Author: Matthew Adair

  • Better to Buy 10 Businesses or Stick with Compound Interest?

    Better to Buy 10 Businesses or Stick with Compound Interest?

    I read an article the other day where the author says he’s not going to save another dime for retirement. He reasoned that waiting for compound interest to kick in takes way too long.

    He found a better way, he claimed.

    Instead of investing in the markets long term, he’s going to buy small businesses that generate cash flow. He gave an example of buying a website for $10,000 that kicks off $400 per month.

    That’s money in his pocket right now that he can spend in early retirement. He figures that owning ten small business like that is a faster and better path to retirement than traditional investments.

    When you buy businesses, your cash flow increases. When you invest in stocks, only your net worth increases. Since you can’t retire off your net worth, you’re better off owning businesses.

    The author suggested that everyone can do this and should be doing this. In his opinion, investing for cash flow is much more important than investing for long term net worth.

    Do you want to own and manage ten businesses?

    Interesting philosophy. I hope it works for him.

    Personally, I won’t be following his lead.

    For starters, how are you supposed to select, acquire, and operate ten small businesses? Is that even possible? If it is, it sounds like a major headache. As attorneys, we have enough headaches in our day jobs.

    On top of that, I don’t buy his main concept that owning ten businesses will allow you to retire early. To me, owning ten businesses sounds like ten jobs and a lot of work.

    As attorneys, we already have a demanding job and a lot of work. If you don’t want to work as an attorney anymore but want to keep working, maybe this is an idea you want to explore. If you want to retire and not work, this doesn’t sound like the ticket to me.

    Finally, this scheme sounds risky. How many small businesses would I have to buy to land on 10 that actually generate cash flow?

    According to the US Bureau of Labor, 18% of small businesses fail within their first year, 50% fail after five years, and approximately 65% fail by their tenth year. What are the odds that I’m going to own ten successful businesses that stick around long enough to fund my retirement? Way too risky for me.

    In the end, the internet is full of schemes like this one promising a better and faster way to retire. Some of them might even work!

    I’m not interested in going down this path. I’m sticking with the personal finance concepts that have worked for generations.

    For today’s conversation, that means investing early and often to benefit from the magic of compound interest.

    It’s not sexy. It’s not exciting. But, it works.

    Here’s why.

    Business Consulting meeting working and brainstorming new business project finance investment concept which seems like a lot more work than investing and relying on compound interest.
    Photo by Christin Hume on Unsplash

    Invest early and often to benefit from the magic of compound interest.

    Compound interest is the interest you earn on interest. 

    How’s that for a confusing definition?

    Fortunately, the idea of compound interest makes a lot more sense with a simple example.

    Let’s say you make an initial investment contribution of $1,000. Let’s assume that you earn 10% interest each year on that investment. We will also assume that you re-invest your investment gains. 

    After the first year, your initial contribution of $1,000 earns $100 in interest (10% of $1,000). That means after one year, you have $1,100 in your investment account.

    Because we are re-investing our gains, that means that at the start of year two, you have $1,100 to invest: $1,000 from your initial contribution plus the $100 earned in interest.

    If you earn the same 10% interest on that $1,100 investment, you will have $1,210 at the end of year two. 

    Notice that in year two, you earned $110 in interest, whereas in year one you earned $100 in interest. That’s because in year 2, you earned interest on the interest your previously earned. 

    This is the key point about compound interest: you earned more money in year two, even though the interest rate remained the same and you did not contribute any additional money.

    That’s how compound interest works. Compound interest is earning interest on interest you’ve previously earned.

    Importantly, you don’t have to work harder or make the right decisions like you would if you owned a small business. With compound interest, you make more money as time goes on by doing nothing.

    So, why is compound interest so powerful?

    Earning an additional $10 in interest year two may not seem like a lot. 

    Over the long run, those additional earnings add up.

    Let’s look at an illustration from the Think and Talk Money Compound Interest Calculator of what happens to that initial $1,000 contribution over a 30-year period:

    In 30 years, you will have a total of $17,449.40. That’s a pretty good result from total contributions of only $1,000. 

    However, for this example, that total is not the important part. The important part is to visualize how compound interest worked its magic to get that result.

    Look closely as the two lines on the graph. The dotted line that doesn’t change represents your initial $1,000 contribution.

    The blue line represents the amount of money you have over time.

    Notice how in the first 10 years or so, the dotted line and the blue line mirror each other pretty closely. Around year 12, you start to see some separation between the two lines. 

    While the dotted line stays flat, the blue line begins to arc upwards. That’s because all that interest you earned during the previous decade has been earning interest. Your investment begins to accelerate upwards without any additional contributions from you.

    By the end of year 30, look at how steep the blue line is jetting upwards.

    Like I said, compound interest is not sexy. But given enough time, it works incredibly well.

    Look at the specific amount of money you’d earn each year in this hypothetical.

    When you use the Compound Interest Calculator, you can also see how much more interest you earn each year as time goes on. Just click the button that says “Show/Hide Data Table.”

    As we mentioned earlier, you earned $100 in interest during year 1. Then, you earned $110 in interest during year 2. That’s a good, but modest, increase.

    During year 12, you earned $285.31 in interest. That’s significantly more than you earned in the early years, all without any additional contributions on your part.

    During year 30, you earned $1,586.31 in interest! 

    The more time that you stay invested, the more money you’ll earn as compound interest works its magic.

    That’s the power of compound interest.

    Invest early and often to be a millionaire with very little effort on your part.

    Compound interest is so powerful that it can make you a millionaire with very little effort on your part. All it takes is time and consistency.

    Compared to owning ten small businesses, that sounds much easier.

    Let’s look at another example to see how you can easily become a millionaire if you invest early and often.

    Let’s say you begin your career after going to law school or grad school at age 25. During your first year working, you saved up $3,000 and decided to invest in a low cost index fund.

    You also make a plan to contribute an additional $300 per month to your investment account for the next 40 years, setting yourself up to retire at age 65.

    We’ll also assume you earn the same 10% interest from our prior example, and you don’t make any withdrawals from your account.

    To provide a fuller picture, we’ll also factor in a 2% variance rate, meaning you can see what would happen if you only earned 8% interest and also if you earned 12%.

    Now, let’s see the results.

    By the time you reach retirement age, you’ll have $1,729,110.97 in your retirement account at 10% interest.

    That amount increases to $3,040,682 with 12% returns and drops to $997,777 with 8% returns. 

    That’s after contributing only $3,000 initially and $300 per month after that.

    Put another way, your total contributions of only $147,000 turns into $1,729.110.97 by the end of your career. Even if the market performs below historical averages, you would still have nearly $1 million.

    Take a look at the graph and notice the similarities to our prior example.

    You’ll notice this graph looks almost identical to our prior example, even with the additional contributions that you make over time. 

    You can once again see that the lines mirror each other closely for the first 10-15 years. 

    Then, the dotted line stays relatively flat while the investment lines gradually arc up before skyrocketing towards the end.

    Now, there’s no way to predict exactly when you’ll start to notice the magic of compound interest. There are too many variables at play.

    The point is that given enough time, your personal investment trajectory should look similar because of compound interest. 

    You can play with your own numbers in an investment calculator like this one to match your personal situation.

    If you’ve created a Budget After Thinking, you may be able to invest much more than $300 per month.

    No matter what initial contribution you make and what interest rate you assume, you should notice a similar investment picture over the long run.

    When I say investing is the easy part, this is what I mean. 

    I just showed you how an early contribution of $3,000 and regular contributions of $300 can turn into more than $1.7 million.

    You don’t have to understand the math behind compound interest. 

    You just have to trust that it works. 

    Then, invest early and often.

    Given enough time, assuming normal, historical market conditions, your investments will gradually increase before shooting up in the later years.

    Read that sentence again. “Given enough time” is the key phrase. 

    The magic behind compound interest is time. 

    The earlier you can start investing, the better off you will be.

    Since we can’t control investment returns, I prefer to focus on what we can control when it comes to investing. 

    We can control when we start investing and how long we invest for.

    By making regular contributions over a long period of time, compound interest ensures that your wealth will grow.

    Invest early and often.

    People smarter than you and me preach the power of compound interest.

    Warren Buffett, the world’s greatest investor, fully appreciates the power of compound interest. He’s famous for saying that his favorite holding period for an asset is “forever”. 

    Buffet’s not literally saying that there’s never a time or reason to sell an asset, like a a stock. He’s simply making the point that compound interest benefits people who stay invested over the long term.

    If the world’s greatest investor isn’t impressive enough for you, how about the world’s greatest thinker?

    Albert Einstein is often credited with this famous quote about compound interest:

    Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it.

    You don’t have to be as smart as Buffet or Einstein to benefit from compound interest. 

    You just have to invest early and often.

    Lawyers: would you rather manage ten businesses, or let your money quietly grow in the background thanks to compound interest?

    Let us know in the comments below.

  • How the Jay Leno Rule Turbocharged my Net Worth

    How the Jay Leno Rule Turbocharged my Net Worth

    Jay Leno: former host of The Tonight Show and famous comedian.

    Rob Gronkowski: Super Bowl champion and celebrity spokesperson.

    Matt Adair: just like them.

    At least, in one way.

    The three of us follow the same money philosophy when it comes to how we earn and spend.

    This philosophy has become known as the “Jay Leno Rule.”

    Here’s how the Jay Leno Rule works, as explained by the man himself in an interview with CNBC:

    From the moment he entered the working world, “I always had two incomes,” [Leno] explains to CNBC. “I’d bank one and I’d spend one.”

    And he made sure to spend the smaller amount. 

    “When I was younger, I would always save the money I made working at the car dealership and I would spend the money I made as a comedian,” he says. ”When I started to get a bit famous, the money I was making as a comedian was way more than the money I was making at the car dealership, so I would bank that and spend the car dealership money.”

    “When I got ‘The Tonight Show,’ I always made sure I did 150 [comedy show] gigs a year so I never had to touch the principal,” Leno says. “I’ve never touched a dime of my ‘Tonight Show’ money. Ever.”

    ″So many people get to be the age I’m at now and they’ve got nothing because they just blew it all,” he says. “I put my money in a hammock and say, ‘You relax. I’m going to go work.’ And when I come back, I put some more money in the pile. 

    “It sounds ridiculous, but if everything ends tomorrow, I know I’ll be fine.”

    The Jay Leno Rule is such a simple and powerful money philosophy.

    The Jay Leno Rule boils down to three simple steps:

    • Earn income from multiple sources.
    • Spend only the money from one income source, preferably the smaller one.
    • Save and invest the rest.

    If you can employ this strategy, you can create significant wealth for you and your family.

    I’ve been following the Jay Leno Rule since 2011 when I started with my law firm and got my first job teaching at a law school. More on that below.

    First, let’s revisit Leno’s story.

    When we think of Leno today, we think of the famous and wealthy host of The Tonight Show. His net worth is estimated to be $450 million. He could buy anything he wants.

    But, read his story again. He developed good money habits before he got famous. He earned two incomes from working at a car dealership plus doing standup comedy shows and always saved one of those incomes.

    Don’t gloss over that part. Leno established a strong financial foundation early in his career, before he started making a ton of money.

    Because he had established the habit, he continued earning multiple salaries, even after his income soared with The Tonight Show. That’s impressive.

    Leno’s story shows why practicing good money habits is so important early in our careers.

    You’ll also notice that Leno took nothing for granted: “if everything ends tomorrow, I know I’ll be fine.”

    Leno wasn’t referring to the world ending. He was talking about losing his job. He meant that if is income went away, he had saved enough that he didn’t have to worry about it.

    That is freedom.

    brown football representing rob Gronkowski who never spent his NFL money and now is financially free.
    Photo by Sarah Elizabeth on Unsplash

    Rob Gronkowski follows the Jay Leno Rule.

    NFL legend Rob Gronkowski applied the Jay Leno Rule during his career as an NFL superstar and celebrity endorser. He explained his money philosophy recently on the “Bussin’ with the Boys” podcast:

    “I didn’t know how long the NFL was gonna last. I was a second-round pick, so it was like a four-year, $4 million deal, and I was like, if I can play this contract out, I’ll be set for life.

    I just always wanted to save it, and I just used my money that I was getting off the field to just spend it on whatever I needed to spend it on. Technically, I have not spent any of my NFL money.”

    Gronk is a very smart man. Just like Leno, he established the habit of saving one of his sources of income early in his career.

    Again like Leno, he didn’t take his career for granted. He didn’t fool himself into thinking that his high salary would always be coming in. Even if he got injured or failed to perform during his initial contract, he would be just fine.

    Imagine how much confidence that gave him on and off the field. Because he knew he was set financially, he did not have added pressure to perform. He could be himself and play the sport that he loved without worrying about his next contract.

    There’s no doubt in my mind that feeling of financial freedom helped him perform at his best on his way to winning four Super Bowls.

    How I’ve applied The Jay Leno Rule to build significant wealth.

    Just like Gronk, I have applied the Jay Leno Rule since I first earned multiple income streams in 2011.

    Back then, I had just left my first job after law school as a judicial law clerk and started at my law firm. It was also the first year I taught a law school course.

    My primary financial goal at the time was to pay off my student loan debt. The Jay Leno Rule helped me do just that in a fraction of the time it otherwise would have taken.

    Executing the strategy was easy. When I received my monthly paycheck from teaching, I immediately made an extra payment on my loans. It gave me an emotional boost to put that money to good use before I was tempted to blow it on something else.

    I wasn’t earning a lot teaching back then, but every bit helped to accelerate my debt payoff.

    You can play around with my Student Loan Payoff Calculator and see for yourself how even small extra payments can make a huge difference.

    I did the same thing with any bonus I received: as soon as it hit my account, I used it to pay off my loans.

    The Jay Leno Rule works because it forces you to save money.

    We know that our saving rate is the one thing we can truly control on our way to financial independence.

    Even though most of us would agree that we should be saving more money, sometimes it’s easier said than done. That’s where Jay Leno’s Rule is so helpful. If you commit to the philosophy, you’ll be forced to automatically save your supplemental income.

    Once you commit to the philosophy, the execution is easy.

    As soon as the money hits your checking account, you move it to one of your savings or investment accounts, or use it to pay off debt. Do this right away so you don’t get tempted to spend the money elsewhere.

    This is exactly what I continue to do today because I knew that if the money sat in my checking account, it would slowly disappear.

    One other tip: don’t include this money in your Budget After Thinking. Pretend you never even had the money. This is a money mindset trick that will help you solidify the habit.

    Because my teaching paychecks and bonuses were irregular, I did not factor them into my budget. It might sound silly, but I just pretended that extra money wasn’t really mine. As soon as it came in, I put it to good use.

    Help yourself out by pretending your supplemental income isn’t even yours. This applies to side hustles, bonuses, windfalls, etc.

    Use this extra money to advance your financial goals and continue living off of your salary.

    The key to establishing the habit is starting early in your career, like Leno and Gronk did. It’s important to do this before you become dependent on spending the supplemental income.

    I have used the Jay Leno Rule since 2011 to turbocharge my net worth.

    As the years went on, my wife and I have added income streams and continue to use the Jay Leno Rule. Here’s a snapshot of our income streams:

    • My salary as an attorney
    • Bonuses earned as an attorney
    • My wife’s salary as an attorney (until 2025)
    • Chicago Rental Property 1
    • Chicago Rental Property 2
    • Chicago Rental Property 3
    • Colorado Rental Property
    • Law School Course 1: Financial Wellness for Lawyers
    • Law School Course 2: Moot Court & Appellate Advocacy S.1
    • Law School Course 3: Moot Court & Appellate Advocacy S.2

    Adhering to the Jay Leno Rule, my wife and I have only ever spent our salaries as attorneys. The rest of the income we earn goes directly to our financial goals.

    Since 2011, we’ve built significant wealth by applying this simple strategy. Our financial goals evolved, but the strategy remained the same: earn multiple sources of income, live off of one source, invest the rest.

    Early in my career, my primary financial goal was to get out of debt. Whenever I earned a bonus or a paycheck from teaching, I immediately transferred the money out of my checking account to pay down the debt.

    Within a few years, my debt was gone.

    But, I didn’t stop applying the Jay Leno Rule just because I was out of debt.

    I had already done the hard part and established the habit of using any supplemental income for financial goals. That made it easy to then use any supplemental income to build up my assets.

    That meant I could more aggressively invest in the stock market and more quickly acquire rental properties.

    Today, my wife and I continue to apply the Jay Leno Rule. Any income from bonuses or side hustles goes immediately to paying off debt or to fueling our investments.

