motivate you to make them even better.

In addition, review your spending plan once a month. Take the time to reconcile how much you have spent to make sure you are on track and not overspending.  Over time you will develop a feel for your spending plan and will know if you are over, and you can review your plan less frequently (I moved from monthly to quarterly to semi-annually to annually to whenever I see something on Quicken that I want to check into.) Whatever time period and method works for you, be sure to keep a handle on how your money is spent. Otherwise you risk letting valuable savings/investments simply slither out of your hands without any notice at all.

There you have it.  Thirty steps to improve your finances. 

If you haven’t yet started your journey to better finances, what are you waiting for?

Have you had success with following these steps?  I would love to hear your feedback!

30 Steps to Great Finances: Steps 25 through 27

Today we are going to continue listing the 30 steps anyone can take to have great finances.

If you are new to this series, please read through the steps we've already covered, starting with 30 Steps to Great Finances: Steps 1 through 3, before reading this post.

So far we have covered 24 steps, and if you have completed them all (which will likely take several years), you’ll be in a great place financially.

But like life, improving your finances is a journey, not a destination.  Once you become financially secure, you need to learn how to remain secure -- and that's what today's tips are about.

Let's get started.

Step 25: Guard Your Health

“You have nothing without your health” is a cliché, but it is true.  You have worked hard to improve your finances, and good health can help you enjoy your life more now.  I am not going to be preachy, but taking care of your health is just as important as taking care of your finances. In fact, I think it's MORE important.

The healthier you are, the more you can help others, give generously, serve as a mentor to others, and ENJOY your wealth.

Step 26: Get Educated on How to Handle Finances

We have all heard of or known someone who lost a great deal of weight, maybe 50 or 100 pounds or more, but then gained it all back, often within a relatively short period of time. 

Why?

Simply put, they didn’t change their long-term behavior.  Sure, they changed their behavior long enough to lose the weight, but then they reverted back to their old habits. 

The same can be true of money management.

Since the start of this series, we have talked about how to get out of debt, invest, save and the like. If you have done/lived these tips, it's likely that you already have a pretty solid financial education. That said, you still have more to learn -- and if you haven’t changed your core beliefs about money, you may find yourself back-slidden rather quickly.

So how do you change your behavior? 

Become educated about money. Read blogs, websites, magazines, books (free at the library!) and so on. Listen to podcasts. Maybe take some classes.  Find some like-minded people and become financial accountability partners. Do whatever it takes to fully educate yourself about money. After all, no one cares more about your money than you!

Step 27: Get a Financial Mentor

One of the best ways to encourage your new behavior is to find a financial mentor who can help you make smart choices that will support good financial habits. 

A mentor can be a trusted friend who is good with money, a financial planner that you respect, or someone else in your life that you seek to emulate financially.  He or she can also serve as a sounding board as you become more confident managing your money.

I have been lucky enough to have several mentors contribute to my life. Each has added something to my life that has helped me move to the next level of understanding and managing my money. I hope to be a mentor to others (both personally as well as to larger numbers through this blog) including my children as they grow and face the ever-increasing money challenges associated with getting older.

Stay tuned. Next time I will be back with the last three steps as we wrap up this series.

Update: Click here to read steps 28 to 30.

30 Steps to Great Finances: Steps 22 through 24

Today we are going to continue listing the 30 steps anyone can take to have great finances.

If you are new to this series, please read through the steps we've already covered, starting with 30 Steps to Great Finances: Steps 1 through 3, before reading this post.

We are reaching the home stretch, which means our steps now will focus less on growing wealth and more on maintaining and protecting it.  Growing your wealth can take a lifetime, but one accident or other event may be all that is needed to wipe out your financial security.  Don’t let that happen! 

Let's get started.

Step 22: Avoid the Worst Money Mistakes

Making the wrong money mistake can be a financial disaster -- something that can wipe out years of hard work, discipline, and financial self-control. And while recovering from most money mistakes is possible, it's a long, hard process that's simply best avoided in the first place.

That's why I named my list of the worst money mistakes anyone could make. They include (in countdown order):

10. Not having an emergency fund.
9. Neglecting to make a will.
8. Not having enough insurance.
7. Marrying the wrong person.
6. Not saving.
5. Buying too much house.
4. Waiting to invest.
3. Being deep in debt.
2. Not working to maximize your career.
1. Over-spending.

If you have been following this series and implementing the steps we have discussed, you will avoid many of these mistakes -- but not all of them. That's why this list is worth reviewing and taking to heart. Because any one of these mis-steps can put a huge damper on your best-laid financial plans. 

Step 23: Get Proper Insurance

Most people hate to think about buying insurance.  Some consider it a waste of money -- you pay for something and then hope you don't need it. But if you do ever need it, it could be a lifesaver. That's why insuring yourself properly is one of the most important steps you can take to protect your assets and your potential earning power.  

Here are the types of insurance I think most of us need:

• Auto
• Homeowner or Renter's
• Life
• Disability
• Health/Medical
• Umbrella

FYI, one type of insurance that is not yet on my list but likely will be soon is long-term care insurance. I don't have a solid opinion on it at this point, but my initial research seems to be pointing toward it being a "must-have."

Step 24:  Make Out Your Will and Estate Plan

If you die without a will, the state will determine what will happen to your assets and who will care for your children, if you have them. 

Scary thought, right? 

Yet there are millions of people who have not yet created their wills. 

We don’t like to think about it, but we are all going to die some day, so for those we love, it is best if we are prepared.  Take the time to create your will and other estate planning documents so you can dictate where your money goes, not the state.

You should also make a list of all important financial information that your family needs to know such as your bank accounts, credit card numbers, investment funds, basically anything related to your finances.  If you need help thinking of things to include for your family,  check out 12 Critical Things Your Family Needs to Know.

Next time we will look at three more ways to protect yourself, because, after all, protecting your wealth is just as important as growing it.

Update: Click here to read steps 25 to 27.

30 Steps to Great Finances: Steps 19 through 21

Today we are going to continue listing the 30 steps anyone can take to have great finances.

If you are new to this series, please read through the steps we've already covered, starting with 30 Steps to Great Finances: Steps 1 through 3 before reading this post.

