Free Money Finance

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.

Star Money Articles for the Week of Oct 16

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

Physician on Fire discusses the dark side of physician finance.

ESI Money interviewed some more millionaires.

Mama Fish Saves gives a home improvement checklist on cost versus value.

Chief Mom Officer doesn't let her kids have cell phones.

Money Q and A tells how to get 10% back on your money.

Have a GREAT weekend!!!

Three Questions to Determine Financial Literacy

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

They are:

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

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

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

And the answers:

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

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

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

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

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

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

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

So, how did you do on the test?

Only 1 in 10 Americans at Peak Financial Health

Here's an interesting post from NerdWallet that says only one in ten Americans is at peak financial health.

They determined "financial health" by creating an online survey which "asked more than 2,000 U.S. adults about eight important components of financial health."

They then weighted the questions to produce a financial health score for each person surveyed.

Only 10.5% of respondents received a perfect score. A perfect score was given to everyone who met all of the following:

• Money left over after paying critical bills and living expenses
• Three months or more of living expenses saved
• Confidence that retirement saving is on track
• All or most bills paid on time
• Credit card balances always or almost always paid in full each month
• Good to excellent credit score
• No debt or debt that does not disproportionately affect daily decision making
• Enough insurance coverage to protect against major financial loss

On one hand, you could say "no wonder only 11% met all the criteria because there are so many parts of it."

On the other hand, these are pretty basic criteria. If you can't meet these, you're probably hurting in one way or the other.

Here's how we stack up on the eight:

• We always had money left over after paying critical bills and living expenses. This is because we lived on much less than we earned.
• We generally had six months of living expenses saved in cash.
• I'm retired, so I'm confident we're on track here. ;)
• All of our bills are paid on time.
• We always paid off our credit cards every month.
• We have had credit scores in the 800 range for as long as I can remember.
• We had no debt other than our mortgage and even paid that off over 20 years ago.
• We have enough insurance to cover us against major financial loss.

Again, pretty basic.

If you wanted to see if someone was REALLY in great shape, I'd add in "saving a large percentage of income each year." Not sure what the percentage would be -- maybe 15%?

Thoughts on any of this?

Star Money Articles for the Week of Oct 9

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

ESI Money had an investment go bad.

Big Law Investor covers the three years and out plan.

Debt Roundup tells how to save $100 a month.

Retire by 40 says you don't have to be the best to win big in life. 

Wallet Hacks lists the best cable TV alternatives.

Have a GREAT weekend!!!

Extra Home Ownership Costs Make Renting Look Good

Here are some interesting facts on home ownership costs from CNBC:

Often-forgotten and underestimated costs of owning a home — from utility bills to yard care — add an average $9,080 per year to homeowners' tabs, according to a new analysis from real estate site Zillow and service site Thumbtack.

The main costs that make up the $9k include:

• Utilities
• Maintenance (including yard care)
• Property taxes
• Insurance

These are some big numbers, especially when you're comparing home ownership versus renting.

These costs alone add up to over $750 per month. Of course you'd still have utilities when renting (though greatly reduced) and renter's insurance (again, greatly reduced).

But you'd also have your equity in the home invested.

For example, if your home was worth $300k and you could earn 3% on your money, that's another $9,000 a year to the favor of renting versus owning. So you could save $750 (or so) by renting plus earn $750 (or so) by renting, so if you could rent for $1,500 or less, it's a "better deal" to do so (assuming you don't consider home appreciation, mortgage costs, and the like -- lots of variables to consider including non-financial ones like space and lifestyle).

That said, I can see us renting one day. Once the kids are out of college and on their own, we'll have no need for a 3,500 square foot home for two people.

Perhaps we'll sell it and move to an apartment. We'd have much less space but also have more freedom to travel without worrying about someone watching the house while we were gone.

Anyone out there downsized from a house to an apartment? If so, I'd appreciate your thoughts on what you liked and didn't like.

Top 7 Most Common Financial Mistakes

Investopedia lists the seven most common financial mistakes as follows:

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

My thoughts on these:

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

Anything to add?

Star Money Articles for the Week of Oct 2

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

ESI Money details some financial locker room talk. 

Bible Money Matters lists five money management principles. 

High Five Dad tells a debt story. 

The Green Swan offers a guide to figuring out what to do with your retirement fund.

Money Boss has a money pit.

Have a GREAT weekend!!!

How Much the Top 1% of Americans Have Saved for Retirement

Here's an interesting piece on the retirement savings of America's top 1%.

You'd expect to have a FORTUNE saved, right?

Uh, it's less than you might think. The details:

According to the Economic Policy Institute (EPI), which looked at the state of American retirement in a 2016 report, the top 1 percent of families had $1.08 million or more saved in 2013.

