Free Money Finance

Paint Your House Door Black, Earn $6k

Here's a post that says if you paint your house door black, your home's value will increase by $6k:

Zillow released an analysis Wednesday after examining some 135,000 photos from listings across the U.S. since 2010. Zillow found that on average, houses with black or charcoal gray front doors sold for as much as $6,271 more than expected.

And there's more:

It may sound emo, but painting your front door black is actually a tried-and-true way of increasing home value. According to Realtor.com, a black door gives buyers the impression that your house is a serious, stately and safe choice. It’s so popular that two of Sherwin-Williams’ top 50 paint colors fit the bill: Peppercorn and Tricorn Black.

Before you go all dark on me, I'm not sure this really works.

It's probably true that homes with black doors sell for more, but is it because they magically are worth more or is it simply because homes with black doors are more valuable, in fast-growing areas, or whatever.

I'm betting it's the latter.

Millions of Americans Will Never Retire

Here's a piece that says millions of Americans think they will never retire. The details:

A majority of Americans don’t know how much money they need to save for retirement, while 19 million Americans don’t think they will retire at all.

Ok, so this is two different issues:

• One group doesn't know how much they need to save for retirement. That's an easy fix. Here's a post on the three steps to your retirement number. See step #1.
• As for the ones who don't think they will retire at all, I'm wondering if they've worked out the numbers or if they are just guessing. It's not clear, but I would suspect that it's the former. They have just a "feeling" that they will never retire, but it's probably not based on anything solid.

It's really no surprise to me that 1) most haven't done their homework and 2) many think they'll never retire. It may actually be a larger number than 19 million.

It's pretty sad since saving for retirement is fairly easy. But it does take will power, something many Americans are short on.

How Much Does the Average Side Hustler Earn?

Bankrate tells us that the average side hustler earns $8k per year. The details:

Side hustlers make $686 per month, on average. Within a year, it’s possible to earn more than $8,200. Those who work a second job at least once per month earn an average of $836 on a monthly basis.

Most survey respondents (59 percent) say they consider the money they earn from their side job to be disposable income. And 38 percent say they use their extra funds to cover ordinary living expenses.

A few thoughts here:

• $8k extra a year is nothing to sneeze at. If that could be bumped up a bit, it could enable a person to retire in 10 years or less.
• Having a side hustle can make a huge difference in when you can retire. Just run the calculator and see what it works out to with and without a side hustle.
• If you're wondering about starting a side hustle but don't know where to begin, here are some ideas worth considering.

Do you have a side hustle? Why or why not?

Should You Downsize in Retirement?

Here's a piece asking if you should downsize in retirement. 

It goes through a discussion of the pros and cons of going from a large house to a smaller one in retirement.

We are having this discussion in our home. We have a large, 3,700 square foot house that is too big for four people, much less two (the kids aren't fully out yet, but both are close).

So we've been batting around whether to stay put or sell and downsize.

For now we've decided to stay put until we see where the kids land. If they remain in our town we'll probably stay in our home since the market is white hot and while we could make good money selling our home, we'd have trouble finding a place we'd like (size, location, etc.) at a reasonable price.

We've also talked about moving to an apartment, which would give us more travel flexibility (not having to worry about a stand-alone house) but we're not sure we could deal easily with close neighbors.

Here are some of the other issues we've been considering:

• Obviously when you downsize a lot of your life becomes easier. There's not as much to clean and maintain. There's not as much yard to mow or driveway to shovel (moving to an apartment or condo would eliminate these completely). A lot of the hassles with owning a large home would go away.
• So would a lot of the costs. Maintenance. Taxes. Insurance. Utilities. All would decline sharply or disappear completely.
• That said, a house gives you a lot of freedom. You can change it how you want. You have privacy. Your neighbors, while still close to you, are not attached to your dwelling physically. You can select from neighborhoods you prefer (limited a bit with apartments).
• You also have plenty of space. You can have friends or family come and visit and there's plenty of room for all. Right now our basement has a bedroom, full bath, small mini-kitchen, small living room, and an entertainment room. It's perfect for guests as they have their own place to stay when visiting us.
• In addition to what sort of place to live in, we'd need to decide where to live. We love Colorado, but if our kids were far away, we'd probably want to live closer. And while I've pretty much eliminated the option, buying a place in the Caribbean still comes to mind now and then.

Those are our random thoughts on downsizing in retirement. What do you think about them? And what about your own retirement? Have you downsized in retirement or are you planning to when you do retire?

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?

Retirement Surprises

Here's a piece listing what retirees wish they had known before they retired. The highlights:

Many retirees are surprised by the costs they faced in retirement, with health care costs leading the charge.

Thirty-seven percent of those surveyed say health care costs have been higher than expected in retirement, 45% say their total health care costs are just what they expected, and just 9% say they have been lower than expected.

About one quarter of retired investors say living expenses and taxes have been higher than expected after they retire.

Here's why they are surprised -- they don't think about retirement living costs.

I know, this should be the FIRST thing they consider before they retire -- what their retirement budget is -- but the vast majority of people don't do this.

Later on from the article:

According to the Wells Fargo survey, very few people are mapping out their retirement plans, with just 20% of those surveyed saying they have done the detailed calculations to determine how much income they will need in retirement, more than half of those surveyed (48%) are unsure or have not thought much about how much money they will need in retirement.

So they don't think about how much they will spend in retirement? No wonder they are surprised!!! Yikes!

I think most people kind of spitball it when it comes to retirement and say "I think we can make it" with little to no financial calculations to help them decide one way or the other.

I think they also don't build in margins of safety in case their spending (like that for health care) is higher than they expect.

I don't know why I'm even surprised any more...

How Much Does It Take to Be Wealthy?

Here's an interesting post from Bloomberg asking how much do you need to become wealthy?

The results:

• Millennials say you need $1.3 million to be financially comfortable and $2 million to be wealthy
• Gen X says you need $1.4 million to be financially comfortable and $2.6 million to be wealthy
• Boomers say you need $1.6 million to be financially comfortable and $2.7 million to be wealthy

Interesting how the older you get the more you think it takes to be wealthy. :)

Before you set a number, consider these net worth percentiles in the U.S.:

• 50th percentile: $97k net worth
• 75th percentile: $370k net worth
• 90th percentile: $1.2 million net worth
• 95th percentile: $2.4 million net worth
• 99th percentile: $10.4 million net worth

Now that you have those numbers, what would you say it takes to become wealthy?

I think you could argue that it takes more to be financially comfortable than to be wealthy.

For instance, $1 million makes you wealthy compared to most Americans -- only a bit over 10% have more.

But would you say you'd be financially comfortable with $1 million net worth? Maybe comfortable enough to relax a bit, but not comfortable enough to retire -- unless your spending was really low.

Anyway, what are your thoughts on the issue? What do you say it takes to be wealthy in America?

My Major FI Milestones

Gen Y Finance Guy recently listed his five major milestones of financial independence as follows:

1. Ground Zero ($0 Net Worth)
2. Six Figures ($100,000 Net Worth)
3. Double Comma Club ($1,000,000 Net Worth)
4. The Magic Zone for Max Happiness ($1,875,000 Net Worth)
5. Financial Independence ($3,000,000 Net Worth)

Here's when I hit each of these and my thoughts on them:

1. My Quicken data goes all the way back to 1994 and it shows I was at ground zero. I'm not sure if this really was the case or if I just didn't have the numbers entered into Quicken, but let's go with it.

I had been married for just three years at this point. We were learning about money and wanting to retire all of our debt, but we had two condos we had to sell (at losses) so we could buy a house (which we sold a year later for a loss.) Ugh.

2. By 1995 we had over $100k net worth, which makes me think the 1994 number of zero was simply for a lack of data.

By this time we had sold our homes, moved, bought a new house and were paying down the mortgage, and I had a nice, new job that paid me much more than I was earning previously. We were also maxing out my 401k at this time.

3. We passed $1 million in 2005 and, as they say, the first million was the hardest.

By this time I had changed jobs a couple times, survived the dot-com bust, paid off our mortgage, was earning a very good salary, and was saving a ton.

4. We hit the Magic Zone in early 2011 after fighting through the financial crisis (investing all the way down).

By this time we were actually financially independent, but I did not know it.

5. We hit $3 million in 2015 thanks to the investments we made during the crisis as well as our real estate.

From there our finances have been on a rocket ship upward and we are a hair away from the next million-dollar mark.

So, that's our path through the five milestones. Where are you on this journey?

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. 

Courage and Fire

The following is a guest post from Moose of Making Sense of Life.

There are hundreds of thousands of posts about financial independence and early retirement online. Amongst the how-tos, formulas, in-depth explanations of Roth IRA ladders, and philosophical content out there, one critical aspect of this journey is rarely mentioned: courage.

The Phases of FIRE

Courage is essential in all phases to be financially independent and retire early (FIRE). You need courage to embrace this atypical lifestyle, you need courage to sustain it, and you need courage to finally unplug from a typical working life.

Embracing Financial Independence

Why did you first pursue FI?

I guess that you felt something was amiss. The culture of over-the-top consumerism and "retire at 65" mindset did not leave you fulfilled. You knew something had to change and you sought out various resources, like MSoLife.com, to help you break out of the mold that the vast swathe of society neatly pours itself into.

My first tentative steps toward FIRE emerged out of fear. Fear of running out of money and being unable to provide for my family. I was motivated to seek a solution to my fears, but it took courage for me to turn to the principals of FIRE. I had to have faith that I could curb the horrendous financial habits I established over the course of more than a decade. When I first calculated my Money Multiple, I was horrified by the amount of money I had thrown out of the window on silly frivolities. However, on the flipside, the Money Multiple also shows you the power of compounding interest on any dollar you invest NOW. Forget the past; it is gone. Forge forward with the knowledge of what a dollar invested today is worth to you in your retirement.

The Courage to Start

Courage is mandatory when starting down the path to FI. You need courage to acknowledge that your previous habits and mentality are not sufficient to earn you the life you envision living. Turning the glaring harsh spotlight on yourself and accepting your flaws is hugely courageous and, frankly, painful. Self-reflection does not come easy, and many people avoid it for this reason. Staying in the same rut is comfortable, familiar, and requires no effort.

The commitment to change is the embodiment of courage. Not competing with the Jones' and rejecting the strong pull to have the latest shiny cars, flat screens, and luxe vacations (all financed by debt, of course) requires a commitment to higher values.

Sustaining Your FIRE Progress

Like any significant feat, it takes more than motivation to become financially independent. We overemphasize the importance of motivation and underemphasize the far less sexy side of discipline and consistency.

Just like a famous athlete didn't "come out of nowhere," your ascendency to financial independence involves years of dedication and practice. It may appear to your coworkers, friends, and family that you "suddenly" retired, but we both know the truth of the matter: it took years of embracing the suck.