Today we'll be talking about saving, debt reduction, and giving. Interesting combination, huh? :)

Let's get started.

Step 19:  Begin Saving for Larger Events and Purchases

Once your surplus increases and your debt is paid down, keep working to increase your income and decrease (or at least hold steady) your expenses. By doing this you will be churning out more and more positive cash flow every month -- even after you save for retirement. This is the perfect time to start saving money for life's bigger purchases: a home, cars, and even college for your kids.

Of course you may or may not want any of these (some prefer to rent, many city dwellers don't need cars, and some parents leave college expenses in their kids' hands.) That is up to you. However, if you do want to save for any, here's some advice on them from me:

If you don't already have a home, start saving so you can make the largest possible downpayment. 20% is a minimum IMO. I'd prefer to see you begin with 30% or more down.

At this point you should NOT be buying a car with a loan. From here on out, it's cash only for vehicles, whether they are used or new.

As for college, the same principles that work for retirement saving work for college saving -- save early and often, and you will have enough when the time comes.

Step 20:  Pay Off Your Mortgage

Can you imagine a life with no debt?  No credit card payments, no car payments, no mortgage payments?  What would you do with all of that extra money that is currently servicing your debt? 

If you've made it this far in the process, you're now ready to go where few have gone before and become COMPLETELY debt free. Yes, this means paying off your mortgage.

There is no magic to paying off your mortgage.  Simply grow your gap and put much of the difference on your mortgage.  (That's how we did it -- and we've been mortgage free for almost 15 years now.) When it is paid off, your surplus will be even larger, and you can move on to our next step.

Step 21:  Give to Charity

Personally, I put this into practice well before step #21 in my own life. But for those who do not want to give from the get-go, at this point there's no reason not to. You are covering all your money bases and are doing quite well financially. Now is time to think about others -- those who are less fortunate than you and need some help.

Pick a charity (or a few) to give to. Volunteer to help out as well if you can. It won't be too long before you'll find out that even though you're giving money, you are wealthier because of your giving. Yes, when you bless others, you are the one who REALLY gets blessed.

When you are working on growing your finances, there is a time when you finally reach solid financial footing.  If you've taken my advice through step 21, you will be there.  In the next steps we will talk about how to protect the financial security that you have worked so hard to achieve.

Update: Click here to read steps 22 to 24.

30 Steps to Great Finances: Steps 16 through 18

Today we are going to continue listing the 30 steps anyone can take to have great finances.

If you are new to this series, please read through the steps we've already covered, starting with 30 Steps to Great Finances: Steps 1 through 3, before reading this post.

Today we'll be talking about making good investing moves as well as begin to get rid of all that debt (if you have any).

Let's get started.

Step 16: Get the Full Employer 401k Match

What if you had an investment that gave you a 50% or even 100% return on your money guaranteed? Wouldn't you put all the money you could in it? I sure would.

Well, that's what a 401k does. You put in money and your employer matches that with a given percentage. You're "up" by that percentage before your money is ever invested. Then, if you invest it properly for 20, 30, or 40 years, you'll be up BIG when you retire.

Great deal, right? And yet every year employees leave $30 billion on the table in matching funds that aren’t used!

Don’t be one of those people.  Don’t let that free money slip through your fingers. Contribute enough money to your 401k to at least get the full employer match amount.

Step 17:  Pay Off All Debt but the Mortgage

One of the best ways to increase your surplus is to pay off debt.

According to Morningstar the average American will pay over $600,000 in interest over his lifetime. Wouldn't you like to save yourself $600k? Me too.

If you are tens of thousands of dollars in debt, you are likely paying out at least several hundred dollars in minimum payments every month.  Get rid of that debt and your gap will increase significantly -- which will help you grow your net worth.  

If you don’t know where to start or you are overwhelmed by the process, take a look at my posts Seven Steps to Get Out of Debt. This article will take you through a step-by-step process for getting rid of all debt except your mortgage (we'll work on that one in a later post).

And even though you aren’t going to tackle mortgage debt at this point, you may want to consider refinancing your home to give you more cash flow to get rid of your other debts faster.

Step 18:  Invest for Retirement Using Index Funds

The key to retirement investing is to invest as much as you can for as long as you can while getting a good return rate. It's as "simple" as that.

I put "simple" in quotes because, like with personal finances in general, investing success is simple to understand but not easy to implement. The reason is that it requires discipline, patience, and persistence, three qualities that many American's seem to lack these days.

More than any other factor, the amount of time you save/invest is the variable that most impacts your investing performance. So start saving NOW -- and save as much as you possibly can.

As for getting a good return on your money, I am a big fan of index funds.  Their beauty lies in the fact that they perform better than most actively managed funds once adjusted for fees. In addition, they are VERY easy to manage and require little over-sight. Little time + good returns = an investment I like.

So, those are the tips for today. They should give you plenty to work on, right? 

Stay tuned -- the series continues with the next post.

Update: Click here to read steps 19 to 21.

30 Steps to Great Finances: Steps 13 through 15

Today we are going to continue listing the 30 steps anyone can take to have great finances.

If you are new to this series, please read through the steps we've already covered, starting with 30 Steps to Great Finances: Steps 1 through 3, before reading this post.

Last time we discussed ideas for making extra income. Today we'll shift gears and begin focusing on the second part of the wealth-building equation, cutting expenses.

Let's get started.

Step 13: Have a Trusted, Financially Successful Friend Review Your Cash Flow Plan and Make Suggestions

Early on in this process, I had you create a cash flow plan. You've had a chance to do that as well as tweak it a bit based on your actual spending (which you're likely still working on -- writing down every penny you spend for 30 days.) But now that we're entering the phase where we'll concentrate on cutting expenses, you're going to need some help.

Find someone you know, trust, and respect who is doing well financially and ask them to look over your cash flow plan. Specifically ask for them to help you identify places where you may be spending more money than you need to.