    At first, I didn’t fully appreciate the impact the Jay Leno Rule had on my finances. That’s how personal finance works. It takes time for compound interest to work its magic.

    Now, I’m seeing the results from the “forced savings.”

    And, I’m so grateful that I learned the Jay Leno Rule early in my career.

    person in yellow jacket running down a road showing what it means to hustle to financial freedom.
    Photo by Oskar Smethurst on Unsplash

    I’ve had side hustles for just about my entire career as a lawyer.

    My first side hustle was as an adjunct professor at a local law school, teaching just one class. I made hardly any money when I started teaching. It didn’t matter to me. I wasn’t dependent on the money to feed my lifestyle.

    I was playing the long game. Because I got my foot in the door and did a good job, the school took notice. At my peak, I was asked to teach four classes. That meant I earned a lot more and could put all that extra income to financial goals. 

    At the same time, I also launched a rental property business with my wife. We now manage 11 rental units in Chicago and Colorado.

    By the way, earning more money does not only apply to side hustles.

    There are always ways to make more money within your primary job. 

    For example, can you earn a larger bonus by performing better?

    Can you ask your employer for more responsibilities and a corresponding raise?

    Or, can you earn additional money by generating business for your company? 

    It’s no secret that lawyers have the ability to earn more money if they generate business. That means bringing in clients.

    How can you find these clients?

    You can make it a priority to go to more events where you might meet potential clients. 

    You could launch a blog or create other content to help people find you and know what you do.

    Either one of these pursuits could be your side hustle.

    There are endless opportunities for anyone that is motivated and is looking to earn more money.

    And when you earn and invest that additional money, you’re on your way to financial independence without having to sacrifice the things that make your daily life enjoyable.

    If you take on a side hustle, don’t forget the Jay Leno Rule.

    I recommend that every young lawyer take on a side hustle or look to earn supplemental income. And, when you start earning extra money, don’t spend it. Apply the Jay Leno Rule.   

    Never forget that when it comes to side hustles or supplemental income, it’s what you do with that extra money that makes it worth it.

    A side hustle is another time commitment, after all. If you’re going to take on the responsibility, make sure it counts.

    Before you consider a side hustle, have a plan in place for why you want additional money.

    Are you looking to pay down debt faster?

    Save for a wedding?

    Invest in your first rental property?

    To help you think through why you might want a side hustle, check out these three posts:

    You Should Want to be Good with Money
    How to Make a Budget After Thinking
    Why You Need to Fuel Your Savings

    BTW, you’re not too busy or important for a side hustle.

    Some lawyers reading this will automatically think, “I’m way too busy to even think about another job.”

    In my personal finance class for law students, we spend a lot of time challenging that notion. Very few people- and I mean very few- are too important or too busy to take on a side hustle.

    You may think you’re one of those “too important” people. I would challenge you to assess whether you’re confusing “too important” with “too stressed.”

    Setting that conundrum aside, the ideal side hustle is something you enjoy doing that can earn you extra money at the same time. Some examples my students have come up with in class include:

    • Bartending. Entice your friends to come to your bar by offering cheap drinks. You get to hang out with them and get paid at the same time.
    • Fitness instructor. Instead of paying $48 for the spin class you love, become the instructor and get paid to lead the class.
    • Dog Walker. If you love dogs and don’t currently have one of your own, what better way to fill that void in your life while making money. The same applies to babysitting.
    • Home Baker. Make homemade treats with your kids and sell them to parents who don’t have the time.

    The point is there are always ways to make more money by doing things you like to do anyways. Even if you’re busy. You just have to exert some mental energy to figure out how.

    a mug on a desk indicating that we an all have a side hustle to reach financial freedom.
    Photo by Garrhet Sampson on Unsplash

    This idea of being “too busy” reminds me of a conversation my dad and I had when I was in high school.

    Growing up, my siblings and I were busy kids. Sports, clubs, performances, classes, you name it. I made a remark to my dad about it at one point.

    He responded that being busy wasn’t a bad thing because you don’t have time to fool around. When you have no choice other than to stay focused, you actually perform better in all facets of life.

    You’re not thrown off by distractions because you’re locked in on accomplishing your goals. Back then, that meant going to class followed by soccer or basketball practice, a quick dinner, some homework and bed. I didn’t have any time for fooling around.

    The same is true today.

    I take care of business as best I can, while prioritizing my family and my health, and don’t have a lot of time to goof around.

    I can see your eye rolls through your screen.

    This guys is nuts. He’s a workaholic. He has no life.

    The people who know me best would beg to differ.

    They might even tell you that I’m pretty good at spending my working hours doing what is meaningful to me. And, that I spend my personal time with the people who are meaningful to me.

    If you want to get ahead financially, you really only have two options.

    At the end of the day, there are really only two ways to get ahead financially: spend less money and/or make more money.

    Of course, if you really want to get ahead financially, earning more money at the same time you’re spending less money is a dominate combination.

    This is what Jay Leno and Gronk did. It’s also what I did.

    I was talking to a friend recently. He wants to improve his financial situation. After all of life’s expenses, he doesn’t have much left to invest and get ahead.

    We talked about how there are no shortcuts. He either needed to start making more money or needed to spend less. It wasn’t what he wanted to hear at first. He wanted a quick fix.

    Money doesn’t work that way, even if you win the lottery, inherit a large sum of money, or earn a huge bonus. If you don’t have a strong foundation, that money will disappear as soon as you get it.

    If you take on a side hustle, you can use every dollar you earn to get ahead. Since this is new money you’re earning, you shouldn’t need it to fund your life’s expenses. 

    Avoid the temptation of using that money on things you don’t really want anyways.

    One more tip: use a financial calculator to see how much faster you’ll reach your goals if you’re able to throw additional money at them each month. Track and watch your net worth grow.

    If you’re not ready for a side hustle, the same logic applies anytime you earn a bonus or commission at your primary job. Put that money to good use by paying down your debt.

    Start using the Jay Leno Rule and never look back.

    This concept of living off of my salary and not spending any bonus or side hustle income is one of the biggest reasons for my net worth today.

    I recommend anyone striving for financial independence make the same commitment to not spend your supplemental income.

    The hard part is getting past the initial temptation to spend your bonus money. If you can convince yourself that you don’t need the money right now to live the good life, you will be significantly better off down the road.

    One of my favorite experiences teaching personal finance to law students involved a side hustle story. A couple of years ago, a student approached me during a break and told me about his credit card debt. It had been weighing heavily on him.

    After our discussion about side hustles, he committed himself to driving for DoorDash and using the income to pay off his credit card balance.

    Six months later he sought me out to share that the plan worked. His side hustle allowed him to pay off his credit card in less than six months. All while working a full-time job and attending law school par-time.

    I couldn’t have been happier.

    Jay Leno would certainly have approved.

    Do you adhere to the Jay Leno Rule?

    Has it helped accelerate your progress towards financial independence?

    Let us know in the comments below.

  • Ignore Courthouse Stock Tips: Start with the Fundamentals

    Ignore Courthouse Stock Tips: Start with the Fundamentals

    The other day I was talking to some lawyers I know at court while waiting for the judge to come out.

    Per usual, we started chatting.

    What are Da Bears going to do in the offseason?

    Is the weather ever going to get above freezing?

    Any good trips coming up?

    That kind of thing.

    During our conversation, a couple of the lawyers shared that they were enjoying my posts and weekly emails. Always nice to hear.

    After a few minutes, the conversation evolved into a discussion about how the markets were doing. One of the lawyers mentioned a new stock he was looking at after watching a segment on CNBC.

    As the nearest (only?) personal finance professor standing around, they asked me for my opinion.

    I don’t know if they liked my answer.

    Let me explain.

    At the beginning of my personal finance course, I always ask my students what they want to learn about.

    This conversation in court reminded me of a common theme I’ve noticed about teaching personal finance.

    At the beginning of my course, I always ask my students what they want to learn about.

    The most common response is something like, “I want to learn how to invest.”

    OK, not a bad goal.

    Investing is a crucial component of financial wellness.

    However, learning to invest is not where our personal financial journeys begin.

    Here’s how the scene usually plays out in my class:

    When my students ask me a question about how to start investing, I tend to respond with a question of my own:

    “How much savings does your budget generate each month?”

    Yes, I know. It’s so annoying to answer a question with a question.

    This particular question usually leads to a double dose of annoyance from my students.

    My students are first annoyed that I ignored their question about investing.

    They didn’t come to me to talk about something boring, like budgeting. They want to know about the exciting stuff, like investing in the stock market.

    What I’ve noticed is that after this initial annoyance fades away, another form of annoyance sets in.

    My students get annoyed because they can’t actually answer the question.

    They realize they have no idea how much money they’re saving each month because they don’t have a budget.

    Do you see the problem?

    What’s the point in learning how to invest… if you don’t actually have any money leftover in your budget to invest?

    This is what I tried to explain to the lawyers standing around in court the other day.

    They nodded along politely, but they really just wanted to know my thoughts on the hot stock tip.

    Instead of worrying about stock tips, make sure your personal finances are in order.

    My goal here is not to dissuade you from investing in the stock market.

    I am a big proponent of investing. Every lawyer should be investing to create optionality in life.

    My goal is to help you establish a strong foundation so you don’t fall backwards as soon as you start seeing investment gains.

    One of the biggest personal finance mistakes I see is people trying to rush the process without starting from a strong foundation.

    Personal finance is all about the progression:

    In the Think and Talk Money blog, we initially covered each of those topics in order from top to bottom. There was a method behind the madness.

    First, we talked extensively about the mental side of money. Without having your money mindset in the right place, nothing else matters.

    We then spent a lot of time talking about personal finance fundamentals, like budgeting, saving, and handling credit and debt responsibly. 

    Only after having our personal finance foundation in place did we talk about more fun concepts like investing in the stock market and owning real estate.

    Of course, there’s a reason we’ve covered these topics in this order. 

    If your money mindset is not in the right place, you won’t be able to stay on budget. 

    If you can’t stay on budget, you’ll likely fall into debt. 

    When you’re falling deeper and deeper into debt, it doesn’t make a lot of sense to prioritize investing.

    At that point, hot stock tips are totally worthless to you.

    two women sitting by the window talking about investing when they really need to learn about the basics of personal finance.
    Photo by Christina @ wocintechchat.com M on Unsplash

    Why bother with stock tips if any investment gains are just going to disappear?

    Let’s focus on that last point for a minute. 

    What sense does it make to invest in the latest hot stock if you’ve never proven to yourself that you can use those investment gains responsibly?

    Sure, you may get a quick emotional high from being right about a stock.

    But, why take that risk just to have any gains disappear because you don’t have a strong personal finance foundation in place?

    Imagine you happen to get lucky enough to buy and sell a stock at just the right time to make $20,000 in just a few months.

    It’s not easy to earn that much. It takes some good luck, not to mention the risk involved.

    Now, if you blow the $20,000 you earned on things you don’t even care about, what was the point? 

    Why take on the risk and do the work if the money will all be gone just as quickly as you received it?

    Unfortunately, this is how many people go through life. They work hard, make good money, and then have nothing to show for it.

    I don’t want that to be your fate. I want you to have a plan for your money before you earn it. 

    That means sticking to the fundamentals that consistently move you closer to living freely on your terms.

    Most of us don’t know where our next dollar is going. 

    The reason most people never get ahead with their finances is because they don’t have a plan for where their next dollar is going. 

    Their income hits their checking account, they spend it on this or that, and pretty soon that money has disappeared. They haven’t used the money to advance any of their priorities.

    It’s just gone.

    To me, this is one of the most important money mistakes that we need to fix right away. We definitely need to fix it before we put our money at risk in the markets.

    If not, you’re likely to make the same mistakes, just with more money to lose.

    Having a plan for our money, before we earn it, is essential if we want to reach our goals. With a plan, we can eliminate the disappearing dollars and have the confidence that our money is being used to serve our purposes.

    How do you create a plan for your money before you earn it?

    You need to have a budget.

    If you don’t currently have a budget that results in excess money at the end of each month, I encourage you to start there before embracing the latest stock tip.

    How to create a Budget After Thinking.

    The key to budgeting is to eliminate disappearing dollars by creating a plan for Now Money, Life Money, and Later Money.

    Your Later Money is the whole key. That’s what you’ll eventually use to accelerate your journey to financial freedom by investing in stocks or buying real estate.

    1. Now Money

    Now Money is what you need to pay for basic life expenses. 

    These expenses include housing, transportation, groceries, utilities (like internet and electricity), household goods (like toilet paper), and insurance. 

    These are expenses that you can’t avoid and should be relatively fixed each month.

    2. Life Money

    Life Money is what you are going to spend every month on things and experiences in life that you love. 

    This bucket includes dining out, concerts, vacations, subscriptions, gifts, and anything else that brings you joy. 

    We can’t be afraid to spend this money. This bucket is usually what makes life fun and exciting. The key is to think and talk so you are spending this money consistently on things that matter to you.

    3. Later Money

    Later Money is what you are saving, investing, or using to pay off debt. 

    This bucket includes long term goals, such as retirement plan contributions (like a 401k or Roth IRA), college savings for your kids (like a 529 plan), emergency savings and paying off student loan or credit card debt. 

    This bucket also includes any shorter term goals, like saving for a wedding or a downpayment for a house. 

    Most fun of all, this bucket includes any investments you make to more quickly grow your wealth, like investing in real estate or the stock market.

    Later Money is the key category that fuels your ultimate life goals, like financial independence. The more you fuel this category, the faster you can reach your goals.

    Businesswoman talking to her colleagues while standing in office lobby indoors about personal finance fundamentals for lawyers.
    Photo by Vitaly Gariev on Unsplash

    Why a Budget After Thinking works for lawyers when other budgeting systems fail.

    It’s not for me or anyone else to tell you what to do with your money. That’s why I don’t tell you to save 20% of your income or only spend 50% on fixed expenses. 

    In my experience teaching personal finance, that advice just doesn’t work, especially not for young lawyers with entry-level salaries and massive student loan debt. 

    The truth is fixed spending rules sound good until you actually try to implement them. 

    In reality, when you base your entire budgeting strategy on arbitrary rules like “save 20%,” you’re likely to realize that target is out of reach. 

    You would have to cut so much from other areas that your budget would be oppressively restrictive. The result is you’ll get frustrated and quit your budget.

    I have a different approach. One that actually works for lawyers.

    With a Budget After Thinking, the central purpose is to evaluate your current spending habits, no matter your starting point. Once you understand where your money is going, you can implement thoughtful adjustments that match your lifestyle and financial goals. 

    No hard and fast rules. 

    Just individual thought and discretion with a focus on creating real money to invest.

    When you have strong fundamentals in place, investing becomes fun.

    Being good with money doesn’t have to be stressful. Once you have the fundamentals in place, you’ll start to see how each dollar you earn gets you one step closer to financial freedom.

    That’s when investing is fun. Whether the markets go up or down, you stick to the plan. You consistently feed your accounts knowing that over the long run, you’ll be in great shape.

    So, before you embrace the next hot stock tip from the lawyers standing around the courthouse, make sure that your personal finances are in order. 

    When investment gains come in, you want to make sure they don’t go right out.

    Otherwise, the effort, stress, and risk of investing is not worth it. Any dollar you earn is likely to disappear as quickly as it comes in.

    To prevent that from happening, establish good money habits first. 

    In the end, you’ll be so happy that you did.

    Let me know what you think by dropping a comment below.

  • The FI Police Won’t Like How Much I Spend on Housing

    The FI Police Won’t Like How Much I Spend on Housing

    If I have one critique about the financial independence community, it’s that certain segments can be awfully judgy.

    This is especially true when it comes to how people choose to spend their money.

    If you choose to spend money on a big house, a fast car, or heaven forbid… a latte… watch out for the Financial Independence Police.

    They will tell you you’re doing it all wrong, and you’ll never reach financial freedom spending like that.

    I disagree.

    More to the point, I don’t find judgments like that productive, especially when I teach personal finance to lawyers.

    Instead, I do my best to encourage my students to spend their money based on their own values, not anyone else’s. Yes, there always tradeoffs. But, those tradeoffs are yours alone to make.

    In today’s post, I wanted to explore this concept as it relates to my own spending decisions.

    Spoiler alert! The FI Police won’t like how much I spend on housing.

    Let’s dive in, starting with how the average American spends his money.

    The average American spends the most in three categories: housing, transportation and food.

    According to the U.S. Bureau of Labor Statistics, Americans tend to spend the most money each month on housing (33.4%), transportation (17%), and food (12.9%).

    Those three categories equate to nearly 63% of the typical American’s budget. This is not to say that you should base your spending on these averages. Everyone is different.