How do I maintain my progress toward FIRE? I'll share a few tips that keep that fire in my belly stoked:

1. Track your finances with Personal Capital, Mint, or a spreadsheet and review your progress at least monthly if not weekly
2. Visit Rockstar Finance for daily inspiration and ideas to boost your growth toward financial independence
3. Visualize what your life is like as a retired/financially independent person; how do you spend your day, what gets you out of bed in the morning?
4. Visualize the alternative: years or decades of additional drudgery and the inability to live life to the fullest, whatever that means for you

Courage keeps you on the straight and narrow path to financial independence. You WILL experience setbacks and unexpected emergencies on your road to FIRE. It's inevitable. But courage and resilience empower you to shake yourself off and keep at it.

Unplugging From Working Life

So, what happens once you've reached your FIRE number or the amount of money you need to retire? This number is typically between 25 and 33 times your annual expenses. Do you immediately run to your boss and say you quit?

I've noticed a trend in personal finance lately called the "one more year" phenomenon. Several personal finance bloggers recently hit their FIRE numbers and decided to continue working for another year or more. Why?

One reason is that they want to make EXTRA sure that they have the resources they need well into their old age. It's understandable. It takes courage and a giant leap of faith to believe the math that led you to the point of financial independence. Hundreds of what-ifs run through your mind. What if I did the math wrong? Will I run out of money? What if we have significant health issues?

The other common reason retiring can be difficult for people is habit. They're habituated to working that 9-5 gig and being around the same people from Monday to Friday. You may not love working, but there's comfort in continuing to do so. Not having something to retire to is an issue that typically builds to this reticence to finally retire. You need to figure out what you're going to do with your newly-acquired free time or retiring early will be difficult to follow-through with and challenging to sustain.

My Limited Experience with Unplugging

When I write about personal finance, I always stick with topics I know well from first-hand experience. While I haven't retired (yet), I am currently on a mini-retirement. I'll take up to a year off to test how I respond to not having a full-time job. Will I go stir-crazy and run back to employment? So far, I think I'll take to retirement like a duck to water. Here's why; I:

• value my family/personal relationships and spending more time with friends and family
• keep busy with a rigorous gym schedule and working on my site
• continue to learn about various topics like digital marketing and data science; I'm stimulated

Regardless of whether or not you decide to test early retirement with a mini-retirement, it's normal to have apprehension around such an impactful life decision. You need courage to let go of the familiar and head off into the exciting unknown.

Conclusion

This post isn't meant as a self-congratulatory and back-patting ode to our egos. No, it's meant to highlight the fact that courage is a prerequisite to FIRE.

You will face adversity; courage is possible only in the presence of difficulty. You need bucketfuls of courage to pull off this magnificent goal, and I've highlighted where that courage is needed most. Go forth with the knowledge that FIRE is attainable. You've got this!

Is Extreme Frugality Necessary to Save for Retirement?

The following is a guest post from Michael Dinich at Your Money Geek.

Retirement takes effort, planning, and consistency. Living an extremely frugal life has never been a requirement. If you love reading financial content, you may have noticed financial experts preaching about the best ways to retire early and be set for life. Their ideas may be good in theory and may work for some, but may not work for everyone.

Extremist may make you feel as if you are behind and not worthy of your own financial goals and aspirations.

Everyone has different ideas of retirement. But the truth is, everyone has different goals for retirement. Some retirees may strive to read 60 books in 6 months and go for daily walks. Others may want to travel the world and enjoy the fruits of their labor.

Is your current lifestyle aligned with your retirement goals?

It's not so important to be extremely frugal to get to where you want to be. What’s important is that your current lifestyle is aligned with your retirement goals.

Let’s say you are 35 and your goal is to retire by 45. You make about 100k a year and you have 200k in savings. If you could pay off your home and have no bills in the next 10 years and live a very conservative lifestyle, you may be able to accomplish early retirement. However, if you plan to take a lavished vacation every other week and have homes in 3 different cities, that may not be enough to retire.

So, decide when you want to retire and the life you would like to live. Be as specific as possible and leave nothing out. Then you may want to sit down with a financial planner to help you determine if your goals are realistic with your spending and saving habits.

You may need to make a few adjustments. If you need to live a bit more frugality to get to where you want to go, that’s a decision you will have to make and feel comfortable with.

Know what is best for your lifestyle

Often you see stories on the news about a couple who quit their job and retired to be world nomads. You think, “wouldn’t that be great”. But what you don’t see, is all of the changes they had to make in their lives in order to get there. You also don’t see all the sacrifices they had to make to be financially free.

If this is how you see yourself in retirement, great! Then extreme frugality may be the way to go, but if you are comfortable with your current job and your 3.5 weeks of vacation, for now, you may need to be as extreme with your savings.

If you are a free spirit you may not enjoy penny pinching, you may just want to live your life and automate your savings. Conversely, some people really enjoy watching every penny, and strive for extreme frugality. It’ a way of life. Remember do what is best for you.

Pay yourself first and enjoy the rest

If you want to retire by a certain date then work with a financial planner to help you determine what you will need to save and invest in order to achieve this goal. Automate your savings and investing. This way you can make sure you pay yourself first. You can use the rest of your funds to enjoy your “latte money” or spend it however you would like.

This lifestyle may be easier to manage and let you feel as though there are fewer restrictions on your life.

Consider the people you surround yourself with

If all of your friends are trying to keep up with the Joneses, you may feel like you need to as well. The people you surround yourself with is crucial to your financial well-being and the accomplishment of your retirement goals.

Surround yourself with like-minded people who support you. People who enjoy doing the same things you like to do and can celebrate your financial victories.

Try not to compare

It’s easy to see the latest internet sensation telling you they paid off $200,000 of debt in 2 years by just eating ramen noodles or they made $150,000 last month by selling a how-to guide. Don’t be swept away. It is great that they were able to achieve these accomplishments but their step 20 may be your step one.

Look for an easy first step and big wins. Instead of comparing yourself to some internet sensation that may or may not is saving 70 plus percent of their money. The key to taking the first step. Cut one thing out of the budget that’s not important to you and save.

You could also consider working with a tax professional to do some tax planning to save a few thousand dollars, or review your insurance policies for the big win. As you save and keeping having “big” wins saving money will become more enjoyable. You will feel one step closer to your retirement goals.

Final note:

Do what is best for you and your retirement goals. There is not one retirement plan that will works for everyone. Establish your goals and then make it happen at your own pace.

Understanding the Basics of Equity Funds

The following is a guest post from Alexander Voigt. He started his career in the financial business back in 1999. For many years, sharing investment ideas with his readers on his website DayTradingz is an important part of his life. You can almost call it his passion.

Equity Funds

Savings accounts or call money are currently not really suitable to increase one’s own capital by interest. There are other investment opportunities much more efficient, such as equity funds.

As the name suggests, this investment consists of shares, not in individual stocks, but in a portfolio of shares of different companies. The advantage here is that the risk of loss is significantly reduced if the investment strategy is correct.

At the same time, with a correspondingly intelligent selection, there are good chances to increase the various values in the equity fund. Without any need to scan the markets for individual stocks, this makes the investment profitable.

Certainly equity funds are a means of investment that demands more attention from the investor than the well-known savings account, but then an equity fund pays off while a savings account is actually losing money.

The risks involved in different funds can also be assessed with a little knowledge of the stock market. An investor need not be a securities specialist to be able to gauge how risk and opportunity behave in an equity fund.

Safe Investments – Equity Funds

Conventional savings are usually linked to the interest rate of the respective central banks. These are not growth-oriented, which of course is politically correct. Central banks must control the amount of money in circulation, using among other things the key interest rate, which is raised or lowered depending on the situation.

In contrast, public companies are obviously growth-oriented. A small example shows the differences. In the euro zone, the base rate was 3.25% in 2000. This meant that banks on savings deposits paid maybe 4 or 5% interest.

With slight fluctuations, the key rate remained in this area until 2009. After the global economic crisis in 2008, the key interest rate fell to currently zero percent. Even with generous calculation a savings balance of 100 euros would, including compound interest, result in 40 euros interest in the best possible case after 17 years.

Assuming that the 100 euros were invested in the DAX, which with its industrial heavyweights is by no means a very dynamic equity fund, but extremely conservative in the area of equity investment. Nevertheless, the DAX achieved an average performance of just over 5% per annum over the same 17-year period.

Invested in the DAX the 100 euros would have made almost 130 euros with compound interest. Other, more dynamic equity funds are still far above that. It should be noted that the past 17 years produced particularly mixed results for the stock market.

For whom are equity funds suitable?

While day trading belongs to the most speculative approaches to make money in these days, investments in equity funds give the investors more safety. So, they are also connected with less emotional stress.

Especially people looking for an alternative investment to the usual bank products are well advised to turn to equity funds, especially when it comes to long-term investment objectives with an overall low risk.

The management of an equity fund usually follows a specific investment concept with considerable diversity, such as investment in certain industries. In this case the companies of one or more industries are rated in terms of their growth, but also in terms of their stability.

If a company meets the specified criteria, its shares are integrated into the fund. Another concept is tied to dividend stocks or specific regions, which may be a whole continent like Europe or a single state such as Japan.

Another distinguishing feature may be a focus on small or large companies. The advantage of investing in small caps, in smaller stock companies, lies in the faster performance of their stocks. Especially in recent years, funds have achieved excellent value growth with this investment concept.

For example, the best small-cap funds made gains of between 13.8% and 15.76% between 2014 and 2016. The risk can be cushioned by a wide spread. But the success of such a fund may also turn out to be a handicap.

If the fund reaches a certain size thanks to multiple investors, it may be difficult for the managers to invest the amount of money according to their own criteria. In this case what’s lacking are simply suitable public companies.

Are there high risks in equity funds?

In fact, the risks are minimal if the investor or investor avoids certain types of funds, like sector funds with a very high degree of specialization. Of course just these equity funds offer the same promise of return, but the risk is very high that the forecasts for development will not materialize. With investments in a single industry even a company getting off the rails can pull down others.

Although the stock market and in particular equity funds have shown a positive performance over decades and are thus actually ideally suited for asset accumulation, skepticism remains high. This is clearly shown by the shareholder rate, the proportion of people in a country who invest their money in shares or equity funds.

Focusing on the goal instead of the way

Of course the daily price performance is a problem when investing in equity funds. With long-term investment periods of perhaps 10, 15 or 20 years, it may well happen that the price of the fund slips below zero on some days.

But this is by no means significant for the overall development. This is demonstrated very well by the world's oldest stock index, the Dow Jones. This index of the 30 largest industrial companies in the United States records their price development since 1928.