When my wife and I used to do financial counseling, we would have couples bring us their budgets (we provided the forms in advance to make sure they covered everything.) Almost every time we ended the session with a laundry list of how they could save money -- based on our own personal experiences. For instance, one couple had two vehicles that were much older than ours and yet they paid twice what we did for car insurance. When we asked where they got their insurance, they said it was from a family friend, someone the wife's dad had always used, so that's who they used. We told them to quote it out. They came back the next time with a cost that saved them several hundred dollars a year for the same coverage! This is what an experienced mentor can do for you and your budget. 

So find a mentor to help you identify cost savings. I'm betting he or she will come up with a lot of suggestions you have never considered.

Step 14: Reduce All of the Expenses You Can

You can add to the cost savings list your mentor creates by developing your own. And lucky for you, I have a ton of suggestions to get you started.

Look in the FMF archives and click on "Saving Money". There you'll find plenty of ways to save a ton of money.

Step 15: Create an Emergency Fund

No matter how well we plan for events in our lives, emergencies happen, and if you aren’t prepared, you will probably have to pay for those emergencies with credit and go into debt.

An emergency fund cushions you from these unexpected expenses.  It is not optional if you plan to be on sound financial footing—it is essential. 

Even if you can only set aside $20 a week, start doing that.  The earlier you start your emergency fund the better.

The rule-of-thumb guideline for the amount of an emergency fund is six months' worth of living expenses, but I actually carry closer to nine months' expenses because I prefer an extra margin of safety. If your job situation is at all shaky, you're paid on commission, or you are paid at variable times and amounts, I suggest you have a higher amount as well.

As your emergency fund grows, make sure you have it in an account that offers 1) safety and 2) easy access. While it's nice to earn at least a decent amount on your money, income is not your primary objective with these funds. Be sure that are in an account that is 100% safe (like a checking or savings account) and that you can get to the money quickly if (or should I say when) you need it.

Well, that’s it for now.  Stay tuned for the next piece in this series when I’ll be back with more ways to improve your finances, one step at a time.

Update: Click here to read steps 16 to 18.

30 Steps to Great Finances: Steps 10 through 12

Today we are going to continue listing the 30 steps anyone can take to have great finances.

If you are new to this series, please read through the steps we've already covered, starting with 30 Steps to Great Finances: Steps 1 through 3, before reading this post.

Last time we offered some suggestions for making extra income and we continue with that line of thinking today.

Let's get started.

Step 10: Use Credit Cards Strategically

I look at rewards credit cards as offering what I call opportunity money. This is extra money I can earn if I simply chnage my behavior a bit. And no, the change is not "spend more", it's simply "pay with credit rather than cash and get a reward for buying what you would have purchased anyway." I love earning money for doing something I was going to do anyway, that's why using rewards credit cards are one of my multiple streams of income.

I generally earn a couple thousand dollars a year doing this. Yes, I have some large expenses that help me out, but even if you "only" earn a few hundred dollars a year doing this, isn't it worth it?

Of course you need to manage your cards properly. You must pay them off in full every month, avoid all fees, and not make purchases you wouldn't have made anyway. If you do any of these, you'll cost yourself far more than what you'll make. I've never had a problem in 20 years, so if I can do it, you can too.

Develop a strategy that works for you. Look at where and how you spend your money and get cards that make the most of this spending. Also consider the right mix between using cards for rewards and getting cards simply for the bonuses.

IMO if you are not using credit cards strategically, you are leaving easy money on the table.

Step 11: Sell Your Clutter

Take a look around your house. If you are like most people, there is a lot of “stuff” you aren’t using on a regular basis that you can sell and make some extra money.  Consider clothes, kids’ toys and clothes, and other items you just don’t use. Not only will you earn some extra money, but you'll also declutter your life.

And if you are renting out a storage unit for your “stuff”, you can also save yourself some money by having a sale.  It's a double win!

Step 12: Rent Your House

I don’t mean move out of your house, but instead, rent some of your extra space.  You could rent a spare room to someone like a college student or recent grad. Or you could renovate your home and open a bed and breakfast.  (Ok, this example is a bit extreme and not everyone will have the desire or funds to do this, but it is an option for some. Then again, maybe I've been watching too many episodes of Income Property.)

If you don’t like the idea of sharing your home, try renting your space for storage. The self-storage industry is a $17 billion a year behemoth. Maybe it's time for you to get yourself some of that pie by renting basement or garage space to others who need a place to keep their stuff.

Or, if you have a two-car garage but only one car, you could rent the space to a neighbor for parking, boat storage, or something similar.

The original Frugal Zealot, Amy Dacyczyn, even once suggested renting part of your freezer chest to a single person so they could buy food in bulk and save.
 
As you can see, you are only limited here by your creativity. :)

So there you have them -- three new ways to make money and improve your finances.  Take a stab at some of these strategies to see if they can work for you. And stay tuned -- we're not even halfway through our list of 30 steps to great finances. There's still a lot more good stuff to come!!

Update: Click here to read steps 13 to 15.

30 Steps to Great Finances: Steps 7 through 9

Welcome to the third post in the series 30 Steps to Great Finances series!

If you missed the first two posts, you can find them here: 30 Steps to Great Finances: Steps 1 through 3 and 30 Steps to Great Finances: Steps 4 through 6.

Today we'll detail steps seven through nine that will take anyone from financial zero to financial hero.

Let's get started.

Step 7:  Grow Your Career – Other Opportunities

In addition to the career-related tips we've already suggested (over-delivering, networking, being likeable), there are several other ways to advance your career (and thus increase your income.) Here are three of the best ones IMO:

• Get educated. Take classes to learn more about your field or to become a better manager (or potential manager).  Showing the initiative to learn more says a lot to your supervisors about your dedication to the job.
• Get certified in a skill important to your field.  This may set you up to be a specialist in your department, which makes you more valuable.
• Apply for awards. Don’t sit around waiting for recognition, awards and praise to come to you—look for the opportunities yourself. You may be surprised how few people do this, and if you are the best of those who applied, you get recognition by winning the award. Awards look great on a resume and also reinforce to your current employer what a great asset you are.

The more you can gain recognition and experience in your field, the faster your career can grow, and, often the more money you can make.

