Author: Matthew Adair

  • Happy that I Delayed Financial Independence

    Happy that I Delayed Financial Independence

    I’m further away from financial independence today than I was five years ago.

    You know what’s funny?

    I couldn’t be happier about where I am today.

    Let me explain.

    In 2020, my wife and I had very minimal expenses.

    At the start of 2020, my wife and I were both working as lawyers in Chicago. We lived in an apartment in a 4-flat that we had purchased in 2018. We had no kids at the start of the year, but were about to welcome our first.

    This was a good apartment in a popular part of town. It had 3 bedrooms and 2.5 bathrooms. That was plenty of space for my wife and I, and eventually the two babies we brought home there.

    We purchased this 4-flat from a real estate investor who had done a decent job on the renovation. It had in-unit washer/dryer, modern finishes, and plenty of storage.

    We had a small outdoor patio with enough room for a grill and little table. We also had a garage parking space but ended up parking our 20-year-old car on the street most days.

    When we purchased the building, it was the most expensive 4-flat that had ever been sold in that part of town. It was a bit of a risk to set the high-water mark in the area.

    In the end, the risk was more than worth it.

    Even though the building was expensive for the area, this was not a fancy apartment. This part of town was still up-and-coming. Some people probably thought it was not a nice part of town.

    I doubt many people came over and thought, “Wow, look at this amazing apartment!”

    The more likely reaction was probably something like, “What the heck are they doing?”

    To be fair, I asked myself that question plenty of times.

    So, what were we doing?

    We were paying ourselves to live there.

    Say that again?

    My wife and I paid ourselves to live in that apartment.

    We lived for free. And made a profit at the same time.

    See, the rental income from the other three units covered the entire mortgage plus all expenses for the property.

    But, that’s not all. On top of covering all the expenses, the rental units generated a profit of $1,000 per month on average.

    So, not only did we spend zero dollars each month on housing, we profited $1,000 per month.

    Looking back, getting paid to live in a decent apartment was maybe the best decision we ever made.

    Landlord working outside the office checking his balance and earnings. Getting paid concept. Internet money income. Showing the power of house hacking even if it means delaying financial independence.

    What happens to your finances when you live for free?

    Let’s take a look at how living for free can be a major advantage on your way to financial freedom.

    The common wisdom is for people to spend no more than 30% of their gross income on housing. Regardless of how much you make, that usually means thousands of dollars.

    Because our tenants were paying our living expenses for us, we did not have that expense for the five years we lived in that apartment.

    In other words, we didn’t have to worry about budgeting for housing.

    We also drove a nearly 20-year-old car and could walk to the “L” (Chicago’s subway). We lived in a neighborhood with plenty of nearby restaurants and shops. That meant our transportation costs were next to nothing.

    Because we weren’t paying for housing and had very minimal transportation costs, we could supercharge our savings.

    How much were we able to save?

    Let’s take a look.

    Between 2018 and 2023, my wife and I acquired three buildings and ten apartments in that same neighborhood. We’re very familiar with market rents in the area.

    We rent our apartments for anywhere from $2,300 to $3,600 per month. Our usual tenants are professionals like engineers, lawyers, doctors, consultants, and pilots.

    The unit we were living in from 2018 to 2022 was one of our larger units. At the time, it would have rented for $3,500 per month on average. That equals $42,000 per year to rent that apartment.

    Keep in mind, if someone was paying rent to live there, that would be $42,000 of after-tax money.

    Since we owned the building, we lived there for free. We could save that $42,000 we would have otherwise paid in rent. Instead of spending that savings on things we didn’t need, we were able to save that money for our next real estate investment.

    Plus, we earned $1,000 on average per month while we lived there. That’s an additional $12,000 per year in profit.

    We lived in that unit for almost five years.

    Add it all up and we saved $270,000 by living in that apartment for five years.

    • $42,000 saved rent x 5 years =$210,000.
    • $12,000 profits x 5 years = $60,000.
    • Total savings = $270,000

    We used that $270,000 for a downpayment on a rental condo in Colorado ski country.

    It took five years of living in a decent, but not-awesome, apartment to have a ski condo that will hopefully be in our family for decades.

    Choosing to live in our 4-flat to save $270,000 over five years was one of the best financial decisions we’ve ever made.

    Snowboarders breath on a cold day illustrating the power of financial independence earned through house hacking.
    Photo by Alain Wong on Unsplash

    I highly recommend you consider house hacking if you’d like to start investing in real estate.

    Many of you are familiar with the strategy of living in a building (or home) you own while tenants (or roommates) pay for it. Brandon Turner, of BiggerPockets fame, popularized the concept he dubbed “House Hacking”.

    You can read all about house hacking on BiggerPockets here.

    For even more information on house hacking, Craig Curelop wrote a book for BiggerPockets called The House Hacking Strategy: How to Use Your Home to Achieve Financial Freedom.

    Without a doubt, there is no better strategy for entry level real estate investors than house hacking. I gave you a glimpse of the financial upside earlier in this post.

    Besides the financial upside, it’s like landlording with training wheels. Since you live on site, you can more easily learn how to manage a rental property, including responding to tenants and handling routine maintenance.

    The naysayers will say something like, “I don’t want to live with my tenants. They’re going to stress me out. I don’t want to be bothered at 2 a.m.”

    Ignore them.

    My wife and I lived with our tenants for five years at this property and two more years at a subsequent property. We did this while working full-time jobs as lawyers and raising two kids.

    Because we didn’t listen to the naysayers, we now have four income-generating properties and our “forever home” just outside Chicago.

    Even though we’re no longer living for free, the income from our rental properties is enough to cover the expenses of our home.

    So, why am I further away from financial independence today?

    I’m further away from financial independence today because my expenses have gone up since 2020. I’ve already alluded to those increased expenses throughout the post.

    In 2020, we had our first child. Now, we have three children.

    Also, after seven years of house hacking, we decided it was time to purchase a long-term home for our growing family just outside the city in a terrific area.

    We also finally traded in our 21-year-old car for our first new car ever.

    How’s this for easy math:

    Three Children + Nice House + New Car = Further Away from Financial Independence

    While that combination means I’m further away from reaching financial independence, I now have everything that I could possibly ever want.

    That’s why I couldn’t be happier with where I’m at today.

    My end game is finally in sight. Five years ago, I didn’t know where I’d be living or what car I’d be driving or what my family situation might be.

    Now, the picture is clear.

    I can calculate with reasonable certainty how much money I need to be truly financially independent. I can use that number as a target and make every financial decision with that target in mind.

    That’s why in 2025, I’m focused on paying down HELOC debt. Each time I make a debt payment, I move closer to financial independence.

    Besides, my goal is FIPE not FIRE.

    My goal is to reach FIPE not FIRE.

    FIPE means Financial Independence, Pivot Early.

    I have no intentions of retiring any time soon. Retiring early is not, and has never been, my goal.

    My goal is to become financially independent to create as many options as possible to protect myself and my family. I want to be financially independent so I can pivot no matter what life throws at me.

    If my goal was to retire early, I may have skipped the single family home in a great neighborhood. I could have continued house hacking, minimized my expenses, and lived off of the rest of the rental income.

    But, I want more for me and my family. I don’t want to just survive.

    Have you delayed financial independence to craft the life you really want?

    My life has certainly changed in the past five years, but all that change has been for the better.

    That meant house hacking at first to keep expenses as low as possible. Now it means enjoying the wealth I created by making those earlier sacrifices.

    In order to have the life I want, I needed to temporarily move further away from financial independence.

    Still, I’m confident that I’ve taken the right steps to not just reach financial independence, but to reach it while living the life I want.

    The tradeoff is that it will take me longer to be truly financially independent. I’m perfectly happy with that.

    Financial independence has never been more clearly in sight. It’s just delayed a little bit.

    • Is your goal to reach FIPE and pivot as quickly as possible?
    • Or, are you OK with delaying FIPE temporarily for the life you truly want?

    Let us know in the comments below.

  • Financial Independence Pivot Early (FIPE)

    Financial Independence Pivot Early (FIPE)

    We focus a lot on financial independence here at Think and Talk Money. That’s because achieving financial independence is the ultimate goal for most of us.

    To me, financial independence does not mean retiring.

    That’s why I don’t like the popular acronym, FIRE: Financial Independence, Retire Early.

    Instead, I I like to view my financial freedom journey as FIPE: Financial Independence, Pivot Early.

    Let me explain why I believe in FIPE not FIRE.

    FIPE = Financial Independence, Pivot Early

    Whatever it is that you truly want to do in life, financial independence makes it possible.

    When you have financial independence, you have options. You can make decisions based on your core values instead of making decisions based on money. You can pivot, if necessary.

    Financial independence is for people who want to be empowered to take more control of what they do with their working hours.

    It’s not about quitting work. It’s about the freedom to pivot to other work, if you want. I’m convinced that humans are meant to be productive. We are social creatures who at our core want to be contributing.

    That doesn’t mean we have to be or want to be employees. But, it does mean that we want to do something meaningful with our working hours every week.

    That’s why I believe in the power of pivoting, not retiring.

    Why I don’t like the name FIRE.

    Part of the misconception about financial independence may stem from the name of the popular personal finance concept known as FIRE: Financial Independence, Retire Early.

    It’s not uncommon for people to hear financial independence and immediately think that’s only for people who want to quit their jobs and retire. That’s how widespread FIRE has become in the personal finance space.

    I agree with so many of the principles of FIRE. I just don’t agree with the name.

    Financial independence is about much more than retiring early.

    FIRE emphasizes saving more and spending less until you reach the point where your passive investments generate enough income to allow you to quit your job.

    I love this part of FIRE: the idea of creating enough income streams so that you have the freedom to do what you want with your time. I share the primary goal of saving more money and spending less to achieve more life freedom.

    I call this Parachute Money. I like to view each income stream as a separate parachute string. The more parachute strings you have, the safer it is to make a big change in life.

    The problem for me is that the FIRE end game is suggested right there in the name: become financially independent so you can retire.

    I don’t like that part. I don’t like what the word “retire” implies.

    If you look it up, you’ll see that the word “retire“means to withdraw, to retreat, to recede.

    None of those things sound appealing to me at all.

    Each word implies moving backwards. I’m not working so hard to achieve financial freedom so I can move backwards in life.

    Fire burning on beach, depicting the FIRE movement: Financial Independence, Retire Early instead of FIPE: Financial Independence, Pivot Early.
    Photo by Benjamin DeYoung on Unsplash

    I prefer to think of financial independence in terms of creating options. I prefer to think of financial independence as a way to move forward in life.

    I think “pivot” better reflects that mission.