    But, conventional wisdom goes that by focusing on just those three categories, most people can make major strides towards financial independence.

    Scott Trench from BiggerPockets Money has been championing this idea for years. Check out his book Set for Life to read more about the impact you can make on your finances by targeting just these three areas.

    Personally, I spend way more on housing than the typical American.

    Look out! Here comes the FI Police!

    Before they lock me up and throw away the key, hear me out. There are some intentional reasons why my wife and I spend more on our house, some financial and some emotional.

    And, I’ve never been closer to financial independence.

    More on that below.

    First, let’s remind ourselves about that intersection between money and emotions and why it’s so important to make individual decisions when it comes to our money.

    There are no hard and fast rules on how you should spend your money.

    In The Art of Spending Money, bestselling author Morgan Housel explores the relationship between spending money and happiness.

    Housel’s primary thesis is that there are no hard and fast rules on how you should spend your money. What you may value is different from what I may value. 

    For that reason, we should all make individual spending choices based on what matters the most to us. To go along with that, we should not spend money to impress other people. When we do that, we will never find happiness.

    In Housel’s estimation, seeking external validation based on material possessions is a one-way ticket to a miserable life.

    It’s hard to disagree with that.

    Here’s a passage about spending habits that resonated with me:

    The people I know who’ve used money best have inconsistent spending habits. They spend a lot of money on this, and very little on that. They value this, and couldn’t care less about that. They’re independent thinkers, forcing their money to work for them, not the other way around.

    This was such a brilliant observation that it inspired me to write about how I spend my money. That’s the focus of today’s post.

    What you can learn from other people’s spending habits.

    As you read about my spending habits, remember Housel’s advice:

    We all value different things and experiences. That means we naturally should be spending money on different things and experiences.

    Of course, you may appreciate some of my spending decisions. On the flip side, you may think other spending decisions are foolish.

    That’s OK. No FI Police to worry about here.

    The point is not for me to tell you, “Spend money like me if you want to be wealthy.”

    The idea is that by hearing my perspective, you might be inspired to evaluate your own spending habits and think about whether you want to make any adjustments.

    And, that right there is the whole key to budgeting.

    Why a Budget After Thinking works for young lawyers when other budgeting systems fail.

    It’s not for me or anyone else to tell you what to do with your money. Housel knows a thing or two about money and just wrote an entire book premised upon that message.

    That’s why I don’t tell you to save 20% of your income or only spend 50% on fixed expenses.

    In my experience teaching personal finance, that advice just doesn’t work for young lawyers with entry-level salaries and massive student loan debt.

    The truth is fixed spending rules sound good until you actually try to implement them.

    In reality, when you base your entire budgeting strategy on arbitrary rules like “save 20%,” you’re likely to realize that target is out of reach.

    You would have to cut so much from other areas that your budget would be oppressively restrictive. The result is you’ll get frustrated and quit your budget.

    I have a different approach. One that actually works for young lawyers.

    With a Budget After Thinking, the central purpose is to evaluate your current spending habits, no matter your starting point. Once you understand where your money is going, you can implement thoughtful adjustments that match your lifestyle and financial goals.

    No hard and fast rules.

    Just individual thought and discretion.

    And, that leads us to my self-evaluation on how I spend money.

    Note: for budgeting purposes, I do not include bonuses in my income. Any bonus money I earn goes straight to investments. Call it the “Jay Leno Rule.” More on that in a future post.

    Housing takes up about 40% of my budget.

    Similar to most Americans, housing is my biggest monthly expense.

    Where I’m different is that I spend more of my monthly budget on housing than most.

    The funny thing is my answer would have been the exact opposite if I wrote this post in 2024.

    From 2018-2024, I had zero housing costs. We lived in apartments within buildings that we owned. The rent we collected covered all of our housing expenses. That allowed us to save a lot of money, most of which we invested in more rental properties.

    In 2024, we moved into our “forever home” just outside Chicago. For the first time in our married life, we had housing expenses to pay on our own.

    Housing now takes up about 40% of my monthly budget.

    Here are some reasons why we choose to spend more on housing.

    My wife and I are comfortable spending a decent amount on housing at this stage of our lives. We made that decision intentionally and haven’t regretted it for a second.

    Here are some of the financial reasons why we choose to spend more on housing:

    • We lived in small apartments for free until I was almost 40-years-old. If you average out our housing costs including that time period, we’re well below the American average.
    • We have already reached Coast FIRE. That means we’ve already saved enough for a comfortable retirement, opening up more money to spend today. To see if you’re in the same boat, you can use the TATM Coast FIRE calculator.
    • Additionally, we have enough saved to cover college for 2 of our 3 kids. Again, more money to spend elsewhere. You can see if you’re on track with the TATM 529 College Savings Calculator.
    • Finally, refer back to the Jay Leno Rule mentioned above. We don’t spend our bonuses, just our regular paycheck. If we included bonuses, that 40% figure would drop significantly.

    In terms of emotional reasons, here’s why we choose to spend more on housing:

    • Our family is growing. We now have three young kids. The neighborhood is full of families, and the schools are great. This is the exact time in life to prioritize a home for my family.
    • We can walk to parks, shops, and restaurants. It’s also an easy commute downtown for me.
    • We simply like spending time at home. Call me a homebody. As a family of five, we spend a lot of time amusing ourselves at home.
    • On top of that, just about every weekend, we host friends or family at our house, something we prefer to going out.

    The point is: we spend more than average on our home, but it’s more than worth it to us.

    The tradeoff is that because housing eats up a big chunk of our budget, we intentionally don’t spend as much in other areas. That ensures we stay on track to financial independence.

    Let’s explore that further.

    Matthew Adair picking up a big box from warehouse reflecting what he spends money on and doesn't like it or not like it but has to do it.

    Transportation takes up only 3% of my monthly budget.

    Spending decisions always have ripple effects. In my case, that plays out when you look at my housing expenses in relation to other areas, like transportation expenses.

    Here’s what I mean:

    We spend a decent amount on our house, but because of the house we chose, we don’t spent a lot on transportation.

    I walk to the train station for my commute downtown. We walk our kids to school. For date night, my wife and I walk into town for dinner.

    Most of our weekly driving is to the grocery store (2 miles away) or to kids’ activities (all close by). On the weekends, we tend to visit grandparents (25 miles away or less), which also means free entertainment.

    In total, we just don’t drive very much. When we do drive, we don’t go very far.

    All told, we spend about 3% of our monthly budget on transportation.

    That includes car insurance, gas, maintenance, and train passes.

    We do not have a car payment. One of our cars is now 10-years-old and the other we bought two years ago. We don’t plan on replacing either vehicle anytime soon.

    Food eats up about 7% of my monthly budget.

    Do you see what I did there?

    As a family of five, our grocery bills keep getting bigger. Kids gotta eat, right?

    Most of our food budget is used at the grocery store. We shop at Costco, Mariano’s and Trader Joes.

    We eat most of our meals at home. I bring my lunch to work every day. Same for coffee.

    So, most of our food budget is for groceries rather than dining out.

    As for dining out, this just isn’t a big part of our lives or budget. I owe a lot of that to having young kids who sort of take all the fun out of restaurants, but also that we like eating at home (see above).

    When we do dine out, we tend to keep it casual. We do pizza night weekly at a neighborhood Italian restaurant. Maybe carryout a couple times per month.

    My wife and I are hoping to incorporate more date nights this year. Not always the easiest thing with three kids under six at home.

    If you add up date nights and socializing with friends, we dine out maybe 2-3 times per month.

    Add it all up and food eats up about 7% of our monthly budget.

    In total, 50% of my monthly budget goes to housing, transportation, and food.

    In total, we spend 50% of our budget on housing, transportation, and food. That’s less than the typical American (63%).

    However, compared to the typical American (33%), we spend more on housing (40%). We make up for it by spending less on transportation and food.

    What would the FI Police have to say about that?

    In my opinion, there’s no right way or wrong way to do it. We try to be intentional about each choice we make, understanding the ripple effects on the rest of our budget.

    The end result is that by keeping our spending in check in these three major categories, even with spending more on housing, we have more funds available for fun and for financial goals.

    What else do I spend money on?

    The remaining 50% of our budget goes mainly towards discretionary spending and financial goals.

    I’ve previously outlined my current financial goals. Click here to read more.

    Today, I’ll give an overview of how I spend the rest of my money.

    I am a “Buy Once, Cry Once” consumer.

    I am definitely a “Buy Once, Cry Once” person. That means I’m happy paying more upfront for a quality item that will last to avoid the repeated costs and frustration of replacing cheaper items.

    That applies to clothing, furniture, recreational items, gadgets, and everything else. For example, I’d rather spend more on a single nice sport coat that will last me decades instead of three cheaper ones that will need to be replaced.

    As another example, we’ve been in our house for less than two years and are taking our time getting furniture to fill it up. I’d rather buy one new dresser that will last until the kids are off to college instead of three new dressers that I’ll need to replace.

    The tradeoff is that certain rooms look emptier for longer. I laughed when we hosted a party and some guests made fun of the smallish TV we have in the family room.

    My wife and I are fine with that. We don’t like clutter. We don’t like shopping. This spending philosophy matches our personalities perfectly.

    We spend money on travel and the kids.

    As a family, we like to take trips to our two favorite places, Colorado and Florida. While traveling with a family of five can be expensive, we use points to keep our costs as low as possible.

    To that end, we primarily use the Chase Sapphire Reserve to earn points and pay for travel.

    Besides traveling, we spend a good amount on kids’ activities: ski lessons, piano lessons, swimming lessons, soccer, dance, Girl Scouts… and that’s just what comes to mind for my oldest daughter.

    Yikes.

    As a side note, if you ever needed a reason to learn strong personal finance fundamentals when you’re young, re-read that previous sentence. It’s important to take ownership of your money decisions right now. It only gets more complicated as you progress through life.

    I don’t mind spending on the kids so they can try new experiences. It’s fun to watch them have fun, socialize and learn new skills.

    Christmas tree and presents reflecting some self-evaluation followed by thoughtful adjustments, which is the backbone of his Budget After Thinking system.

    My love language is gift giving.

    Have you ever looked up your “love language?”

    I think mine is gift giving. I like buying gifts for my wife and kids, more than I like getting things for myself.

    That means plenty of opportunities to spend money with four birthdays and seemingly unlimited holidays throughout the year.

    I particularly enjoy when I think of a gift idea months ahead of time and visualize the moment when I give it to the person.

    These gifts don’t have to cost a lot of money, by the way. Ask my father-in-law about the garbage bags I gifted him. I planned that one for months. I think I enjoyed it more than he did…

    We spend intentionally on everything else without tracking every penny.

    Besides these expenses, we spend intentionally on things and experiences as they present themselves throughout the year.

    To stay on budget, we track just two simple numbers using the TATM Budget After Thinking Template™️.

    We’ve learned enough about our spending habits that we no longer need to track every penny. When we want to buy something, we buy it and focus on just those two simple numbers.

    For example, I got really into planting trees in the backyard last spring.

    Trees can be expensive, but I enjoyed putting them in the ground and watching them grow throughout the season. Plus, when I would buy a couple trees, I’d make sure to hold off on other big purchases that month.

    As another example, the kids are really into Halloween and Christmas decorations for the house. Each year, I tell my kids they can pick out one new decoration. This year, it was a giant skeleton. It brought them so much joy.

    Holiday decorations like that are another seasonal expenditure that we’re happy to take on with a little advanced planning.

    So, how do you spend your money?

    This was a fun and valuable post to write.

    It forced me to self-evaluate my spending decisions, and I’m generally happy with where I’m at.

    That hasn’t always been the case.

    When I started on my financial independence journey, my spending was a mess. It took some time and discipline to get on the right track.

    What I learned is that once you make those thoughtful adjustments, the results can be life changing.

    I encourage you to take a look at your owning spending habits.

    If you’ve never thought about budgeting before, you can learn all about my Budget After Thinking philosophy here. You’ll find a custom-built budgeting template and links to a number of posts to help you get started.

    When you evaluate your habits, you may be in a similar boat as me or a completely different boat.

    Either way, let me know in the comments below or reach out if you have any questions.

    That’s what makes thinking and talking money fun.

  • Read The Art of Spending Money by Morgan Housel

    Read The Art of Spending Money by Morgan Housel

    On my journey to financial independence, I’ve read close to 100 personal finance books. To kick off the new year, I just finished The Art of Spending Money by Morgan Housel.

    If the name sounds familiar, you might recognize Housel as the bestselling author of The Psychology of Money, one of my favorite money mindset books.

    Housel exemplifies what I look for in a personal finance book. My favorite books motivate me to think about the relationship between life and money.

    I think of this type of book as a “money mindset book.”

    For a list of my favorite money mindset books, click here.

    What you’ll notice about these books is that they share a common theme. Each book will inspire you to use money as a tool to build a life that is personally meaningful.

    My favorite money mindset books emphasize that money is emotional.

    One of the ways these books do that is by exploring the emotional side of money. In other words, they don’t just talk about the numbers and math of personal finance. Money is so much more than a spreadsheet.

    That not only makes the books more interesting to read, it also makes them so much more practical in the real world.

    Nobody does this better than Housel.

    See, I am striving to build the best life possible for my family. To do that, I need to learn more than just the numbers.

    I need to be good at not only making money, but also using that money to build a life on my terms. That requires finding a balance, which can be tricky.

    To help strike that balance, I’ve studied how others have done it, like Housel. Then, I can take what I learn and implement those lessons into my own life. 

    As a personal finance professor, I can also share these lessons with law students and young lawyers.

    My favorite money mindset books view money as a tool and nothing more.

    We talk about it all the time. Money is nothing more than a tool you can use to build a life on your terms.

    My favorite money mindset books hammer this point home. Housel hammers this point home with a sledge hammer.

    By the way, you can get a sense of what building a life on your own terms means by reviewing my personal Tiara Goals for Financial Freedom.

    Each of the money mindset books I’ve read has helped me develop these core life philosophies. Importantly, these books have helped me acquire and use money in alignment with those core beliefs.

    A good money mindset book might teach you how to acquire money. The best money mindset books will teach you how to use that money to live your best life.

    Perhaps no book that I’ve read does that better than today’s money mindset book: The Art of Spending Money by Morgan Housel.

    Housel is no stranger to the financial independence community.

    As mentioned at the top, Housel’s bestselling book, The Psychology of Money, has long been featured on my list of The Best Money Mindset Books.

    In The Psychology of Money, Housel writes about how people make decisions with their money in the real world. Housel agrees with one of our main themes at Think and Talk Money:

    Money is emotional. 

    We can all be shown data and spreadsheets and understand what we should do. But, that’s usually not enough to change our behavior.

    Housel is here to help with that. In The Psychology of Money, he takes core personal finance lessons and translates those lessons into regular life concepts.

    Additionally, Housel teaches us the different ways people think about money. Then, he offers his perspective on how we can make better sense of money through our own life experiences.

    Read The Psychology of Money. This money mindset book will help you understand the relationship between money and happiness.

    The Art of Spending Money is the natural sequel.

    The Art of Spending Money advances Housel’s message about the relationship between money and happiness, this time with an emphasis on spending.

    Of course, Housel excels at illustrating the interconnection between money and our emotions.

    In his newest book, Housel’s primary thesis is that there are no hard and fast rules on how you should spend your money. What you may value is different from what I may value.

    For that reason, we should all make individual spending choices based on what matters the most to us. To go along with that, we should not spend money to impress other people. When we do that, we will never find happiness.

    In Housel’s estimation, seeking external validation based on material possessions is a one-way ticket to a miserable life.

    It’s hard to disagree with that.

    Here’s a passage about spending habits that resonated with me:

    The people I know who’ve used money best have inconsistent spending habits. They spend a lot of money on this, and very little on that. They value this, and couldn’t care less about that. They’re independent thinkers, forcing their money to work for them, not the other way around.

    This was such a brilliant observation that I’ve been thinking about whether this is how I spend my money. I like to think that it is. Stay tuned for a follow-up post on this topic.

    Money can’t buy happiness, but it can make a happy person… happier.

    Housel also writes that while money can’t buy happiness, it can be leveraged in a way to enhance your life if you are already happy.

    Think of it like gasoline on a fire. Gasoline won’t start a fire on its own. But if a fire already exits, gasoline can be used to make it bigger.

    This relates back to using money as a tool. When you use your money like you would use a screwdriver, you can make the task at hand easier. You control the tool and use it to your advantage.

    That’s how money can be used to enhance your pre-existing happiness.