The 90th percentile family had $274,000 saved, and the 80th percentile family had $116,000. Meanwhile, the median working-age family had only $5,000 saved in 2013.

Several thoughts here:

• I would have guessed that they had $5 million or more on average, so $1 million seems disappointingly low.
• The 90th percentile has less than $300k saved? Yikes! I thought 90 was an "A", but I guess that doesn't apply to retirement saving.
• Man, it drops like a rock after 90 too. Ugh.

As for the top number, there's debate about how much you need to retire. Some say $1 million (or less) is enough while others can't seem to retire on $3 million. Thoughts on this?

Afford the Retirement You Want by Moving Abroad

Here's a piece by CNBC that says one way to finance your golden years is to retire abroad.

In the piece they list the "world's best places to retire" from International Living as:

10. Malta
9. Portugal
8. Nicaragua
7. Spain
6. Malaysia
5. Colombia
4. Costa Rica
3. Ecuador
2. Panama
1. Mexico

Ok, I see what they mean -- or at least I think I do. I believe they are saying the "world's best places to retire based on cost."

Because otherwise, I'm not sure many people would list these ten as the literal "best" places to retire.

For me, eight of the best ten would be in the Caribbean, one would be in Hawaii, and one in Europe somewhere.

Then again, those places can be pricey. So it comes down to what you mean by "best" with "best" being in the eye of the beholder.

Anyway, here's their main point -- that it's much less expensive to live overseas. Consider this:

"Outside the U.S., the cost of living can be half what it is in the States, especially in regards to health care," Prescher said. (For example, Numbeo.com's latest Cost of Living Index Rate listing ranks Puerto Vallarta, Mexico at 37.12 on its scale, with New York City being 100; Columbus, Ohio coming in at 72.12; and Reno, Nevada, at 61.75.)

I think most people would consider Columbus, Ohio to have a reasonable cost of living. In fact, Sperling's lists Columbus' cost of living at 84.3 which means it's almost 16% less expensive than the average U.S. city. So it's very affordable.

And yet, Puerto Vallarta, Mexico is about half the cost of Columbus! So your $500k nest egg in Columbus gets you a $1 million retirement in Puerto Vallarta!

This is literally how you can cut the cost of your retirement in half!

I've seen an example of this on TV. My wife and I were watching House Hunters International and this couple found a home in Ecuador that had 4 bedrooms, 3 bathrooms, roughly 3,000 square feet, and a great view from a bluff over-looking the ocean for $220k! It was unbelievable!

Of course, you have to be willing to move to Ecuador to get it and many people aren't.

But if it could make such a difference in the style of your retirement, isn't it worth at least a consideration?

Star Money Articles for the Week of Sept 25

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

ESI Money asks if coin collecting is an investment or a hobby.

The Biglaw Investor details the ideal financial advisor.

Money Q and A lists six useless everyday products to stop wasting money on.

Mama Fish Saves gives eight side hustles for stay-at-home parents.

Debt Roundup tells how to make extra money in retirement.

Have a GREAT weekend!!!

Becoming a Millionaire on an Average Salary

Here's a video from Dave Ramsey detailing the story of a millionaire who never had a large salary.

The overview:

Jason averaged around $70,000 a year while serving 31 years in the military, and has now built a $2 million net worth.

His keys to success:

• No debt
• Save for a long period of time to let compound interest work
• Live below your means
• Educated himself on how to handle money
• Worked to earn more (being deployed)
• Took advantage of tax-advantaged investments and benefits
• Automated his investments
• Ignored the financial news -- stayed the course

Great, basic advice.

He also said that anyone can become a millionaire no matter what they earn. It's simply saving as much as you can for a long period of time and letting your investments compound.

So consider this post one for those who do nothing but make excuses. If you want to become wealthy, it's not that hard. Just do the basics over time and the rest takes care of itself.

Advanced Payments Made Easy

The following post is from FMF contributor Brad Richardson.

It isn’t always easy to get a loan from a bank or other financial institution when you need it. But sometimes life throws overwhelming circumstances our way and the only way we can try to get by is by having that extra cash because, let’s face it, everything costs money.

Auto loans are often one of the most frequently issues types of loans. When family circumstances change, purchasing a vehicle may be required. And not everyone has the means to come up with funds to buy a car. The same goes for buying a house; many people take out homeowner loans because not everyone can afford down payments. Sometimes emergencies occur and someone becomes hospitalized. Medical bills can skyrocket, and it’s important to at least be able to have peace of mind knowing you can pay them.