In these almost 90 years including a world war, several stock market crashes and other economic and political difficulties, the Dow Jones index climbed from about 30% to 10,170%. If somebody had theoretically invested only 100 euros in the Dow Jones equity fund in 1928, they would have achieved a whopping 10,270 euros in 2017, mind you, without compound interest.

With compound interest, it would be an amount with 29 digits. At 10 digits one reaches a billion, at 13 digits a trillion. Of course this is just as abstract as the assumption of an investment over the course of 90 years.

But it shows a very clearly that buying stocks beat every other investment working with fixed or floating rates. Because behind stocks there are people with ideas, with experience and with knowledge, working every day to move ahead, thus advancing the stock corporation.

An equity fund is in this sense not just a mix of shares of different companies, but a representation of the employees of these companies.

Investors who are searching for a more self-managed approach may profit from reading the article Best Stock Screener. The article explains the difference between stock screeners, stock scanners and charting tools. It also presents 40+ different investment tools that are available and it tells you how to use them effectively.

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.

 

Are You Treating Your 401K Like an ATM?

The following is a guest post from Bernz JP who writes at Moneylogue.

More importantly, Should You?

When “life happens” it can be extremely tempting to use retirement accounts as emergency savings accounts. And while in an ideal world, you would never need to do this, sometimes it may be necessary. Statistics state that a little over 30% of 401K investors in the last decade have cashed out before reaching the minimum age of 59½ that let them avoid the 10% early distribution penalty.

IRS rules do make room for retirement plan loans if the maximum amount of the loan is either under half of the amount of your vested balance or $50,000, whichever amount is smaller. This means you won’t be able to borrow more than $50,000 from your 401K, no matter how much your plan is worth.

So, the question is, what counts a necessary and what doesn’t?

If your financial situation has become problematic and you're eyeballing your 401K plan as a possible out, most financial advisors will tell you; you need to have a full understanding of the consequences before you move that direction. While borrowing from yourself might initially appear harmless and convenient, the long-term costs can end up being more expensive than you may realize. Here are some reasons to rethink borrowing from your 401K.

You’re Paying Taxes on the Same Money Twice

Yes, you will be paying yourself back with interest, but you’re using your taxable income to do it. This means you’ve paid taxes on the money you use to pay back the loan AND you’ll be paying taxes on that same money when you finally start using it for retirement.

Lost Income from Compounding Interest

Even with the interest, you pay back, no amount you can afford to pay will make up for the lost compounding interest the loan amount won’t make once it's withdrawn from the 401K.

A Loan May Prevent You from Making Future Contributions

Not only will you lose the compounding interest from the principal you withdraw, depending on your plan's regulations, but you may also be prevented from contributing new funds for up to six months. This ban on contributions means you will lose the pre-tax benefits from that money as well.

Once You Start – It’s Hard to Stop

Once you make the first loan and pay it back, it sometimes is difficult not to keep doing it again and again. Over time, this could greatly reduce the amount of income you’ll have available in retirement. As we stated above, once you lose the principal that is contributing to higher compound interest income, it’s virtually impossible to get it back.

Your Repayment Period May be Reduced If You Leave the Company

If you have to leave the company that holds your 401K before you’ve had a chance to pay back the loan, you may have to come up with the entire remaining balance in as little as 60 days.

This requirement will hold true whether you are leaving by choice or by force. Getting laid off will not protect you, which means you’ll be required to come up with the money at the worst possible time to be short on funds.

Scenarios That 401K Loans Could be a Good Idea.

Despite the drawbacks of 401K loans, there are some situations they might be a good idea, especially if all other options aren’t viable.

If You Own the IRS Back Taxes

Because of the penalties and interest that can build-up on overdue taxes, and the threat of wage garnishment to resolve the situation, a 401K loan may be your ticket out.

The additional money taken out of your paycheck to cover it probably won’t be any more than a federal garnishment would be, and you’ll stop accruing the higher interest amounts on the amount owed.

Before you go this route, double check with the other tax relief programs for alternative options.

If You are Close to Eviction and/or Bankruptcy

If you are facing a severe cataclysmic event financially, make an appointment to speak with a counselor from the National Foundation for Credit Counseling (NFCC). They will be able to assist you in determining what directions you can take to possibly get out of debt. If your 401K can help you buy some time to restructure your financial situation, they’ll be able to advise you on the best way to use the money. You can find a counselor in your area by visiting the NFCC website at www.nfcc.org.

If You are About to Default on Student Loans

Defaulting on your student loans can have a negative effect on your credit record, which can have an effect on future plans for quite some time.

Plus, if you’ve already had to declare bankruptcy and are also about to default on your student loans, you could end up with a double whammy on your credit record. In most situations, student loans don’t fall under the umbrella of bankruptcy, so you’ll still be responsible for them.

Weigh the Pros and Cons Carefully Before Moving Forward

Financial difficulties are usually a part of life at one time or the other. Getting them taken care of and quickly and painlessly as possible is the ideal way to overcome them. When considering using your 401K for this, you need to make sure the ends actually do justify the means. With the possibilities of penalties, loss of interest, and delay in additional contributions, the result could mean a greatly depleted retirement income.

Additionally, unless you are EXTREMELY secure in your current job, the possibility of having to come up with the balance of the loan in a short period of time, or suffer even greater consequences, could lead to more harm than the original loan did any good.

As most counselors will tell you, the only time you should seriously consider taking a loan out on your 401K is if your financial situation has come to an extremely bad point and it is the only option left to you to dig your way out. In those cases, make sure you know exactly what the effects could be so you can be as prepared as possible for any and all outcomes.

Save Money by Exercising

Check out this video:

The key point in it:

Exercising for 30 minutes a day, 5 days a week saves you $2,500 a year.

And this is only heart health savings! If you add in all the other health-related savings, it's much higher than this.

Couple this with the fact that people who exercise more make more money and exercising is a no-brainer!

I am at the gym six times a week and am active in addition to that (I try for about 15k steps per day). I feel better by working out as well, so my quality of life is improved to boot!

How about you? Do you exercise? Why or why not?

When You Should Have Your Taxes Done

As tax season gets close to wrapping up, I thought this piece from Business Insider was timely

It gives a flowchart, decision-tree on whether you should do your taxes yourself or have someone else do them for you.

The times they suggest you should hire someone include:

• Household income over $200k
• Self-employed or own a business
• Extensive investments
• Make large charitable donations
• Had a major life change like baby or marriage
• Don't have the time and patience to DIY

Other than the major life changes, all of these pertained to my family for most of the past 20 years. That's why we've used a CPA to do our taxes for most of that time.

This year it took me a fraction of the time to get everything together for my CPA. Once I retired things did get a bit less complicated in some ways, but more complicated in others (like having a daughter in college.) So unless things shift drastically for us, we'll probably keep using a CPA for taxes for the foreseeable future.

How about you? Do you hire someone or DIY? Why did you decide to do it this way?

Top Three Life Expenses

Just look at this interesting chart.

There are several things that stood out to me here, but most notably these:

• Look at how much housing takes up at every single level. No wonder I was able to accumulate such wealth by paying off my mortgage early.
• Food is a category that most people spend way too much on IMO. Almost every single person we coached spent multiples of what we did on food (much of it on expensive, processed, branded products and eating out) even when we had more people in our family.
• Transportation is a huge money suck. This information makes a good argument for living close to work, driving a car until it can't go any more, and keeping these costs as low as possible.

In fact, if you look at these three costs, they make up half the spending at almost every income (much more than that at lower income levels).

Here are some quick thoughts on how to reduce the spending in each area:

• Buy a house below what you can afford. This will not only help you pay it off faster but save on associated expenses. It's well documented that the larger the house you have, the more you spend on related items.
• Reduce your restaurant costs and branded purchases. From there take the right steps to save even more on your remaining food purchases.
• If you can live close enough to work to bike/walk, do it. If not, get a gas-efficient car and drive it into the ground. Or even better, see if you can work from home. :)

Doing these will make a MASSIVE difference in your budget and free up resources you can use to save and ultimately retire early.

Is $1 Million Enough to Retire?

Do you think it's possible to retire on $1 million?

CNBC doesn't think so:

A cool $1 million has long been considered the gold standard of retirement savings. These days, it's only a fraction of what you will really need.

For instance, a 67-year-old baby boomer retiring now with $1 million in the bank will generate $40,000 a year to live on adjusted for inflation and assuming a sustainable withdrawal rate of 4 percent, said Mark Avallone, president of Potomac Wealth Advisors and author of "Countdown to Financial Freedom."

It's worse for a 42-year-old Gen Xer, whose $1 million at retirement will only generate an inflation-adjusted $19,000 a year when all is said and done. And a 32-year-old millennial planning to retire at 67 with $1 million would live below the poverty line.

That's what Avallone, a certified financial planner, calls "million-dollar poverty."

LOL! This is written like a journalist (who knows nothing about money) who consults with a financial planner (who knows nothing about money) wrote it!

First of all, why are they assuming the millionaire today can't live in $40k? That's completely reasonable, especially if they live in a low cost-of-living city https://esimoney.com/where-you-live-has-a-big-impact-on-your-net-worth/ and/or have their house paid off https://esimoney.com/how-to-buy-a-house-and-pay-off-the-mortgage-in-less-than-10-years/.

Second, let's say the 42-year-old retired NOW with $1 million. He could take $40k out of that PLUS it's highly likely he will earn more money here and there. Very few young retirees never earn another penny in their lives once they retire. And if they have something like a small side hustle, that makes retirement MUCH more affordable.

On the opposite end of the spectrum is a post that says you can retire on $1 million or less -- and gives examples of just that, listing how to reach financial independence by age 35.

So which is it? Is $1 million enough to retire on or not?

The truth is, it depends on:

• How much you plan to spend in retirement -- If you need to spend $30k, it probably is enough. If you need to spend $100k, it probably isn't.
• How much you can earn off that $1 million -- If you can earn 10% income off it by investing in real estate, then you are probably ok. If you have to withdraw at 4%, maybe it's ok and maybe not.
• What margins of safety you have -- Personally, I wouldn't leave work life without it. ;)

Those are my thoughts. What's your take on the situation?

A Great Side Hustle Idea

I've been blogging for almost 13 years now and I get the question quite often: "How can I make money blogging?"

So today, I have an answer for that question.

For those of you who want to get started blogging immediately and learn as you go, here's a post on how to set up a blog.

For those of you who want to know the details and learn a bit before you jump in, check out the series of blogging posts starting here.

Blogging has been very good to me over the years and with a bit of time and effort, I believe almost everyone can turn it into a decent side hustle.

If you decide to jump in, best of luck to you on your journey.

You Can Spend It All

Wow.

I don't know why it surprises me when I see articles on how people can't manage to survive on $100k income or more.

I've been writing on this issue for years so you would think I'd be numb to it by now.

But every time they come around, I shake my head like it was the first time I've ever heard stories like these.