    The Art of Spending Money by Morgan Housel is one of the best money mindset books and encourages you to think individually and spend money on what matters the most to you, not anyone else.

    Housel shares entertaining stories to highlight his points.

    Housel is at his best as a writer when sharing stories about people in his life, historical icons, and modern day figures.

    One of my favorites is the anecdote he shares about Kevin Costner and the origin story of the legendary movie, Dances with Wolves. Truly incredible.

    Here’s another anecdote that I’ll never forget about money and raising children:

    John D. Rockefeller–then the richest man in the world–once walked into the Waldorf Astoria hotel in New York City. He needed a room while his home was being remodeled.

    He asked the hotel agent for the cheapest room available. The agent said, “Mr. Rockefeller, surely we can get you something better. When your son stays here he takes the Presidential Suite.”

    Rockefeller responds, “Yes, but my son has something I’ve never had: a rich father.”

    As lawyers, we have the opportunity to make a lot of money in our careers. That’s not something to boast about or be ashamed of. It’s just a fact. We can’t ignore that fact when it comes to teaching our children about money.

    How you earn is as important as how much you earn.

    OK, one more passage from Housel that jumped off the page at me that I need to share.

    This is a personal finance blog for lawyers, right?

    A lawyer who works one hundred hours a week and hates their job may have an urge to spend frivolously in an attempt to compensate for the misery of how their paycheck was earned. Never have I seen money burn a hole in someone’s pocket faster than an investment banker receiving their annual bonus. After twelve months of Excel modeling until 3 a.m., you have an urge to prove to yourself that it was worth it, offsetting what you sacrificed.

    Does that one strike a nerve?

    If it does, that might just be teaching you something about both your job and your relationship with money.

    And, if I had to guess, that’s Housel’s main purpose in writing The Art of Spending Money.

    You might not like everything that he has to say. I found myself wanting to push back on some of his opinions. You know what That’s how it should be.

    I think Housel would agree that he would rather have us think critically about his viewpoint than blindly accept his opinions as gospel.

    That holds especially true when it comes to life and money. This is your life. It’s your money. You need to explore that dynamic relationship for yourself.

    When it comes to money, Housel encourages us to think for ourselves.

    Housel wants us to explore our personal and emotional relationship with money so we can make intentional spending choices.

    He’s not here to tell you what to do with your money. Neither am I.

    He uses examples and relatable stories that will make you think about your money and spending decisions.

    Yes, he shares his perspective to help get our wheels turning. But, he encourages us to think for ourselves.

    In other words, don’t do something because he’s doing it. He wouldn’t want that. Do it because you’ve thought about what you value the most and what kind of life you want to live.

    The corollary to that point: don’t spend money hoping that it will impress other people. It won’t.

    Spend money on what matters the most to you. For Housel and many others in the financial independence community, that means buying your freedom.

    There is no material possession in the world more valuable than that.

    Read The Art of Spending Money. This money mindset book will help you spend money in line with what matters most to you.

    Have you read The Art of Spending Money?

    What did you think?

    Let us know in the comments below.

  • Money is Just a Tool: My 2026 Money and Life Goals

    Money is Just a Tool: My 2026 Money and Life Goals

    What I love most about studying and teaching personal finance is the interconnection between money and life.

    We talk about it all the time in the blog.

    Money is just a tool to be wielded to get what you really want in life. Money is not the destination, it’s the vehicle to help get you there.

    With that in mind, here are my money and life goals for 2026.

    By the way, this is the first year I’m sharing more than just my financial goals. My aim is to help you think about how money and life connect in your own situation.

    2026 Money and Life Goals

    1. Pay off remaining HELOC debt.
    2. Save 6 Months in my Parachute Money.
    3. Run the NYC Marathon in 4 hours.
    4. Expand the TATM Resource Library.
    5. Create the first TATM online course.
    6. Refocus my best energy on my family.

    1. Pay off remaining HELOC debt. 

    For years, my wife and I used HELOCs to help acquire rental properties. Now that we’re not actively looking to acquire more properties, our goal is to eliminate this HELOC debt.

    This is a carryover goal from 2025. Last year, we set out to eliminate the debt entirely. In the end, we managed to pay off 71% of the remaining balance. 

    While not the end result we targeted, I’m happy with this outcome. Any year that you eliminate 71% of a debt burden is a tremendous year.

    Because we made so much progress on this goal in 2025, I anticipate that at our current saving rate, we’ll have the HELOC debt fully paid off by the end of 2026. 

    It will be an incredible feeling to have this debt load off of our shoulders. We’ve been carrying it for too long now.

    Once this debt is eliminated for good, I can focus on more fun goals.

    I look forward to updating my net worth in the TATM Net Worth Tracker™️. It excites me to think about my assets growing, instead of just seeing debt shrink.

    Think and Talk Money Net Worth Tracker is a purple and white spreadsheet and the only thing you need to measure your progress towards financial independence.
    Download TATM Net Worth Tracker™️

    2. Save 6 Months of Parachute Money.

    Your emergency savings account is the most important savings account in personal finance.

    I like to refer to emergency savings as Parachute Money.

    Last year, my goal was to have four months of living expenses saved up in my Parachute Money account. This year, I’m upping the goal to six months.

    Why six months?

    Most personal finance experts recommend three to six months. Much of it depends on your current income situation and overall comfort level.

    I have income from my primary job, rental properties, and part-time teaching. I could probably get away with only a few months in emergency savings.

    However, I now have three young kids. That raises the stakes. I need to make sure they are protected should financial disaster strike.

    Taking all that into account, six months of emergency savings feels like the right target for me.

    In 2025, for the first time in a few years, we saved 1.5 months of Parachute Money. 

    This was another “failure” that I don’t view as a failure at all.

    When it comes to emergency savings, my challenge has been that I’ve been so focused on eliminating HELOC debt that this goal has typically been pushed aside.

    This year, with the HELOC debt dwindling, we’ve set out to make emergency savings more of a priority.

    By the end of 2026, this is another goal that we should be able to complete because of what we accomplished this year.

    3. Run the NYC Marathon in 4 hours.

    I’m 41-years-old. It occurred to me a few months back that the last time I really challenged myself physically was when I played club basketball in college. That was 20 years ago.

    Oof.

    While I’ve done a decent job of regularly exercising over the years, I’ve never really challenged myself. I’ve kind of just gone through the motions without a specific target in mind.

    This year, I’m changing that.

    So, why the NYC Marathon?

    I listened to a podcast recently where the host encouraged people to think back to what they enjoyed doing as kids and make that a part of their adult lives. Doing so can help improve our overall happiness in life.

    I love this advice.

    As a kid, I liked to play sports. I liked to compete. Running endurance was always one of my strengths. I was never a fast sprinter, but I could run for days without getting winded.

    As an adult, I like running. My normal exercise routine includes going for 2-3 jogs per week. Plus, I’ve always thought about running a marathon, but never made it an actual goal.

    Until now.

    For my first marathon, I had always planned on running in Chicago. It’s one of the seven world majors and a terrific event. Of course, I love Chicago.

    As it happens, my brother-in-law is getting married the weekend of the Chicago marathon, so I pivoted to New York.

    Choosing the NYC Marathon led to a great example of using money as a tool.

    What’s interesting is that my decision to run the NYC Marathon led to a great example of what I mean about using money as a tool to get what you want out of life.

    Here’s the story:

    Over the holidays, I mentioned to an experienced runner that I was going to run New York for my first marathon.

    He told me it was a bad idea. It would be too expensive. I’d have to buy flights and pay for a hotel. I’d also have to register through an expensive charity because so many people enter the race lottery.

    For a few minutes, he told me all the reasons I couldn’t do the NYC Marathon.

    I politely listened… and then booked my hotel in New York as soon as I got home.

    Money is a tool.

    This year, I’m using that tool to run a marathon, something I’ve wanted to do for a while now. Something that will be a personal challenge. Something that allows me to compete like I did as a kid.

    The sound of all of that makes me happy.

    If I’m not going to use money to improve my health and accomplish something I’ve always wanted to do, what would I ever use it for?

    This is exactly what I mean when I encourage you to use money to get what you really want in life.

    Any marathon runners out there, please reach out! I’d love to hear your stories.

    4. Expand the TATM Resource Library.

    In creating Think and Talk Money, my aim is to share the content of the personal finance course I’ve been teaching law students and lawyers for years.

    I dedicated 2025 to that aim by blogging 2-3 times per week.

    In 2026, the plan is to continue blogging, while also sharing the personal finance tools and resources that have helped me and so many others.

    To that end, we now have a TATM Resource Library designed to help you chart out and achieve all of your money goals.

    The TATM Resource Library includes five online calculators.

    TATM Resource Library includes 5 online financial calculators that are completely free to use.

    These five calculators are 100% free to use.

    I specifically chose to create these five calculators because I find them to be extremely motivating on my own journey to financial independence.

    I’ve heard the same from the students and lawyers I have shared them with in the past.

    I encourage you to use these calculators to help formulate your own plan to financial independence:

    1. Compound Interest Calculator to visualize the magic of compound interest over time.
    2. Student Loan Payoff Calculator where you can see big savings with even small extra loan payments.
    3. Credit Card Payoff Calculator where you can see how quickly you can pay off debt using debt snowball or debt avalanche.
    4. Coast Fire Calculator where you can find out if you already have enough saved for retirement.
    5. 529 College Savings Calculator where you can estimate how much you need to save for your child’s college education.

    The TATM Resource Library includes the only two spreadsheets you’ll ever need.

    In addition to the five calculators, you can also download the only two spreadsheets you’ll ever need to stay on top of your finances:

    1. TATM Net Worth Tracker™️
    2. TATM Budget After Thinking Template™️

    If you don’t track your net worth or don’t know where your money is going each month, I recommend you check out these templates.

    TATM Net Worth Tracker™️

    This is the template I’ve personally used for years. It’s easy to use and customizable for your individual situation.

    There’s no better way to measure your progress towards financial freedom.

    Download TATM Net Worth Tracker™️

    TATM Budget After Thinking Template™️

    This custom template utilizes my Budget After Thinking framework to simplify the budgeting process.

    I’ve learned through years of teaching personal finance that people quit on budgeting when it’s unnecessarily complicated.

    There’s no reason to make budgeting a process you hate. I designed my system to make budgeting easy, and most importantly, only a temporary commitment.

    How is that possible?

    Using the TATM Budget After Thinking Template™️, you’ll learn enough about your spending habits in six months that you can create a lasting budget that actually works for you.

    At that point, you’ll only need to track two simple numbers to stay on course and achieve your financial goals.

    Download TATM Budget After Thinking Template™️

    5. Create the first TATM online course.

    I’ve taught personal finance to law students and lawyers for years, and I’m energized about sharing my course material online.

    So, in addition to building out the TATM Resource Library, I plan to release the first TATM online course in 2026.

    Admittedly, I wouldn’t be taking this step if it weren’t for the positive feedback I’ve received from students over the years.

    Here’s a sampling of what I mean:

    “Really worthwhile course! Prof Adair made a lot of sensitive money-related subjects very accessible and comfortable to talk about, and seems super passionate about the content and helping his students.”

    “Should be taught twice a semester probably, so everyone can have a chance to take it.”

    “Prof. Adair is very welcoming and relatable. He cares a lot about his students and what he is teaching. He is clearly very knowledgeable in this area and was able to answer everyone’s questions. I am so grateful for his passion to spend the weekend with us!”

    “Killed it! Honestly, this may be the most important class I have taken in law school.”

    I’m humbled by these sorts of comments and can’t wait to share my course with the TATM community.

    6. Refocus my best energy on my family.

    two kids looking at the ocean reminding me to refocus my best energy on my family.

    I saved my most important goal for last.

    This one is a hard goal to measure. I’m sure the “goal police” will take issue with such a vague idea.

    Well, it’s my blog. And, it’s my goal.

    The truth is my other goals don’t matter without this one.

    Similar to my Tiara Goals for Financial Freedom, I view this goal as more of an overarching, continuous force in my life, rather than striving for a particular finish line.

    This is the type of goal that I will remind myself of every day.

    For starters, it will help me be a better husband. I want to refocus my best energy for more quality time with my wife.

    As just one example, that means more date nights.

    As any parent with young kids knows, date nights can be hard to come by. In 2026, I want to change that. No more (or at least not as much) ships passing in the night.

    I also want to refocus my best energy on my kids.

    My kids turn 6, 4, and 1 this year. These years are flying by way too fast.

    My oldest daughter is the best chatter I know. She can happily chat for hours, just ask her aunts and grandmas.

    There isn’t a person alive who asks me harder questions. “Does space ever end? Is an elephant bigger than my room? Can you drive to South America?”

    My son is the sweetest boy in the world. My wife and I ask ourselves just about every day, “How did we get so lucky?”

    He’s also a total jokester. Nobody makes me laugh harder. In the car the other day, I quizzed him:

    “You and your sister are two of my four favorite things in the whole world. Can you name my two other favorite things?”

    Without missing a beat, he responded “Costco and Chick-fil-A.”

    Then, there’s my baby girl. She smiles ear-to-ear whenever I walk in the room.

    If I don’t smile back at her right away, she’ll say “Hey Dada, Hey Dada, Hey Dada” until I do. Then, she’ll erupt in the biggest smile you’ve ever seen. There is no better feeling.

    All in all, I know how lucky I am. I just want to be better at remembering it every single day.

    These are the good old days.

    Good luck to everyone on achieving your own 2026 money and life goals.

    Those are my goals for 2026. I’ll keep you all posted throughout the year on my progress.

    I love hearing from TATM readers.

    Your goals will surely be different than my goals. By talking about them, maybe we can help each other.

    Keep me posted on your progress along the way.

    If I can be of any help, don’t hesitate to reach out.

    The best way to reach me is to sign up for my weekly newsletter and then reply to any email.

    Or, you can leave a comment below.

  • You Use GPS But You Don’t Track Your Net Worth?

    You Use GPS But You Don’t Track Your Net Worth?

    When was the last time you drove to a new place without using GPS?

    It’s hard to even imagine, right? Driving without GPS and just hoping you get where you need to go?

    It’s so unthinkable, it’s almost laughable.

    I still use GPS to go places I’ve been to plenty of times before. Even when I’m 90% sure I know where I’m going, I like the comfort of knowing I’m heading the right way.

    I like knowing that I’m making progress on the way to my destination.

    15 miles to go. Great, be there in about 20 minutes.

    I also like knowing ahead of time when I need to turn.

    Turn right in .5 miles. OK, need to switch lanes.

    Most helpfully, I like being notified promptly if I start heading in the wrong direction. That way, I can make an adjustment before I get too far off course.

    Make a U-turn. Oops, missed my exit.

    Driving with GPS is so helpful it’s become part of my normal routine. The same for you, I’m sure?

    Without GPS, I might be able to find my way. But, it’s so much harder.

    Do I need GPS to drive my car?

    No.

    Is it possible to get where I’m going without it?

    Sure.

    But, it’s so much harder.

    I guess I could write down directions before leaving the house and hope I don’t miss a turn?

    Maybe throw a map in the car?

    Stop at a gas station and ask for directions?

    I don’t love these options but, in theory, they should work.

    But, in reality, nobody is putting in all that effort in today’s world. We make it easy on ourselves by using GPS. It’s the best way to get where we want to go.

    You see where I’m going with this?

    Using GPS is the equivalent of tracking your net worth on your road to financial independence.

    You wouldn’t leave the house on an epic road trip without GPS.

    So, why would you work so hard to make money if you don’t keep track of what you’re doing with it?

    Download TATM Net Worth Tracker™️

    Almost everyone uses GPS and hardly anyone tracks their net worth.

    A recent survey found that more than 90% of drivers admit that they rely on GPS.

    This does not surprise me at all. Nobody is busting out the map or stopping at gas stations for directions anymore.

    You know what does surprise me?

    Nearly 70% of Americans don’t track their net worth!

    Think about that.

    We are more concerned with getting lost in the car than we are getting lost with our money.

    That’s a problem.

    An easily fixable problem.

    Why you need to track your net worth.

    Think and Talk Money Net Worth Tracker is a purple and white spreadsheet and the only thing you need to measure your progress towards financial independence.

    I recommend everybody, no matter where you are in your financial journey, track your net worth.

    By tracking your net worth, you can quickly see if you are making good money decisions or need to make adjustments.

    There’s no better way to learn how much money you’re keeping after a month of making money.

    Without knowing your net worth, you risk years going by without making any measurable progress on your financial goals.

    You may want to switch careers, buy a house, send your kids to college, or simply retire early.