Many people fall into debt for these major reasons. And speaking of debt, folks often attempt to correct it with bill consolidation loans. Everybody winds up in some kind of debt at some point in their lives. People experience debt from auto loans, mortgages, credit cards, student loans, monthly bills, or anything else that could set you back too much. U.S. consumers have created a total debt in the billions and trillions of dollars.

There are many reasons why people might take out a loan, but not everyone is easily approved. However, if you need advanced payment now and can’t meet a bank’s criteria or don’t have the time to wait for it to be approved, there are steps you can take. 

How It Works

The way it works is you will be matched up with a lender from the network in a matter of seconds, who will then contact you for additional information. You might have to fax some documents back and forth, at least be able to provide proof of employment, ID proving you are a U.S. citizen 18 or older, and proof of a checking account in your name. You’ll also need a working email address and be able to provide a home and work phone number to reach you at. When the lender approves you, your loan will be transferred to your checking account using the most secure and advanced encryption technology to protect your private data.

What to Do If I Default

The loan and its fees will automatically be withdrawn from your account when it’s due. But be aware that each lender has their own late payment policies, and it also often depends on state laws that determine whether a lender can even provide an extension and what kind of late fees can be incurred. It’s up to you to understand the policies prior to applying and signing your legal obligation for repayment. Defaulting on the loan may incur even more fees, so also be sure to calculate the costs before applying if you think you might have trouble with repayment. Or else you might find yourself in the same hole all over again.

A sudden shortage in money can be due to a variety of reasons. Some things just happen without warning. But you can rest assured you can find the help out there you need. This service is completely free. No cash loans will be provided, but you will have access to one of the 100+ partnered lenders.

Freakonomics Loves Index Funds

A bazillion years after the rest of us knew that index funds were awesome, the popular podcast Freakonomics discovered the same thing.

I want to share a few highlights from their show. Let's begin with the active management versus index funds argument:

Many investors pay firms to manage their money — sometimes a percentage of assets, sometimes a flat fee. In return, you may get a variety of services — including advice about insurance or taxes. And, of course, investment advice: how best to save for a house, or your kids’ tuition, or retirement, whatever. Why pay someone for that advice? Because, let’s face it, investing can be confusing, and intimidating. All that terminology; all those options.

So you hire someone to navigate that for you — and they, in turn, use their expertise to pick the very best investments for your needs. This is called active management. They actively select, let’s say, the best mutual funds for your needs. And you pay them for their expertise. You also pay those mutual funds, by the way — sometimes there’s what called a sales load when you buy it; and an expense ratio, a recurring fee the fund deducts from your account. So, between the mutual fund fees and the investment fees, that’s usually at least a couple percent off the top — and that’s whether your funds go up or down, by the way. So hopefully they go up. Hopefully the active management you’re paying for is at least covering the costs?

What we actually found was the top 2 to 3 percent had enough skill to cover their costs. And the other 97 or 98 percent didn’t even have that.

This is why I like index funds -- they all but guarantee you're going to beat actively managed options. No one can consistently (if at all) pick the top 2-3% of actively managed funds. So the chances of doing better than simply investing index funds are almost zero.

Now let's compare the costs -- and how an average actively managed fund can cost you a ton of money:

We’ll start with the typical mutual fund.

They charge a lot for this service. We estimate the average expense ratio is almost 1 percent for an actively managed fund. Then these active funds, all of them have sales loads. The index funds do not. The active funds further turn over their portfolios at a very high rate and that’s costly. You add that all up and the cost of owning a mutual fund on average is 2 percent.

And how does that compare to an index fund?

You can buy an index fund of, an S&P 500 Index Fund, let’s say, for as little as 4 basis points, four one-hundredths of 1 percent. In a 7 percent market, you’re going to get 6.96 percent.
That difference — 2 percent versus four one-hundredths of 1 percent — may not sound like a lot. But over time, those numbers are compounded by what Bogle calls the “relentless rules of arithmetic.”

If the market return is 7 percent and the active manager gives you 5 after that 2 percent cost, and the index fund gives you 6.96 after that four basis point cost — you don’t appreciate it much in a year — but over 50 years, believe it or not, a dollar invested at 7 percent grows to around $32 and a dollar invested at five percent grows to about $10. Think what an investor thinks about when he looks at that number. He says, “Wait a minute! I put up 100 percent of the capital. I took 100 percent of the risk and I got 33 percent of the return.” Well, anybody that thinks that’s a good deal, I’ve got a bridge I want to sell them.

Here’s the reality: this is the business, the mutual fund, actively-managed business, where you not only don’t get what you pay for, you get precisely what you do not pay for. Therefore, if you pay nothing, you get everything.