Step 8:  Develop a Side Business Using the Skills You Already Have

Once you take steps to make the most of your day job, it is time to focus on additional income streams. And one of the easiest ways to do this is to use the skills you've developed over your career and freelance at night and on weekends. A few examples of how you might be able to do this:

• If you are a teacher, you can tutor students on the side. As a homeschool parent, I hire teachers all the time to teach my kids subjects my wife and I can't (Spanish, chemistry, etc.)
• If you are a computer engineer, you might offer consulting. Know anyone who needs their computer fixed? Me too.
• If you are a business executive, you could advise small businesses on how to grow their sales, market their services, save money in operations, etc.

Any way, you get the idea. Take what you already do/know and turn it into an extra money-maker.

And who knows? You might find that you enjoy your side gig so much that you can eventually quit your day job and run your side gig full-time.

Step 9: Turn Your Hobby into an Income

What do you do for fun?  What do you enjoy?  Make a list of your hobbies.  Then think how you can turn your hobbies into money making opportunities.  Some ideas:

• My son and I both love soccer, and we have made decent money refereeing soccer games. 
• I know a painter who is an animal lover, so she draws portraits of people’s pets and makes a tidy profit. 
• I used to do quite well as a freelance writer.

Think about it: many hobbies could also be money making ventures. 

Love to garden? Grow organic produce and sell it to stores or at farmers' markets. Play the piano?  Why not give lessons to those wanting to learn? Like to bike? How about a side business repairing and maintaining bikes for others?

There are almost as many money-making ideas as there are hobbies if you just open up your mind a bit and consider the possibilities.

Stay tuned for the next steps coming up soon.  If you have been following along in this series so far, what success have you had following the steps I’ve given?  Share them in the comments.  I’d love to hear them!

Update: Click here to read steps 10 to 12.

30 Steps to Great Finances: Steps 4 through 6

Welcome to round two of my 30 Steps to Great Finances series. If you missed the first post, you can find it here: 30 Steps to Great Finances: Steps 1 through 3.

Today we'll detail steps four through six that will take anyone from financial zero to financial hero.

Let's get started...

Step 4:  Grow Your Career by Over-delivering. 

For the vast majority of us, our careers are our largest sources of income. Furthermore, small differences in earnings over the course of a 40-year career can mean millions of extra dollars in your pocket. That's why focusing on your career and taking specific steps to maximize it is the #1 thing we all can do to grow our incomes. And the #1 way to grow your income is to over-deliver.

Over-delivering is simply going above and beyond what is expected in your job. But it just doesn't happen -- you have to plan to make your extra effort pay off for you. To be as successful as possible at delivering more, you need to follow these three steps:

1. Determine the expectations for your position. Talk to your boss and make a written list of what he expects from you. Make the items as quantifiable as possible so there can be no disputing whether or not you reach them. Agree on the list so you make sure you're on the same page.

2. Work to over-perform. If your expectation is to save the company $100,000, work to save it $150,000. If you need to grow sales 5%, work to grow it 10%. If you need to get three new customers ordering your product, work to get five.

3. Document your success. On a regular basis, let your boss know how you're progressing versus your expectations. Eventually, the update will speak for itself -- that you've over-performed.

These three steps help you establish what is required, beat the requirements, and then get credit for it. Those who get credit for over-delivering get more and higher salary increases and promotions -- which will significantly impact your earning potential during your career.

Step 5: Grow Your Career – Develop and Expand Your Network

Many people think about growing their network when they need something (like a job lead), but this approach isn’t productive.  Instead, you must grow your network before you need it -- so it's ready when you do need help. 

Here are some ways you might be able to do this:

• Take business contacts out to lunch once or twice a week and make time to connect. 
• Get involved in activities that you already enjoy and socialize while you are there (examples: charity committees, church activities, recreational leagues, etc.) 
• Sign up for LinkedIn (a must!), Facebook, Twitter, and maybe even your own blog. But be careful and assume that everything you post will be seen by a potential employer. Yes, especially your drunken party pictures.
• Talk to people you meet every day while waiting in line for coffee or dropping your kid off at school.  The more people you can connect with, the bigger your network. 

Approach your network with the intention of being a giver -- a resource that will help others out. Then when you're in need, your network will be there for you.

Step 6:  Grow Your Career – Become Likeable

Here is the hard truth—you may be doing a great job at work, but if you aren’t likeable, you may not be getting the raises and recognition you deserve. The good news is that you can become more likeable. Yes, experts have developed a list of what makes a person likeable. The characteristics:

• Be honest.
• Be humble.
• Show empathy.
• Laugh often.
• Be positive.
• Control hostility.
• Be polite.
• Act smart.
• Appear attractive. (dress well and proper hygiene.)
• Listen more.

So simply follow it and you'll be set. :)

Ok, it isn't that easy. But let's face it, being likeable is pretty much common sense. We all know how we like to be treated, right? So simply act that way towards others and you should get most of the way home in the likeability category.

That's it for this time around. I’ll be back with the next steps tomorrow, so stay tuned...

Update: Click here to read steps 7 to 9.

30 Steps to Great Finances: Steps 1 through 3

Are you overwhelmed thinking about all the work required to get your finances in great shape?  Well the good news is that you can do a complete financial overhaul (or if you're in less dire straits, a tune-up) in 30 simple steps. Yep, that's it. In 30 steps you can go from a financial zero to a financial hero.

To get this new year started on the right foot, FMF will be posting a series called 30 Steps to Great Finances. It will be running the first several days of January and is designed to take readers from the very basics of money management to the point where they have set themselves up to become wealthy.

No matter your age or stage in life, it is never too late to improve your finances, and the 30 steps I will share over a series of posts will show you how to improve your financial well-being. If you're deep in debt and don't know how to make it to next week, these steps will help (a lot). If you're a millionaire and want to make your finances even better, these steps will give you an extra boost. If you're just starting out after graduating from college, these steps are perfect for you -- apply them now and you'll do very well financially over your lifetime. And if you're older and looking for a way to slide into retirement financially healthy, these steps will get you there. No matter what your financial situation, using the tips I'll be sharing will make it better.