    Or, you may not know exactly what it is that you want. That’s completely normal.

    Being good with money and giving yourself options is still the key.

    The best way to give yourself options is to know where you currently are and forecast where you’re going. You do that by tracing your net worth.

    Tracking your net worth is easy.

    Think and Talk Money Net Worth Tracker is a purple and white spreadsheet and the only thing you need to measure your progress towards financial independence.

    By the way, tracking your net worth is not a major time commitment.

    It takes me less than 30 minutes each month to track and discuss what I consider to be one of the most important metrics in personal finance.

    That’s all the time it takes to know if I am progressing towards my most important financial goals.

    If you don’t know your net worth, now is the time to start tracking it.

    If you need help getting started, you can check out the TATM Net Worth Tracker™️.

    Download TATM Net Worth Tracker™️

    What do you get with the TATM Net Worth Tracker™️?

    Think and Talk Money Net Worth Tracker is a purple and white spreadsheet and the only thing you need to measure your progress towards financial independence.

    The TATM Net Worth Tracker™️ is based off of the template I’ve personally used for years and shared with hundreds of lawyers and law students in my personal finance course.

    You’ll get everything you need to track your net worth in less time than it takes to drink a cup of coffee.

    What you’ll get:

    • Fully customizable template to track your net worth every month for the next 10 years.
    • Total privacy: no need to share your private banking information with a 3rd Party App.
    • Instructions and links explaining why it’s so important to track your net worth.
    • Visuals on how your net worth grows over time with automatically generated graphs.

    As a practicing attorney and law professor… with a real estate business, a personal finance education company, and three young kids… I’m all about using good tools to make things as easy as possible for myself.

    The TATM Net Worth Tracker™️ is as easy as it gets.

    Download TATM Net Worth Tracker™️

    Now is the perfect time to start tracking your net worth.

    If you don’t currently track your net worth, now is the perfect time to get started.

    Not convinced?

    Maybe the GPS analogy isn’t working for you?

    OK, think of tracking your net worth in terms of keeping score during a basketball game.

    If you don’t know the score of the game, you don’t know if your strategy is working. You don’t know if you need to make adjustments before time runs out.

    The same applies to tracking your next worth. The point is to educate yourself on your current financial situation so you can make adjustments while there is still time.

    Do you track your net worth?

    Have you been tracking it for a while? Can you imagine not tracking your net worth anymore?

    Let us know in the comments below.

    Testimonials from my personal finance course.

    • “To begin, thank you very much for teaching this seminar. I cannot believe how ill-equipped I was to address budgeting, managing my debt, and saving for my future… Classes like this should be a graduation requirement for all students.”
    • “This was a great and very important class for people to take… I think Professor Adair’s course should be a required class, especially for full-time students who are usually just out or recently out of college.”
    • “This course addressed a huge need in education.  I am so happy that my law school sees this and is doing something to address this need.”
    • “Thank you so much for teaching the personal finance class this weekend!  I couldn’t have thought of a better class to take as a 3L thinking about life after law school.”
    •  “This class gave me clarity on many issues including financial mistakes I made that I didn’t even know were mistakes… I have degrees in both business and economics, and I worked in financial advisement at Morgan Stanley.”
    • “I absolutely loved the course!  It will help me the rest of my life and I hope the school continues to have it!  Thank you, Professor Adair.” 
  • Failing to Reach a Money Goal Does Not Make You a Failure

    Failing to Reach a Money Goal Does Not Make You a Failure

    Money goals are all about having a plan ahead of time so your dollars don’t disappear.

    If I could synthesize all of personal finance into one message, that would be it.

    Make a plan. No disappearing dollars.

    This is essentially all that budgeting is.

    Put a little effort into learning where your money is going. Then, evaluate whether you need to make any adjustments. I call this a Budget After Thinking (BAT) .  

    Having a BAT in place ahead of time means you know where every dollar is going before you earn it. At the end of each month, all you need to do is make your transfers to each account.

    That’s how you stay on budget with only two simple numbers.

    Focusing on just two numbers, you can rest easy knowing that you’re making progress towards your personal finance goals.

    This takes the anxiety out of trying to figure it out after the money has already hit your checking account.

    And, it eliminates the risk that the money sits in your checking account and slowly disappears because of mindless spending choices.

    The bottom line is that if you don’t have a plan in place, it’s going to be very difficult to accomplish your goals.

    As 2025 winds to a close, I wanted to share how I did with my money goals this year.

    Here are the three money goals my wife and I came up with in early 2025:

    1. Pay off the HELOC debt. Our first goal was to continuing paying down HELOC debt that we used to help acquire some of our rental properties. Now that we’re not actively looking for more rentals, we’re focused on paying back these loans.
    2. Build up our emergency savings. Our second goal was to build up our emergency savings. We mostly ignored our emergency savings between 2017 and 2024 as we focused on buying investment properties. It was risky and led to some touch-and-go moments that we’d like to avoid moving forward.
    3. Fully fund college for our second kid. Our third goal was to boost our contributions to our kids’ 529 college savings accounts. We have three kids. We previously hit our savings goal for our first kid. This year, we were focused on our second kid.

    In the end, I did not accomplish two of my three money goals.

    Does that make 2025 a failure?

    No way!

    This year was far from a failure. It might have been our best year ever. I’ll explain below.

    What’s interesting is the goal we did achieve was the lowest priority of the three at the beginning of the year. I’ll talk about that, too.

    Before we get to that, I want to first talk about failure.

    Failing to complete a goal does not make you a failure.

    I realized years ago that failing to complete a goal does not mean that I am a failure. Goals are about making progress, not just the end result.

    If you put in the effort and make progress toward a desired result, any progress should be viewed as a success.

    In theory, we all know this.

    Here’s an example:

    Think about a woman who sets a goal to finish a 10k in less than an hour. She’s never run that far or that fast before.

    She trains for months in pursuit of her goal. It’s not easy. There are training runs she wants to skip. Her legs ache and her body is sore. But, she sticks with it.

    On the big day, she gives it her all and finishes the race in one hour and 2 minutes.

    Two minutes too slow.

    Is she a failure because she didn’t finish in less than an hour?

    Of course not.

    This woman ran further than she’s ever run before. She’s stronger and more fit than she was before training.

    On top of that, she now has a new baseline to start from. She can evaluate her process and learn from what she accomplished.

    If she wants to, she can sign up for another 10k with all the knowledge and improved fitness she gained this time around.

    By just about every measure, she’s a success. Goals are about the process and not just the result.

    Keep this little example in mind when you review your own goals.

    We are harder on ourselves than we are with other people.

    Throughout life, we tend to be harder on ourselves than we are on other people. This is especially true when we fall short of accomplishing all of our goals.

    I want to encourage you to reframe how you evaluate your goals. Instead of focusing just on the result, think about how far you progressed from where you started.

    This part can be difficult.

    Years ago, I would get down on myself for not hitting all of my targets. It took some time to realize that even when I didn’t hit my target, I still had a successful year.

    Here’s a personal example, sticking with the running theme.

    A few years ago I made a goal to run 500 miles for the year. In the end, I ran something like 460 miles.

    At first, I was very hard on myself. I concluded that I failed because I did not reach 500 miles.

    Then, I evaluated why I fell short.

    I realized that I was making great progress before I was sidelined with an injury for a couple of months. I did my best to make up for the lost time but couldn’t quite recover.

    Looking back, the fact that I got close and didn’t give up entirely was a good thing, not a failure.

    I was proud that I continued to make progress, even after a setback.

    By the end of the year, running 460 miles was an accomplishment despite falling short of the ultimate goal.

    Nowadays, this is exactly how I evaluate all of my goals, whether they’re fitness goals, money goals or any other type of goal.

    person in red hoodie standing on snowy mountain showing that ambitious goals do not make you a failure even if you don't hit them.
    Photo by Joshua Earle on Unsplash

    I set ambitious targets knowing that I might not hit them.

    If I don’t complete all my goals, I don’t let myself think that I’m a failure.

    Instead, I evaluate my progress and the actions I took to reach my target. If I fall short, I try to understand what happened so I can learn for next time.

    Sometimes, I fall short because I made an unrealistic goal. Other times, it might just be that I got close but not all the way across the finish line.

    There have also been times when my goal was simply a bad goal, meaning something I didn’t actually care about.

    Regardless, I review my motivation and my effort so I can recalibrate for the following year.

    With this process in mind, let’s take a look at how I did with my 2025 money goals.

    How did I do with my 2025 money goals?

    I failed to achieve my three money goals for 2025.

    But, this year was not a failure.

    Not even close.

    As I look back on my 2025 money goals, I’m thrilled with my progress.

    1. Pay off the HELOC debt. 

    For years, my wife and I used HELOCs to help acquire rental properties. Now that we’re not actively looking to acquire more properties, our goal is to eliminate this HELOC debt.

    Admittedly, this was a very ambitious goal to accomplish in one year. Especially considering the other two goals on this list.

    In the end, we paid off 71% of our HELOC balance.

    While not the end result we targeted, I’m happy with this outcome. Any year that you eliminate 71% of a debt burden is a tremendous year.

    Because we made major progress on this goal in 2025, I anticipate that at our current saving rate, we’ll have the HELOC debt fully paid off by the end of 2026. 

    It will be an incredible feeling to have this debt load off of our shoulders. We’ve been carrying it for too long now.

    Once this debt is eliminated for good, I can focus on more fun goals. I can watch my accounts grow, instead of just seeing debt shrink.

    That excites me.

    How to pay off debt on a budget.

    By the way, I don’t regret using HELOC debt to help purchase investment properties and build our portfolio.

    That said, at this stage in my life, I’m ready for that debt to be gone.

    If you are similarly working towards paying off debt, check out my top 10 strategies for paying off debt on a budget:

    My top 10 strategies for how to pay off debt on a budget.

    1. Write down your Tiara Goals.
    2. Create a Budget After Thinking so the debt stops growing.
    3. Prioritize Later Money funds for debt.
    4. Apply our Top 10 strategies for staying on budget.
    5. Talk to your people about paying down debt.
    6. Track your net worth and saving rate for small wins.
    7. Pick a strategy and stick with it: Debt Snowball v. Debt Avalanche.
    8. Think about loan consolidation.
    9. Get a side hustle.
    10. Don’t let yourself fall backwards.

    Throughout the year, I was focused on prioritizing funds for debt, using the debt snowball approach, and not letting myself fall backwards.

    For a deep dive on each of the 10 strategies, check out my full post on paying off debt on a budget:

    How to Realistically Pay Off Debt on a Budget

    2. Build up our emergency savings.

    Your emergency savings account is the most important savings account in personal finance. I like to refer to emergency savings as Parachute Money.

    My goal is to have four months of living expenses saved up in my Parachute Money account.

    Why four months?

    Most personal finance experts recommend three to six months. Much of it depends on your current income situation and overall comfort level.

    I have income from my primary job, rental properties, and part-time teaching. Taking all that into account, four months of emergency savings feels like the sweet spot to me.

    So, how did I do with this goal?

    Well, it was another “failure” that I don’t view as a failure at all.

    When it comes to emergency savings, my challenge has been that I’ve been so focused on eliminating HELOC debt that this goal has typically been pushed aside.

    This year, I set out to make emergency savings more of a priority.

    I’m happy to share that for the first time in a few years, we now have an emergency savings account with 1.5 months of living expenses.

    It’s not the four months we targeted, but once again, we made good progress.

    By the end of 2026, this is another goal that we should be able to check off because of what we accomplished this year.

    3. Fully fund college for our second kid.

    Using the Think and Talk Money 529 College Savings Calculator, I figured out how much money we would need to invest this year in our son’s 529 savings account to fully fund his college.

    The 529 Savings Calculator showed us that with investments of $37,972 this year, we could fully fund his in-state tuition at the University of Illinois (our premier in-state university).

    Here’s what the results look like from the calculator:

    think and talk money 529 college savings calculator showing how much you need to save for your kid's college.

    When my wife and I saw these results, we realized that we could make it happen, if we made it a priority.

    So that’s what we did.

    We made it a priority to fully fund our son’s college account.

    And, I’m happy to report that we completed this goal.

    The tradeoff was that we did not make as much progress on our HELOC debt or our emergency savings.

    The funny thing is this was the lowest priority goal of ours when the year started.

    In the end, it’s the only one we accomplished. How did that happen?

    Well, our emotions took over.

    This is an example of why I always say that money is emotional.

    When my wife and I chose to fund our son’s college savings account, we knew that would mean we’d fall short on our other goals.

    We were more than OK with that tradeoff.

    My wife and I received a powerful emotional boost by prioritizing our son’s college. We can now cross this item off the “to-do” list once and for all.

    See, most “financial experts” would have advised us to eliminate our debt and build an emergency savings before targeting college savings for our kids.

    Well, most experts ignore that money is emotional.

    We don’t live in a spreadsheet.

    When my wife and I talked about doing this for our little boy, the decision was easy.

    There’s nothing we wouldn’t do for him. I smile every time I think about what the future may have in store for him.

    How did you do with your 2025 money goals?

    As you look back on your 2025 goals, don’t beat yourself up if you didn’t reach your ultimate target.

    We all need to give ourselves some grace. Any and all progress is an accomplishment and something to build upon.

    As you look ahead to 2026, evaluate what you learned about yourself in 2025.

    Soon, I’ll share my 2026 money goals. You can already guess my first two goals: eliminating the HELOC debt once and for all and hitting that 4-month emergency savings target.

    If you’ve never set money goals before, my process might help you get started.

    How did you do with your 2025 money goals?

    What did you learn about yourself?

    Let us know in the comments below.

  • Why Wouldn’t You Want to be Good With Money?

    Why Wouldn’t You Want to be Good With Money?

    Do you want to be good with money?

    It’s not a trick question.

    I absolutely want to be good with money.

    Money is the tool that will allow me to spend more time with my family.

    It will allow me to spend more time pursuing meaningful work.

    When I’m not exerting mental energy stressing about money, I can exert that mental energy on my relationships and passions.

    So, do I want to be good with money?

    Absolutely, I do!

    People who want to be good with money sometimes get a bad rap.

    Unfortunately, there’s a common misconception that people who care about money are bad people. Or, it makes you greedy.

    In fact, I was called a “Greedy Dragon” earlier this year by an online troll because I own rental properties. I actually took that one as a compliment because I love dragons.

    To that point, have you ever noticed how clichés about money often feature a cocky guy driving a sports car and wearing a fancy suit?

    That kind of depiction is so wrong it makes me huff. Like, out loud, huff. 

    The reality is that guy doesn’t want to be good with money at all. As soon as he earns money, he spends it on liabilities like clothes and cars. His main focus is on what people think of him, not his financial security.

    Of course, that’s not what being good with money is about. Not even close.

    You probably know people who think about money like this. These same people think that money is evil and so is anyone who has it.

    People who think that money is somehow evil don’t understand what money is.

    They make excuses for why they don’t invest in their own financial wellness. They convince themselves that there are more important things to think about than money.

    The flawed logic goes something like: “That guy only thinks about money. I have better things to worry about. Besides, I don’t need money to be happy. I don’t even like material things.”

    Since you’re reading a personal finance blog, I’m guessing that you don’t share that attitude. You’ve most likely come to recognize that being good with money is an essential life skill.

    You also recognize that being “good with money” is not the same thing as “making a lot of money.”

    A lot of lawyers make good money but aren’t good with money.

    I know plenty of lawyers who make a lot of money. That doesn’t mean they’re good with money. Far from it.

    This is a problem because our profession can be very taxing. We tend to work long hours under stressful conditions.

    This means time away from our families. It means less time available to exercise, cook healthy meals, and sleep. You already know how important these things are to a healthy life.  

    Sadly, the nature of our profession means that lawyers have high rates of alcohol abuse and depression.

    In a prominent study, the American Bar Association and the Hazelden Betty Ford Foundation found rates of alcohol abuse and depression among lawyers are among the highest of any career field in the U.S.

    Studying nearly 13,000 attorneys, the authors concluded:

    Substantial rates of behavioral health problems were found, with 20.6% screening positive for hazardous, harmful, and potentially alcohol-dependent drinking. Men had a higher proportion of positive screens, and also younger participants and those working in the field for a shorter duration… 

    Levels of depression, anxiety, and stress among attorneys were significant, with 28%, 19%, and 23% experiencing symptoms of depression, anxiety, and stress, respectively.

    The authors further concluded:

    Attorneys experience problematic drinking that is hazardous, harmful, or otherwise consistent with alcohol use disorders at a higher rate than other professional populations. Mental health distress is also significant.