Add a few zeros to 32 and 10 and you can see what a huge difference this would make to a large amount of money like that found in a 401k. It's hundreds of thousands of dollars, if not millions, over the course of a working career.

This is the paradox of index fund investing -- that you can beat most others by being "average."

This is because index funds give you the average while actively managed funds give you their results LESS their high fees. The fees are the killer that usually takes the return rate below the average.

Finally, they talk about the difference between one index fund and another:

The Vanguard S&P 500 index fund is about 5 or 6 basis points. Schwab recently cut 1 to 2 or 3 basis points. There are S&P 500 funds with 50 and 75 and 100 basis points. It’s an insane — that is a tax on [the] dumb.

In other words, all index funds are not created equal. Why would you pay many times what you need to for the same thing?

You must be sure you invest in a LOW COST index fund, not just any index fund. Otherwise, you are just throwing money away.

Personally, I've used the same three index funds for the majority of my investing over the past 20 years.

Investing this way is simple, easy, and gets me very good returns.

I appreciate Freakonomics agreeing with me! ;)

Star Money Articles for the Week of Sept 18

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

ESI Money interviews a millionaire with $12.2 million in net worth.

Money Boss says to just solve the problem. 

Physician on Fire purchased an individual stock.

The Green Swan is changing jobs.

Budgets are Sexy is climbing towards the millionaire club.

My purchase of the week is Eagle Creek Load Warrior 22 Inch Carry-On Luggage. I'm looking for luggage and this is one I'm considering.

Have a GREAT weekend!!!

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

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

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

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

Busy means we prioritize the urgent over the important

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

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

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

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

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

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

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

Busy means we confuse complicated for sophisticated

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

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

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

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

Busy means we waste time we could be using for development

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

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

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

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

How to break the busy mindset to build wealth

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

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

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

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

Savings Rate is More Important than Investment Return

Here's a piece from MarketWatch saying savings rate is more important than investment return. A summary of their thoughts:

The secret to building wealth has less to do with returns and more to do with your savings rate, according to analysts at Pension Partners.

In other words, the amount of money you contribute to your retirement fund is far more important than what investment vehicles the money is parked in, as you can control the former but not the latter.

It makes sense intuitively. Saving $20,000 a year will grow your wealth a lot faster than saving $10,000 a year. But even incremental savings-rate increases play a far bigger role than corresponding increases in the rate of return.

To illustrate the importance of savings vis-à-vis investing, Charlie Bilello, director of research at Pension Partners LLC, ran some numbers on what would happen to your wealth if you increased your savings rate by 1% and correspondingly what would happen if the rate of return on a portfolio increased by 1%.

Bilello assumed a median U.S. household income of $58,000, which after taxes leaves $49,300 to spend. Saving only 1% of this income every year for 30 years at a 10% return will lead to an accumulation of $81,096. That number is less than your wealth after saving 5.5% of income at a meager 1%, which would grow to $94.319.

Ok, let's review a bit:

• There are three parts to the overall performance of an investment: the amount you save, how long you invest it for, and the return rate
• Of these three, you can control two of them: how much you save and how long you invest.
• The best way to maximize your investments is to let them compound over a long period of time. 
• After that, the amount you invest is most important.
• There's really very little you can do about return rate. IMO the best option for it is to simply invest in index funds. That way you'll beat 95%+ of the investors out there.
• Even though it's the least important of the three, most people focus on return rate. It also dominates the financial media. Yes, it's the most exciting of the three (trying to beat everyone else), but it's way over-emphasized by the majority of people.

My best advice is to save as much as you can for as long as you can, putting what you save in index funds.

That's it.

Star Money Articles for the Week of Sept 11

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

Mr 1500 lists six phrases that will doom your finances.

The Retirement Manifesto is prepared. 

The White Coat Investor has a tale of two budgets.

Bigger Pockets details the first month of early retirement.

Retire by 40 lists ten enjoyable side jobs during retirement (and here are more side hustle gigs worth considering).

My purchase of the week is Nightwing Vol. 1: Better Than Batman (Rebirth). How cool does this comic look???!!!

Have a GREAT weekend!!!

How America Pays for College

Here are some interesting stats on how America pays for college from SallieMae as well as my thoughts on them:

• 35% of costs covered by scholarships and grants
• 23% covered by parent income and savings
• 19% covered by student borrowing
• 11% covered by student income and savings
• 8% covered by parent borrowing
• 4% covered by relatives and friends

A few things to comment on here:

• We are probably more like 25% scholarships (no grants due to income) and the rest paid by us (parents).
• As for borrowing, students just need to make sure they are borrowing an appropriate amount for the degree (and hence the job/income) they will get when they graduate.
• Parent borrowing? Nope. Why is this even an option?
• I need to find some friends and relatives willing to kick in some college $$$$$.