And they always seem to come in bunches -- so I have a few to share today.

We'll begin with this couple who makes $100k and says they don't ever expect to retire:

Theresa Sahhar and her husband make a combined $100,000, which is nearly double the median annual income in the United States.

They live in Olathe, Kansas, where the cost of living is "pretty reasonable," Sahhar told NPR's Lulu Garcia-Navarro during a segment on living on $100,000 a year. Still, they're "struggling to make enough money to do all the things that we normally do."

I don't need to go any farther into the article to know that these people are spending way too much.

I've been to Olathe, Kansas several times and it's not that expensive -- 5% above the average US location according to Best Places.

At the same time, as mentioned, $100k is twice the average income.

If you make twice what most people make and live in an average cost-of-living city, you have some BIG expense outflows in some area.

But we'll get to that in a minute. For now, let's move on to later in that article where it says:

They aren't the only residents earning six figures and struggling to set aside money for retirement, college and other major expenses. Some living in the area who earn $100,000 "are living paycheck to paycheck," the Post reports, and even families earning up to $250,000 "don't consider themselves to be high-earners."

My goodness. Not higher earners at $250k?

On to the next article. Here's a couple making $180k per year who don't feel like they are doing well:

On the income distribution charts at the center of tax overhaul plans, Courtney Mishoe knows she’s doing well. She works as a tax manager at a firm in the Atlanta suburbs. Her husband is a police officer. Together, they make more than $180,000 a year. They are solidly in the upper middle class. But they have a mortgage and three kids, including one in day care and another in high school with plans to go to college. It all adds up. They depend on tax deductions to make their budget work.

“I don’t feel wealthy,” Mishoe said. “I don’t have a bunch of money stashed away anywhere.”

They depend on tax deductions to make their budget work? Really?

Things are that tight on earnings of $180k?

And yet it gets worse.

If you think you can stomach it you can watch this:

It's a boo-hoo interview with a writer who talks about how hard it is to make things work financially.

He admits that he's made some bad financial decisions including:

• Choosing to be a writer (low income)
• Choosing to live in NYC (in the Hamptons -- high cost-of-living)
• Choosing to have two children and send them to expensive colleges (expensive colleges can kill!)

Uh, yeah. Those things do impact your finances!

But then he doesn't really take responsibility saying, "But those choices are what I call life."

No, they are not simply "life". It isn't life to live in a resort area, high tax state, and send your kids to Harvard and Stanford.

BTW, he never gives his income but I don't think he's a starving writer. My guess is that he "only" makes $100k or so.

Towards the end of the piece he quotes USA Today as saying that a "middle class existence would cost $130,000 a year."

He then goes on to say that most people make $50k, so there's the problem.

But that's not what USA Today said. (I can't believe he as a writer or PBS as the interviewer didn't fact check this.)

They said the cost of the "American Dream" is $130k:

In fact, three-quarters of Americans polled by the Brookings Institution in 2008 said the dream was harder to attain.

They're right to worry. An analysis by USA TODAY shows that living the American dream would cost the average family of four about $130,000 a year. Only 16 million U.S. households — around 1 in 8 — earned that much in 2013, according to the U.S. Census Bureau.

They basically make a bunch of over-priced assumptions (more than I've ever paid in almost every category) to "prove" that it takes $130k to make the American Dream work.

I'm thinking there's an agenda here...but we move on.

The video above is an interview with the writer who is covered in this Atlantic piece.

If you read far into that article you'll find this:

Lusardi, Tufano, and Schneider found that nearly one-quarter of households making $100,000 to $150,000 a year claim not to be able to raise $2,000 in a month.

It also states this -- which I can agree with 100%:

Basically, a good many Americans are “financially illiterate,” and this illiteracy correlates highly with financial distress. A 2011 study she and a colleague conducted measuring knowledge of fundamental financial principles (compound interest, risk diversification, and the effects of inflation) found that 65 percent of Americans ages 25 to 65 were financial illiterates.

Then there's this piece from NPR about what it's like to live on $100k. A summary:

NPR's Lulu Garcia-Navarro spoke to a variety of people in different cities about what their lives look like on $100,000 a year. On paper, that kind of salary is considered well-off. But as we heard from many, it often takes just one major expense for that to not feel like enough: student loans, health care, childcare or housing costs.

They try to make a good story but when you read between the lines you see "credit card debt" and high cost-of-living cities.

But hold on to your hats. We're about to take this to a whole new level!

Check out this post:

Vanamee consulted experts to estimate the "happiness number" for a hypothetical, wealthy, non-working couple in their 40s with two teenage kids in an expensive private school in New York City. They live in a parkside Fifth Avenue apartment, buy art, take private jets, donate to charity, and have a household staff — a chef, a driver, and a housekeeper — plus two vacation homes. They're also setting aside $25 million for each child to inherit.

An analyst from US Trust cited in the Town & Country report estimated the hypothetical couple would need to have a net worth of $190 million to sustain this lifestyle.

Of course! I know I certainly wouldn't be able to be "happy" on anything less than $190 million!

Are these people real???!!!

As you might imagine, I have a lot to say about these stories:

• No matter how much you make, you can spend it all. We've seen athletes, musicians, actors, and others who have made multiple millions go bankrupt, so there's no amount where you can't spend it all.
• The main problem: no financial discipline. And discipline, discipline, discipline, discipline is vital to financial success.
• Living in a high cost-of-living city is a killer. If you make a given income, it's so much better to live in a place where costs are 20% to 50% lower, right?
• Many will say that incomes are higher in higher-cost areas. Some incomes are higher, but if you look at the numbers you'll see that the higher incomes don't offset the higher costs http://www.freemoneyfinance.com/2006/09/move_save_money.html.
• If you really want to become wealthy, the best bet is to earn a high salary in a low cost-of-living market. This has been talked about in detail by financial bloggers at ESI Money and Physician on Fire.

In the end, the fact that someone can't make it on $100k, $180k, or $190 million isn't an earning problem, but a spending problem.

I want to close with a quote from a podcast interview I heard recently with Jonathan Clements, a personal finance journalist and writer for the Wall Street Journal, and one of the few financial writers who IMO actually knows what he's talking about.

In the interview he's asked, "What’s the most important thing that you’ve learned since you’ve started writing about personal finance?"

His reply:

It sounds ridiculously simple, but the one lesson that’s been driven home to me year after year, is the importance of being a good saver, everything else is secondary. Over the years, both when I was at the Wall Street Journal, when I was at Citigroup and even now, I’ve spoken to thousands of every day investors who have accumulated seven figure portfolios. Many of them have modest incomes, most of them were mediocre investors but almost all of them shared one attribute in common, they were extremely frugal, otherwise known as cheap.

The way they achieved financial success was living way beneath their means and saving great gobs of money every month. If you wanna be financially successful, it is indeed as simple as that, everything else is gravy. If you have great savings habits, you could afford to buy advantage funds. I wouldn’t suggest you do it but you could take that risk and end up with market lagging returns. You can pay too much to a financial advisor and you’ll still be fine. If you have great savings habits, good things are gonna happen, everything else is gravy.

So true. Because the fact is that without saving, you can simply spend all you make -- even if you make a fortune.

The Crazy Way We Work

Here's an interesting infographic on the crazy way we work.

I'm going to pick out a few of their facts and comment on them.

70% of American workers experience stress-related illnesses.

I can relate to this.

I never knew what a toll stress was taking on my body until I retired. I could literally feel the stress melting away over time. It took about six months for me to fully de-stress after working almost 30 years.

Of course, too much stress is not good for any of us. In this way, our jobs are slowly killing us every day.

33% more heart attacks occur on Monday mornings.

Uh, yeah. Because 1) people hate their jobs and 2) there's a lot of stress there. No surprise here.

In retirement, Monday becomes your favorite day. Why? Because everyone else goes back to work. The stores are quieter, the gym is quieter, the theater is quieter, and so on.

The average commute time is 47 minutes round trip.

That is BRUTAL!

Most people don't factor the physical (more stress!) and monetary (like taking a big pay cut) impact of a long commute.

Think about it this way: 47 minutes per day * 5 days per week * 50 weeks = 11,750 minutes or 196 hours or 8.2 days per year commuting. Ugh.

I never had a commute more than 20 minutes one way and if I had I would have probably hated it completely.

41% of tasks on to-do lists never get completed.

What a shock here...not really.

Most people are so busy getting to the urgent things each day that they don't get to the important things.

There's a reason Covey addressed this in his 7 Habits book.

Interesting stuff all the way around. If you want more, check out the infographic for yourself.

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.

How Much to Borrow for College

Unless you've been hiding under a rock for the past few years, you've heard about the "student loan crisis"

I put that in quotes because it's not a crisis IMO. It's a problem caused by people who do not understand basic financial principles. But more on that in a minute.

For now, let's begin with what Wikipedia says about student loan debt:

The Economist reported in June 2014 that U.S. student loan debt exceeded $1.2 trillion, with over 7 million debtors in default. In 2014, there was approximately $1.3 trillion of outstanding student loan debt in the U.S. that affected 44 million borrowers who had an average outstanding loan balance of $37,172.

This level of debt in and of itself is not a problem -- as long as that debt can be covered by the salaries of the graduates with the debt.

The problem comes when a person borrows a huge amount that has no chance of being repaid given his expected graduating salary.

Here's a perfect example of what I'm talking about:

A Wilmington woman has reached her wits' end trying to pay off nearly $200,000 in student loan debt with a $38,000 salary.

And it's not isolated by any means. I've seen these sorts of situations for years and years and years.

Dave Ramsey deals with this sort of issue all the time. Here he is addressing it on a video:

And if you really want to hear him go off on the subject, listen to him have a meltdown over student loan debt. It's a classic. ;)

I've written several times about how to avoid this problem -- it boils down to making sure the debt is reasonable given the expected earnings upon graduation.

I only had a general suggestion on how to deal with this until I recently ran into this suggestion from Suze Orman:

Kids should not borrow more than they expect to make in their first year out of school.

In other words, if you expect to make $30k in your first year out of school, you shouldn't borrow more than $30k for the degree.

This seems like a good rule-of-thumb to me. What do you think of it?

And for those interested, here's a piece on how to select a college and another on how to save on college.

How Much You Should Have Saved by Your 40s

MSN gives some details on how much the average 40-year-old has saved.

The summary:

Among U.S. households headed by someone aged 44 to 49, the average retirement savings balance is $81,347, according to the Economic Policy Institute. But while that number may not seem all that bad, it's also a bit misleading. A small number of wealthier people who are financially able to set aside very large amounts can easily pull an average up. And in fact, they do. If we take a look at the median retirement savings balance -- signifying that half of these households have more saved, and half have less -- it's just $6,200. And what this tells us is that there are far more 40-something families whose nest eggs are below the average than above it.