    As a lawyer, and someone who comes from a big family of lawyers, these conclusions terrify me.

    red fancy car representing whether you want to be good with money which means investing in your financial wellness.
    Photo by Serge Kutuzov on Unsplash

    Personal financial stress on top of professional stress is a recipe for disaster. 

    Now, I don’t know how to address all of the reasons why lawyers are struggling. I don’t think any one person has the answers.

    But, I want to do my part.

    What I do know is that layering our personal finance stress on top of our professional stress is a recipe for disaster.

    That’s why I’m so passionate about teaching financial wellness to law students and lawyers. 

    Here’s the way I see it: if I can help alleviate your money stress at home, you won’t be distracted by that money stress when you’re at work.

    That means you can more efficiently and productively serve your clients.

    Not only does that benefit your clients and your firm, it benefits you.

    How?

    When you can work free of personal distractions, you can work more efficiently and productively. The end game is that you have more energy and time for your relationships and passions outside of work.

    And, that’s what being good with money is all about.

    Does any of that sound evil to you?

    So, what can you do if you want to work your financial wellness?

    You’re in the right place.

    I have a three-step plan to get you on your way.

    Step 1: Foster a positive money mindset.

    The first step is to foster a positive money mindset. Without establishing why you want to be good with money, none of the specific skills and recommendations will matter.

    Too many people want to jump right to investing and buying rental properties. Financial wellness doesn’t work like that.

    You need to start at the beginning. That means money mindset.

    In my blog, I write regularly about money mindset. You can learn all about developing a strong money mindset by reading my posts here.

    Additionally, if you are interested in checking out one of my favorite money mindset books, you can find my top recommendations here.

    Step 2: Find out where all your money is going.

    The next step is to evaluate where your money is actually going each month. Once you know where your money is going, you can come up with a realistic plan that moves you closer to reaching your financial goals.

    I call this process your Budget After Thinking.

    For a step-by-step guide on how to create a Budget After Thinking, read my post here and follow-up posts here and here.

    You might be wondering what makes my budget process different from any other budget.

    My budgeting philosophy is premised upon your actual spending habits and realistic adjustments. 

    In other words, forget about aiming for predetermined, generic goals like saving 20% of your income.

    I’ve taught enough law students and lawyers to know that these rigid, predetermined targets don’t work.

    With massive student loan debt and soaring costs of living, generic savings targets just don’t work.

    If you aim for some predetermined amount, you’ll end up cutting out everything you like spending money on to the point where you will resent your budget. Then, you’ll give up on your budget and fall back to your old habits.

    The beauty of creating a Budget After Thinking is that it is based upon a baseline budget of your actual, current spending habits.

    In evaluating your current habits, you can then make thoughtful and realistic adjustments to that budget that will actually last. Through this process, you can accomplish the main goal of generating more fuel for your ultimate financial goals.

    And that leads us to the third and final step to begin establishing strong personal finance skills.

    Step 3: Use financial calculators for concrete motivation.

    Online Calculators are some of the most powerful motivational tools for developing financial wellness.

    Check out our Think and Talk Money calculators for concrete motivation to allocate more of your monthly income to your financial goals.

    When you play around with these calculators, you will quickly see how even seemingly small adjustments to your Budget After Thinking will pay massive dividends in the long run.

    Remember, the goal of your Budget After Thinking is to generate more fuel for your future goals. What exactly does that mean?

    This is where using a good financial calculator pays off. 

    For example, let’s say you cut $200 of spending per month and invested that money in an S&P 500 index fund with average historical returns of 10%.

    Look at the results using the Think and Talk Money Compound Interest Calculator:

    If you invested just that $200 each month for the next 30 years, you would have $394,785!

    And, that’s based on contributing only $72,000 of your own money. The rest is interest you earned for doing nothing.

    Take a second to let that sink in: You’d have nearly $400,000 in your investment account all because you created a Budget After Thinking.

    If that doesn’t motivate you to make some thoughtful adjustments to your spending, I don’t know what will.

    Now is the perfect time to invest in your financial wellness.

    Now is the time to think back on the past year and remember all your wins. But, don’t forget about your mistakes. Those mistakes are how we learn.

    If you’re not confident with your personal finances, there’s no better time than now to start developing your skills.

    Whether we like it or not, money touches every facet of our lives. 

    When you take control of your money, you’ll see that your productivity at work improves.

    Your relationships outside of work will improve. 

    I’d even go so far as to say that you’ll start to believe in yourself more. You may even find the courage to follow a different path in life you hadn’t previously explored.

    It all starts with wanting to be good with money.

    Are you ready?

  • Use a Calculator to Help Make Big Money Decisions

    Use a Calculator to Help Make Big Money Decisions

    Let’s say you receive a year-end bonus of $10,000.

    You essentially have four choices for what do with that money:

    • Choice 1: Do nothing.
    • Choice 2: Spend it now.
    • Choice 3: Invest it for retirement.
    • Choice 4: Pay down student loan debt.

    Let’s explore each option using two Think and Talk Money calculators to help with our decision: (1) Compound Interest Calculator and (2) Student Loan Calculator.

    You may be surprised by the results.

    @thinkandtalkmoney

    Check out the online calculators at thinkandtalkmoney.com #moneytok #personalfinance

    ♬ original sound – Thinkandtalkmoney

    Choice 1: Do nothing.

    You may not have a plan for what to do with $10,000. When you don’t have a plan, the default is to let the money sit in your checking account until you need it.

    This is a bad idea.

    Those dollars will disappear faster than you think. I don’t need a calculator to tell me that.

    The worst part is you won’t have anything to show for it. You’ll just wake up one day in the near future and wonder what happened to your bonus.

    Whatever you want to do with your money, put some thought into it ahead of time. Come up with a plan.

    In the end, being good with money is nothing more than consistently making thoughtful, intentional choices.

    Choice 2: Spend it now.

    I don’t hate the idea of spending some of your hard-earned money. If you’ve thought about it and are making intentional decisions, go for it. 

    Maybe you’ve had your eyes on a new sofa, a bigger TV, or a trip to Scottsdale.

    When you spend on things or experiences that bring you joy, that’s a good use of your money.

    We talk about it all the time: being good with money is not about a life of deprivation.

    If this is the direction you’re leaning, what if you chose to spend some of the money and then save/invest/pay down debt with the rest?

    That way, you get some immediate satisfaction and also stay on track to reach your long-term financial goals.

    In this instance, I would recommend spending no more than half of the money and then using the rest for your financial goals.

    What should you do if you’re pursuing multiple long-term financial goals?

    When you have multiple long-term financial goals, such as investing for retirement and paying off debt, the question becomes: which goal is a better use of your money?

    This is a common conundrum for many of us.

    The answer will oftentimes combine math and emotions. That’s what makes personal finance so fascinating. That’s what makes life so fascinating.

    Based on my own experiences and in teaching personal finance to law students, I’ve found that financial calculators can be a very useful tool in making these decisions.

    I’ve also found that financial calculators can motivate people to take action in ways that words alone usually fail.

    I could tell you all about the magic of compound interest. That might be enough for you to take action.

    Even more powerful is when you see the potential results of your money decisions for yourself. That’s where a good financial calculator comes in.

    With that in mind, let’s use a couple of Think and Talk Money calculators to explore what would happen if you invested the $10,000 or used the money to pay down debt.

    Seeing these results may motivate you to put your money to work for you, rather than spending it.

    Choice 3: Invest it for retirement.

    For this example, let’s say you are 27 years-old, which means you have 40 years until you reach the standard retirement age of 67.

    We’ll also assume that you earn an average annual return of 10%, consistent with the historical average returns of the S&P 500.

    We’ll also plan for an interest rate variance range of 2%, which means you will see your potential returns at 8%, 10% and 12%.

    Here’s what it looks like when you plug those assumptions into the Think and Talk Money Compound Interest Calculator:

    Now, here’s what your results look like:

    After 40 years, you would have $452,592 at a 10% interest rate. Remember, that’s your total balance without ever making another contribution.

    You can also see that you would have $217,245 if you earned an 8% annual return. Your balance jumps up to $930,509 if you earned a 12% return.

    Now, you can evaluate the results and make an informed decision.

    Knowing that $10,000 today projects to nearly a half million dollars at retirement age may make this an easy decision for you.

    One important note: when studying your results, pay attention to the shape of the compound interest graph. 

    Compound interest takes time to work its magic. That’s why your $10,000 investment doesn’t skyrocket right away. In fact, it can take a couple of decades or longer for compound interest to show its true power. This is why it’s important to invest early and often.

    Choice 4: Pay down student loan debt.

    Let’s continue our previous assumption that you are 27 years-old. Now, we’ll add it some additional assumptions regarding student loans.

    Let’s assume you have $120,000 in loans and your monthly payment is $1,500. Let’s also assume that your interest rate is 7.5%.

    With the Think and Talk Money Student Loan Calculator, you can see how much money and time you will save by making extra payments.

    Here’s what it looks like when you plug in a one-time extra payment of $10,000:

    Now, let’s look at how much money and time you saved by making this one-time payment:

    This one-time payment of $10,000 saved you $19,269.97.

    It also knocked off 13 months of loan payments from your payoff schedule. 

    Focus on just those 13 months for a moment. By making this one choice to use your $10,000 bonus to pay down debt, you bought yourself more than a year of freedom from paying off loans.

    That is an incredibly freeing feeling.

    Not only will your debt be eliminated more than a year faster, you’ll also be able to prioritize your other financial goals a year faster.

    Think about how exciting it will be to repurpose the $1,500 you had been paying toward debt each month.

    Once again, that’s an incredible feeling. 

    Play around with your own numbers in the Think and Talk Money calculators.

    If you’re anything like me and the law students I’ve taught over the years, financial calculators can be powerful motivational tools.

    As we saw with our examples today, you will receive outsized benefits in the future if you can just stay disciplined with your spending today.

    Using the Think and Talk Money calculators, you may decide to prioritize investing for retirement. Or, you may be driven to eliminate your loans faster.

    Take some time to play around with the calculators using your own financial situation. You will be amazed at the progress you can make towards your goals with even slight adjustments.

    You may even be motivated to take action with your bonus to accomplish your long-term financial goals.

    Have you used financial calculators before?

    Were you surprised by the results?

    Let us know in the comments below.

  • Why it’s Important to Invest in Your Financial Wellness

    Why it’s Important to Invest in Your Financial Wellness

    “Should I invest in real estate?”

    “Maybe I should I buy Apple stock?”

    “I could boost my emergency savings.“

    “Or, put a little more into my Roth IRA.“

    “What about a 529 plan?”

    When it comes to investment decisions, we all want to make the right decisions. We work hard for our money and know that investing for the future is important.

    We just don’t always know what the right decision is.

    @thinkandtalkmoney

    With all this investing advice out there, don’t forget to invest in yourself. #thinkandtalkmoney #financialwellnessforlawyers

    ♬ original sound – Thinkandtalkmoney

    With so much marketing from big banks and investment companies, not to mention the financial media, the options can seem overwhelming.

    Well, what if you decided to drown out the noise and take matters into your own hands?

    What if the best thing to invest in was not a stock or a rental property?

    What if the best thing to invest in was staring right back at you every time you look in the mirror?

    Instead of spending your whole life investing in other companies and other people, what if you decided to invest in yourself?

    For my money, there’s no better investment you’ll ever make.

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    We all invest in ourselves when we go to school.

    Investing in yourself is something you’ve long done, even if you didn’t always realize it.

    As a lawyer, doctor, consultant, etc., you’ve already made a major investment in yourself through your education.

    Following high school, lawyers commit to another 7 years of education before they can start practicing. Doctors can take twice that long.

    For consultants and other professionals, it’s not uncommon to return to school for an M.B.A., oftentimes while still working a full-time job.

    All this education and training comes at a steep price. Most of us take on huge amounts of debt in exchange for our careers.

    The point is that none of us are strangers to investing in ourselves. And, for the most part, we’ve all benefitted because we made major investments in ourselves.

    The problem is that a certain point, we stopped investing in ourselves.

    So, this leads us to the question of the day:

    When was the last time you invested in yourself?

    What are ways you can invest in yourself?

    There is no shortage of ways to invest in yourself. Just as a few examples, you could:

    What do all of these self-investment options have in common?

    They require very little capital.

    In other words, you can invest in yourself for a relatively small amount of money.

    And, the potential upside is practically unlimited.

    a group of people in graduation gowns reminding us to invest in ourselves.
    Photo by Rosalind Chang on Unsplash

    The cost to invest in yourself is very low.

    When you invest in yourself, the cost of entry is very low.

    Books are inexpensive. Blogs and podcasts typically offer free and timely content.

    Even if you only learn one new idea or strategy from a book or blog post, the cost to learn that idea or strategy is basically zero.

    This makes investing in yourself a near risk-free investment.

    Let’s talk about the value in attending professional seminars for a minute.

    Every professional field, in every corner of the world, offers seminars.

    Law firms and businesses recognize the importance of seminars and will oftentimes pay the registration fee for its employees.

    What happens when you attend seminars? Not only do you learn skills to help you excel in your career, you also meet people.

    Meeting the right person can make your career. You just need to invest in yourself by registering for the seminar.

    Online courses are an inexpensive and effective way to invest in yourself.

    The same low cost and effective way to invest in yourself that applies to seminars also holds true for online courses.

    There’s one crucial advantage to taking an online course:

    If in-person seminars aren’t your thing, you can take an online course from the comfort of your home or office, at your own pace.

    Many courses offer valuable insight based on the instructor’s personal experiences and acquired knowledge. This learning format can feel more intimate and relatable.

    Additionally, online courses may provide the opportunity to meet the instructor and other participants. That gives you the chance to ask questions pertaining to your personal situation. You also get the advantage of building your network, like if you attended a seminar.

    One last note about online courses: before you balk at the price, think back to what you paid for law school.

    Law school costs hundreds of thousands of dollars. Many lawyers spend years in debt to pay off that education.

    Now, compare what you paid to attend law school to the cost of completing an online course.

    A quality online course will cost a fraction of what it cost to obtain your degree.

    If you were willing to take out loans and pay hundreds of thousands of dollars to become a lawyer, why not invest a bit more in yourself to continue developing your skills?

    Investing in yourself does not only relate to your career.

    Investing in yourself is not limited to just acquiring skills or connections beneficial to your career.

    As one example, I recently committed to running the New York City Marathon in 2026. I’ve never run a marathon before. I’ve never even run a half marathon before. I’m essentially clueless in how to properly train.

    So what did I do?

    I searched for marathon tips on the internet.

    My search led me to Marathon Handbook. It’s a terrific resource.

    There are free articles and training plans for beginners and experienced runners. There is also a paid online course, which I plan to take in the coming weeks.

    The thing is, if I’m going to take on the challenge and time commitment of training for a marathon, I want to do it the right way.

    I want to learn from other people’s experiences. I don’t want to make preventable mistakes. I’m happy to pay for that knowledge and insight.

    This logic applies whether you are training for a marathon or hoping to develop any other skill. Investing a little bit of money upfront can lead to massive benefits down the road.

    Personal finance is one of the most important areas of self-improvement.

    Investing in your physical wellness is important. Hardly anything could be more important.

    You know what else is important to invest in?

    Your financial wellness.

    I’ll even go so far as to say that investing in your own financial wellness is the best investment you’ll ever make. 

    Don’t believe me?

    Just look up “lottery winners who go broke.“

    And that leads us to an important point on timing:

    It’s not just what you learn when it comes to personal finance. It’s when you learn it.

    The best time to learn personal finance is BEFORE you start making real money.

    If you win the lottery, you want personal finance knowledge and skills in place before you receive the money.

    The same is true as we begin our careers or start to advance in our careers and start making more money.

    If you didn’t learn personal finance skills at the beginning of your career, that’s OK. The next best time to learn is right now.

    The worst thing to do is to wait until you have a high income before you learn about money.

    If you wait, you’re going to end up like the lottery winners who go broke.

    mirror in a quiet room symbolizing that we need to invest in ourselves at think and talk money.
    Photo by Lowell So on Unsplash

    The potential rate of return for learning personal finance is greater than any other investment.

    Whether you subscribe to a money blog, listen to podcasts, read books, or pay for an online course, the return on that investment is potentially infinite.

    This especially holds true for anyone willing to pay hundreds of thousands of dollars for an education.

    Paying another $1,500 to $2,000 for a quality financial wellness course ensures that the investment in your career will not be wasted.

    To me, that makes it a no-brainer to invest in your financial wellness.

    What’s the point in working so hard to make money if you’re not going to be knowledgeable or disciplined enough to keep it?