I understand you may be skeptical at this point. All I ask is that you read along and see for yourself. I know the power of these steps because I've personally taken them over the past couple of decades and my finances are much better off as a result. I hope the same for you -- that you'll apply the steps I share and you will be able to reach the financial goals in your life.

Today we'll be covering the first three steps.

Step 1: Know Where You Stand -- Calculate Your Net Worth 

You know the old adage, “You have to know where you are before you can figure out where you are going”?  That is true with your finances too.  The first step to financial hero is to determine where you stand financially. 

We've previously discussed the fact that your net worth -- how much you own after all your assets are sold and all your debts are paid -- is the true measure of your wealth. That's why step one on your path to financial prosperity is to calculate your net worth.

Simply list all your assets (investments, home, and so on), subtract your debts, and that's your net worth -- how much you truly own.

See, that was pretty simple, wasn't it?

Determining your net worth is so important because it gives you a quick snap shot of your financial health.  Plus, it will give you a benchmark to measure your progress against as you make your way through the 30 steps. So do it NOW, before you begin step #2.

Step 2: Track Your Spending for 30 Days

To get a handle on your finances, you have to know where you are spending your money and where all the slow leaks are—the pop you buy every time you get gas or your morning coffee shop coffee can add up more than you think they do.  Tracking your spending will show you this.

There are three main ways to track your spending, but those are for a future step. For now all you need are two simple items: a pen and some paper (I prefer a small notebook that fits easily into a pocket or a purse.)

For the next 30 days you are going to write down both the amount and the payee (where the money went) EVERY SINGLE TIME you spend money. When you pay your mortgage with a check, write it down. When you transfer money to your utility company via your bank, write it down. When you pay for a coffee with a credit card, write it down. When you put $1 into the vending machine at work, write it down. When you give your son a quarter to buy a gumball, write it down. Write down every single way you spend money for 30 days.

If you've never done this, believe me, it will be very enlightening. It will show you where your money is really going (versus where you think it is going.) I've had a few hundred people do this exercise over the course of the past 20 years and there are ALWAYS surprises -- even for those people who think they know where every penny is going.

So write down your spending (and if you're in a family, this includes everyone in the family who spends money) for the next 30 days. Don't question it. Don't dismiss it. Just do it. If for no other reason, simply humor me and do it.

Your financial well-being is worth the effort, right? I thought so.

Step 3:  Know Where Your Money is Going -- Develop a Cash Flow Plan 

Some people refer to this as a budget, but I like "cash flow plan" because it's more descriptive of what you're doing.  Besides, cash flow plan sounds less restrictive and more proactive, don’t you agree? :)

Quite simply, the gap between what you earn and what you spend is one of the most important financial numbers you need to know and work to expand. With a big and growing gap, you're on your way to financial security. With a small or (heaven forbid!) negative gap you are going nowhere money-wise. And the way you know and grow your gap is by developing and managing your cash flow plan.

To make a cash flow plan, figure out how much you make each month, and then use the information you gathered from tracking your spending in step 2 (as well as by looking at past records) to calculate the amount you spend each month. Subtract the latter from the former and what you have left over is your monthly gap (and hopefully it's a positive number.)

If your gap is negative, low, or simply in need of being increased to super-charge your savings, the only two ways to improve it are to increase income and/or cut spending. And that's what will follow over the next several steps -- ideas on how to increase income and decrease expenses.

That's it for this round. Get started on these tasks right away. The next steps will be coming soon...

Update: Click here to read steps 4 to 6.

Discipline and Integrity Trump Raw Intelligence in Making Millionaires

Dr. Thomas Stanley (author of the Millionaire Next Door) compares the millionaires he's studied with PhD students he's dealt with in the past. What I found most compelling about this piece were these comments at the end:

Most of the millionaire next door types whom I have interviewed would not qualify for entrance into the typical PhD program.  They did not have A averages as undergraduates nor did they score big on standardized tests. 

Yet they had a great deal of self discipline which along with integrity are the most important ingredients in becoming economically successful.

I've noted several times how discipline is vital in wealth creation. I list it along with patience and persistence as the three cornerstones to building wealth.

Dr. Stanley adds in integrity, saying the following in a different post:

In the long run, however, economic gain is easier and more psychologically rewarding if one is truthful. Millionaires rated integrity [being honest with all people] as the number one factor out of 30 that explains their economic success.  Note that these 733 respondents represented the top 1% of the wealth holders in America.  Jon, one of the respondents and a wealthy entrepreneur, attributed much of his success to what his father taught him about integrity:  Never lie.  Never tell one lie.  If you tell one lie, you will have to eventually tell fifteen more to cover up the first lie.  In turn, each of these 15 requires 15 more or 225 lies and on and on. 

So let's add integrity to our list of qualities needed to become wealthy.

It's interesting to me that many assume that raw intelligence alone (I say "raw" because there is a "street smarts" intelligence that many millionaires may have, but it's difficult to measure) is less of a factor than these key traits. Of course intelligence doesn't hurt, but with discipline, patience, persistence, and integrity, most smart people are highly unlikely to create a good amount of wealth.

Five Financial Figures You Need to Know

MSN Money lists five financial figures you need to know as follows:

• Your credit score
• Your tax rate
• Your personal savings rate
• Your student loan debt
• Your net worth

Here's where I stand on these:

• I haven't checked my credit score in a few years, but last time I did it was very high (around 800). Not much has changed since then, so I'm guessing my score hasn't changed much either.
• I know my tax rate. It's high. :(
• I haven't done the giving/saving/spending calculations in a couple years, but we used to be somewhere around 1/3 of our gross income on each. I'm thinking the giving might be a bit lower and the spending a bit higher lately as our kids are getting bigger and (especially my son) are eating more, needing more clothes, etc. I'll have to check Quicken for the specifics.
• I haven't had student loan debt for a long, long time. In fact, I haven't had any debt in a long, long time.
• I track my net worth very closely using Quicken. I check, record, and review it at least once a month.

How about you? Where do you stand on knowing these financial figures?

Monopoly Makes You Think About Money

The following is an excerpt from Monopoly, Money, and You: How to Profit from the Game’s Secrets of Success. I recently posted about this book (see Investing Lessons from Monopoly) and since I love the game, I requested a review copy. The publisher sent me one and agreed to run this excerpt to give you all a feel for the book.