Yikes! The median is $6,200???? That is totally pathetic!

But there's more -- they continue:

But even if you're between 44 and 49 and have managed to amass $81,000 or so, you still have some catching up to do. According to Fidelity, by the time you reach your mid-40s, your retirement savings balance should be equal to four times your salary. Since the average salary for American workers in their mid-40s is somewhere around the $50,000 range, to have accumulated just $81,347 at this point means you're not where you need to be. And if you're among the countless Americans who have yet to set aside a single dime for retirement, let this serve as a wake-up call.

In other words, you should have $200k saved by your mid-40's.

IMO this is not anywhere close to being enough (at 4% withdrawal, you can take $8k out per year). I'd prefer at least double that by mid-40s for sure -- hopefully even by the time you reach 40. That would allow $16k per year withdrawal at retirement. Add in savings from 40 to retirement age plus Social Security and you should have more than enough to retire -- and do so early!

One more thing: I suggest you start a side hustle because it can get you to retirement MUCH faster than you can without one. Even if you haven't saved much so far, creating a side business can help you catch up quickly and retire faster.

Five Countries Where You Can Retire for $1,000 a Month

Kiplinger lists five countries where you can retire for $1,000 a month as follows:

1. Thailand
2. Bolivia
3. Nicaragua
4. Malaysia
5. Georgia

Here's my take on this:

• Personally, I wouldn't want to live in any of these. None of them appeal to me in any way.
• That said, if you haven't saved much for retirement and don't want to stop working when you're 90, these offer a great option.
• I'm not sure I'd ever leave the US -- I like living here.
• If we ever did move to a foreign country we'd likely go somewhere more expensive -- like St. Martin.
• For now, I think our near-term plan is to live in Colorado most of the year, then spend anywhere from a couple weeks to a couple months in the Caribbean when it's cold here.

Those are my thoughts. What would you like to add?

Where You Can Live on $50k Per Year

Business Insider lists 19 cities where you can live on $50k per year.

Here are my comments related to this:

• Where you live has a HUGE impact on your net worth. It's a fact of financial life that some places are simply more expensive than others -- some MUCH more expensive. It's hard to get ahead when you live in a place that's 50% more costly than a comparable city.
• I prefer the option of going low in cost and high in income by making a lot of money while living in a low-cost city. And don't say it can't be done -- I've done it for almost 30 years now.
• Of their cities listed, I've lived in or near four of them. And I happen to live in one now -- and the most beautiful place we've ever lived in.
• This is just their list of the top 50 markets that are best to live in for low costs. There are tons of much smaller markets that are inexpensive and still great.

I know there are other reasons to live in a spot than money (like family). But if you have the choice and are mobile, moving to a low cost-of living city will help you grow your net worth and ultimately retire much faster than a high-cost city.

Five Signs You Retired Too Early

CNN Money lists five signs you retired too early as follows:

1. You're bored
2. Your expenses are unpredictable
3. You don't qualify for Medicare
4. You're withdrawing early Social Security benefits
5. Your financial planner isn't happy

Here's my take on these:

• Yes, it's true that you need something to retire TO, not just retire FROM something. If you have no life outside of work, you either need to find some things to do or keep working. As for me, I have so many fun things I like to do that I'm busier than ever (in a good way) and get up at 5:30 am each day because I want to do them!
• Here's where a budget comes in handy. Not only does it help get you to retirement (by being a tool you can use to control your spending), but helps you predict what your retirement budget (both income and expenses) could be. You do NOT want to retire without completing a solid budget beforehand and one that includes margins of safety in case income is lower or costs are higher than expected. We had 20+ years of data in Quicken, so estimating our retirement budget was a breeze. You don't have to have that much info, but I'd suggest at least five years to have a good guess at what your costs will be.
• Healthcare in retirement is a HUGE issue because it's so expensive. Unfortunately, there aren't a lot of great alternatives, but some gaining popularity are health sharing ministries like Samaritan Ministries and Medi-Share. You may want to check them out.
• There's a whole debate on when to take Social Security. No one knows the best time for any one individual since we don't know when a specific person will die. That said, generally taking it later is better and if you have to have it to make your retirement work, it's probably best to delay a bit and build up some more savings.
• LOL! First of all, I'm pretty skeptical on the wisdom of many "planners" (who are really just glorified sales people). Second, he may not be happy simply because you're moving from accumulating assets which he gets paid to manage to drawing down those assets. I wouldn't put much weight on what my planner thought as long as I was confident in my own ability to manage my finances. If you know nothing about money, you're kind of stuck and will need to listen to someone more knowledgeable.

Anyway, that's my take on these five. What do you think of them?

Suze Orman Says 70 is the Correct Retirement Age

This piece by financial "expert" Suze Orman came out a bit ago.

Here's the headline statement:

If I resurrected "How Am I Doing?" today, I'd be handing out plenty of failing grades to anyone who thinks they will be able to retire before they turn 70. Yes, you heard me right: 70 is the new retirement age—not a month or year before.

She goes on to elaborate:

Look, I totally get that if you are reading MONEY you're probably a diligent saver. But it's always dangerous to assume you're better off than you really are. You likely have plenty saved up to breeze through 15 years or so of retirement. But, people, if you stop working in your 60s, your retirement stash might need to support you for 30 years, not 15.

Then she details her three steps to retirement:

Step 1: Delay Tapping Social Security Until 70
Step 2: Lay the Foundation Now to Work Longer Later
Step 3: Truly Enjoy a Secure Retirement

Several thoughts on this one:

• For most Americans, she's probably right. Why? Because they don't save like they should while working. They spend too much and save too little, which ends up meaning you need to work longer.
• That said, if you manage your money correctly, you can retire -- and retire quite well -- waaaaaay before 70. I did it at 52 and could have retired almost a decade earlier quite comfortably.
• If I was stuck at retiring at 70, I'd be very, very depressed.
• Even if you're "older" (like in your 40s or 50s) and haven't saved much, there's still a way you can retire before 70. For details check out this post on how to retire in ten years.

Anyway, that's my take on her thoughts. What's yours?

Happy New Year

Just want to wish you all a very happy New Year!

May 2018 be your best year yet!

I'll be back next week. As of now I'm in college football heaven. ;)

Merry Christmas

Just wanted to wish all FMF readers a very Merry Christmas!!!! I'll be taking the next couple weeks off to enjoy the season.

Hope you all have a great holiday!!

How to Save on Healthcare Costs

Money magazine ran a piece on "Four Ways to Cut Your Medical Bills" which inspired this response in a letter to the editor:

Here is my list of free measures that can be taken to save on health care costs that are usually underutilized:

1. Don't get overweight.
2. Do get some regular exercise.
3. Don't smoke.
4. Don't overuse alcohol or don't use it at all.
5. Don't use illicit drugs.
6. Do get enough sleep.
7. Do wear your seat belt.

Over my 31 years as a practicing internal medicine physician, most of my patients would have been better off just following these rules.

My thoughts on these:

1. I work out six times per week (three days of weights and three of cardio.) I also have a trainer that I meet with regularly. I have lost 20 pounds and am in the best shape of my life. I know that there are health reasons to be the right weight. I also know that not being overweight can help you save money and earn more as well. 

2. In addition to what I said above, I feel better when I exercise too. There are many financial benefits to being healthy and in good shape. For one thing, it makes you more attractive which is one step in making more money.

3. I've been writing a long time about not smoking. Check out this post from 2005. My summary then holds true today: You're paying a lot of money to kill yourself. ;)

4. I don't use alcohol as I have a policy against drinking my calories. Besides, I generally don't like the taste.

5. Uh, no drugs.

6. If you work out, you'll probably sleep better (I do). And sleeping better has a whole host of positive benefits.

7. Of course. Does anyone NOT wear their seat belt these days?

How about you? How do you rate on these seven tips?

Wasted Money

Here's a piece from Money that says Americans paid $15 billion in overdraft fees last year. The details:

In 2016, U.S. consumers paid a total of $15 billion in fees for bouncing checks or overdrafting -- which is when a customer tries to make a purchase without enough money in their account to cover the transaction -- according to new data released by the Consumer Financial Protection Bureau.

He also pointed out that the average amount of money consumers overdraft by is about $24 -- but that banks often charge fees of around $34 for each overdraft incident.

I don't know why I'm surprised at stuff like this any longer.

You'd think that after all these years of blogging that I'd have it ingrained how poor Americans are at money management and nothing would shock me.

Then something like this comes along.

$15 billion in WASTED MONEY. That's what this is saying. People spent money they didn't have and ended up not only paying the original bill but actually paid $15 BILLION more.

Ugh. When will these bad decisions end????

The Best Meal-Kit Delivery Service is None

Here's a piece by Money magazine which rates the various meal-kit delivery options:

A summary of what they found:

1. Plated
2. Blue Apron
3. Sun Basket
4. Green Chef
5. Martha & Marley Spoon
6. HelloFresh

Here's my take on them: VERY EXPENSIVE!!!!

Our friend at ESI Money did an analysis on Blue Apron and found these kits cost a fortune:

• The cost of Blue Apron is $9.99 per meal. Let’s round it off to $10 to make the math easy.
• Let’s assume you had Blue Apron for every meal for a year for a family of four. That’s 4 people * $10 cost * 3 meals a day * 365 days = $43,800.
• Let’s assume you had Blue Apron for every supper (evening meal) for a year for a family of four. That’s 4 people * $10 cost * 1 meal a day * 365 days = $14,600.

Exactly. We spent $11k on ALL our meals (at home and eating out) last year. Just one Blue Apron meal a day would put us $3k over that. Yikes!!!

And yet these meals are growing in popularity. Anyone out there using them? If so, why do you do so?

Make Thousands by Painting Your Home the Right Color

Here's an interesting piece from MSN Money about paint colors and how they impact home selling prices

A summary:

Homes with blue bathrooms — specifically light shades like powder blue or periwinkle — fetched $5,400 more than expected when sold, according to a paint color analysis from real estate website Zillow. The analysis looked at more than 32,000 sold homes, comparing the sales prices of ones painted certain color versus similar properties that had white walls.

Blue paint isn’t just effective at boosting a home’s selling price when used in a bathroom though. Dining rooms painted in darker blue hues will cause a house sell for $1,926 more than anticipated on average, while homes with light blue kitchens and blue bedrooms will garner a price that is $1,809 higher than expected.

But not all paint colors have this positive effect on sales prices. For instance, a brick red dining room will slash a home’s price down by more than $2,000 versus what was expected. Other ill-advised paint choices — at least where a home’s value is concerned — included yellow, pink and brown.

Where a paint color is used is also important. While blues may wow in kitchens and bathrooms, when used in a living room it decreased home prices by $820 on average.