    When you have money and understand personal finance, you control the circumstances.

    When you empower yourself to make intentional choices with your money, something incredible happens.

    You gain a new confidence as your walk through life.

    You stop worrying endlessly about money.

    Trust me, it’s a relief to know that all the money you’re earning at work is not being wasted.

    The best part of investing in your financial wellness is that you’ll be on your way to financial independence.

    That means the freedom to pursue work that is meaningful to you and the freedom to spend more time with people who are meaningful to you. 

    Could there be a better investment than that?

  • Step-by-Step Guide to Buy Your First Rental Property

    Step-by-Step Guide to Buy Your First Rental Property

    Whenever I teach personal finance to law students, I begin by asking the class what they hope to learn.

    Without fail, I get a response that goes something like:

    “I want to invest in real estate, but I have no idea where to even begin.”

    If you’ve ever felt the same way, you’re in the right place.

    @thinkandtalkmoney

    I own 11 rental properties and counting. thinkandtalkmoney.com

    ♬ original sound – Thinkandtalkmoney

    Today, I’ll walk you through my step-by-step guide to buy your first rental property.

    If you can follow these steps (in order), you will be in great shape to acquire your first rental property.

    And, if I can be of any assistance as you begin your search for a rental property, please feel free to connect via socials or by replying to one of my weekly emails.

    You can sign up for my email list here. I personally respond to every email.

    Step-by-Step Guide to Buy Your First Rental Property

    1. Use common sense and your own life experience to develop your target criteria.
    2. Pick an initial location that matches your criteria.
    3. Learn the common, important attributes of properties in your area.
    4. Study the average rent for units in that area.
    5. Ballpark how much you’ll need to spend for an attractive property.
    6. Work with a real estate broker to test your findings.
    7. Contact a mortgage broker and determine your budget.
    8. Return to your search and do basic deal analysis.
    9. Start touring the properties that look good on paper.
    10. Determine if the numbers will work in your area.

    1. Use common sense and your own life experience to develop target criteria.

    Don’t believe anyone who tells you he has a one-size-fits-all solution for evaluating properties. Every market is different. What works in Chicago won’t necessarily work in Los Angeles. 

    That said, there is certainly some advice that applies across the board.

    For starters, regardless of what market you’re in, you can and should use common sense and your own life experiences to evaluate rental properties.

    Don’t overcomplicate this part.

    Before you do anything else, think about what you would personally want in a rental property.

    Forget about complex formulas and deal metrics. We’ll get to the numbers soon enough.

    Start with a basic question:

    What would I want if I were a renter in this market?

    Before anything else, write down a list of the most important features that you would want in an apartment. Then, use that list as a guide to finding the right kind of properties.

    By the way, using your own common sense is one of the best parts about investing in real estate. You don’t need an advanced degree or a background in real estate.

    We all have some idea of what makes a neighborhood a good place to live. The same goes for what makes an apartment a good apartment. 

    We may not always agree on what those things are, and that’s OK. It may be for a simple reason, like we are not targeting the same potential tenant pool.

    The bottom line is you should absolutely use your common sense and life experiences to help formulate your investing strategy. 

    Ask yourself what you would want in an apartment. Don’t waste your time running the numbers on any property that doesn’t match your criteria.

    2. Pick an initial location that matches your criteria.

    There are potential investment properties in every part of the country. Before you start looking at individual properties, you first need to select an area you want to invest in.

    Based on your own life experiences, you are probably already drawn towards certain parts of the country. You may even have a good sense for different neighborhoods within certain cities that match your general criteria.

    From there, you should do some preliminary research online to confirm what you think you know about specific areas.

    For example, I know through my own life experiences that many recent graduates from the Midwest move to Chicago after college. The question then becomes: where do these young professionals tend to live in Chicago?

    To find out, I might Google something like “best coffee shops (or restaurants/bars/nightlife) in Chicago.”

    Likewise, if you’re targeting families, you might search for “best schools” or “best parks.”

    Performing this kind of basic research is how my wife and I stumbled upon the Logan Square neighborhood in Chicago.

    The truth is that when we first started looking for rental properties in 2017, we knew very little about Logan Square, even though we both always lived in Chicago or the Chicagoland area.

    So, we did some basic internet research on where young professionals want to live in Chicago. It didn’t take long to land on Logan Square because we kept finding articles like this from TimeOut: “It’s official: Logan Square is one of the coolest neighborhoods in the world.“

    Combined with our personal experiences, these types of articles gave us confidence to take a closer look at Logan Square.

    Now, we have 10 apartments in Logan Square.

    gray lighthouse on islet with concrete pathway at daytime representing my step-by-step guide to finding your first rental property.
    Photo by William Bout on Unsplash

    3. Learn the common, important attributes of properties in your area.

    Once you’ve picked an area to focus on, use an app like Redfin or Zillow to create a broad search for that area. You should filter your search based on the criteria you established above.

    Take some time to casually study the listings in that area. At this point in the process, don’t worry about running the numbers. You’re still in learning mode.

    If you study enough listings in a particular location, you’ll start to notice certain features that separate the premium properties from the mediocre properties.

    For example, you may notice that the more attractive properties all have in-unit washer/dryer. Or, you may learn that the attractive properties all seem to have wood floors and stainless steel appliances.

    Your goal is to understand the common and important property attributes in that area because those are the features potential tenants will expect to find.

    Think of it like this: you don’t want to buy the only property on the block that doesn’t have in-unit washer/dryer. Even if you buy that property at a good price, you’ll struggle to find good tenants if the expectation is to have in-unit washer/dryer.

    It’s not an exhaustive list, but here are some of the key attributes we’ve learned are important to young professionals renting in Chicago:

    1. Location, location, location. Proximity to the L and social life (coffee shops, restaurants, bars, etc.) are crucial. Most of the young professionals we rent to are still in the “going out” phase of life. They want to live in fun neighborhoods so they can enjoy themselves when they’re not working. They typically stay in our apartments for 2-3 years, oftentimes before buying a place of their own and “settling down.”
    2. Taxes. Property taxes can eat away your cash flow. We have high property taxes in Chicago across the board, but taxes vary widely from neighborhood to neighborhood. I look for properties in areas that have more attractive taxes.
    3. Big bedrooms. One of the most common questions I get when I do apartment showings is, “Can I fit a king size bed in here?” People love big beds these days. This can be a challenge considering Chicago’s standard 25-foot wide lot. I look for properties with a minimum bedroom size of 10 x 10.
    4. Outdoor space. Young professionals want to have outdoor space, even if they never use it. When I was a renter, I always wanted an apartment with a balcony for my grill. It didn’t matter to me that I only used it a handful of times each year. Maybe having outdoor space made me feel more grown up?
    5. Parking. Even though Chicago is a very public transit-friendly city, people still like having cars. Because most young professionals aren’t using their cars every day, they want to keep it safe in a dedicated parking space.

    When we shop for a rental property, we look for as many of these features as possible. We don’t expect to check every box because it’s nearly impossible to find a property that has all of these features (at least at a price that makes sense).

    4. Study the average rent for units in that area.

    Before you commit to a particular area, you need to know what kind of rent payments you might expect.

    You can usually find rental information directly on the listing. You may see the actual rent for that property or the projected rent. For this part of the process, this estimate is good enough to get a basic sense of what you may be able to charge.

    Word of caution: it’s not unheard of for these rental estimates to be exaggerated in the listings.

    As you get to know your market better, you’ll know whether the projected rent is accurate. Plus, you’ll have a real estate broker on your team who can validate the numbers. More on that below.

    Finally, studying the average rent goes hand in hand with the previous step of learning the important attributes of rental properties in your area.

    For example, you may discover that a renovated 3 bed, 1 bath apartment with in-unit washer/dryer and a parking space rents for around $2,500. Similar units without parking may go for $2,300. Units that have not been updated may rent for $1,800.

    Your mission is to differentiate between the property attributes that seem to increase the potential rent in your area from the attributes that don’t add much value.

    For instance, we’ve learned that dedicated parking spots are important in Logan Square. However, renters don’t seem to care very much if the parking spot is in a garage or a parking pad.

    For that reason, we don’t care too much whether a rental property has a garage, as long as there is dedicated parking available.

    5. Ballpark how much you’ll need to spend for an attractive property.

    By this point in the process, you’ll have a good idea of what constitutes an attractive property in your target area. You’ll also have a good idea of what these properties rent for.

    Next, you can ballpark how much you’ll need to spend to purchase one of these attractive properties.

    When I refer to attractive properties, I mean one that has most (but probably not all) of the features that you are looking for and still commands a decent rent. By “decent rent,” I mean not the absolute highest and also not the lowest for the area.

    Additionally, the property should be priced reasonably for the market. That means it likely won’t be the most expensive property or the cheapest property.

    The goal here is to have a general idea of how much good properties cost in your target area. With this information, you can then decide if it’s an area you want to target, or if you want to explore other locations.

    One point that’s worth repeating: don’t expect to find a property that has every one of your key features. If you’re waiting on such a property to hit the market, you’re likely to be disappointed for one of two reasons.

    First, you’ll likely end up overpaying for that property. If you overpay, you’ll struggle to earn cash flow. As investors, cash flow is crucial.

    Or, you won’t ever buy a property because your expectations are too high. Investing in real estate is all about trade-offs. The fun part of the gig is deciding what trade-offs make sense.

    Remember, you’re not searching for your picture-perfect, dream home. You’re searching for an asset that puts money in your pocket.

    6. Work with a real estate broker to test your findings.

    Now that you’ve educated yourself on your target market, it’s time to seek out the assistance of an experienced real estate broker.

    A good broker will talk with you about what you’ve learned and offer additional guidance on your target market.

    Also, a good broker will:

    • Send you properties that match your goals.
    • Tour properties with you to help identify any red flags.
    • Negotiate on your behalf to ensure you get the best possible price.
    • Connect you with other key members of your team.
    • Steer you away from making poor choices.

    Don’t make the mistake of jumping right to this step without completing steps 1-5.

    It’s important to have done your homework on your target market before talking to brokers. That’s because you need to know enough to have informed conversations with potential brokers.

    You don’t have to know all the answers. But, you have to know enough to ask the right questions.

    And, you have to know enough to recognize if your broker is giving you misguided advice.

    hand holding compass representing my step-by-step guide to finding your first rental property.
    Photo by Aron Visuals on Unsplash

    7. Contact a mortgage broker and determine your budget.

    Mortgage lending is big business. Just about every person out there needs a mortgage to buy a home or an investment property. As a result, there are a lot of banks and companies out there who want your business.

    To be sure, not all mortgages are created equal. 

    And, not all brokers, banks, and lending companies are created equal.

    That’s why your job as an investor is to find a mortgage broker who truly has your best interests in mind. 

    That means working with someone who wants what’s best for you and your family, not what’s best for him and his family.

    Plus, because rental property investing is a long-term game, you want someone on your team who’s also in it for the long run.

    A good mortgage broker will:

    • Recommend the best loan for your goals. 
    • Stop you from borrowing more than you really can afford.
    • Help get your loan approved. 
    • Explain the numbers. 
    • Not let you refinance until the time is right. 

    In sum, a good mortgage broker understands exactly what you’re trying to accomplish with each purchase. You can be straight with him and he can be straight with you. 

    8. Return to your search and do basic deal analysis.

    Now that you have a real estate broker and a mortgage broker on your team, you can start to analyze deals that match your criteria in your target area.

    Don’t let this part of the process intimidate you.

    In fact, running the numbers on potential deals should be easy:

    Running the Numbers on RE Deals Should be Easy

    Rest assured, you’ve already done the hard part of educating yourself on the key assumptions you’ll need to make to properly analyze deals.

    Now, you just need to plug those numbers into a simple spreadsheet or online calculator.

    For a step-by-step example on how to run the numbers, check out my post here.

    9. Start touring the properties that look good on paper.

    After running the preliminary numbers on properties that match your criteria, you should have a smaller list of properties that seem like real contenders.

    These are the properties that you should tour.

    Again, you want to make sure you don’t jump ahead to this step without having completed the other steps.

    That’s because it’s impractical (if not impossible) to tour every property that appeared in your initial search. By running the numbers first, you can weed out the properties that would be a waste of time to see in person.

    After touring a property, you should then update your preliminary analysis based on what you learned.

    For example, maybe you learned that the bedrooms are smaller than advertised. Maybe the finishes aren’t as nice as in the pictures.

    The point is that after seeing a property in person, you may determine that you previously overestimated what the unit will rent for.

    You also will have a better idea of what you think the property is worth.

    A final word here: some investors are content buying properties without touring them in person.

    Personally, I would never buy a property without walking through it first. I want to see for myself what condition the property is in and make my own assessment of what it could rent for.

    10. Determine if the numbers will work in your target area.

    The final step is to put together everything that you learned in steps 1-9 to determine if it’s a good idea to invest in your target area.

    If you like what you’ve learned, you can stay disciplined and wait until you find an attractive property to offer on.

    On the other hand, you may find that your initial target area is not ripe for investment.

    That’s OK. It’s certainly better to find that out before you commit hundreds of thousands of dollars to a poor investment.

    Before my wife and I settled on Logan Square, we went through this process and ruled out a number of other promising neighborhoods.

    By putting in the effort to complete steps 1-9, we learned that the math simply did not work in certain parts of the city.

    In some neighborhoods, the properties were just too expensive to earn positive cash flow. Then, in other areas, the rent was not high enough to justify the purchase price or high taxes.

    In the end, we determined that Logan Square had the right combination of attractive properties and decent rents.

    Step-by-Step Guide to Buy Your First Rental Property

    1. Use common sense and your own life experience to develop your target criteria.
    2. Pick an initial location that matches your criteria.
    3. Learn the common, important attributes of properties in your area.
    4. Study the average rent for units in that area.
    5. Ballpark how much you’ll need to spend for an attractive property.
    6. Work with a real estate broker to test your findings.
    7. Contact a mortgage broker and determine your budget.
    8. Return to your search and do basic deal analysis.
    9. Start touring the properties that look good on paper.
    10. Determine if the numbers will work in your area.

    Like any new skill in life, implementing this step-by-step guide takes some time and effort in the beginning.

    The upshot is that if you can follow these steps, you’ll get that first rental property and have the skills to acquire additional properties when you’re ready.

    If I can be of any assistance as you begin your search for a rental property, please feel free to connect via socials or by replying to one of my weekly emails.

    You can sign up for my email list here. I personally respond to every email.

  • Four Easy Holiday Shopping Tips to Stay on Budget

    Four Easy Holiday Shopping Tips to Stay on Budget

    When I teach personal finance to law students, I always ask them to share their biggest money worries with me. I encourage them to think about long-term and short-term financial concerns. 

    I’ve taught for enough years now that I’ve come to expect a handful of common responses.

    For example, long-term, law students are obviously worried about student loans. No surprise there. 

    Student loans can feel heavy and can be a major drag on our finances. That’s why paying off debt is a point of emphasis in my course.

    Regarding short-term money worries, one response comes up more than any other: how to budget for inconsistent expenses that pop up throughout the year.

    This worry is highlighted during the holiday season.

    My students commonly worry about buying gifts during the holiday season.

    I totally get it.

    During the holiday season, we tend to spend more money than we do during other times of year. This can be very stressful. The challenge is coming up with a plan to handle this temporary increase in spending. 

    Think about it: throughout the rest of the year, people don’t tend to worry about buying gifts as part of their regular monthly budget. 

    That’s because we can typically handle the occasional birthday or anniversary gift within our Budget After Thinking. 

    Usually, staying on budget is as simple as making a quick tradeoff: buy a gift for my mom’s birthday instead of going out to dinner this weekend.

    Sure, you have to “sacrifice” dinner out with your friends, but that’s a one-time decision that allows you to stay on budget and get a gift for mom.

    However, things all change when it comes to spending during the holiday season. 

    The trade-off is not so simple as skipping one dinner out.

    During the holiday season, we’re not just shopping for mom. We have significant others, kids, nieces/nephews, parents, and siblings. 

    And, don’t forget about gifts for your kids’ teachers, the babysitter, your assistant at the office, and anyone else who helps make your life easier throughout the year.

    You get the idea.

    Expenditures balloon during the holiday season. If you’re not prepared, this can cause a lot of unnecessary stress.

    If this sounds familiar to you, don’t beat yourself up. Inconsistent expenses, like holiday shopping, are challenging for even the most dedicated budgeters. 

    The truth is there’s nothing worse than dedicating yourself to your budget for 11 months out of the year only to blow it during the holiday season.

    Let’s not let that happen.

    Today, I’ll share four tips to help you stay on budget and avoid common spending pitfalls during the holiday season.