    Pivot means to adapt or improve through modifications and adjustments.

    That sounds so much more appealing to me.

    With FIPE, financial independence is still the primary goal. But, the endgame is not to withdraw or retreat. The endgame is to adapt and improve how you spend your working hours.

    FIPE = Financial Independence, Pivot Early.

    Granted, the name “FIPE” is not as catchy as FIRE.

    But, I think it actually better encapsulates the entire purpose of financial independence in the first place.

    To explain, let’s look back at the modern day origin of FIRE for a minute.

    Vicki Robin and Joe Dominguez are often credited for laying the groundwork for the modern day FIRE movement. Robin and Dominguez wrote an incredible book called Your Money or Your Life.

    It’s one of my favorite personal finance books. You should definitely read it if financial independence is important to you.

    In their book, Robin and Dominguez have a lot to say about the relationship between money, work, and time. 

    Guess what?

    Most of us are doing it all wrong.

    Most of us make the mistake of chasing money at the cost of our precious time. When you read Your Money or Your Life, you will start to value your time for what it’s really worth.

    By making good choices about how to earn money- and as importantly what to do with that money- you can get the most out of your money and your life.

    That’s what FIRE is really all about. It’s about choosing to use your working hours in a way that is more meaningful to you than clocking in-and-out as an employee each day.

    It’s not about retiring from meaningful work. It’s about pivoting to work that is more meaningful to you.

    FIRE proponents would likely agree that the goal is not to withdraw or retreat.

    I think proponents of FIRE would actually agree with me that the end game is really not about withdrawing or retreating. The mission is always about moving forward, not backwards.

    My belief is that people who are disciplined and skilled enough to reach financial independence in the first place are the type of people who don’t retreat or withdraw.

    They may opt for periods of temporary retirement, as they should. But, I don’t think financially independent people are truly wired for full-time retirement.

    That’s why you see so many people who have obtained financial independence continue to pursue income streams.

    That might mean managing real estate investments, teaching others, or even starting a financial freedom blog.

    So, technically speaking, most people who have obtained financial independence have not actually retired. They haven’t withdrawn or retreated. Instead, they have pivoted.

    They are now spending their working hours doing other things. They may not be working full-time for an employer, but they’re still working.

    They’ve achieved financial independence and have earned the right to pivot.

    Financial Independence, Pivot Early.

    Even FIRE leaders would likely agree that the end game is not to completely retire.

    FIRE is not about retiring or quitting. It’s about pivoting to more meaningful life pursuits.

    I don’t want to speak for Robin, but I think this is what she was getting at.

    I also think this is what modern day FIRE leaders like Mr. Money Mustache and the Financial Samurai believe in. Not long ago, Financial Samurai actually wrote an excellent post called “Why Early Retirement / FIRE is Becoming Obsolete.”

    I just think the name FIRE doesn’t accurately portray the mission. Pivoting early seems more appropriate to me than retiring early.

    We all have the same goals in mind: financial independence. And, I believe we have the same end game in mind: pivoting to more meaningful work.

    That’s why I like FIPE instead of FIRE.

    Are you looking to retire early or simply to pivot?

    What is it that you’re aiming for by getting your personal finances in order? If you want to retire early, there’s nothing at all wrong with that. You may be at the point in your career and life where that makes sense.

    Personally, I’m not looking to retire early. That’s why I like to view financial independence as a chance to pivot.

    Pivoting doesn’t mean you have to switch jobs or change things up just for the sake of change. It just means that you have that option if you want it or need it.

    By the way, I’m not alone in viewing financial independence as a chance to pivot instead of retire.

    Scott Trench, CEO and President of BiggerPockets has been beating this drum for a while. He’s also talked about it on the BiggerPockets Money podcast.

    I’m in complete alignment with Trench. I like almost everything about FIRE, just not what the name implies. 

    With FIPE, the goal is not to retire. The goal is to give yourself the freedom to choose what to do next.

    Whether you want to retire early or just pivot to a new chapter in your life, being good with money is key.

    Do you like the name FIRE or FIPE?

    At the end of the day, whether you like to view it as FIRE or FIPE, the mission is the same. We are all looking for the freedom to choose what to do next.

    When striving for financial independence, the goal is to create options. Those options likely include pivoting to more meaningful work, rather than withdrawing or retreating.

    Personally, I think the name FIPE better encapsulates that mission.

    • Do you agree?
    • What name resonates more with you on your financial freedom journey?
    • Are you interested in retiring early or pivoting early?

    Let us know in the comments below.

  • My Journey to Financial Freedom

    My Journey to Financial Freedom

    Financial freedom doesn’t happen overnight. I’ve been on my journey to financial freedom for more than a decade.

    I’m not there yet.

    Here’s a look at how my journey to financial freedom has progressed since I graduated law school in 2009.

    My journey to financial freedom began in my late-20s and was focused on eliminating debt.

    In my 20s, I needed to pay off credit card debt and student loan debt. All I knew about the journey to financial freedom back then was that it seemed very far away.

    I started budgeting, which meant reigning in my spending on things I didn’t really care about.

    I began to establish good money habits. It wasn’t easy, and I was far from perfect. That’s OK. The 80/20 rule reminds us that we don’t need to aim for perfection.

    By the way, my life didn’t all of a sudden become boring and miserable when I became more money conscious. Quite the opposite, actually.

    I became more confident in myself because I had a plan. I no longer felt like I was sliding backwards. With each paycheck, I moved one step closer to erasing my debt. That was a powerful feeling.

    In my early-30s, my journey to financial freedom was about fueling my savings.

    By the time I turned 30, I had paid off my credit card debt and my student loan debt. I’ll never forget the day I made my last student loan payment as my family and I were heading out to Colorado. A huge weight had been lifted from my shoulders.

    I felt free. My journey to financial freedom was still in the early stages, but I was on my way. Most importantly, I still had good habits and a plan.

    The byproduct of eliminating my debt was that I had more fuel to accomplish my other goals.

    Financial Freedom wooden sign with a beach on background, illustrating that my journey to financial freedom and the journey to financial freedom for lawyers and professionals does not happen over night.

    What other goals?

    The money I had been allocating to student loan and credit card debt could now be put towards more fun goals and experiences.

    Instead of aimlessly spending the thousands of dollars each month that had been going towards debt, I rolled that money directly into savings. Highest on my list was saving for an engagement ring.

    Within a year, I had enough saved to purchase the ring. I thought being free from debt was strong motivation. Turns out that motivation was nothing compared to the desire to buy a ring for the woman you love.

    As your career progresses and you earn more money, you will benefit from strong personal finance habits.

    As my career progressed, like many of you, I started earning more money. When I earned more, I did my best to use that additional income as fuel for my goals.

    I’m grateful I had previously learned strong personal finance habits on my journey to financial freedom when I earned relatively little.

    For most of us, our usual career progression is the exact opposite of the typical lottery winner. Who hasn’t heard the stories about the lottery winners that hit it big and then quickly go broke?

    These stories are unfortunately all too common. What starts out with so much elation usually ends in tragedy.

    The normal downfall involves unrestrained spending on things like houses, cars, and extravagant nights out. It also involves the pressure to give money away to family, friends, and charities.

    The same pattern has been well-documented for professional athletes who earn millions before quickly going broke.

    The challenge is the same for lottery winners and professional athletes. They come into a lot of money suddenly without any prior personal finance education. When this happens, that money disappears quickly.

    What can we learn from lottery winners and professional athletes?

    I think it’s safe to say that none of us are going to win the lottery or earn millions as a professional athlete. I hope I’m wrong about that!

    But, we can still fall victim to the same set of challenges on the journey to financial freedom. It may not be a sudden rise and then an equally sudden drop-off. Our financial growth presents itself more slowly.

    Over time, we may earn referrals/commissions, raises, and bonuses. These earnings certainly add up and can make a huge difference in our lives, if we have a plan. That’s a big “if” for most of us.

    I didn’t have the full plan figured out in my 20s. Our goals change as life changes. There’s nothing wrong with that.

    That said, because of the steps I took in my 20s to learn about personal finance, I was better prepared for the opportunities and challenges that arose in my 30s. I learned that when you create a solid foundation for yourself, you have options.

    To me, life is all about giving yourself options. Nobody likes feeling stuck, including me.

    In my mid-30s, my journey to financial freedom was about building wealth through real estate.

    Besides saving for an engagement ring and a wedding, I was able to save up for a downpayment on a home. At the time I started saving up for a home, I had no idea that I could use my savings to invest in real estate.

    It wasn’t until I went to a Cubs game with a good friend of mine, The Professor, that I learned about real estate investing.

    This is when my journey to financial freedom really accelerated.

    See, The Professor had a beautiful condo with an incredible rooftop deck near Wrigley Field. During the game, he told me he was selling the condo and moving into a 4-flat with his fiancee in an up-and-coming part of town.

    Huh?

    Why on earth would you give up your amazing condo? And move to a random neighborhood I’d maybe been to one time in my life?

    I thought The Professor had lost his mind. Back then, I had no idea what a 4-flat even was. I couldn’t even point to his new neighborhood on a map of Chicago.

    The Ivy at Wrigley Field illustrating when Matthew Adair accelerated his journey to financial freedom through real estate investing.

    The Professor set me straight.

    He walked me through the numbers. He explained that he was going from paying $3,000 per month for his condo to receiving $700 per month on top of living for free in the 4-flat. That’s a $3,700 difference per month!

    The Professor also introduced me to BiggerPockets. That was huge for me because I believe in the motto, “Trust but verify.”

    Over the next week, I read everything I could and listened to podcasts every day. It didn’t take long before I was convinced that I wanted a 4-flat of my own.

    Eight years later, I own three buildings and 10 apartments in that same Chicago neighborhood. I have a ski rental condo in Colorado.

    Without that great talk with The Professor, I don’t think I would be where I am today on my journey to financial freedom.

    Man I’m glad The Professor wasn’t afraid to talk money with me!

    He knew that taking about money is not taboo.

    We all need to position ourselves to benefit when luck comes our way.

    I was fortunate to have learned from The Professor’s experience. We all need some luck on the journey to financial freedom. I’m convinced that we’ll all catch a break here or there. The question is what we do with that luck when it comes our way.

    If I hadn’t taken the time to learn about personal finance in my 20s, I wouldn’t have been positioned to benefit from that conversation with The Professor.

    That’s why I say the journey to financial freedom doesn’t happen over night. It’s about one building block at a time.

    For any aspiring real estate investors out there, please take that message to heart. Before you can successfully invest in real estate, you have to invest in your own financial literacy.