Those poor color choices all pale in comparison to leaving a bathroom’s walls white though. That decision can reduce a home’s sales price by more than $4,000.

Some thoughts here:

• If I was selling my house I would re-paint using their suggestions in a heartbeat. Paint is not that expensive and if I could get a few more thousand dollars for the right colors, why not???!!!
• Personally, I like white/tan walls. I wonder what that says about me other than I wouldn't get the most out of my home's sale.
• I'm wondering if blue just happens to be "in" now and in a year or two the colors that sell will change. What do you think?

Any other thoughts from the facts above?

Happy Thanksgiving

Just want to wish you and your family a blessed and very happy Thanksgiving.

May we all take a break from talking about money and focus on the things that really make us thankful (like football!). ;)

Have a great, relaxing, joyful, thankful day!

Moving in Retirement

Here's an interesting piece from Time about moving in retirement. Here are some of the stats they share:

• 37% have moved in retirement
• 36% do not anticipate moving in retirement
• 27% have not moved but anticipate doing so

And one quite interesting stat:

• 30% of retirees who have moved have gone into a larger home

This topic is a relevant one for us as we transition in life.

As of now we are in a large home in a suburban area of a beautiful city (many people come here for vacation).

We have one child at college and one at home plus we love our location and house. For now we're going to stay put until we see where the kids land, but after that, we have some decisions to make.

Some thoughts we're working through:

• We don't need a 3,500 square foot house for two of us, so unless we think we're going to add residents (my parents could move in with us) or that the kids will form families quickly and come back to visit, we likely will move.
• If we do move, we'd likely stay in the same city and the same area within the city.
• We'd also be more likely to move into an apartment. This would allow us more flexibility to travel.

But who knows what we'll actually do. Time will tell.

Anyone out there who's been through this decision-making process? What did you do and why?

How to Buy a “Side Hustle” Franchise in 7 Steps

The following is a guest post from Evan Tarver, a small business and investments writer for Fit Small Business, fiction author, and screenwriter with experience in finance and technology. When he isn't busy scheming his next business idea, you'll find Evan holed up in a coffee shop working on the next great American fiction story.

Not everyone is ready to start a full-time business. Some people just want to start something on the side of their current job so they can generate an additional income stream. This is known as a “side hustle.” What many of these people don’t know is that you can actually buy a franchise that works as a great side gig.

However, finding the right side hustle franchise can be tough. You need to find a passive business that can largely run without you, and you’ll need to follow a specific road map when identifying and buying one. Below are the 7 steps you should take when buying a franchise as a side hustle:

1. Find a Passive Franchise Business

Finding a franchise that can be run on the side while you work another full-time job is the first step to buying your side hustle franchise. Online sources like as FranchiseGator, Franchise Direct, Franchise.org, and Franchising.com can help you find a franchise business that can match your specific needs and personal preference.

When searching these online directories, make sure you consider the following when choosing your side hustle franchise:

• Low time requirement - Find a franchise that requires little time and effort, can operate with limited supervision, is not too risky to delegate to your hired people, and can generally be managed part-time. 
• Income potential - When starting a franchise as a side-hustle business, it’s very important to set a realistic income expectation. You typically won’t make millions of dollars running a side hustle, and you need to find a franchise that has income potential equal to what you’d expect to earn working it on the side.
• Personal interest - Finding a franchise that’s interesting will make your side business more appealing and make it easier to remain engaged with its operations even while you’re working your main gig.

Common types of passive income franchises include the following: 

• Vending Franchises - These are the easiest to run as a side hustle because you don’t need to be there to run the business. You’ll only have to hire a few people to do the inventory, delivery, and accounting from time to time. 
• Food Carts - A food cart franchise like as a hot dog or taco stand is one of the easiest to manage on the side as long as you hire the right cooks and cashiers.
• Health & Fitness - A fitness center or gym is another franchise which can serve as a passive source of income. You don’t really need to be there but you have to hire competent personnel to manage and man this business for you.

2. Do Your Due Diligence

Once you identify a franchise that works as a side hustle, the next thing you’ll want to do is conduct the proper due diligence. Ensure that you choose a franchise that you can actually run passively. For instance, you can likely run a vending franchise on the side no problem, but for a larger operation like a fitness center, you’ll need to go into the finer details.

Here are few of the important things that you need to find out when doing your due diligence:

• Business Operations - The business operations of your chosen side hustle franchise need to be flexible. You need to choose a franchise with operations that are easily managed by someone else. 
• Terms and conditions - Do your research and find out every detail about the franchising terms and conditions. You can typically find this information online and can even request it directly. Be wary about the requirements that the terms and conditions demand from the franchisee (such as mandatory training, regular meetings, etc,) since this may affect your current full-time job.
• Cost of the franchise - Since this will only be operated as a side business, it’s essential that you don’t spend more in startup costs and monthly recurring costs than what you expect to make in side income. You also need to consider how long it will take for a return on your investment, taking into account the fact that you can’t manage your franchise full-time. This information is available in the franchise disclosure document.

3. Submit Franchise Application

Franchisors are always interested to know more about you as a prospective franchisee, even if you’re just looking for a side hustle. The initial franchise application process involves a screening procedure where franchisors determine your qualifications and level of interest in the business. In this stage, you should make it clear that you plan to run the franchise as a side-hustle and not as a full-time business.

Franchise application requirements vary from one company to another. Some franchisors require you to submit a basic application and then call to meet with you for a formal presentation and interview. Other franchisors require you to submit a complete application, including business plan and financials.

4. Attend Discovery Day

Franchise discovery day is your opportunity to meet with the franchisor to learn more about the company in an informal setting. Discovery days are often held in the corporate headquarters. During this event, the prospective franchisee learns more about the operation of the business, its products and services, the training and support it provides to the franchisees, and the overall financial investment needed.

This is your opportunity to ensure that the franchise doesn’t demand too much of your time and attention, and that you can run it on the side while keeping your full-time job. You have to make sure that it can operate and generate income even if you cannot always be there physically to manage the business.

5. Pay the Franchise Fee

Franchises typically charge what’s known as a franchise fee for starting a new franchise. You can think of it as a startup cost. For example, McDonald’s charges their franchisees as much as $750,000 or more to start a new franchise. For KFC, the fee can run you $1.5 million plus. However, for a side hustle franchise, the franchise fee will be much less.

In fact, you can probably find a franchise that costs between $0 - $25k to start. Which means that there are a wealth of financing options available to you. For example, a short-term line of credit would cover the necessary startup costs. However, if you have a retirement account, you can use a Rollover for Business Startups (ROBS) and cover the franchise fee with retirement savings, penalty and tax-free. No need to go into debt.

6. Hire Competent Employees

Hiring competent employees is another very important - and perhaps the most challenging - step in this process. Since you won’t always be there to supervise and manage your employees, you need to make sure you hire the right people who have the right skills and who you can trust to run your franchise if/when you’re not there.

Determine the positions that you need to fill and the skills needed for the job. You can learn this during the training. The franchise will tell you the necessary qualifications you need and when to hire. You can then advertise your job vacancies through different online HR platforms like Indeed.com, Dice.com, and Allretailjobs.com. Be sure to meet and interview your potential candidates so you can personally assess their qualifications.

For example, if you choose to start a food cart franchise, you need to ensure that the people you hire can maintain the sanitation of your area even with less supervision.

7. Open for Business

Considering everything is settled, the final step is to get your franchise ready for business. At first, you may need to spend more time and give more attention to your side-hustle franchise while your employees are still getting themselves familiar with the operation. This is also the time where you actually see whether the people you hired are really competent to run the business on their own.

While this business is only part-time, you still have to set a few hours a week to monitor it. The franchise is still yours, after all. This means you must still provide it with the attention and effort that it needs so it will become successful. Send your employees to ongoing training as needed, meet with them regularly, and monitor your cash flow consistently.

Bottom Line

When you want to be your own boss but are not yet ready to leave your full-time job and let go of your fixed monthly income, starting a side-hustle franchise is a good option. All you need to do is find a franchise that can be run on the side and hire the right people who can be trusted to run your business.

Eight Ways Retirement has Changed in the Last 20 Years

Investopedia lists eight ways retirement has changed in the last 20 years as follows:

1. Rising Retirement Age
2. More Retirees Working
3. Less From Employers
4. Lower Savings-Account Balances
5. Retiring Abroad
6. Inheriting Less
7. Living Longer
8. Healthcare Costs Rising

My thoughts on these:

1. As I've posted time and time again, people are saving less which means they need to work longer. Hence the rising retirement age. This is surprising in some ways since I read so many "retire early" blogs that the average seems like it's getting lower, but it's not.

2. Again, it's savings related. If you can only fund a portion of your retirement from savings, the rest needs to come from work.

3. You are responsible for your retirement even if you do have an employer plan.

4. Been saying this for a long time now -- Americans are saving less. Said another way, they are spending more during their working years.

5. I think there are two kinds of people who retire abroad: 1) those who need the lower cost-of-living to make the numbers work and 2) those who want to see the world a bit and experience life somewhere new.

6. Does anyone count on inheritances these days? Surely they aren't part of a retirement plan for most, right?

7. Of course. We are living longer and thus...

8. ...paying more for healthcare. I think both the annual costs are going up PLUS people are living longer, making it a bigger portion of overall retirement costs.

Anyone want to add anything else?

Four Questions to Ask Yourself Before Retiring

Money lists four questions to ask yourself before retiring as follows:

• Will I have enough income to support myself?
• What will I do with my time?
• Where will I live?
• Do I understand how my financial life will change in retirement?

My take on these:

• Yes. The first thing you need to know about retiring is how much you'll need to spend and if you can earn that much. This is also known as the three steps to determine if you have enough to retire.
• You may have heard it said that you should "retire to" something and not "retire from" something. In other words, if retirement is simply an escape from a terrible job, you're probably not going to enjoy it much. I have many interests and am thus busier in retirement than when I was working. The difference now is that I work on projects I enjoy.
• Where you live is an interesting question that you need to ask, but I don't think you have to ask it BEFORE you retire. We happen to live in a vacation spot already in a nice home and nice neighborhood, so it was an easy decision for us. That said, we may still move -- perhaps downsizing into an apartment sometime. But we can decide that in years to come.
• This last question is mostly a throwaway IMO. If you have done your retirement budget (discussed in question one above), then you already know this.

To me, this could have easily been titled "two questions to ask yourself before retiring" (the first two) and it would have covered the most important points.

Your thoughts?

How Much Cash Do You Carry?

Nerd Wallet recently did a study on how much cash Americans carry. The highlights:

More than three-quarters of respondents to a recent U.S. Bank survey said they never carry more than $50 in currency with them.

Nearly one-quarter said they keep $10 or less.

Ok, I am waaaaaaaaaay in the minority here.