$23,757 is the average amount families paid in 2017

This is a bit less than what we'll spend each year, but then again we aren't borrowing and have no need-based scholarships.

45% say cost has no relationship to the quality of education

Interested to hear your thoughts on this, but I think that costs CAN impact quality of education but there are also some great-value schools that have awesome educations.

69% eliminated a college from consideration due to its cost

As they should. If it's not a good investment, then move on to one that is.

86% of families always knew their child would go to college but only 39% of families made a plan to pay for college

This does not surprise me in the least. Americans on average are poor financial planners even when they know that an expense is coming down the road.

That's my take on these -- what do you think?

Where You Live Can Kill Your Finances

I always find these sorts of pieces entertaining.

Here's a piece from MSN about a couple who finds it difficult to make ends meet even though they earn $125k per year.

The overview:

Sharon Winick, 49, and her husband Michael have three children and own a home in Chevy Chase, Maryland, where Michael is a network administrator. Sharon is a paralegal turned stay-at-home mom. Between his work, her occasional side jobs and their investments, they bring in roughly $125,000 a year. Yet they struggle to make ends meet.

"The amount of money we spend every month is more that we make, it's been that way since we had our first daughter," Winick said.

The main reason they are struggling: they live in a high cost-of-living area.

Here's a list of the highest-cost cities in America.

Number 6 is Washington, D.C., the area where the couple lives.

Here's what the article said about the costs there:

Housing-related expenses including rents and mortgages are by far the most burdensome at more than double the national average.

Imagine how your budget would be impacted if your housing costs, which are generally the highest costs a family has, were DOUBLE what they are now.

That's a budget buster for sure!

In the rest of the U.S. where most of us live, $125k can be quite a large amount.

It is, after all, over twice what the average family in America earns, so somewhere you can certainly make it on $125k.

Yes, where you live has a big impact on your net worth -- for better or for worse.

My recommendation is to earn a high income like this couple does, but do it in a low cost-of-living city.

If you can do that (and yes, it can be done) you can become wealthy.

Star Money Articles for the Week of Sept 4

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

Physician on Fire lists the ultimate hedge against future uncertainty.

Life Zemplified tells how to recover after a setback.

ESI Money offers a great example of working the ESI scale.

Money Q and A suggests a retirement rehearsal.

Retire by 40 asks if your risk tolerance is too high.

My purchase of the week is Assassin's Creed Origins - PlayStation 4. Can't wait for this game to come out!

Have a GREAT weekend!!!

How to Come Back from Bankruptcy

The following post is from FMF contributor Jess Holmes.

After spending several years fighting with creditors, you decided to file for bankruptcy. You never thought to find out how long bankruptcy can affect your credit score. And now that your credit score and confidence have taken a hit, you feel hopeless. But don’t fret because there’s a light at the end of the funnel. Keep reading to discover how to start rebuilding your financial life. 

Ways to Recover From Bankruptcy

1. Shift your mindset

If you’re going to pick up the pieces and rebuild, a mindset shift is paramount. It’s normal to feel like a failure. But the goal is to focus on getting to the root of the problem so you can move forward.

2. Create a spending plan 

Once you’re committed to improving your financial situation, create a budget. A few factors to keep in mind:

• Expenses should always be lower than income. If not, trim unnecessary expenses.
• Filing for bankruptcy should have alleviated some of those debt payments.  So, use the extra money to pay off other debts and start saving.
• Always be realistic with your expenses and income or you’re setting yourself up for failure.

3. Build a cushion

Each time you get paid, it’s important to set aside a part of your income into a savings account. As the balance builds, you’ll have an even greater cushion to fall back on if a financial emergency arises. Even better, you won’t have to rely on debt to get by or put yourself at risk of falling back into the same trap that led to the initial bankruptcy.

4. Start rebuilding credit 

Are you thinking that filing for bankruptcy bans you from the credit world for several years? Think again. The easiest way to start rebuilding credit is by using credit responsibly. There are lenders that will give you a second chance without charging a fortune in interest. But it’s usually in the form of a secured credit card or loan product.

Both need a deposit for collateral in the event you default. Start with your financial institution when researching options. They may be more willing to approve you on the strength of your positive account history. But be sure to keep your balances low to derive the greatest benefit.

You could also become an authorized user on some else’s credit card to start rebuilding credit. You’ll benefit from positive account activity without being liable for the debt. 

Lastly, don’t forget to see investigate chexsystems to see if have an account listed. It may have been removed but if it hasn’t, now is the time to take care of it. 