    I’ve learned firsthand that the same principles that apply to personal finances apply to managing a real estate portfolio. Each pursuit takes a plan that only works with discipline and patience.

    In my late-30s, my journey to financial freedom was about paying off debt.

    In my late-30s, my journey to financial freedom pivoted from acquiring properties to optimizing my portfolio. My wife and I decided we were ready to transition from growing our real estate portfolio to paying off our debt.

    In a way, I’ve come full circle on my journey to financial freedom.

    We owe a lot of credit to Chad “Coach” Carson and his excellent book, Small and Mighty Real Estate Investor: How to Reach Financial Freedom with Fewer Rental Properties.

    Reading Small and Mighty Real Estate Investor helped us conclude that at this point in our lives, we have enough. Our portfolio generates enough income to help fuel our current goals. If we were to continue expanding, the headaches could end up outweighing the financial benefits.

    Progress is not linear, either. I’ve taken on debt in the form of mortgages and HELOCs to invest in more real estate.

    In the short term, that mortgage debt pulls me further away from financial freedom.

    If my plan works, that same debt will push me more rapidly to financial freedom.

    Financial freedom through real estate has existed for decades, if not centuries.

    By the way, I didn’t invent the plan of achieving financial freedom through real estate. That idea has existed for decades, if not centuries. I’d avoid anyone who tells you they pioneered this concept.

    Years ago, I remember sharing my newfound passion for real estate with mom. She had this smile on her face as I excitedly shared this “new” phenomenon of investing in real estate to achieve financial freedom.

    The next time I saw her, I realized her smile was actually more of a smirk.

    She handed me a book called How You Can Become Financially Independent by Investing in Real Estate.

    It was written by Albert J. Lowry, Ph. D.

    In 1977!

    Picture of a financial independence book showing that my journey to financial freedom through real estate is a concept that has existed for decades.

    Financial Freedom doesn’t happen over night.

    It’s natural to want to jump to the finish line. I’m guilty of that, too. I think about achieving financial freedom every day and need to remind myself to take it one step at a time.

    Even with all I’ve learned about personal finance, it can sometimes feel like I’m heading in the wrong direction.

    Wherever you currently are on your journey to financial freedom, remember that it doesn’t happen over night. I need to constantly remind myself to stay the course.

    Keep coming back to Think and Talk Money for daily reminders that financial freedom is within all of our grasps.

  • What is Your Money Why?

    What is Your Money Why?

    What is your Money Why?

    I had the happiest occasion to think about that question this past week.

    My wife and I welcomed our third child, a little baby girl.

    We were very fortunate and had a smooth delivery process.

    Even so, when you’re in the delivery room, your mind runs wild. You just want everything to go well. It’s completely out of your hands by that point.

    Things get really interesting when you’ve been at the hospital for a while and haven’t slept. There’s no telling where your mind will go.

    No matter how much you tell yourself not to do it, you can’t help but think of all that can go wrong.

    During these moments, I can assure you that one thing you’re not thinking about is money. If anything, you’re thinking that you would trade all the money you have for a healthy baby and a healthy mom.

    I guarantee you won’t be thinking about free falling markets. You’re not thinking about setting up a 529 college savings plan, either.

    When you finally hold your new baby, nothing else in the world matters. Everything around you goes quiet. The sense of relief is overwhelming and you cry.

    It’s a beautiful thing.

    In those first few moments, I told my baby girl that I love her. I promised that I will always protect her. Whatever she needs, I will be there.

    If I want to keep that promise, I need to be good with money.

    To be good with money, I need a powerful Money Why.

    Matthew Adair, founder of Think and Talk Money, holding his baby girl and remembering why he wants to be good with money.

    What is my Money Why?

    I’ve known my Money Why since I wrote down my Tiara Goals for Financial Freedom on a beach in 2017. My number one Tiara Goal for Financial Freedom is to be with my wife and kids as much as I want.

    I wrote down that goal before I was even married or had kids.

    Years later, my Money Why hasn’t changed. The only thing that’s changed is my Money Why has gotten stronger and stronger since then.

    • In 2017, my Money Why got stronger when I got married.
    • In 2020, my Money Why got stronger when my daughter was born.
    • In 2022, my Money Why got stronger when my son was born.
    • This week, my Money Why got stronger when my baby girl was born.

    My Money Why has never been more clear. It doesn’t even matter if my brain is functioning at half speed right now on limited sleep.

    My Money Why is my baby girl, my son, and my daughter. My Money Why is my wife.

    Of course, I want to provide for my family financially.

    But my Money Why is more than that.

    I don’t want to just provide money, I want to provide time. I want to be present and share experiences.

    I want to be with them.

    My overall goal in life is to spend as much time as possible with the people who are meaningful to me. To accomplish that goal, I need to be good with money.

    If I’m good with my money, I can achieve financial freedom.

    With financial freedom, I can choose how to spend my time. That means I can choose who to spend my time with.

    My Money Why is not about being rich.

    Saying that I want to be good with money is not the same thing as saying that I want to be rich. Funny enough, people that are good with money oftentimes feel rich regardless of what their net worth is.

    As nicely put by Sam Dogen, founder of Financial Samurai, one of the preeminent personal finance blogs:

    But I’ve noticed on my path to financial freedom there were several times when I felt incredibly rich and money wasn’t the dominant reason.

    I couldn’t agree more with Dogen. There’s no richer feeling than having just come home from the hospital with a healthy baby girl. That feeling has nothing to do with money.

    Check out more from Dogen at his website financialsamurai.com. There’s a reason why he is one of the leading voices in the personal finance space.

    Simply making a lot of money will not make you feel rich.

    On the flip side, people that make a lot of money but are not good with money often feel like they’re struggling to get by. As CNBC explained after talking with financial psychologists:

    Whether you’re aiming to save more cash or boost your overall earnings, it’s important to ask yourself what you hope to achieve by obtaining more money, Chaffin says. Otherwise, if you don’t change your internal money beliefs, you may still feel anxious about money even if you hit millionaire status.

    The takeaway is that it is pointless to make money without stopping to think why you want that money and what you’re going to do with it.

    If you’ve never thought about money that way before, here are three three powerful reasons to get you started:

    1. Money can give you choices.
    2. Money can give you personal power.
    3. Money can give you time.

    Money is nothing but a tool that you can manipulate to get what you truly want out of life. The thing is, you have to actually think about what you want if you are going to use that tool effectively.

    Don’t wait for a major life event to start thinking about money.

    You don’t have to wait until you have a baby to start thinking about what money can do for you. In fact, if you wait for a major life event like that, it’s going to be a lot harder than if you start thinking now.

    Ask yourself:

    “What is my Money Why?”

    Whatever comes to mind, write it down.

    Maybe you want to retire early. Maybe you’re just looking for a life pivot, as Scott Trench, CEO and President of BiggerPockets wrote about recently and has regularly discussed on the BiggerPockets Money podcast.

    I personally agree with Trench. I like almost everything about FIRE, which stands for Financially Independent Retire Early. I just know that retiring early is not for me.

    I prefer to think of it as FIPE:

    Financially Independent Pivot Early

    With FIPE, the goal is not to retire. The goal is to give yourself the freedom to choose what to do next.

    Whether you want to retire early or just pivot to a new chapter in your life, being good with money is key.

    Besides, I’ve never seen the point in working endless hours to make money, while spending hardly any time seriously thinking about how to keep that money.

    What’s your Money Why?

    My Money Why gets clearer by the day. It has never been more clear than it is right now after bringing home a little baby girl.

    • What is your Money Why?
    • Has your Money Why changed over time?
    • How does your Money Why impact your relationship with money?

    Let us know in the comments below.

  • 10 Student Loan Tips for Lawyers and Professionals

    10 Student Loan Tips for Lawyers and Professionals

    Student loans are…heavy.

    That’s it.

    They’re. Just. Heavy.

    They’re a weight that we carry around long before we even make the first repayment. Sometimes that weight feels so heavy, it’s hard to imagine it ever going away.

    And as much as we wish we could, we can’t ignore our student loans.

    One way or the other, we have to get rid of them.

    And when we do get rid of them for good, there might not be a better personal finance feeling in the world. Personally, I’ll never forget the day I made my last payment and shared the news with my future wife and family.

    To help you have that same feeling of accomplishment, here are my top 10 student loan tips for lawyers and professionals.

    Top 10 Student Loan Tips for Lawyers and Professionals

    1. Locate all your loans.
    2. Sign up for automatic payments.
    3. Do not miss a payment.
    4. Consider using Debt Snowball or Debt Avalanche.
    5. Make an extra monthly payment.
    6. Create a BAT that generates fuel for your student loans.
    7. Make more money and use that money for your loans.
    8. Take a tax deduction and use your tax refund for your loans.
    9. Consider a loan consolidation.
    10. Look for ongoing scholarship opportunities.

    1. Locate all your loans.

    As a first step, be sure that you are aware of all of your loans. Most people end up needing both federal loans and private loans, which are not tracked by the same loan servicers.

    Additionally, you may have taken out different types of loans at different stages of your education. It’s not uncommon to forget about some of those loans.

    Before you can implement a thoughtful strategy to pay back your loans, you need to ensure that all of your loans are accounted for.

    The best place to locate all of your loans is on your credit report. The next best option is to ask your school’s financial aid office.

    A credit report is a document that tracks your history of repayment and the current status of any loans you’ve taken out.

    You are entitled to receive a free copy of your credit report from each of the three main credit reporting agencies every year. To do so, simply visit annualcreditreport.com.

    For federal loans, you can also check online at studentaid.gov. But, your private loans won’t be tracked by the federal government at studentaid.gov.

    Besides checking your credit report, you can access all your private loan information from your loan servicer.

    Once you’ve identified all your loans, you can implement a strategy to pay them off efficiently.

    2. Sign up for automatic payments.

    By signing up for auto pay, you can save .25% interest on your federal loans. Many private loan companies also offer a .25% discount for using auto pay.

    Over time, those savings will add up. And, there’s really no downside to you.

    In fact, you should be using automatic payments even if your loan servicer does not offer a discount.

    When it comes to paying back loans or achieving any other financial goal, automating your money is a very good idea. In The Automatic Millionaire, David Bach thoughtfully explains how the single step of automating your finances can help you achieve all of your financial goals.

    You can learn more about Bach’s philosophy on his website.

    I personally implement many of Bach’s strategies in my own life. I used to automate my student loans payments. Now, I automate my mortgage payments. 

    The Automatic Millionaire is definitely worth a read.

    3. Do not miss a loan payment.

    You know that expression, “Act now, apologize later”?

    That absolutely does NOT apply to loan payments.