Most of the book talks about Monopoly strategy, decisions to make that put the odds in your favor, Monopoly trivia, and so forth, so it's not as much of a personal finance book as it's a book about Monopoly that has a finance angle. Anyway, I really enjoyed it (after playing the game for years I learned a ton) and my 14-year-old daughter has it now -- devouring all the tips and tricks. I'm sure she'll use them to kill me at the game. :)

It goes without saying that it takes commitment if you want to become good at anything. That means a lot of practice, trial and error...and education. Yes, it takes all three; there are no shortcuts, especially when money is involved. I’ve seen many a brilliant academic mind, hired at a high level into a firm, really muck up its business. I’ve seen laborers build a good life by virtue of their own hands, but never figure out how much more they could make if they trained others to do the hard work for them. I’ve seen doctors and lawyers build flourishing practices, earn upwards of $750,000 a year, and fall deeper and deeper into debt.

Why do these mistakes occur? I think it’s because most of us receive very little—or no—practical training in financial management. (It’s been said that there is no difference between theory and practice...until practice.) We try to learn as we go and often endure the consequences of mistakes: budgets out of whack, an inability to see the merits of doing without now in order to reap a reward later, not understanding the difference between saving and investing. Worse yet, we become vulnerable, prone to listen to silver-tongued individuals intent on separating us from our money through the lure of a “sure thing.” By the time we recover from basic avoidable mistakes, we’re in the hole and need to devote more of our financial resources just to get back to breaking even. I’ve been there.

Imagine being challenged to operate a giant construction crane, having only read the owner’s manual before being thrust into the operator’s seat. (Okay, maybe your uncle, a retired forklift operator, gave you a few vague pointers.) Suddenly, the controls are in your hands and you’re on your own. Do you think your first lift would go smoothly? Or are you more likely to drop the load?

That’s what handling money is like for many of us after we come out of school, start earning a respectable salary, and find that the controls are now in our grip. Sure, we might instinctively apply (or avoid) our parents’ financial habits. More instinctively, we want everything today (solution: credit cards). We fall into debt. Time marches on, and hopefully we recover from our early mistakes (pay off those cards) and gain some wisdom to protect our money. We come upon good advice along the way and apply it if we wise up. If we don’t, we remain stuck in a rut with no savings for the bulk of our working lives and must place our trust in government largesse, especially after we’re retired. But if you read the news, you know a crisis is coming because the weight of promised government entitlements is unbearable. (It already dwarfs the alarmingly large national debt.)

More than ever, worry about money dominates our lives, and the message is clear: you need to acquire it through your own hard work, save as much as you can, and constantly nurture and grow a nest egg to “win the game.” What about that good financial advice I mentioned? The problem for most us (me included when I was starting out) is that we can’t feel this advice. It’s as abstract and academic as Avogadro’s number. (If you had high school chemistry, you might remember this term, but who remembers the number of molecules it signifies?) In order to make good financial decisions, you need the benefit of experience to drill home the basic lessons. This comes at a price—literally. Fortunately, there is a playing field’s worth of experience at your disposal that enables you to feel the impact of both good and bad financial decisions, joyously, without penalty.

Yes, it’s the classic version of Monopoly. Monopoly puts you through a financial wringer without real-world loss. Once you get the hang of how to win it, you’ll feel the game’s secrets of success and see how they apply to real life—sometimes verbatim, always in principle.

Since Monopoly is a money game, it is denominated. Filled with numbers. Every component of this amazing game is built of bricks related by addition, subtraction, and sometimes multiplication and division. These simple operations can, if you’re a true enthusiast, lead to a study of the kind of probabilities, tables of statistics, and future value analysis that would make any Wall Street financial guru salivate. In fact, this parallel demonstrates the great value of Monopoly in honing your real-world investment skills. You need to do numerical analysis to understand the impact of key financial decisions in your personal life or business. It can be fun to do this. Many successful people I know view money like points in a game. The more points earned, the more they feel they’re succeeding. Money is a scorecard of sorts. Increasingly, it’s becoming a virtual scorecard because we actually don’t see or touch our money. It exists in accounts, represented by digits (points, as my friend would say). We access it on our mobile devices, making it easier than ever to count our money and know our “score.”

You may not have a degree in finance or have ever thought of becoming an investment banker on Wall Street, but that doesn’t mean you don’t have the smarts to make a good investment. By playing Monopoly, you pick up the basics the pros paid a handsome sum to learn in advanced schools: rate of return, payoff odds, likelihood of a big return, cash management, diversification (not to mention the art of negotiation).

These skills apply equally well to your everyday financial decisions. Here’s a list that demonstrates five such disciplines:

• Topic: Budget
• Monopoly: Maintain a balance between cash, properties, and buildings.
• Life: Compile a monthly budget. Classify items by “essential,” “savings,” and “desired.” Meet your savings goal before you spend on “desires.”

• Topic: Track spending
• Monopoly: Learn to visualize or record your balance sheet to know where you stand.
• Life: Stick to it; monitor your investments and their growth.

• Topic: Reduce debt
• Monopoly: Don’t deplete your credit (that is, your ability to mortgage and sell assets if needed).
• Life: Pay off debt, especially highinterest debt. Try to become debt free.

• Topic: Maintain a cash reserve
• Monopoly: Don’t go bankrupt by having no cash, or assets to convert into cash.
• Life: Protect against loss; carry insurance. Maintain a rainy-day savings fund.

• Topic: Deal effectively
• Money: Trade to get the most income potential.
• Life: Bargain wisely; get what you need without overpaying.

Here’s the big idea. To make money, you have to steadily think about and apply yourself to making money. Amassing play money to win at Monopoly requires a high level of attention (one dumb move might bankrupt you). By developing a winning discipline in the game, you’ll be inspired to diligently protect and grow your real cash. Devotion to your money should be akin to regard for a valued family member, for whom you want only the best, an absence of threat, and success beyond measure. You wouldn’t treat such a loved one with neglect or casual disregard. Hold money in the same light. Think about this.