5. Avoid late payments at all costs

Payment history accounts for a whopping 35 percent of your credit score. In fact, one late payment on a credit card or installment account can tank your credit score by up to 100 points. Even worse, the negative mark will remain on your credit report for seven years. So, if you’re serious about rebuilding your credit score post-bankruptcy, you can’t afford to let accounts slip through the cracks.

Instead, use your budget to stay on top of your expenses and due dates. You may also want to take it a step further by automating payments to avoid missing any due dates. And if you know you’re going to be short on funds, call the creditor in advance to set up a payment arrangement.

6. Keep an eye on your credit report 

When was the last time you checked your credit report? The thought of taking a peek may be frightening. But your report could contain material errors that are dragging down your credit score. In fact, one in five credit reports contains errors. So, visit AnnualCreditReport.com to retrieve your free copy and dispute any mistakes. 

If you need additional information or assistance with disputes, the Federal Trade Commission has a handy template for you right over here.

Bonus Tip: Avoid credit repair scams

Recovering from a bankruptcy takes time. You’ll need to work on managing your finances, keeping debt under control and making timely payments. Over time, your efforts will pay off. So, avoid falling for promises made by credit repair companies to remove negative payment history and bankruptcy or you’ll be sorely disappointed hundreds of dollars later. 

Reach Your Goals Together

The following is a guest post from Mr. Xyz from Our Financial Path.

We met about 4 years ago and from day one, it was love at first sight. We have a lot in common and enjoy spending time together but what quickly found out, is that we had very different finances. I enjoyed spending and used to go shopping just to pass time while she, to my great surprise, had a healthy savings account.

I was brought up in a very financially savvy, frugal, middle-class family who thought me about the importance of savings at a very young age but when I started making good money, I did spend every penny I earned.

I just did not have a goal, anything to look up to. Then, I discovered the Financial Independence movement, a whole concept that allows one to be financially free relatively quickly (a decade or so) by saving a large part of income and investing it in the markets for long-term prosperity.

I was amazed by the concept and math behind it so I immediately showed my spouse and started planning our future for early retirement in the next ten years (we are currently saving over half our incomes). Getting her on board was just the first step, and then we have to follow through.

Having a grand, long-term, goal is great but it is the little things that will eventually add-up to it.

Working on Money Together

Communicate with your spouse to see if you are on the same track. Without communication, you will never know if you share the same goals and values. If you are both savers and wish to reach financial independence early, you can work together toward that goal and speed up the journey. If you are both natural savers like me and my wife, having a common goal will motivate you and keep you accountable.

The thing is; things do not cost twice as much when you are two living together. Housing, for example, is much cheaper as a couple since you can split the expenses while basically living in the same space as when you were single. You might also end up saving a ton of alcohol and bars now that you are out of the single's scene now!

If you both have different goals, it can work out too. Keeping separate finances and separate goals might be the best thing to do if you and your spouse are not in the same boat. If you are ready to sacrifice a little to buy yourself freedom later, that’s great, but not everyone is ready to do so and that's completely fine. Instead of arising constant stress and concerns about your finances, simply do your own thing and let your spouse manage their own side of things.

Even if we share the common goal of reaching financial independence early, we use the three-bucket system.

Your Bucket - My Bucket - Our Bucket

With spending buckets, we each have our own separate bank account and our own spending but share a third bucket for the shared expenses such as our mortgage, bills, and maintenance. This lets us focus on our long-term objectives rather than nit-picking each other’s spending every time a few dollars are spent.

The easiest budget to follow is having no budget at all. We simply automate our savings to max out our registered plans (401k, Roth IRA…), attain our desired savings rate, and then we live off the rest.

Total Income – Total Savings = Your Budget for the Month

Spending only what is left after your savings forces you to reach your goals but it only works if you do not go into debt and go over-budget. For example, we use cards for all our purchases to maximize the rewards but we never spend money we do not have. The easiest way to think of this is to see your credit cards as a medium of payment and not as available credit. Use cards for their benefits but always pay the balance in full each month.

It is undeniable that credit cards can offer a lot of benefits and we maximize these rewards to the max (we earned over $13,000 in travel rewards last year!!!) but it has its inconveniences. Annual interests are so high that if we were not tracking our expenses and spending only what we can afford to pay back, the fees would negate any rewards earned.

My wife hates calling credit card companies but she never complains once we stay in fancy hotels and fly the world for free!

Talking about benefits, explore benefits offered to you and use them to the maximum. Whether from your employer or from the government, if they have a program in place for you; you deserve it. Take full advantage of any match your employers are offering in your 401K or search the U.S. government’s benefits page to see which program could help you.