    No matter how responsible or well-intentioned you are, sometimes life happens. Whether it’s technically your fault or not, a missed loan payment is a big problem.

    It may seem unfair, but even a single missed payment can severely impact your credit history and credit score.

    Pieces of wood with message fair and unfair on wooden background illustrating one of the 10 student loan tips for lawyers and professionals is to not miss a payment.

    Because the consequences of a missed payment are so severe, this is another reason why setting up auto payments is such a good idea.

    If you know ahead of time that you won’t be able to make a payment, it is imperative that you notify your loan servicer ahead of time. Your loan servicer may be able to work with you and figure out a solution before major consequences set in.

    4. Consider using Debt Snowball or Debt Avalanche to pay off your student loans.

    When you apply the Debt Snowball strategy, the idea is to focus on the loan with the smallest balance first, regardless of interest rate.

    Once you have paid off the first loan in full, you move to the loan with the next smallest balance, again regardless of interest rate. The money you had been paying to the first loan can now be rolled into the second loan.

    When you apply the Debt Avalanche strategy, the idea is to prioritize the loan with the highest interest rate, regardless of the balance.

    Once you’ve paid off the loan with the highest interest rate, you move to the loan with the next highest interest rate. Just as before, the money you had been paying to the first loan can now be applied to the second loan.

    Either approach works perfectly for paying off multiple student loan balances. Regardless of which method you choose, always pay the minimum required amount on all loans every month.

    For more on the pros and cons of each method, check out our deep dive on Debt Snowball v. Debt Avalanche.

    5. Make an extra monthly payment for massive savings.

    You may be surprised how big of an impact even a small additional payment each month can have on your loans.

    Let’s look at an example.

    Let’s say you owe $100,000 in student loans and currently pay back $1,250 per month with an 8% interest rate.

    Using calculator.net, you learn that at this pace, it will take you 9 years and 7 months to pay off your loans. You’ll pay back a total of $143,377.94.

    Student loan calculator illustration showing the power of one additional monthly payment as part of Think and Talk Money's 10 student loan tips for lawyers and professionals.

    Now, let’s imagine you are able to pay back an additional $100 per month.

    Look what happens:

    Student loan calculator showing the power of one additional $100 monthly payment as part of Think and Talk Money's 10 student loan tips for lawyers and professionals.

    You can eliminate your loans an entire year sooner and save $5,040.13 in interest payments. Just with an extra $100 per month!

    What about if you are able to pay back an extra $250 per month?

    This is when I start to get excited.

    Check this out:

    Student loan illustration showing the power of an additional $250 monthly payment as part of Think and Talk Money's 10 student loan tips for lawyers and professionals.

    For just $250 per month, you can knock off 2 years and 2 months of loan repayments and save $10,684.35 in interest!

    Think about how good it will feel to get 2 years and 2 months of your life back without loan payments.

    How are you supposed to come up with an extra $100, $250, or more per month?

    I’m glad you asked.

    6. Create a Budget After Thinking that generates fuel for your student loans.

    If you want to pay off your student loans faster, you really only have two options.

    The first option is to create a Budget After Thinking that prioritizes loan repayment. One of the key purposes of budgeting is to generate fuel for your future goals, including eliminating student loan debt.

    Instead of letting your hard-earned dollars disappear, put them to good use. Even $100 a month can make a big difference, as we just saw.

    If you’re having a hard time generating additional fuel for your student loans, check out my 10 Tips to Win the Budget Game.

    So, the first option to pay off your loans faster is to create a budget and spend less money elsewhere.

    What’s the second option?

    7. Make more money and put those extra earnings directly to your loans.

    If you’re not going to cut spending in favor of student loan repayment, then your only other option is to make more money.

    That might mean getting a valuable side hustle. Or, it might mean earning a raise or a bonus at your primary job.

    Whatever the case may be, as you make more money, focus on improving your savings rate.

    Financial bills and adhesive note with text - Side hustle showing one of the 10 student loan tips for lawyers and professionals is to get a side hustle.

    Your savings rate is simply the amount of money you save each month divided by the amount of money you make.

    Even though it’s called “savings rate,” there’s no reason why you can’t include debt repayment in your calculations. Whether you are adding money to a savings account or eliminating debt, your net worth improves.

    It all counts in my book.

    The point is that when you start to earn more money, put that money to good use.

    Instead of shopping at more expensive stores or eating at fancier restaurants, keep your spending habits the same. Put those higher earnings towards your important life goals, like eliminating student loan debt.

    8. Take a tax deduction and use your tax refund for your loans.

    The IRS permits borrowers, up to certain income limits, to take a federal tax deduction up to $2,500 per year for student loan interest payments. That means that you can reduce your taxable income by up to $2,500 per year based on the interest you paid that year.

    The actual amount of money you’ll save with this tax deduction depends on variables like your tax bracket. Check with your accountant or tax professional for specifics.

    Regardless, as we’ve seen above, even a small amount of extra money can go a long way if used for additional student loan debt payments.

    In the same vein, what if you made it a goal to apply your entire tax refund to your student loan debt?

    Let’s return briefly to our example above.

    This time, let’s assume that each year, you receive a tax refund of $1,700. Instead of wasting that $1,700 annually on things you don’t care about, you decide to put that money directly towards your student loans.

    Look what happens when you apply that $1,700 tax refund to your student loans each year, without making any additional payments whatsoever:

    Student loan illustration showing the power of an annual $1,700 payment as part of Think and Talk Money's 10 student loan tips for lawyers and professionals.

    With just that one decision to use your annual tax refund for student loan payments, you knock off 1 year and 4 months of payments and save $6,099.26!

    That seems like a great use of money that you’ll never miss anyways.

    9. Consider a loan consolidation.

    Consolidating your various loans into a single loan can help make your life easier and save you money.

    Your life should get easier when you only have to track and pay one loan back each month. There’s also a much smaller chance that you forget to make a payment or lose track of a loan altogether.

    Besides the convenience, when you consolidate, you should receive an overall lower interest rate. That means long-term savings.

    Before you consider a loan consolidation, be sure to do your homework. One major consideration is that you will lose whatever federal loan benefits you currently have if you consolidate, such as the possibility for loan forgiveness.

    10. If you’re still in school, look for ongoing scholarship opportunities.

    This is something that didn’t occur to me until my final year of law school. It took me that long to realize that schools regularly offer scholarships, stipends, and grants to current students, not just prospective students.

    During my third year of law school, I applied for a scholarship and was awarded $2,000. I didn’t think of it at the time, but looking back, I could have used that $2,000 to prepay my student loan interest.

    That would have accelerated my progress towards eliminating my loans while I was still in school.

    This is a good time to point out that personal finance requires consistent attention. You don’t have to think and talk about money every day. Not even I want to do that.

    But, you do have to intentionally make your personal finances a regular part of your life.

    Let’s revisit our example once more.

    Sorry, I can’t help myself.

    What if you combined some of the 10 tips we just talked about?

    Let’s say you decide to make an extra $250 monthly payment, contribute your $1,700 tax refund annually, and make a one-time payment of $2,000 for a scholarship you earned while finishing up school.

    Let’s take one more look at calculator.net:

    With just three relatively painless decisions, you can knock off 3 years and 1 month of student loan payments! And, you’ll save $15,481.76!

    Think about what you could do with an extra 3 years and 1 month of your life without student loan payments.

    You can now use that $1,500 per month you had been using for student loans on other goals. Not to mention what you could do with your annual tax refund.

    On top of that, think about what you could do with that $15,481.76 you saved in interest payments.

    Decisions like these are how financial freedom happens.

    That’s powerful stuff.

    What are your favorite student loan repayment strategies?

    To recap my top 10 student loan tips for lawyers and professions:

    1. Locate all your loans.
    2. Sign up for automatic payments.
    3. Do not miss a payment.
    4. Consider using Debt Snowball or Debt Avalanche.
    5. Make an extra monthly payment.
    6. Create a BAT that generates fuel for your student loans.
    7. Make more money and use that money for your loans.
    8. Take a tax deduction and use your tax refund for your loans.
    9. Consider a loan consolidation.
    10. Look for ongoing scholarship opportunities.
    • Have you applied any of these strategies?
    • What am I leaving out that has worked for you?

    Let us know in the comments below.

  • Money Questions: Markets in Free Fall

    Money Questions: Markets in Free Fall

    A reader reached out late last week and asked, “What do you do when the markets are in free fall?”

    It’s a question that really captures the intersection between money and emotions.

    I’m not an investment advisor, but I’m happy to share what I’m currently doing as the markets drop. Your personal situation may be different than mine so be sure to check with your investment advisor.

    Before we jump in, here’s a recap from Yahoo! Finance about how significant the drop was last week:

    US stocks cratered on Friday with the Dow Jones Industrial Average (^DJI) plunging more than 2,200 points after China stoked trade-war fears and Fed Chair Jerome Powell warned of higher inflation and slower growth stemming from tariffs.

    The Dow pulled back 5.5% to enter into correction territory. Meanwhile, the S&P 500 (^GSPC) sank nearly 6%, as the broad-based benchmark capped its worst week since 2020. The tech-heavy Nasdaq Composite (^IXIC) dropped 5.8% to close in bear market territory.

    The major averages added to Thursday’s $2.5 trillion wipeout after China said it will impose additional tariffs of 34% on all US products from April 10 — matching the extra 34% duties imposed by Trump on Wednesday.

    My hyper-technical analysis: that’s not good.

    Read on to see how I’m handling the market drop, how The Simple Path to Wealth helped shape my personal investing strategy, and how Die with Zero changed my perspective on how much to save for retirement.

    Let’s dive in.

    So, what am I doing with my portfolio right now while markets are falling?

    Despite how bad it seems, this is not a difficult question for me to answer.

    I’m not doing anything.

    I invest in the stock market to help achieve my long-term goals. My two main long-term goals are to save for college and to save for retirement.

    Each objective is so far away that time is on my side.

    man puts fingers down in lake kayaking against backdrop of golden sunset, unity harmony nature illustrating staying calm when markets are in free fall.

    My oldest child is five-years-old. I have 13-14 years until she even begins college. We make regular contributions to a 529 college savings plan to pay for her education. We fully anticipate that the market is going to go up and down over these next 13-14 years.

    As for retirement, I’ve still got decades in front of me. Same as what we just talked about with saving for college, I fully expect the market is going to go up and down many times before I retire.

    Make no mistake, I don’t enjoy seeing my portfolio drop so suddenly.

    Like everyone else, I don’t enjoy seeing my portfolio drop suddenly.