I usually carry $100 or more on a money clip.

It's probably because of my "just in case" mentality that I do so. Also it's easy to do as my money clip is combined with my credit card holder, so why not?

How about you? How much cash do you usually carry?

Star Money Articles for the Week of Oct 30

Welcome to this week's edition of Star Money Articles.

Money Q&A says investing in a 401k is a no-brainer.

ESI Money suggests starting with a high salary.

Big Law Investor tells of a fate worse than death.

Life Zemplified tells us not to let our big but get in the way.

Picky Pinchers says to move!

Have a GREAT weekend!!!

Three Exciting New Ways to Start Investing

The following post is from FMF contributor Veselina Dzhingarova.

When you have spare cash, it is understandable that you want to make it work harder. Some people put their savings into a high-interest account. Others buy property. But, what if you could use that money to make extra money – and have some fun at the same time?

For anyone with an appetite for risk and a desire to make money, investing is a great hobby. You may not end up as rich as Warren Buffet, but if you play your cards right and learn the essential tools of the trade, you could make a tidy profit on your investment account. The good news is that investment is really easy these days. You don’t need a hotline to an investment broker and you certainly don’t need to work on the trading floor of the London Stock Exchange.

Anyone can have a go at investing in stocks, shares, ETFs or foreign currencies. All you need is an internet connection and some time to learn the ropes.

Create an Online Trading Account

Online trading is so easy, anyone can try it. There are several reputable online trading platforms where anyone can set up a trading account. You don’t need any prior experience. You don’t even need to trade using real money. Decide what you want to trade, whether its forex, stocks, commodities, binary options, or CFDs, and look for a trading platform that offers this.

Start by creating a demo account. Practice, test your skill, try out a few theories, and see if you have what it takes to make money. Once you feel confident enough to risk using real money, start trading for real.

Watch Buzz Index

Buzz Index uses Artificial Intelligence to identify trends and patterns in the financial markets. All savvy investors watch the markets and use news bulletins and other pertinent information to figure out which way the markets are going to turn, but AI makes life a lot easier.

Market insights are derived from superior artificial intelligence and the data is filtered through complex algorithms to produce useful information for smart investors. These insights can help you make the right trading decisions and boost your investment portfolio. AI is the future, especially in the world’s financial markets.

Try Social Trading

Social trading is an exciting new development in the world of investment. Wouldn’t it be wonderful to have an experienced mentor guiding your decisions as you play the markets? Thanks to social trading networks like eToro, you can do exactly that.

Social trading allows less experienced investors to connect with more experienced traders. You can copy their trading portfolio, discuss trading strategies, and ask for advice. It doesn’t guarantee you instant success, but the odds you will make money are far higher than if you struck out alone. Experienced traders are happy to share their insights. After all, they were newbies too, once upon a time.

Only trade on regulated platforms and don’t risk money you can’t afford to lose.

5 Actionable Negotiation Hacks That Will Save You Money

The following is a guest post from Edwin C, the money hacking millennial behind Cash The Checks. He lives a minimalist lifestyle and is always eager to learn and share his methods to save and make money on his blog.

Being a good negotiator can help you in almost any facet of your life. We negotiate our salaries, our rent, our purchases and even our household responsibilities. As you can see, it is essential to be a good negotiator. Today I'll be sharing with you 5 essential negotiation hacks to help save you money on... just about anything!

1. Put Your Offer Out There First

One of the greatest marketing and negotiating hacks out there is a little trick known as price anchoring. Price anchoring is when a retailer puts a product on the market for, let's say, $2,500 and then slashes the price drastically to only $1,500. This gives you the impression that you've saved big. But in reality that $2,500 figure was just a made up number pulled out of thin air. The real price was, and always has been, $1,500.

To get the benefit of price anchoring in a negotiation, you need to get the upper hand by throwing your reduced price out there first! Make the first offer, but don't make it too low so as to insult the person. The first number you throw out there sets the stage for the negotiation and both parties will begin to work around this figure.

2. Trade Your Skills For A Home

If you're looking to reduce the amount you pay for rent, yes you can negotiate that too. It is possible to even live rent free by negotiating legal labor with the landlord or the property manager.

Let me explain. For example, let's say you can only afford to pay $1,500 a month on an apartment that's asking for $2,000 per month. Find out if there is something you can do to supplement the additional $500 per month. For all you know, your landlord might need some help around the property. All it takes is just asking. You've got nothing to lose.

For example:

• Can you be a security guard for the parking lot and/or the building?
• Does the apartment complex need a maintenance person?
• Does the property need the lawns mowed and landscaping to be maintained?
• Are there ongoing renovation projects you can help with?
• Offer your side hustle services to the building, such as dog walking, babysitting or a free fitness class.

3. Establish Trust

If you ask something to describe a salesman in three words, they will usually say slimy, manipulative and untrustworthy.

Well if you are any of these, you won't be able to negotiate effectively. This is because we are more likely to buy or be influenced by someone who we consider trustworthy. Trust means honesty, and honesty is the only real way to sell.

If you're selling something, be upfront and say for example "this bookcase needs some TLC" or "the car needs new tires". By establishing yourself as honest, they are more likely to believe you when you're touting the positive aspects of the item.

If you're buying something, be honest about how much you have to spend and be realistic about what you can expect to receive for that price.

4. Scarcity Principle

I'm sure you've experienced this negotiation tactic before since it's so common. It's where the marketer or salesperson says the famous words, "This is a limited time offer. Act now. We only have two left!" or they say "I've got three other people interested in this item" so you better act fast.

Be aware of this negotiation tactic as soon as you smell it so you don't fall prey to it. Always stop and say to yourself "would I still want to buy this product if it wasn't so scarce?"

5. Comparison Effect

The comparison effect is a little tactic every good negotiator has in his bag o' tricks. This is often used by salesmen who want to sell that car, house or TV to an unsuspecting buyer. It is closely related to the social comparison theory, which states that we determine our own worth by how we stack up against others.

Say you're looking for a house to buy. The real estate agent may show you a dilapidated house first, then take you to the house he really needs to unload. Don't fall trap to this silent negotiation tactic.

There are always better options out there, whether it be a car, house or a TV. Don't be fooled into buying the “better” of the two if it's not truly what you want.

Conclusion

As with any negotiation hack, always maintain your integrity. Buying and selling should never be about tricking or manipulating the other person. If you feel someone is trying to take advantage of you, simply walk away.

On the other side of the coin, don't try to manipulate anyone. Be honest. Honesty is the anchor for every single tactic I've shared here. So now it's up to you to go out there and negotiate your way to big savings!

3 Common Mistakes to Avoid If You're Involved in a Car Accident

The following post is from FMF contributor Eric Olesen.

Car accidents are unnerving — to say the least. It’s normal to feel scared or anxious after a wreck, but it’s also extremely important to regain your wits quickly. After all, the actions you take immediately after a car wreck could impact your future. If you've been involved in a wreck, avoid these common mistakes.

Mistake #1: Failing to Report the Accident

If you were involved in a minor accident, you might assume it’s okay to exchange information with the other driver and leave, but you’d be wrong. It’s important to file a police report immediately for two reasons:

Your insurance company might require a copy of a police report before paying out any claims.

Not all automobile accident injuries show up immediately. Because of this, you might need to file a personal injury claim in the future, and not having a police report might affect your claim. For example, if your New York personal injury lawyer is forced to file a claim without a police report, it could result in a lower settlement or claim denial regardless of their legal expertise.

Mistake #2: Inadvertently Admitting Fault

Immediately after a car accident, what do you do? Unless you’re badly injured, chances are, you step out of your car and check on anyone else involved in the wreck. While it’s important to access the injury status of everyone involved, you need to choose your words wisely when you speak so you don’t accidentally admit fault — even if it was your fault. For example, it’s natural to apologize for the accident even if the wreck wasn’t your fault, but any apology given might be misinterpreted as an admission of guilt.

To stay on the safe side, verify everyone involved in the accident is okay, and then, remain silent. Don’t speak to the other party involved or any bystanders before the police arrive at the scene. When you give your statement, explain what happened as clearly as possible in as few words as possible. Keep it short and sweet. This way, if you need to hire a personal injury lawyer in the future, the documentation includes the facts, not opinions.

Also, don’t immediately hand over your auto insurance information. While it’s important to exchange contact and insurance information with the other driver, immediately offering it up may look as if you feel guilty. Instead, wait for the police to arrive on the scene and give the information to the officer taking the report. If the police don’t come to the accident scene, suggest to the other driver that you exchange information “just in case.”

Mistake #3: Refusing Medical Attention

Even if you feel fine after the accident it’s important to seek medical attention. Car accidents increase your adrenaline, so you might not feel pain right away. Also, you might not experience symptoms from auto accident injuries, such as whiplash, concussion, and soft tissue injuries, right away.

If emergency personnel doesn’t arrive at the scene of the accident, take the time to go to your doctor or visit the nearest emergency room to get checked out. This way, if you need to hire a personal injury lawyer to file a claim for you a few days later, there’s already a record of your medical treatment. Also, personal injury settlements often cover any pay you missed because the accident caused you to miss work and sometimes additional money for pain and suffering.

The fact is, you don’t know how you’ll react after a car accident until it happens. It’s okay if you’re a bit flustered after a wreck, but don’t let your fear, confusion, or anxiety control how you react. It’s important to keep your cool because if you receive a low settlement offer from your insurance claim or a portion of the claim is denied, you might need to hire a personal injury lawyer to receive a fair settlement. If that’s the case, you want to have all of the facts documented clearly.

Bonus Suggestion

And finally, be sure to take the proper steps to make the most of any auto insurance settlement due you.

Most Americans Living Paycheck to Paycheck

CNBC tells us that most Americans live paycheck to paycheck. The highlights:

Seventy-eight percent of full-time workers said they live paycheck to paycheck.

Overall, 71 percent of all U.S. workers said they're now in debt.

While 46 percent said their debt is manageable, 56 percent said they were in over their heads.

Even those making over six figures said they struggle to make ends meet. Nearly 1 in 10 of those making $100,000 or more said they usually or always live paycheck to paycheck, and 59 percent of those in that salary range said they were in the red.

Ugh.

Is anyone surprised?

We talked about these facts years ago. Looks like things haven't changed.

Eight years ago, during the financial crisis, 69% of Americans lived paycheck to paycheck.

Three years ago, nearly half the people were living paycheck to paycheck, so it looked like things were getting better.

Appears that was incorrect.

As for the $100k crowd, we've seen that it's hard to live on $100k, $250k, and even $1 million.

The reason it's hard to live off such high amounts for some people: they simply spend it all.

At this point, nothing surprises me about the poor financial habits of people in this country.

Star Money Articles for the Week of Oct 23

Welcome to this week's edition of Star Money Articles.