Adding up all these little things can lead to great, amazing, things. We are planning to retire early in the next 10 years and this is only possible because of all the little things that we do to make our life slightly more efficient. Single or as a couple, small life hacks will change your life over the long-term.

Why Americans are not Saving for Retirement

Here's a piece from GoBankingRates on how Americans are saving for retirement. The highlights:

The most common reason survey respondents gave for not having any retirement savings is, "It is not a priority for me." About 40 percent selected this option, which suggests everyday expenses are likely taking priority over saving for the future.

"We're so focused on today," said Tom Zgainer, CEO of America's Best 401k, a workplace retirement plan provider. As a result, many people aren't thinking about how they'll be able to cover their expenses in the future when they stop working. "It's astounding that we're not thinking forward," he said.

The second most common response also shows a lack of foresight. Nearly 22 percent of respondents said they have no retirement savings because they raided their accounts for a financial emergency. It's not surprising, though, that so many had to tap their retirement funds to cover emergencies. Another GOBankingRates survey found that one-third of Americans have $0 in a savings account — which means they likely don't have cash saved for emergencies.

Lack of access to a workplace retirement plan is also a big reason many Americans don't have savings. Almost 19 percent of survey respondents said, "My employer does not offer a retirement savings plan." But the fact that they don't have any retirement savings suggests they might not be aware there are several ways to save for retirement without a 401k, including a traditional IRA and Roth IRA.

Several thoughts here:

• The comments above reflect the house of cards most Americans have for their finances. They spend like crazy, don't have an emergency fund, and think a lot more about today than 20 years down the road. Sure, there are some who have no choice and literally can't afford to save for retirement, but the majority certainly can. They simply don't see it as a priority compared to driving new, fancy cars, living in a big house, and having all the latest electronic gadgets.
• I'm wondering what people consider to be a "financial emergency." To me, a medical expense or major repair is an emergency. Getting a new big-screen TV to watch the Super Bowl or taking that family trip to the Caribbean do not count as emergencies IMO.
• I had access to a company retirement plan throughout my career. But I always saved additional dollars outside of it. If I hadn't had a plan, I would have saved even more in brokerage accounts, investing as much as I could in index funds. If you don't have a plan, don't let that stop your retirement savings! There are plenty of other options.

Much of this goes back to a lack of financial education as well as not implementing a financial plan. People simply aren't thinking about and taking action on retirement. But one day they will need to retire, and a cold, hard reality is going to hit them.

Star Money Articles for the Week of Aug 28

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

ESI Money wonders if travel hacking is worth it.

Financial Samurai suggests you conform or perish.

Picky Pinchers hates 9-to-5.

Budgets are Sexy asks if you're saving like the Titanic.

Money Boss is enjoying his time freedom.

My purchase of the week is Pro Packing Cubes - 6 Piece Lightweight Trave Cube Set - Organizers and Compression Pouches System for Carry-on Luggage, Suitcase and Backpacking Accessories. I'm trying to be an organized, light traveler and hope these will help!

Have a GREAT weekend!!!

Starting a Small Business: From Idea to Reality

The following post is from FMF contributor Brad Richardson.

Do you have a brilliant idea you’ve always wanted to turn into business? Whatever your product or service, transforming it into a reality may be a more straightforward prospect than you think. In this article, we’ll explore the various options that are available (and recommended!), if you’re considering starting a small business:

Do your research

Time spent conducting market will reap dividends in the long run. Find out where your idea might be placed in the market; are there competitors doing exactly what you do, or do you have a unique selling point? If there are already established players in the game, it’s important to differentiate yourself. Whether that a distinctive feature or a lower price point, researching the market will allow you to explore how you will set yourself apart from the pack.

Gather your initial investment

One of the most daunting prospects of pursuing your business idea is securing the finances to get started. But it needn’t be intimidating! If the initial investment is relatively small, consider whether to dip into personal savings, or ask a relative if they would like to help. For larger requirements, it might be necessary to involve an outside investor, or purse crowdfunding. You may also wish to consider a small business loan. Lend Genius helps entrepreneurs to find the best loans to suit their business. Visit their website to learn more.

Create your product

Once you have your initial investment secured, it’s time to turn your business idea into a tangible product, or if you’re offering a service, to narrow down exactly what it is you will be selling. You may need the help of designers and outside manufacturers for this process; shop around and ask to see portfolios before committing. Remember that quality is always better than quantity (or a price that seems too good to be true!).

Find a place to sell it

Nowadays, it’s easier than ever before to sell your idea. You might consider a physical store if you’re selling something that potential customers will need to see in person before purchasing (such as furniture), or going mobile (for example, if you’re a hair stylist or beauty therapist), or your product may be suitable to sell online. Sites such as eBay, Etsy, and Big Cartel make this a straightforward process.