    It’s not fun to read the headlines right now. My brain seems to jump to the worst case scenario. Maybe you do the same thing. It’s nice to have someone to talk to about it. Misery loves company, right?

    This is one of the reasons why I only look at my portfolio once per month when I track my net worth.

    To remind myself to hold steady during the down times, I think of a study that examined what would happen if an investor missed the 10 best days for the market in each decade since 1930.

    As summed up by CNBC:

    Looking at data going back to 1930, the firm found that if an investor missed the S&P 500′s 10 best days each decade, the total return would stand at 28%. If, on the other hand, the investor held steady through the ups and downs, the return would have been 17,715%.

    These results illustrate how risky it would be for me to try to time the market. The last thing I want to do is miss the upswing. I have no idea when it’s coming.

    But, time is on my side.

    I’m going to do my best to be in the market when that upswing eventually comes.

    And, I am confident that upswing will come. It may not be until years from now. That works for me and my investment horizon.

    One other mental hack that’s helping me right now:

    I’m telling myself that the market is on sale right now. How so? I can buy the exact same stocks today for less money than they would have cost even a few days ago. I do love a good sale.

    In the end, no matter how bad things seem right now, I plan to continue making regular contributions to each of my investment accounts.

    Since I’m investing for the long run, I’ll let the market do its thing while I’m off doing my own things.

    Disclaimer: Your situation may be different. I am not an investment advisor. Do your homework and make the best decisions for your personal situation.

    What is my personal investing strategy?

    My personal investing strategy is largely based off of J.L. Collins’ exceptional book The Simple Path to Wealth. If you want a complete and easy to understand guide on all things investing, check out The Simple Path to Wealth.

    If nothing else, it’s crucial to educate yourself so you can make informed decisions, especially in times of economic uncertainty like we’re in right now.

    The Simple Path to Wealth is a great place to start when it comes to investing in the markets.

    As Collins explains, benign neglect of your finances is never the solution. ReadThe Simple Path to Wealth and check out Collins’ website for a gold mine of information when it comes to personal finances and investments.

    So, what is my personal investing strategy?

    When it comes to investing in the markets, I’m about as boring as can be.

    My wife and I invest primarily in index funds.

    What is an index fund?

    As explained by Vanguard:

    An index mutual fund or ETF (exchange-traded fund) tracks the performance of a specific market benchmark—or “index,” like the popular S&P 500 Index—as closely as possible. That’s why you may hear people refer to indexing as a “passive” investment strategy.

    Instead of hand-selecting which stocks or bonds the fund will hold, the fund’s manager buys all (or a representative sample) of the stocks or bonds in the index it tracks.

    Why index funds?

    The simplest way to answer that one is to direct you to the single greatest investor of our lifetimes, if not ever: Warren Buffett.

    In 2013, Buffett famously instructed that after he dies, his wife’s cash should be split 10% in short-term government bonds and “90% in a very low-cost S&P 500 index fund.”

    Good enough for Buffett, good enough for me.

    For more on index fund investing, check out The Simple Path to Wealth.

    To sum it all up, my wife and I are not active traders. We don’t seek out the newest, hottest stocks.

    We’re pretty boring, actually.

    We simply make regular contributions to our various investment accounts and let the markets take care of the rest.

    As an example, for my daughter’s 529 plan, we chose a passive investment option that’s a mix of stock index funds and bond index funds.

    Our portfolio automatically rebalances over time based on my daughter’s projected first year of college. Essentially, the closer we get to her first year in school, the more conservative our portfolio becomes.

    We chose a similar option for our son’s 529 plan.

    One other note for context: Keep in mind that my wife and I are real estate investors. We own five properties and 11 total rental units. Our real estate investments comprise a major part of our overall net worth.

    How much money do I put towards each of your financial goals?

    Between saving for emergencies, saving for college, and saving for retirement, there are a lot of options. In addition, you may have other short term goals, like paying for a wedding or a house. Or, you may want to invest in real estate.

    So, how do you determine how much to allocate to each goal?

    There’s no perfect answer here.

    The first thing you can do is to spend some quality time formulating your version of Tiara Goals for financial freedom.

    Then, let those goals inspire conversations with your people to help you make the best decisions. This is exactly how my wife and I came up with our financial goals for this year.

    It also helps to attach specific targets to your financial goals, like we did when we estimated how much you should be saving to pay for college.

    I went through a similar exercise with my retirement savings after reading Die with Zero by Bill Perkins.

    Woman thoughtful about work at home office desk laptop wondering whether she is saving too much for retirement.

    As crazy as it sounds, are you saving too much for retirement?

    In Die with Zero, Perkins suggests that many of us are saving too much for retirement at the expense of using that money to live our best lives now.

    It’s one of the most compelling personal finance books I’ve read in a long time, and I highly recommend it. You can also learn more about Perkins and his journey on his socials.

    Perkins is not suggesting that saving for retirement isn’t important. He’s saying that the hard data shows that most of us are over-saving.

    When I read Die with Zero, I used an online calculator to estimate my projected retirement savings. As Perkins would have expected, at our then savings rate, my wife and I risked over-saving for retirement.

    With that realization, I made some adjustments and am now paying down HELOC debt at a faster rate.

    How much should you save for retirement?

    There’s no way to fairly answer this question. Spend enough time on the internet, and you’ll get many different answers. There are just too many variables in play, like what kind of retirement you want and when you want to retire.

    Perkins points out in Die with Zero that most of the advice out there encourages people to save too much money. You might agree or you might not.

    I encourage you to read Die with Zero and make that determination for yourself.

    At the end of the day, whether it’s saving for retirement or other major life goals, the most important thing is that you are consistently generating money fuel for your life.

    Don’t stress yourself out by worrying about the perfect amount to save towards each goal.

    Are you talking about your money mindset these days?

    It’s never been more important to talk to your friends and family about your money mindset. You don’t have to talk numbers to help each other during uncertain times.

    • Are you talking to your people about your money mindset?
    • What types of conversations are you having to help get through these times of uncertainty?
    • Would you recommend any books or articles that have helped you in the past?

    Let us know in the comments below.

  • 529 Plans for Sky High College Costs

    529 Plans for Sky High College Costs

    My five-year-old has already decided that she’s not going to college.

    She doesn’t want to sleep there, she says. Instead, her plan is to move in with her aunt.

    At least that’s one kid I don’t have to worry about when it comes to paying for college.

    In case your five-year-old hasn’t already decided her future, read on to learn about 529 educational savings plans, one of the best ways to pay for college.

    My students are already worried about paying for college for their unborn children.

    Whenever I teach personal finance to law students, we take some time to at the beginning of class to discuss what each of us would do with financial freedom.

    This is always my favorite part of class.

    Over the years, I’ve had students who want to travel the world, start businesses, pursue hobbies, and take care of aging parents.

    I’ll never forget the student who wants to coach high school football after working as a lawyer. Or, the student who simply wants the time to exercise every day. As she put it, “look good, feel good.”

    Of all the goals I’ve heard, there is one that comes up more than any other: paying for their children’s education.

    A lot of times, I hear this goal from students who don’t even have kids yet. I think that shows how important education is for many people. It also shows how worrisome it is to think about paying for college.

    What’s troubling is that my students typically have their own student loans to pay back. And, before they’ve even started their careers, they’re thinking about paying for the education of their unborn children.

    That’s intense. But, understandable.

    Some students share that they want to pay for their children’s college because they benefitted from their parents paying for college. These students were grateful for the opportunities their parents gave them.

    For other students, they want to pay for their children’s college because their parents did not pay for their college. They want to help their children avoid student loan debt as they begin their careers.

    For most people, saving for college is a top priority.

    According to a recent study by Fidelity, 74% of parents say they are currently saving for college.

    77% of parents think that the value of a college education is worth the cost.

    At a time when there is a lot of uncertainty surrounding student loans, it’s never been more important to have a plan to pay for your kid’s education.

    One of the best ways to do that is with a 529 college savings plan.

    In today’s post, we’ll discuss the major advantages of 529 plans. We’ll also learn how you can estimate the cost of college for your child so you can figure out how much you should be saving today.

    Be warned, the numbers are scary.

    What is a 529 college savings plan?

    529 college savings plans are state-sponsored, tax-advantaged investment accounts. The name stems from Section 529 of the Internal Revenue Code.

    While there are certainly other ways to save for college, 529 plans are hard to beat.

    The reason 529 plans are such a great way to save for college is because you receive triple tax benefits:

    1. Most states offer tax breaks on contributions to its residents for participating in the in-state plan. For example, as Illinois residents, my wife and I can deduct up to $20,000 in contributions to the Illinois-sponsored 529 plan from our state income each year.
    2. Your investment earnings grow tax-deferred, meaning your investments will benefit from tax-free compound interest. That means your savings will grow faster without being hindered by taxes.
    3. Investment earnings are 100% free from both federal and state taxes when used for eligible education expenses. Eligible education expenses include things like tuition, room and board, books, computers and other standard costs associated with college.

    An investment opportunity with triple tax benefits like this is almost unheard of.

    How do 529 plans work?

    In basic terms, 529 plans are investment vehicles designed to grow your contributions and make paying for college easier. When you invest in a 529 plan, you are generally investing in some combination of stocks and bonds.

    That means there is risk involved, just like with any other investment.

    Once you open your 529 account, you will choose how to invest your contributions. In this sense, 529 plans are similar to a 401(k) plan offered by your employer.

    Like with your 401(k) at work, a 529 plan will typically provide you different investment choices within the plan. You can choose how aggressive or conservative you want to be with your investments.

    The investment options will vary depending on which state’s 529 plan you choose.

    Every state offers a 529 plan.

    Every state offers a 529 plan. You don’t have to be a resident of that state to use its plan. You also don’t have to use your 529 savings for a school located within that state.

    Regardless of what plan you choose, the federal tax incentive remains the same. Money invested in 529 plans grows tax free. That means no federal taxes on your 529 earnings as long as the money is used for qualified educational expenses.

    While you also won’t have to pay state tax on earnings (same as federal), there are some additional state tax implications to be aware of.

    These state tax benefits are a bit more complicated because they vary state-to-state.

    Blue USA map with borders of the states and names on grunge background illustrating that each state offers a different 529 college savings plan.

    Remember, there is no federal tax benefit when you make your original contributions. But, most states do offer its residents a tax break on their original contributions for investing in-state.

    Morningstar has a detailed breakdown of which states offer additional tax benefits to its own residents.

    If your state offers tax benefits to invest in-state, that’s usually a good reason to choose your in-state plan.

    My wife and I use Illinois’ 529 plan, called Bright Start 529, for the added tax benefits we receive as Illinois residents.