Monopoly immerses you in financial decision making. All those colorful bills lie at the core of the game. Nearly everything is related to them: the value of the spaces on the board, the cost of buildings, the messages on the cards, the investments and rentals on the deeds. The bills provide the game with its rhythm; it ebbs and flows with each cash exchange. Just as important, the amount of cash you possess affects how others perceive you at any moment (with respect or awe, hopefully not with apathy).

The game’s lessons are acute because you can’t win by playing it safe (translation: by holding on to all your pretty bills). You must invest a good deal of them, rather quickly, in order to win, thereby placing them at risk. The danger you subject your money to is palpable. This sense of vulnerability means that money controls you during the game. You may feel like its master, but you are its servant. (That’s often the role we let real money maneuver us into.)

In Monopoly, money creates and destroys. At times it brings players together, while they are making deals, but more often than not it drives them apart—because only one player can win the game, the one who gains all the money. Games are like that. There can be but one victor.

Fortunately, real life stresses cooperative effort to get rich (win-win). You won’t need to bankrupt your neighbor to come out ahead. (But if you try too hard to emulate his glitter, he could bankrupt you!) The game’s need of a clean, decisive outcome results in well-structured rules that permit, condone, and assure that one player (hopefully you) will win everything. For this reason, its lessons are vivid and clear. This is why the
principles of winning Monopoly aren’t difficult to figure out, apply, or learn from. Alas, the “rules” in life are constantly evolving, and their lessons are more difficult to discern in a timely manner. But believe me, you gain an edge when you accept that there are rules and you begin to figure them out.

Handling money in the Monopoly game triggers a broad range of human emotions. You might laugh, shout for joy, grit your teeth—or cry—because of its changing impact on your fortune. This range of drama is a key reason why players come back to play time and again. We like the rollercoaster ride. And that’s why we feel its lessons. We relish joy on the way up and a heightened sense of fear on the way down. Recovery brings relief, but only temporarily. The money game in real life is much the same, when you think about it.

Reading and Wealth

Rich Habits author Tom Corley spent 5 years studying the daily activities of 233 wealthy people and 128 poor people.  He discovered that wealthy people have vastly different daily habits than poor people (not a big surprise). Anyway, he tracked and listed the various activities that the rich do with the idea that if anyone else would do them too, they could become rich.

Whether you agree with this methodology or not, you have to admit that the premise is interesting. You've probably heard it said that you are the sum total of the five people you hang around with the most (or something similar), so why wouldn't "do what the rich do and you'll be rich" work as well?

In fact, that's what the book The Millionaire Next Door did. It tracked the wealthy and ultimately found a handful of characteristics that made people millionaires. I know that this works because I applied those concepts early on in my life and they have served me quite well.
 
In a recent post Tom said that if you want to be wealthy, you need to read. His thoughts:

In my five-year research study on the daily habits of wealthy and poor individuals, I made a profoundly important discovery: 88% of the wealthy individuals in my research read self-help books and articles and industry-related books and articles. In my study it was obvious that the wealthy were fanatics when it came to daily career-related, self-improvement. The reason? Wealthy people told me that by increasing their knowledge base they are able to uncover more opportunities and these opportunities translate into more money. Wealthy people are in constant pursuit of self-help reading material. Engaging in career-related, self-improvement makes individuals more valuable to their employer, customer or clients and helps them to rise up the ladder of financial success.

Comparatively speaking, only 2% of the poor in my study engaged in this self-help reading. One of the interesting things that I found in my study was that the poor who did receive periodicals invariably set them aside with the intent that they would read them later. Unfortunately, very few actually ever got around to this reading.

The wealthy have a different tact. They set aside time every day for their self-help reading. They read every one of their periodicals and more. Why? Successful individuals understand the value of timely information and continuous life-long learning. They are in constant pursuit of opportunities to make more money and advance their careers. Often such opportunities are found inside industry periodicals and self-help books.

Successful individuals, on average, set aside thirty minutes of every day for this self-help reading. They do this day in and day out, like brushing their teeth. They understand that self-help reading increases their knowledge base and helps set themselves apart from their competition. This reading often leads to the discovery of hidden opportunities that they are able to capitalize on. Reading helps make you more valuable to your employer, customers or clients.

I have several comments on these thoughts:

• Whether or not reading leads to wealth (you could argue that one could cause the other or that it's simply coincidence), it's not a stretch to believe that those who regularly read gain knowledge/understanding that help set them apart from everyone else.
• I have always read a lot -- even from an early age. What I have enjoyed reading has changed (from fiction to non-fiction and various subjects within non-fiction), but I've always been a reader.
• "The wealthy were fanatics when it came to daily career-related, self-improvement." We know: 1) Your career is your most important financial asset, 2) Even a 1% change in salary can make a HUGE difference when it comes to lifetime earning potential, and 3) Continuing education (which is what reading is) is one of the few steps that you must take to grow your career. So is it hard to believe that those who practice a vital career-growth activity do better financially?
• My form of reading has changed over the years. Most of it used to center around books and magazines. But these days my reading takes many different forms: books (mostly from the library), magazines (I have a few subscriptions -- some I got for free with airline miles that were set to expire on an airline I no longer fly on), e-books (my new favorite way to read -- you know Amazon has tons of low-priced or free stuff, don't you? Plus the library will lend out electronic copies of books now) e-magazines, and blogs/websites. I read based on content availability and ease of consumption (that's why I read mostly shorter pieces but read many more of them -- versus just one book).
• Much of my "reading" isn't reading at all. I consume a lot of material through audiobooks (checked out from the library) and podcasts (free on iTunes). Lots of great things to "read" and learn about while driving to work, on the way to workout, on a business trip, etc.

As you can tell, I'm a big believer in reading and I do think it gives a person an advantage over others in the marketplace. Whether or not this translates to wealth is debatable, but IMO I think it does.

How about you? Do you read a lot? Do you think reading has an impact on wealth?

Financial to Do List for 2013

You have already seen my 2013 financial resolutions. Now Fox Business suggests a financial to do list for 2013 of their own as follows:

• Analyze your entertainment budget.