Generate a buzz

Now that you have your product ready and a place to sell it, you’ll need to let people know! Creating free social media accounts is a brilliant first step. With no additional investment, you can begin promoting your business, connecting with customers, and generating a buzz around you. Ask family and friends to share your posts; word of mouth is still a powerful force in generating business.

Take feedback on board

As soon as your first few customers come through, encourage them to share feedback about your product or service, the customer service they received, and their overall experience. Any feedback at this stage is critical to your future performance. If this feedback is good, make sure you keep doing the right things! If your customers offer constructive criticism, be gracious, thank them, and take their opinions on board. Demonstrating the ability to adapt for your customers will keep them coming back.

 

Five Ways to Cut Retirement Costs

CNN Money lists five ways to cut retirement costs as follows:

1. Downsize your living space
2. Give up a vehicle
3. Enroll in Medicare on time
4. Dine at home
5. Lower your tax bill

Here's where I stand on each of these:

• We haven't downsized yet since our kids are still at home, but we could one day. Being able to sell our home and move to a smaller place is one way we've built a margin of safety. into our retirement.
• I think we will go down to one vehicle sometime in the future. We walk to so many places and hardly ever go in opposite directions, so why do we each need a car?
• I have some years left before I need to consider Medicare. ;)
• We eat at home as much as we ever did -- which is a lot. I've gotten fairly good on the grill and my wife makes great things that are healthy and cost-effective, so why do we need to go out several times a week? The answer: we don't.
• Taxes go down dramatically in retirement especially if you were a high earned-income generator. I've certainly been enjoying that!

Any of you who are retired taken action on any of these?

What Happens When You Retire Without Enough Savings?

The following post is from FMF contributor Eric Olesen.

According to a survey done in 2012 by the EBRI (Employee Benefit Research Institute), most of the Americans approaching retirement age don’t have the savings that would allow them to do just that.

Only 22% of working people aged 55 or older reported having saved as much as $250,000, and this isn’t thought to be enough for a traditional retirement. Worse than that, 31% of people in the same age group have reported they have only saved $100,000 or less! (All statistics are from the same survey.)

If you use the 4% rule, (what financial planners tend to recommend) a savings for retirement of $250,000 will give you an income in retirement of about $10,000 per year. Even when you add in benefits expected from Social Security, this will still not be enough for most retirees to live on comfortably.

Some people though, somehow manage to save enough to retire early! Wouldn’t that be great? However, this doesn’t happen with most of us. So, aside from eating nothing but Ramen and living in a tent throughout your retirement, what can you do? That is what we are going to discuss today.

Reverse Mortgage

If you are already planning your retirement party when you realize that you won’t be bringing enough in with your retirement fund to live on, you might want to check out some of the statistics about reverse mortgages. Reverse mortgages might seem to be a bit confusing at first. But they really aren’t. They allow you to borrow against the equity you have built up in your home. To qualify, you need to own your home, or just owe a little on it, be 62 or older, and live in the home. You can get the mortgage in the form of a line of credit, a lump sum, or in monthly payments. You will still be responsible for insurance, taxes, and upkeep of the home. The mortgage is to be paid back when you either move out of the house or die. Because of this needing to be repaid upon your death, this is something that definitely needs to be discussed with your family members so there are no unpleasant surprises during an already trying time.

Do What You Love

None of us wants to have to get another job after we retire just to make ends meet. However, there are ways to make money doing the things you love. For example, if you love dogs, you might want to become a dog sitter. If your hobby is fixing or working on engines and motorcycles, you might want to consider turning your garage into a motorcycle repair shop. Is it really working if you love what you do?

Maximize Social Security

People might have the opinion that the largest question in regards to Social Security might be whether they should start drawing it at 62 or if they would be better off waiting a few more years. However, if you are married and looking at Social Security, there are many different strategies for how to claim it. You need to carefully look at each one of these strategies to determine which will be best for you and your family. A financial planner can help you do this.

Drop the Debt

During the last 5 or 10 years of your working life, even if you are able to retire early, you need to focus on paying off your debt. This is where a lot of post-retirement expenses go. If you pay this debt off before you retire, that means that you will have that much more money each month to live on.

Keep On Keeping On

If you enjoy being out of the house and working, you might want to consider taking on a part time job to augment your retirement benefits. Aside from that, many people find that they are so used to working that not working leaves them with entirely too much time on their hands. Getting a part time job can also remedy that. However, if you feel like this might be your reaction to retirement, you might just make the decision to continue working for a few more years. During those extra working years, try to save more while spending less. You might be surprised at how much of a difference it can make.