    Besides the state tax benefits, keep in mind that not all 529 plans are created equal. 529 plans may offer different investment options or charge different fees. States may also provide different level of oversight, which may be important to protect your investments.

    You should always do your homework before choosing a plan to find one that matches your goals.

    I’ve found Morningstar’s rankings and analysis of each state’s plan to be the most helpful tool. According to Morningstar’s most recent rankings, the top 529 plans are offered by:

    1. Alaska
    2. Illinois
    3. Massachusetts
    4. Pennsylvania
    5. Utah

    To recap, when choosing which 529 plan to participate in, pay attention to what investment options are available within that plan. Also, look to see if you will qualify for additional state tax benefits.

    How much can I contribute to a 529 plan?

    Besides choosing the type of investments in your 529 plan, you can also choose how and when to contribute.

    Some people prefer automatic monthly contributions. Others prefer to contribute sporadically throughout the year, like when they receive a bonus at work.

    Unlike with most retirement plans, there are no yearly contribution limits for 529 plans. Instead, each state sets lifetime contribution limits per beneficiary, typically ranging from $235,000 to $550,000.

    This is a good time to point out that you can have a separate account for each of your kids. This allows you to save more money overall sine the contribution limits apply separately to each kid.

    It’s also a good idea to have separate accounts when you have different investment horizons based on the ages of your kids.

    For a complete list of the contribution limits by state, click here.

    By the way, if those limits sound incredibly high to you, you may be in for a shock when it comes time to pay for college.

    Keep reading to see what the projected costs of attending college are for a current kindergarten student.

    What happens if my kid does not go to college or I have money left over?

    If you have money left over in your 529 plan, you have some options. You can use that money for one of your other kids, without penalty. You can save it for a grandchild.

    As of 2024, you can roll extra 529 funds into a Roth IRA for the beneficiary, with some limitations. This was a terrific development for families worried about having too much money saved for college.

    If none of the available options work for you, rest assured that your money will always still be your money. You will have to pay a penalty and some taxes. Any unused earnings are subject to a 10% federal tax penalty plus income tax.

    How much should I be saving in my 529 college savings account?

    This is the ultimate question, right?

    While nobody can say for certain how much college will cost or how your investments will perform, we can make reasonable estimates to help form your strategy using an online calculator.

    I like the calculator available on Illinois Bright Start 529 website. What’s nice about this website is you can look up the future estimated cost of attending specific schools around the country.

    I also like using calculator.net. They have a College Cost Calculator where you can see how much college costs on average today and how much it is estimated to cost when your child starts college.

    Whatever online calculator you use, you’ll have to make some assumptions when you start plugging in numbers.

    For example, nobody can predict what your exact investment return rate will be. That said, you still need to plug a number into the calculator.

    What number should you use for investment return rate?

    • Bankrate.com and NerdWallet each suggest using an investment return rate of 10% annually (before inflation) based on historical stock market performance.

    10% seems like a reasonable number to use, keeping in mind that we’re just looking for an estimate to help us decide how much to save for college. Your actual returns may be lower.

    Besides the estimated return rate, you’ll also need to account for the rising costs of college. Most of the online calculators recommend you assume the cost of college will increase by 5% each year. That also sounds reasonable to me.

    One last thing: it’s never a bad idea to run through different investment scenarios to get a more complete picture. Try playing around with what the numbers look like if your investments only return 8% per year. Or, see what happens if college costs increase by 6% per year.

    With these assumptions in mind, you can start to get an idea of how much you should be saving for college today.

    Be warned, the dollar amount will probably scare you.

    Let’s look at an example using a current kindergarten student.

    Illinois’ Bright Start 529 calculator estimates that the cost of this kindergarten student attending the University of Illinois Urbana-Champaign will be $264,735.

    Assuming you don’t have any current savings and you estimate a 10% annual rate of return, the Bright Start 529 calculator indicates you should save $10,796 per year.

    Does that sound like a lot of money?

    Want to really be scared?

    What if your kindergarten student is interested in private school for college? Maybe your child has his heart set on Northwestern University?

    Bright Start 529 estimates the cost of Northwestern University for your kindergarten student will be $691,942. That means if you have no current savings, you should be contributing $28,217 per year.

    Yikes.

    And that’s only for one kid.

    How are you supposed to save that much money for college?

    If these numbers sound scary to you, what can you do about it?

    I have some thoughts:

    1. First, you need to spend some time thinking and talking about why it’s important to you to be good with money. Maybe the reason is as simple as paying for your kids’ college. Whatever your money motivations are, write them down. This is what I did with my Tiara Goals for Financial Freedom.
    2. With the right motivation in mind, you then need to make a Budget After Thinking. The overall purpose of your budget is to generate fuel for your future goals, including paying for college.
    3. Next, you need to stick to that budget by tracking two simple numbers. Making a budget does you no good if you aren’t sticking to it.
    4. Monitor your savings rate and aim for steady improvement over time, even if you’re only able to save a small amount to begin with.
    5. While you start to build your savings for college, avoid the three big causes for why many of us fall into debt, which can cancel out all your progress.
    6. Along the way, talk to your people. Remember the cardinal rule of Think and Talk Money: talking about money is not taboo. You are not alone in trying to save for college or trying to live a financially responsible life. Talking to your people will help you stay on track when times seem tough.

    The most important thing is that you take responsibility for your own money life.

    Nobody else can do this for you.

    The good news is that embracing these tips will help you beyond just paying for college. These are the exact strategies that will lead you to a life of financial freedom, the ultimate goal for many of us.

    It’s not supposed to be easy. If it were easy, everybody we do it.

    By educating yourself on 529 plans and talking to your people about money, you are way ahead of the curve.

    Do you have a plan to save for college?

    • Have you started saving for college?
    • Are you currently using a 529 college savings plan?
    • How do you motivate yourself to make regular contributions in light of other financial goals?

    Let us know in the comments below!

  • The Time is Now: Student Loan Basics

    The Time is Now: Student Loan Basics

    Have you noticed all the attention on student loans lately?

    To say there is some confusion and uncertainty would be an understatement.

    I don’t have any better idea than you do about what may happen in the student loan landscape.

    No matter what happens, the way I see it, you have two options .

    The first option is to do nothing, get angry, and blame everyone else.

    The second option is to take ownership, get prepared, and educate yourself about the student loan system so you’re ready for whatever comes next.

    If you’ve chosen the second option, you’re in the right place. That means you’re determined to not let outside factors you can’t control hinder your progress towards financial freedom.

    In this post, we’ll cover the basics about federal and private student loans so you can begin to make informed decisions to most efficiently eliminate your student loan debt.

    Whether you are finishing up school or currently paying off loans, this is a good place to start. No matter how the student loan landscape changes, it’s a fair bet that these basic concepts will remain in place.

    In the end, paying off student loan debt is really not that different from paying off any other form of debt. However before we start playing the game of conquering student loan debt, we need to understand some key ground rules.

    Let’s dive in.

    Student loan debt is a major obstacle to reaching financial freedom.

    Student loan debt is one of the major obstacles for people striving for financial freedom. That makes sense given that more than 42 million people in the United States currently have student loan debt.

    It’s not just about the number of people who have student loan debt. It’s the dollar amount of those loan balances. In my opinion, I don’t see how someone can be truly financially free when burdened by student loan debt.

    This is especially true for professionals with advanced degrees. According to the Education Data Initiative:

    • The average person with a graduate degree owes up to $102,790 in federal student loan debt.
    • 54.0% of all graduate school students have federal student loan debt.
    • 55.2% of people with master’s degrees have federal student loan debt.
    • 74.8% of people with professional doctorates have federal student loan debt.
    • 76.2% of doctors have student loan debt.

    It’s because so many of us rely on student loans to pay for school that there is no shortage of information available online. The problem is there’s so much information, it’s hard to know where to start.

    Let me help you get started.

    Federal loans are better than private loans.

    The first thing to know about student loans is that there are two entirely different types: federal loans and private loans.

    Federal loans are funded by the United States government. You can access the main federal student loan website at studentaid.gov.

    Private loans are funded by lenders, like banks. Some of the most popular private student loan companies are SoFi, College Ave, and Sallie Mae.

    When you hear about student loans in the news, you’re hearing about changes to the federal loan system. There may be some side effects for the private loan system, but the federal system is getting all the attention right now.

    There’s no real dispute that federal loans have long been a better option for borrowers than private loans. Federal loans almost always offer the best rates and terms. Even the private loan companies admit as much.

    The reason people have both federal and private loans is because federal loan amounts are capped. Once you’ve taken out all the federal loans you are eligible for, private loans become necessary to fill whatever funding gap remains.

    With tuition costs rising for college and grad school, it’s likely you’ll leave school with both federal and private loans.

    Understanding the available options and differences for each type of loan will help you eliminate your student loan debt as efficiently as possible.

    What to Know about Federal Student Loans

    Even with a changing landscape, below are the key aspects to keep in mind regarding federal loans.

    With this background in mind, you’ll be better equipped to make adjustments to your student loan payoff strategy should that time come.

    graduates holding piggy banks saving concept illustrating taking responsibility for student loan repayment on the way to financial freedom.

    There are 3 main types of federal student loans.

    There are three main types of federal student loans: Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans.

    Direct Subsidized Loans offer the best rates and terms and are designed for undergraduate students with financial need.

    The main advantage of subsidized loans is that the federal government pays the interest for the borrower for a certain period of time, like when the borrower is still in school. That could be major savings.

    Direct Unsubsidized Loans are available for undergraduate and graduate students and are not restricted to students with financial need. However, the borrower is responsible for all the interest on the loan.

    Your school determines which type of loan you are eligible for. Keep in mind there is cap to the amount you can borrow for each type of loan. We’ll discuss the caps in a moment.

    Your credit score does not factor into Direct Subsidized or Unsubsidized Loans.

    Unlike with private loans, Direct loans do not depend on your credit score. This is a key advantage of federal loans for people who have no credit history or poor credit history.

    Direct PLUS Loans are available for parents and graduate students.

    Direct PLUS Loans are for eligible parents and graduate and professional students.

    The other main differences with PLUS loans relate to the amount you can borrow and the interest rate you’ll pay, as seen below.

    Also, with PLUS loans, the borrower’s credit history is a factor considered during the application process. These loans are not available to people with poor credit.

    Federal Loans are capped depending on the loan type and education level.

    The amount you can borrow in federal loans depends on the loan type and education level (undergraduate or graduate/professional).

    With these caps in mind (besides PLUS loans), you can see how federal loans alone are usually insufficient to cover the full costs of higher education.

    Federal loans offer the best interest rates and lowest fees.