Budgets are Sexy gives us some money motivation.

ESI Money talks about how investing in your career can pay off.

Choose FI covers the mega backdoor Roth.

The Retirement Manifesto gives tips for retiring abroad.

Big Law Investor talks about index fund allocation.

Have a GREAT weekend!!!

Four Reasons Not to Retire Early

The Motley Fool lists four reasons not to retire early as follows:

1. You'll have to wait longer for (full) benefits.
2. You're on your own for health insurance.
3. It could harm your health.
4. You'll need to save more.

Like many mainstream articles, this one is a post in search of some relevance.

Are they serious? The reasons are W-E-A-K in my opinion.

My take on them:

1. I don't need ANY money from Social Security to retire. If I get a penny that would be a bonus!
2. Ok, so I'm going to be chained to my employer simply because I need health insurance?
3. Yes, it "could" harm your health. And aliens "could" invade tomorrow. Seriously, my health has improved dramatically since retiring. I now have much more time to work out, eat healthy, sleep well, etc.
4. I did save more. That's why I can retire on the income from my assets.

Again, was there an actual point here? It doesn't seem like there was to me.

But maybe I missed something. What's your take on their four reasons?

How to Get Started With Hard Money Lending

The following is a guest post from a lawyer writing about personal finance and investing at The Biglaw Investor.

One of the greatest achievements in the investing world over the past decade has been the dominance of index funds and the retreat of high-fee mutual funds and financial advisors. Investors, as a class, are starting to understand that attempting to beat the public market is a fool’s errand where the only guaranteed return is delivered to the brokers and advisors that take a cut out of each transaction.

At the same time, fast-growing technology has pushed private markets - previously unavailable to most investors - to the public.

Are there opportunities to get returns that aren’t correlated with the broader public stock market? I think there are.

One example of this “private-to-public” shift is the rise of real estate crowdfunding platforms. They open up investment classes previously unavailable to most investors by connecting investors with deals you typically wouldn’t see unless you were actively involved in the business, often outside of the investor’s home area.

For example, if you’ve ever wanted to own an apartment complex in a college town but didn’t leave near a college town and didn’t want the hassle of dealing with college kids, there’s now several options that allow you to get a piece of the equity.

However, I’m most interested in a quiet part of the real estate crowdfunding market known as “hard money lending”. As we’ll see in a second, hard money lending is a bit different than participating in the equity side of a real estate investment. Hard money lending has lower returns, ties up your cash for shorter periods but has the benefit of being backed by a hard asset. You’ll also get repaid before the equity investors see a dime.

What is Hard Money Lending?

Hard money lending is a private loan to an individual or company, secured by a first-priority lien against a hard asset (like real estate), typically for the purpose of fixing and flipping a property.

Let’s walk through a hypothetical example.

Imagine a local real estate fix-and-flip specialist in Texas spotting a house in his neighborhood for sale at a huge discount. The property might be a foreclosure, damaged by a storm or otherwise in a state of disrepair. As someone experienced in the local market, the specialist decides to buy the property, deploy a renovation team and then put the house back onto the market a higher value. To execute this plan, the specialist needs access to a bridge lender that can provide the cash for the purchase and renovations.

When the specialists approaches the bridge lender, it’s important to understand that the bridge lender is familiar with this market as well. This provides a further check on the specialist’s plans to purchase and renovate the property. If the bridge lender is convinced of the plan, they’ll typically provide loans for terms in the 6-18 month range to allow the specialist to execute the fix-and-flip.

Since the specialist intends to sell the property at a higher value, these aren’t your typical mortgages and because things could go wrong, the bridge money lender will typically charge between 7-12% interest on the project and perhaps a small origination fee as well. To smooth the cash flow for the specialist, the bridge lender will also typically only require interest payments during the term of the loan with one balloon payment at the end once the house is sold.

The bridge lender gets a decent return backed by a hard asset for a 6-18 month term. The specialist gets the cash he needs to complete the project with the cash flow flexibility to pay off the loan upon the sale.

How Can Private Investors Participate?

If the bridge lenders are doing all of the lending, how can the average Joe investor participate (or the first-year associate at a law firm)?

The bridge lender is eager to move onto the next deal but can’t since its money is tied up in the current project. Since it makes money on each loan via the loan origination fee, the bridge lender is incentivized to do as many deals as prudently possible without taking on too much risk.

That means the bridge lender is happy to sell the loan to the broader market and move on to the next deal, much in the same way mortgages work where your local bank will ultimately sell the mortgage to the bond market.

Previously these bridge lenders had no such option. Instead, they carried the loan on their books until repayment and passed on other available deals until the cash was available for redeployment.

The maturing hard money lending space is now providing the bridge lender with access to a broader private market where it can sell the loan to a bunch of investors.

Once the loan is sold, effectively the private investors such as you and me are now acting as the lenders in the deal, happily collecting our 6-12% return while the fix and flip specialist and renovation crew continue to execute the plan.

How Risky is Hard Money Lending?

The risk profile of hard money lending is easy to understand once you grasp the concept of LTV or loan-to-value ratio. This is because as a lender of debt, you have a higher position in the capital stack than an owner of equity.

In other words, holders of debt are always paid before holders of equity. Further, holders of debt with a security interest in an asset are paid before unsecured creditors. Therefore, debt holders with a first-priority security interest are at the top of the capital stack.

Here’s an example:

As you can see, the more equity in the capital stack, the more secure the creditor’s position in the capital stack. Because hard money lenders want to see specialists put skin in the game, they rarely lend 100% of the purchase and renovation price to the specialist. Instead, they may only lend 75% of the property’s valuation which requires the specialist to come up with the rest of the money himself.

In the 75/25% example, if the project cratered and the house had to be sold, the hard money lender would have to see a reduction of more than 25% in the property’s valuation before the hard money lender lost his first $1. When the LTV is even lower, the credit is in a better position.

It makes sense that the hard money lender is in the most secure position because the hard money lender is also capped on his upside potential. The most money he’ll receive in the deal is the interest rate on the hard money loan. Meanwhile, the person furnishing the equity portion of the deal has a higher risk/reward profile since he could easily lose everything if the property runs into problems or he could double his money if he’s able to sell the property for 125% of the original purchase price, including the renovation costs.

As you’ve probably noticed, a critical component of hard-money lending is ensuring that the valuation of the property is accurate. An inaccurate valuation makes the loan-to-value calculation worthless. The platform I’ve been using over the past five and a half months provides you with the specialist’s appraisal and also engages a third-party appraisal firm to provide a report on the property, to ensure that the valuation is correct.

Another major risk is that we encounter a situation similar to the predatory mortgage lending that led to the 2008 financial crises. If a bridge lender makes money on each origination and if it’s easy to sell each loan into the market, what’s stopping the bridge lender from doing as many deals as possible without concern as to repayment credit risk since that will be transferred to the investors?

To mitigate this risk we must rely on the platforms themselves and their incentive to only work with bridge lenders that have a proven track record of success. If Platform A works with unscrupulous bridge lenders and starts to have problems with its loans, you’d expect investors to flee to Platform B. Several failed deals could easily be a death knell for Platform A. Therefore, Platform A’s main job is making sure it only allows loans onto the system where it has a high degree of confidence that they’ll be repaid.

Many platforms reportedly turn away bridge lenders and various deals for this very reason. At least right now, they only want to work with the best of the best. However, the concept that underwriting standards will decay over time given the easy ability to resell loans to investors is something that a prudent investor should be considering at all times. I’m comfortable accepting lower returns in exchange for confidence in the valuation report and security of the credit stack.

My Experiences with PeerStreet

Before writing about hard money lending, I wanted to put capital to work on a platform so I could learn about the process. I choose PeerStreet after walking away impressed with the two co-founders, one which is an ex-Google employee responsible for creating Google Analytics and the other which is a former real estate lawyer. PeerStreet appears to be the perfect combination of technology and real estate, with a complex technological backend and a heavily vetted process of finding deals (as of the date of this article, investors on the PeerStreet platform have yet to suffer a loss).

To be clear, there are several ways to get involved in hard money lending. It’s beyond the scope of this article to talk about them all. I’m only focusing on PeerStreet because it’s the platform that I’ve used and the way I’m becoming familiar with the market.

PeerStreet offers two ways to invest. Either I pick the investments available on its platform or I allow the automated investment system to make investments for me based on preset criteria. I’ve done a mixture of both. The great thing about the automatic investment is that after an investment is made I get an email where I can look over the investment and decide whether everything’s okay. If I don’t like it, I have 24 hours to cancel the investment. If everything looks good, I simply do nothing and allow the investment to proceed.

Here’s a look at my PeerStreet portfolio, where I’ve deployed about $10,000.

As you can see, I’m lending money in California, Colorado, Illinois, Florida, New York and Virginia. By only putting $1,000 in each deal, the platform allows you to diversify geographically and across different specialists, thus reducing the risk that you’ll be involved in a particularly painful deal.

You may also notice that on one of my loans no interest has been paid despite originating nearly 45 days ago. Rather than crediting your account with interest when and as it’s paid by the specialists, PeerStreet aggregates the interest payments and pays on the 1st and 15th of the month to provide a more predictable cash flow for the investors. If you’re interested in seeing updates, I’ve posted more detail about my PeerStreet investment here.

Is Hard Money Lending Right For You?

It could be. If you’re looking to tie up your money for a duration between six to 18 months, hard money lending offers attractive returns in the 6-12% range secured by an actual asset and buffered by the equity portion of the capital stack furnished by the specialist.

As for the downsides, to participate on the PeerStreet platform you need to be an accredited investor ($1 million in net worth; $200K in annual income), which means that many investors won’t be allowed to participate. Additionally, the interest you receive from hard money lending will be taxed at ordinary income rates, which can make the real return significantly less for high earners already subject to high marginal tax rates. PeerStreet does offer the option of investing via a self-directed IRA if you’d like to include this asset class as part of your retirement savings, something which I’ve considered but haven’t implemented.

While I’m comfortable deploying $10,000, I suspect that I won’t be increasing this position until I move it into a tax-sheltered retirement account. Given my marginal tax rate of 41%, too much of the returns are eaten up by ordinary income taxes to make this a lucrative investment during this stage of my legal career. However, I would be comfortable increasing the amount of capital devoted to this investment class if I was retired and wanted to generate some additional income.

The final benefit of hard money lending is that it should be uncorrelated to the broader stock market. Sure, we saw a huge housing crises during the 2007-2008 financial meltdown but when you’re investing in hard money lending you’re involved in very specific fix-and-flip deals. While housing prices might decline, so long as you maintain a solid LTV ratio it’s the equity investor that will see his position wiped out. Even in 2007-2008, housing prices didn’t fall to zero. Acting as a secured lender that has the ability to liquidate the house to seek repayment is always the strongest position.