• Put one savings on auto-pilot.


• Max out your credit cards -- not with borrowing, but with rewards.


• Refinance your mortgage.


• Buy life insurance.


• Adjust your 401(k) settings.


• Update your resume.


• Organize your info and look at your money.

Here's what I'm doing with each of these:

• I'm not just looking at our entertainment budget, but at all of our expenses. For the first time in a long time I have put together a budget (a simple, general, not to-the-penny one). Why? Two reasons: 1) We have some higher cost items we would like to spend on this year (landscaping, furniture, etc.) and 2) I want to be sure I'm maximizing retirement dollars -- I don't want "small spending" to suck the life out of my savings.  


• Our savings has been on auto-pilot for over a decade now.


• As you know, I'm a big rewards card user, though I am looking at a new strategy to maximize what we get. Stay tuned for details.


• We haven't had a mortgage for over 15 years now.


• We have life insurance for both me ($1 million) and my wife ($350k) that runs for another 8 to 10 years. After that, we will be self-insured (we really are now for the most part, but by then the kids will be out of college so we'll definitely be good.)


•  My 401(k) has been set from funding and investment standpoints for many, many years.


• I don't plan to update my resume (I'm not looking for a job), but I do track my accomplishments. I also plan to join LinkedIn just to see what it's all about.


• I review our finances and especially our investments regularly. I hardly even make any changes, but I like keeping an eye on them. :)

See anything here that you're planning to work on?

2012 Resolution Update

As some of you may recall, I shared my 2012 financial resolutions early in the year. Since we're rounding out the last month of 2012, I thought I'd give you an update on where I stand:

• Expand my gap if possible. I didn't do the complete review of Quicken I wanted to "find" extra money, but I didn't add a lot of needless spending either, so I'll give myself an "incomplete" on this one.


• Review my investments. I did do this, but not in the way I thought when I wrote the post. Instead of review and rebalance my stocks and bonds, I instead entered the world of real estate investing. After a failed attempt at buying and a few other rejected offers, I purchased my first place And not to spoil the surprise or anything, but I'm closing in on place #2 as well. :)


• Make major purchases. Our scorecard: 1) trip to Caribbean -- done, 2) new furniture for the living room -- not yet, 3) another potential trip -- will be taking one early next year, 4) a new bed -- yep, 5) advanced landscaping -- not yet, we decided to wait another winter to see the situation with all the trees.


• Update retirement plan. I actually worked through my retirement numbers twice this year. Once was early in 2012 when I re-did them based on the guest post How Much Income Do I Need For Retirement? The second was in the late fall when I did some projections factoring in rental real estate income.


• Consolidate charities. I have done quite well on this one. I have (for the most part) avoided the $10 here and $25 there charities and am concentrating my dollars on a handful of bigger gifts. The one you all already know about is my $25k Red Kettle Challenge.


• Invest in my career. The biggest way I've invested in my career this year is in expanding my network. Through two new volunteer opportunities (I run a committee for one organization and am on a committee for another organization) plus an existing one (where I am board president) my network has expanded greatly. And as they say, it's better to build it when you don't need it...


• Update my will. I haven't done this, but it's been a bit on purpose. I'm guessing the new U.S. budget/tax laws will impact estate planning, so I didn't want to update my plan just to have to turn around and update it again.

In addition to these tasks which were stated at the start of the year, I have made one additional move of note: I increased my umbrella insurance to $4 million. With the addition of rental properties, I think it's prudent to make this move.

How about you? Did you have financial resolutions this year? How did you do compared to your goals?

Are You Better Off than You Were Four Years Ago?

A big question in the presidential campaign a few weeks ago was "are you better off than you were four years ago?" Both sides had their points-of-view (of course) and tried to influence the electorate to their way of thinking, hoping it would lead to more votes.

Personally, I avoided anything related to politics this year on FMF. Why? There were several reasons:

1. This is a personal finance blog, not a political blog. Though money and politics are clearly related, there are so many other things tied up in politics that having a money-only discussion was pretty much impossible IMO.

2. People don't think rationally during political discussions, especially in years where the race was (supposed to be) as close as it was. I was sure nothing positive would come from bringing it up.

3. I was personally so tired of all the commercials, phone calls, mail, and on and on that I was sick of politics by mid-May and wanted to spend as little time and effort on the subject as possible.

4. IMO, it doesn't really matter that much anyway. First, I think there isn't really that much difference in the impact of one party's plans over those of the other -- at least in such a short period as four years. And second, while the economy/government certainly has an impact on your finances, it's not the biggest factor influencing your financial health by far (see below).

But now that we're a ways away from the election, the smoke has died down, and the winners have celebrated and the losers licked their wounds, I thought I could address the question for myself with little negative backlash (I can hope, can't I?). Am I better off than I was four years ago?

The simple and clear answer is "Yes, I am better off than I was four years ago." Much better off, in fact.

But this "simple" answer needs a bit of perspective. Namely:

I have been better off every election year than I was at the start of the previous four years. It didn't matter who was president or what the economy was doing, my answer has always been the same: "Yes, I am better off than I was four years ago."

The reason I can answer this way has very little to do with who was running the country and MUCH more to do with what I did during those four years. Namely, I took the steps necessary to grow my finances -- the few, key moves that anyone can take to grow their net worth. I spent less than I earned, grew my career, saved, invested, and avoided bad money mistakes. These basics, and not who is running the country, are much more important in determining whether you answer "yes" or "no" to the "better off?".

Of course, the government can have a major impact on finances, but this is generally only in very extreme situations. For instance, if the whole economy imploded (much more than what we've seen over the past few years) or if inflation ran rampant, it would impact EVERYONE negatively -- and then almost everyone would have the same answer ("no"). But absent a disaster like that, what YOU do has much more impact on the status of your finances.

So my recommendation is to focus more of your effort and energy on what matters most and what you can influence -- taking the correct steps you can to grow your net worth. And of course you can vote and be active in politics as you see fit -- I'm not saying to throw up your hands and forget the government (besides, there are more issues and reasons to vote than just money). But don't blame or credit a president for your financial gain or loss, blame or credit yourself.