    As mentioned above, federal loans have long offered the best interest rates and lowest fees.

    Rates are always subject to change. For illustration purposes, here are the current interest rates for federal loans:

    Loan TypeLevelInterest Rate
    Direct Subsidized and UnsubsidizedUndergraduate6.53%
    Direct UnsubsidizedGraduate/Professional8.08%
    Direct PLUSParents or Graduate/Professional9.08%

    In addition to interest, most federal loans also include loan fees. These fees are taken out of the loan at the time the loan is first disbursed. That means the amount you’re borrowing and responsible for paying back is more than the amount you actually receive.

    Loan fees for Direct Subsidized and Unsubsidized loans is currently set at 1.057%.

    Loan fees for PLUS loans is currently set at 4.228%.

    As you can see, even within federal loans, the interest rate and fees charged vary depending on the type of loan and level of education.

    The federal government contracts with loan servicers to manage your loans.

    The federal government will assign your loan to a loan servicer to handle billing and other services. When you need information or have questions about your federal loans, you’ll need to contact your loan servicer.

    The federal government currently works with the following loan servicers:

    Keep your loan servicer’s contact information close by, especially these days.

    Your first federal loan payment is typically due six months after leaving school.

    With federal loans, you will usually have a six month grace period after you leave school before your first loan payment is due.

    Not all federal loans have a grace period, and interest usually will accrue during the grace period. You are allowed to pay this accrued interest before you enter repayment.

    The federal government offers a number of loan repayment plans, for now.

    The federal government offers a number of loan repayment plans.

    At least, for now.

    It’s anyone’s guess if these repayment plans will continue to exist and who may be impacted.

    For up-to-date information on the available repayment plans, please visit studentaid.gov or contact your loan servicer.

    So, what is a loan repayment plan?

    Generally speaking, a standard repayment plan means paying your loans back in equal monthly payments spread over ten years.

    In addition to the standard repayment plans, there are a number of plans currently available to reduce your monthly payment and extend your repayment term. These plans are typically based off of income level.

    The idea behind most of these repayment plans is to help you pay back your loans while still affording your other monthly expenses.

    Your loan servicer will work with you to determine the best repayment plan for your situation.

    With federal loans, there should be no prepayment penalty if you accelerate your loan payments on your way to financial freedom.

    One important note: regardless of the repayment plan you choose, you are still responsible to pay back the entire loan. If you choose a plan that offers lower monthly payments spread over a longer time period, you will end up paying more in total interest.

    Loan Deferment, Forbearance, Forgiveness and Discharge

    With federal loans, you typically have better options when you are struggling to repay your loans. Note that just because you may have more options does not mean you’ll be let off the hook.

    Loan forgiveness may be available to people who work in eligible public service jobs who make loan payments for ten years.

    Again, this may be all in flux.

    For up-to-date information on the available repayment plans, please visit studentaid.gov or contact your loan servicer.

    What to Know about Private Student Loans.

    With a basic understanding of federal loans as context, it’s not too difficult to understand how private loans work.

    The key here is that when it comes to private loans, there are more variables to consider. Lenders may have different rates, loan terms, and repayment schedules.

    Be aware that private loans likely will not offer loan forgiveness and may involve additional fees and potential penalties.

    The best thing you can do is to compare the various options for private student loans. A good place to start is with three of the most common private lenders:

    Each of these lenders provides detailed information on its websites. Even if you don’t choose any of these lenders, you can still do your homework on their websites.

    Besides just the interest rate on a potential loan, pay attention to other important factors like:

    • Loan fees
    • Repayment options
    • When the first loan payment is due
    • Prepayment penalties
    • Consolidation options and fees
    • Quality of service and responsiveness

    In the end, you’ll likely find that most private loan lenders offer comparable rates and terms. They are competing with each other for your business, after all.

    Where are you in your student loan journey?

    Ultimately, only you are responsible for your loans. You can blame everyone else for the changing landscape or you can educate yourself and make a plan.

    Whether you are finishing up school or currently paying off loans, this post is intended to provide student loan basics that should hold true no matter how the student landscape changes.

    Now that you understand the basic ground rules, you can work on a plan to pay off your loans as efficiently as possible on your way to financial freedom.

    Where are you in your student loan journey?

    Do you know anyone who would benefit from taking about student loan basics?

  • Student Loans and Financial Freedom

    Student Loans and Financial Freedom

    Debt from student loans and financial freedom go hand-in-hand for most professionals. Maybe a better way to put it is that student loans can be a major obstacle on your path to financial freedom.

    Student loans and financial freedom go hand-in-hand.

    Whether you have student loan debt from college or graduate school, it’s important to have a plan to pay that debt off.

    All debt acts as a roadblock to financial freedom. Student loans are no different.

    Of course, the more education you’ve received, the more student loans you likely have.

    When considering student loans and financial freedom, look no further than these recent stats provided by the Education Data Initiative:

    • The average person with a graduate degree owes up to $102,790 in federal student loan debt.
    • 54.0% of all graduate school students have federal student loan debt.
    • 55.2% of people with master’s degrees have federal student loan debt.
    • 74.8% of people with professional doctorates have federal student loan debt.
    • 76.2% of doctors have student loan debt.

    This is why it’s especially important for professionals to realize the connection between student loans and financial freedom.

    Hold on before you tune out because you don’t have any student loan debt.

    The journey towards financial freedom is often a shared journey for many of us.

    This data shows that even if you don’t personally have any student loan debt, the odds are you are going to marry someone who does. Or, you’re the parent, or will someday be the parent, of someone who has student loans.

    That’s why we all need to learn about student loans and financial freedom. You may soon find yourself in a relationship where you’ll want these student loan strategies.

    If nothing else, your prior experiences with student loans can help someone else if you’re just willing to talk about them.

    I’ll never forget the day I made my last student loan payment.

    My family was heading out to Colorado around Christmas time for some snowboarding and skiing. Don’t worry, I didn’t break a wrist that trip.

    My goal that year had been to finish paying off my student loans entirely. However, I can’t take credit for wanting to pay off my loans that year.

    That credit goes to my wife. She was the first person who helped me appreciate the interconnection between student loans and financial freedom.

    Here’s what happened.

    About 11-12 months before that trip to Colorado, my (future) wife and I talked about how we wanted to start our marriage debt-free. We were thinking about buying a home and starting a family. Student loan debt did not fit into this picture.

    She was the one who initiated the conversation.

    She knew long before I did that talking about money is not taboo.

    All these years later, I’m still so grateful that she didn’t shy away from having that important conversation.

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    Why I wanted to pay off my student loans before I got married.

    M wife and I met in the days where I was just starting to tackle my credit card debt after law school. She knew how heavy that debt felt for me.

    She saw how focused I was in creating a Budget After Thinking and how important it was for me to stick with it.

    My wife also experienced firsthand how much better I felt once I had a plan to pay off my debt. She wasn’t just an observer, either. She was an active participant.

    Whether it was budgeting games like the $500 challenge or sharing a hotel room with my friends for a wedding, she was part of my journey.

    So, when I had finally paid off all of my credit card debt, it was time to focus all that financial energy on my student loan debt.

    This may sound odd, but I was excited to move on to a new challenge. Not that paying off debt is ever easy. But, with my student loans, I knew it was going to be easier than paying off my credit card debt.

    That’s because I had already learned and experienced the hardest part of paying off debt with my credit card experience. I had already shifted my money mindset.

    By this point, I wanted to be good with money. Not only for myself, but for my future family.

    Money mindset is so important to student loans and financial freedom.

    Once your money mindset is in the right place, you can make informed and intentional choices about debt. It doesn’t matter if you’re paying off credit cards, student loans, or even HELOC debt.

    When you’re honest and dedicated to fostering a healthy money mindset, you’re better able to establish habits like budgeting and saving. That’s how you create fuel for your Later Money goals, like eliminating debt.

    Personally, my money mindset was in a much different place by the time I prioritized paying off student loan debt compared to paying off credit card debt.

    With my credit card debt, it took waking up one day and feeling ashamed for how irresponsible I was with my spending before I committed to paying it off. I felt down and discouraged.

    On the bright side, those negative feelings are what set me on the path to learn and eventually teach personal finance.

    With my student loans, I wasn’t starting from a feeling of failure. It was quite the opposite, actually. I had a much better attitude because I had proven to myself that I could pay off debt. I had experienced how good that felt.

    So, when my wife and I talked about eliminating my student loan debt before we got married, that was just one final incentive.

    My wife would say that I’m a quietly competitive person. When she initiated that talk about paying off my student loans before we got married, it was game on for me.

    I didn’t need any extra motivation, but I sure felt extra motivated after that talk.

    I prioritized paying off my student loans the rest of that year.

    For the next 11-12 months, I made it my priority to eliminate my student loan debt. I had been making the required payments each month for years, but eliminating my student loans always took a back seat to my other goals. Now, it was time to prioritize eliminating my student loans.

    Using the Debt Snowball method, I used whatever excess money I had each month to pay off the remaining balance on one loan at a time.

    This was before we owned any real estate, but I had begun my side hustle as a law school professor. Whenever I got a paycheck from the law school, I immediately put it towards my student loans.

    When I earned a raise that year, I put the whole raise towards my student loans. I did the same thing with irregular earnings, like from commissions, bonuses and even my tax refund.

    Snowy mountains in the distance illustrating that the journey of student loans and financial freedom are interconnected.
    “Snow Mountain” by Jeff Hollett/ CC0 1.0

    As our Colorado trip was approaching, I knew that the finish line was in sight. I waited to tell my future wife just how close I was until after I had made the final payment. I’ve always liked surprising her.

    I remember telling her I just made the last payment on the day before we left for the trip. She was thrilled, and surprised, at how quickly I accomplished the goal.

    I thanked her for motivating me.

    The next day in Colorado, I shared the news with my parents that I had pay off my student loans. They were even happier than my wife and I were. All my siblings were there with us. We had a toast and celebrated. It was a night I’ll never forget.

    It’s natural to worry about paying back student loan debt.

    When I teach personal finance for lawyers, student loan debt is always one of the most important topics. It’s natural to worry about paying back such a large sum of money as you are beginning your career.

    Even if I didn’t realize before, I now fully appreciate the relationship between student loans and financial freedom.

    My hope is that by thinking and talking even a little bit about your student loans, you won’t have to worry. You’ll have a plan to pay back your loans in the most efficient way possible on your way to financial freedom.

    In our initial series on student loans, we’ll learn how to:

    • Find your loan balance, set up payments, and other important basics when you’re just getting started.
    • Choose a repayment plan that works best for your personal situation.
    • Strategize to pay off student loan debt within the context of your overall life goals.
    • Navigate the ever-changing landscape of student loans.

    Then, you’ll have your own reason to celebrate with your loved ones just like I did in Colorado.

    Have you thought about student loans and financial freedom?

    Where are you currently with your student loans? Just starting out, nearing completion, or somewhere in the middle?

    Are you the partner or parent of someone with student loans? Have you discussed a plan for paying those loans off?

    Let us know so we can learn from each other’s experiences in the comments below.

  • When to Think Cash Instead of Credit

    When to Think Cash Instead of Credit

    Do you use credit cards for every purchase?

    If you would have asked me this a couple years ago, the answer would have been “100% yes.”

    I’ve long been a big fan of using credit cards to earn rewards points and to help track my spending. As long as you pay your credit card bills on-time and in-full every month, credit card rewards can be quite valuable.

    The best vacations I’ve ever had were paid for using points instead of cash. 

    My wife and I have taken some amazing vacations that we would have never gone on if we had to pay in cash.

    We used points to fly first class to Florence for our honeymoon. We’ve used points to stay at luxury hotels in Paris, Barcelona, and Santorini that normally charge more than a thousand dollars a night.

    When my wife and I were still dating, we went to New York for a wedding. We got out there two nights early, and I used points to book us a room at the Waldorf Astoria. This was back in my real life, really lost boy days when I didn’t have any spare cash for something like this.

    My wife and I had a great time at the Waldorf before heading out to Long Island for the wedding.

    I may have forgotten to tell my wife that in Long Island, we’d be sharing a room with two (turned out to be three) of my buddies. I didn’t have any points left for this hotel. Oops.

    She was a good sport. Not even the surprise ice storm from the groom in the middle of the night bothered her. She was a keeper.

    I could go on and on. The point is there was a long period of time where all of our vacations were paid for using points instead of cash.

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    Using points also helped me stay on budget and build my net worth. 

    Besides the incredible memories, the other major benefit to using points was that we could save more money every year. We could then use those savings to fuel our Later Money goals, like investing in real estate.

    That meant our net worth grew in the background while we were out having these amazing experiences.

    I also have long been a fan of using credit cards to help me stay on budget. With credit cards, I can quickly track my spending online during the month to see if I’m on pace for a good month.

    If I notice that I’ve overspent, I can slow down my spending to get back on track.

    Between the rewards points and the ability to track my spending, I still am a big fan of using credit cards for most everyday purchases.

    When used responsibly, meaning paying your credit card bill in full and on-time every month, credit cards can be part of a healthy financial life.

    That said, nowadays, I’ve started using cash more frequently. 

    I’ve started using cash more often these days. 

    I still use credit cards more than cash, but I’m starting to use cash more often than I used to.

    There are a couple main reasons for this.

    I use cash for the convenience for smaller transactions.

    I now use cash regularly for smaller or quicker transactions, like going to the farmer’s market, grabbing ice cream for the kids, or paying for taxis.

    Yes, I still take taxis. I work as a mesothelioma attorney in downtown Chicago near the courthouse. Taxis are plentiful and a lot of times quicker and cheaper than ride share companies.

    And, there are ATM’s on just about every corner near my office in Chicago, so it’s not inconvenient to keep cash on hand.

    For these types of transactions, I value the convenience of paying with cash more than the small amount of credit card points I would earn.

    I also like to pay cash to help out these types of small businesses because they seem to generally prefer being paid in cash. I leave whatever change I’m owed as a tip.

    Also, I’m no longer worried about precisely tracking my cash spending in my Budget After Thinking.

    Instead, I simply account for a few hundred dollars of spending using cash each month. I generally know what types of things I’m spending cash on, so I don’t worry about tracking each expenditure specifically.

    Besides convenience, there’s another reason I use cash more frequently now. 

    Besides convenience, I’ve started to use cash regularly for another reason.

    It’s not that the rewards have changed very much. Or, that I no longer like tracking my spending.

    It’s for a different, and somewhat disappointing, reason:

    More and more service providers, retailers, and restaurants are charging fees to use credit cards. These fees can be as high as 4% of the purchase price.

    These additional fees are sometimes referred to as “surcharges” or “processing fees.”

    Be warned, sometimes these fees are cloaked as “discounts for cash payments.” Don’t be fooled. This is just a sneaky way to say you will be penalized for using a credit card.

    Why do businesses charge processing fees?

    For a little bit of context, credit card companies make money by charging businesses a “merchant fee” or “interchange free” whenever customers pay with a credit card.

    Most businesses pay these merchant fees. That’s because there are plenty of incentives for businesses to accept credit cards. 

    For one, many customers prefer to pay with credit cards, like me. Businesses typically don’t want to lose out on these customers who prefer to pay with credit cards.

    For another, businesses are well aware of the fact that people tend to spend more money when using credit cards instead of cash. Obviously, it’s good for business when people spend more.

    There are certainly other incentives, as well. The point is that businesses have long paid these merchant fees in exchange for benefits provided by credit card companies.

    In recent years, more and more businesses have decided to pass these fees onto customers.

    Businesses, especially smaller businesses, commonly point to the past few years of surging inflation for why they need to pass these processing fees onto customers.

    Have you also noticed these fees popping up seemingly everywhere these days?

    As a consumer, whether we like it or not, these processing fees seem to be sticking around.

    So, what can we do about it?

    We can choose to use cash instead of credit, or we can choose to not spend our money at that business.

    Let’s look at an example to help you make that decision for yourself.

    Who really cares about a small processing fee anyways?  

    A processing fee of 4% may or may not sound like a lot to you. 

    Let’s look at an example to put some real numbers on it. 

    Let’s assume you’re going to buy a new TV that costs $1,000.00 (all taxes included) from a reputable store. A 4% processing fee on the purchase of a $1,000.00 TV means adding $40 to the price of that TV.

    That TV now costs you $1,040.00 with the processing fee.

    That’s a $40 penalty simply for using a credit card instead of cash. That’s a penalty that the next customer paying in cash doesn’t have to pay for the exact same TV. 

    Keep in mind this is a $40 penalty charged on just this one purchase. Consider all the other purchases you make with a credit card and what those total penalties could add up to.

    Since you really shouldn’t be buying that TV unless you have the cash available to pay for it, is there any good reason to willingly pay a $40 penalty?

    We’re assuming you’re shopping at a reputable store, so you shouldn’t have to worry about purchase protection.

    So, that really leaves only one potential benefit to using a credit card for this purchase.

    What about the points you can earn?

    Let’s play that out so you can decide for yourself.

    Aren’t points worth more than whatever the processing fee is?

    Let’s continue our same example of purchasing the TV for $1,000. 

    Including the 4% fee, the TV costs $1,040.00.

    Let’s assume you buy this TV using the Chase Freedom Unlimited, which is the actual card I would use if I were making this purchase. 

    The Chase Freedom Unlimited offers 1.5 points per dollar spent. That means this TV purchase of $1,040.00 would earn you 1,560 points (1040 x 1.5 =1,560). 

    Next, let’s look at my favorite website for valuing rewards points, The Points Guy. Currently, The Points Guy values each Chase Ultimate Reward point at 2.05 cents.

    So, 1,560 points, valued at 2.05 cents per point, is worth $31.98 ((1,560 x 2.05)/100=31.98).

    Now, we can decide if paying the 4% service fee to earn points is worth it. 

    In this example, by choosing to use your credit card with the $40 processing fee, you’ll earn $31.98 worth of points.

    In other words, even accounting for the points you’ll earn, this transaction still costs you an extra $8.02.

    Does that sound like a good deal to you?

    Personally, I would rather keep the $40 in my bank account instead of earning $31.98 worth of points.

    To me, this is not even a close call.

    No deal or a good deal? Hand turns a dice and changes the expression "no deal" to "good deal", or vice versa illustrating the thought processs of using a credit card with a processing fee or using cash.

    It doesn’t make a lot of sense to trade in a higher amount of cash for a lesser amount of points. Not only are you technically losing money, cash is more flexible than credit card points. You can use cash everywhere.

    I don’t think it’s a stretch to say you’d be hard pressed to find anyone who would take $31.98 worth of points instead of $40 in cash.

    What if the processing fee was lower?

    Even if the processing fee was lower, say 3%, my decision wouldn’t change.

    At a 3% fee, the TV would cost $1,030 and you would earn 1,545 points valued at $31.67.

    In this scenario, it’s true that the points are worth $1.67 more than the processing fee.

    I’d still rather have the cash. I value the flexibility that $30 in cash provides me more than a comparable value in points.

    Admittedly, it’s a closer call when the processing fee is 3%. I won’t argue with you if you’d rather go strictly by the math and have the points in this scenario.

    Money is emotional, after all, like we saw when choosing to pay down debt using the Debt Snowball method.

    I went through this exact process when paying my property taxes recently.

    Recently, I went through this exact thought process when paying my property taxes. I had the option to use a credit card and pay a 2.1% convenience fee. 

    I chose to pay cash, even though the points I would have earned were worth $170 more than the convenience fee.

    The math indicated I should have taken the points. Still, I didn’t like the idea of paying another 2.1% on top of my already sky-high property taxes. 

    Even though I lost out on valuable points, money decisions are emotional. It felt better to not pay the extra 2.1% and to keep that cash in the bank.

    Setting aside the math and the value of credit card points, there’s another reason I have started using cash more frequently these days because of processing fees.

    These processing fees really bother me on principle. 

    You may disagree, but I don’t think it’s right for businesses to pass this fee onto customers when businesses do benefit by accepting credit cards.

    I especially don’t think it’s fair when businesses spring this fee on a customer when he is standing at the register about to pay.

    Maybe it’s just me, but these fees annoy me so much that I won’t go back to a business that passes these fees onto customers.

    If it’s a business that I simply can’t live without, and there are very few businesses that reach this level, I’ll pay cash instead of using credit.

    I’m not insensitive to the fact that certain businesses are struggling with inflation. If a business is having a hard time staying profitable without charging a 4% fee, I would prefer that it raises its prices by 4% instead of surprising me at the cash register with this extra fee.

    At least then, I can make an informed decision ahead of time about whether I want to eat at that restaurant or purchase that item before it’s time to pay.

    I know this is a polarizing debate. There are business owners who I’m sure would vehemently disagree with my thoughts on the matter. That’s OK.

    Businesses are of course free to choose how to run their businesses. As a consumer, I am free to choose to avoid certain businesses.

    Have you noticed this processing fees more often lately?

    Where do you come out on paying a processing fee to use a credit card?

    Do you want the points or the savings?

    Or, do you avoid that business altogether?

    Let us know in the comments below.