    First, let’s talk about budget busters.

    Holiday Shopping Tip No. 1: Plan ahead for budget busters.

    Holiday shopping is an example of inconsistent, but unavoidable, spending that I refer to as budget busters.

    Generally, budget busters are any inconsistent expenditures, good or bad, that can derail your finances if not properly planned for.

    Good budget busters might include trips, weddings, and of course, holiday shopping. 

    Bad budget busters include unexpected car repairs, home repairs, or medical expenses.

    The key with budget busters is that you need to plan ahead.

    Holiday shopping is the easiest budget buster to plan for- we know that these expenses are going to occur every year from the end of November (Black Friday) through New Year’s Eve. 

    With the proper planning, you can handle holiday shopping so it doesn’t become a budget buster for you.

    Here’s how you do it.

    Galleries lafayette with big Christmas tree illustrating the challenges of staying on budget during the holiday season and why you need my four tips to stay on budget for the holiday season.
    Photo by Ruben Laudicina on Unsplash

    Plan for budget busters as line items in your Budget After Thinking.

    I recommend including two separate line items for budget busters in your Budget After Thinking. 

    Have one line item in your Now Money category (bad budget busters) and one line item in your Life Money category (good budget busters).

    Holiday shopping is part of your Life Money category.

    You likely won’t end up spending your budget buster money every month. That’s a good thing.

    For example, let’s say you allocate $200 per month to your Life Money budget buster category.

    By the end of the year, if you haven’t spent the money elsewhere, you’ll have $2,400 saved up to help you cover holiday shopping expenses. 

    The key is that each month that you don’t spend your budget buster money, transfer it to your savings account so it’s there when you need it, like when it’s time to buy holiday gifts.

    This is an important step. You don’t want to let that hard-earned money sit in your checking account. Those dollars will disappear long before Black Friday.

    By transferring them to savings, those dollars will be at your disposal when needed.

    What kind of savings account am I talking about?

    Be sure to have a separate savings account for budget busters. It’s always a good idea to keep your savings separate from your everyday spending.

    Ideally, you should open up a savings account at a different bank than your checking account. This helps isolate those funds so those dollars don’t disappear and are available come holiday season.

    There are lots of good options for high-yield, online savings accounts. I used to bank with CapitalOne, but then they burned me and thousands of other customers. Never again.

    I now use BMO Alto for my savings account. They offer a good interest rate and a no-frills product. Very simple and straightforward.

    Come holiday season, I can use the budget buster money I had saved throughout the year in my BMO Alto account to cover me if I overspend.

    Holiday Shopping Tip No. 2: Cut back in November and January.

    If you overspend in December, don’t get discouraged and give up. Before all your hard budgeting work goes to waste, take the month of January to course correct. 

    For example, if you overspent by $300 in December, make it a priority to underspend by $300 in January.

    Even better is if you can also intentionally underspend in November anticipating higher spending in December.

    For instance, if you want to have $500 more to spend in December, cut back $250 of spending in November and another $250 in January.

    The key is to make sure you address the overspending issue in November and January and not let too much more time go by without course-correcting. If you wait, you’ll just never get around to addressing it.

    Is this easier said than done? 

    Well, sure. It’s always easier to say you’re going to do something. The hard part is following through. It takes discipline.

    What will drive that discipline? 

    Your ultimate life motivations that we talk so much about (and will always continue to talk about). Without that clear vision of your ideal life in front of you, no budget will ever last.

    If your ultimate life motivations are not important enough for you to cut back on spending for a month or two, you need to revisit those motivations.

    Tip No. 3: Make a game out of it, like the $500 Challenge.

    If you go overboard with holiday shopping in December, don’t get down on yourself. You’re human. It happens.

    In January, it’s time to play a game that I call “The $500 Challenge.” 

    My wife and I started playing The $500 Challenge years ago. The game was simple. Each of us had to limit our Life Money for the month to just $500. Whoever spent the least that month, won the game.

    I’ve never won the game. My wife is… competitive. I cope by lying to myself that she wins because I enjoy paying on date nights. 

    We’ve played this game many times to course-correct after a high spending month.

    January is the perfect time of year for this game since the holidays in December often result in overspending.

    life size white hippo plush toy illustrating the challenges of staying on budget during the holiday season and why you need my four tips to stay on budget for the holiday season.
    Photo by Mai Truong on Unsplash

    The $500 Challenge has many benefits.

    When we succeeded playing The $500 Challenge, we’d be right back on track for our goals.

    Even if we couldn’t quite stay under $500 (never an issue for my wife), this game still reminded us to prioritize the experiences and things in life that truly mattered to us.

    My favorite part of the game was it forced us to get creative with our nights out. One of my favorite date nights was a product of the $500 challenge. 

    We had just moved to our new neighborhood. It was a Friday night. People were out and the city was bumping, per usual in summertime Chicago. We set out for a walk to explore with only one rule: we had $20 to spend or less on dinner for two.

    We weren’t going to waste that money on an Uber, so we just started walking. A couple miles later, having learned all about our new surroundings, we ended up at a casual restaurant we had never been to. 

    We ordered a plate of nachos to share off the happy hour menu. We even had enough money left for one of us to wash it down with a cold beer. The nachos were great and the vibe was perfect. The check, with tip? 19 bucks.

    We walked home, which helped digest our dinner, and went to bed feeling light in the belly and heavy in the wallet.

    The $500 Challenge is the perfect way to get back on track in January after overspending in December.

    Tip No. 4: Buy it on Black Friday, but only if it’s on sale.

    About 10 years ago, my mom bought me a jacket for a birthday present. It was the exact jacket I wanted. How did she know, I asked her.

    “You mentioned it when we were downtown four months ago.” 

    Four months ago!

    I shouldn’t have been surprised. My mom has one of those steel trap memories. 

    If you only met her for five minutes and then saw her again two years later, don’t be surprised when she asks about your consulting gig, your trip to New Orleans, and that blue dress that she really liked.

    I learned from my mom’s gift strategy and now apply it to holiday shopping. I don’t have her memory, but I do have a phone with a notes function. 

    When my kids see something that they want from Santa, I make a note in my phone. I do the same thing when my wife or I see something that we might want.

    On Black Friday, I pull out my list and start online shopping.

    Many of the items I could have purchased earlier are on sale during Black Friday. If it’s not on sale, I can decide if I still want to buy it. Most times, I pass on the full-price items. 

    The benefit of this strategy is that I can sit down with my laptop in a controlled environment knowing that I have a certain amount to spend. Once I hit my spending limit, I stop shopping. 

    By waiting until Black Friday, I can buy more gifts for the same amount of money.

    I can also take my time to think about whether I still want that item. More times than not, I no longer want whatever it was that tempted me in the moment.

    Compare this strategy to randomly buying full-priced gifts throughout the month where it’s difficult to even know how much you’re spending.

    By keeping a list and waiting to shop until Black Friday, you can save money, get more gifts, and stay on budget. 

    Don’t let holiday shopping stress you out.

    With the proper planning, you don’t have to let holiday shopping stress you out.

    Like with most personal finance concepts, the key is to think and make intentional choices. 

    When you put a little effort in ahead of time, you can stay on budget and continue progressing towards your life goals.

    Do you plan ahead for holiday shopping?

    What are your favorite strategies to say on budget?

    Let us know in the comments below.

  • Backdoor Roth IRA: What Lawyers Need to Know

    Backdoor Roth IRA: What Lawyers Need to Know

    If you’re a lawyer reading a personal finance blog, I’m going to assume that you are already maxing out your 401(k).

    That’s a good start.

    But, if you’re interested in financial independence, you need to be doing more.

    @thinkandtalkmoney

    Want to contribute to your Roth IRA, but your income is too high? Consider a backdoor Roth IRA. #thinkandtalkmoney

    ♬ original sound – Thinkandtalkmoney

    For high earners who read personal finance blogs, maxing out a 401(k) plan is just the beginning.

    On top of maxing out a 401(k) plan, I recommend lawyers also max out an HSA.

    Maxing out a 401(k) and HSA is a powerful combination.

    But, you can still do more.

    The reality is there are only so many tax-advantaged investment account types that you can contribute to. It’s important to take advantage of these accounts whenever possible.

    So, once you’ve maxed out both your 401(k) and HSA, the next step is to consider maxing out a Roth IRA.

    When you can fully fund each of these three accounts, you’re well on your way to financial independence.

    Now before you tune out because you don’t make enough money to contribute to all three accounts, hear me out.

    If you follow a traditional career trajectory for a lawyer, you will earn more money in the future.

    When you do, you want to know what to do with that additional cash so it doesn’t go to waste, like contributing to a Roth IRA.

    The thing is, there’s a catch that all lawyers need to know about when it comes to earning a good income and benefiting from Roth IRAs.

    That’s what we’re going to explore today.

    There’s a catch when it comes to high earners funding a Roth IRA.

    When it comes to contributing to a Roth IRA, there’s a catch that high earners need to be aware of.

    Because of the amazing tax advantages, there are income limits associated with who may contribute to a Roth IRA. More on these limits below.

    My assumption is that if you earn enough money to max out a 401(k) and HSA, and still have funds available for a Roth IRA, you likely exceed these income limits.

    Today, we’ll talk about the common strategy that high earners use to get around these income limits. The strategy is known as a “Backdoor Roth IRA conversion.”

    With many lawyers earning raises and bonuses towards year-end, this is the perfect time to consider a Backdoor Roth conversion.

    The last thing you want to happen is for that extra, hard-earned money to go to waste.

    Plus, if you prioritized other financial goals earlier in the year, it’s not too late to circle back to your retirement planning goals, like maxing out a Roth IRA.

    Before we talk about the Backdoor Roth IRA, let’s take a look at why you should consider investing in a Roth IRA in the first place.

    A Roth IRA provides double tax benefits.

    A Roth IRA is a type of retirement account that provides double tax benefits. 

    The first major tax benefit is that you don’t have to pay any taxes when you withdraw from a Roth IRA (after age 59 1/2). This is the most notable advantage of investing in a Roth IRA.

    The second major tax benefit of investing in a Roth IRA is that, just like a 401(k), your earnings grow tax-free. That means more investment growth through the magic of compound interest.

    The combination of tax-free withdrawals and tax-free growth means double tax benefits. This is why so many savvy investors, who can afford to do so, choose to max out their Roth IRA.

    Back door representing that every lawyer seeking financial independence needs to make a Roth IRA contribution, even if it means doing a Backdoor Roth IRA conversion.
    Photo by Adrian Handschu on Unsplash

    The key difference from a 401(k) or traditional IRA is that you make after-tax contributions to a Roth IRA.

    With a Roth IRA, you make after-tax contributions. That means you don’t get any immediate tax breaks, unlike when you contribute to a 401(k).

    Even so, the two major tax benefits we just discussed make it extremely valuable to contribute to a Roth IRA.

    What does it mean to make after-tax contributions to a Roth IRA?

    Typically, a lawyer paid as a W-2 employee will fund a Roth IRA with money that gets deposited into his checking account from his paycheck.

    That means he already paid taxes on that income through withholdings on his paycheck. So, the money that gets deposited into his checking account is considered “after-tax” money.

    Once that money hits his checking account, he gets to decide what to do with it.

    The basic decision is pretty simple: he can spend the money or he can save it.

    If he chooses to save the money, investing in a Roth IRA is one of the best ways to do it.

    Why lawyers should open a Roth IRA besides the double tax benefits.

    For a number of reasons, it’s a good idea for every lawyer to consider funding a Roth IRA in addition to his 401(k).

    For starters, there are contribution limits to funding employer-sponsored retirement accounts, like a 401(k).

    Essentially, you may need more money in retirement than just what your 401(k) plan will provide. Investing in a Roth IRA at the same time is a way to boost your retirement income.

    For another reason, 401(k) plans and Roth IRAs are treated differently from a tax perspective, as we just discussed. 

    Many retirees like having a Roth IRA in addition to their 401(k) so they have access to some tax-free money in retirement.

    Include me in this camp. I agree that it is beneficial to have some tax-free income in retirement from a Roth IRA to go along with your taxable income from a 401(k).

    Finally, Roth IRAs also provide better flexibility for when you have to withdraw your money and how you can pass your funds onto your heirs.

    For example, you can withdraw your Roth IRA contributions tax-free and penalty-free at any time. This flexibility is a huge advantage of a Roth IRA.

    Note: There are penalties if you make withdrawals from your earnings before the age of 59 1/2.

    For another example, unlike traditional IRAs, Roth IRAs don’t have required minimum distributions (RMDs).

    Add all these benefits together and you’ll see why so many lawyers choose to fund a Roth IRA.

    Roth IRA contribution and income limits.

    As with other tax-advantaged retirement accounts, like a 401(k), there are annual contribution limits for Roth IRAs.

    Recently, the IRS raised the 2026 annual contribution limits for Roth IRAs to $7,500, up from $7,000 in 2025. The IRA “catch-up” contribution limit also increased to $1,100 in 2026.

    Pertinent for today’s conversation, there are also income limits for contributing to a Roth IRA.

    As explained by the IRS:

    The income phase-out range for taxpayers making contributions to a Roth IRA is increased to between $153,000 and $168,000 for singles and heads of household, up from between $150,000 and $165,000 for 2025. 

    For married couples filing jointly, the income phase-out range is increased to between $242,000 and $252,000, up from between $236,000 and $246,000 for 2025. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains between $0 and $10,000.

    As a lawyer, there’s a good chance you exceed these income limits. If you’re not there already, you soon will if you follow a typical career trajectory.

    That’s where the Backdoor Roth IRA strategy comes into play.

    Back door representing that every lawyer seeking financial independence needs to make a Roth IRA contribution, even if it means doing a Backdoor Roth IRA conversion.
    Photo by Kaitlan Balsam on Unsplash

    What is a Backdoor Roth IRA?

    “Backdoor Roth IRA” describes a strategy used by lawyers and other high-income earners who can’t contribute to a Roth IRA because their income is too high.

    Because high-income earners are not permitted to contribute directly to a Roth IRA, this strategy involves contributing to a traditional IRA and then converting it to a Roth.

    Even though the name implies you’re doing something sneaky, Backdoor Roth IRA conversions are completely permissible.

    In fact, every major financial institution, like Vanguard, Fidelity, and Charles Schwab, has a step-by-step guide on how to perform a Backdoor Roth conversion on its website.

    The Back Door IRA process involves two steps.

    Step 1: Make a nondeductible contribution to a traditional IRA. That means you don’t get an upfront tax break.

    Step 2: Convert that contribution to a Roth IRA.

    That’s all there is to it. You can perform the conversion yourself through your investment platform. I personally use Vanguard.

    Notably, there are no income limits for converting a traditional IRA to a Roth IRA.

    And, since the initial contribution is made with after-tax dollars, when executed properly, you shouldn’t owe additional taxes on the conversion.

    This process is easier than it sounds. Just be sure to precisely follow the step-by-step guides offered by the financial institution that you invest with.

    Finally, as always, be sure to check with your tax advisor or financial advisor before performing a Backdoor Roth conversion.

    Do you take advantage of a Backdoor Roth IRA?

    Maxing out your 401(k) is a good start.

    Maxing out your 401(k) and HSA is even better.

    If you also max out your Roth IRA, whether directly or through a Backdoor Roth conversion, that’s next level.

    As a lawyer earning a high income, there’s really no excuse for not maxing out each of these three accounts.

    If you make good money and are falling short, you should revisit your budget. You also should spend some time thinking about what financial independence might mean for you and your family.

    The end of the year and the holiday season are great times to think and make adjustments to move you closer to financial freedom.

    What do you think of the Backdoor Roth?

    Have you contributed through the backdoor in the past?

    Planning to contribute again this year?

    Let us know in the comments below.

  • Year End Checklist: Make Your Charitable Contributions Now

    Year End Checklist: Make Your Charitable Contributions Now

    The holiday season is upon us.

    As W-2 employees, now is the time to strategize what we can do before January 1 to optimize our taxes.

    Let’s be honest: throughout the year, most W-2 employees don’t think very much about their taxes.

    As a side, that’s one of the major differences between W-2 employees and business owners or real estate investors. If you own a business or own rental properties, you are always thinking about ways to lower your taxable income. More on that below.

    OK, getting back to W-2 employees:

    When was the last time you took a look at your actual pay statement?

    Most of us working W-2 jobs have direct deposit, meaning our paychecks are automatically deposited into our bank accounts. On pay day, all we have to do is wake up, open our banking app, and confirm we got paid. 

    When we do this, all we see is our net pay, or take-home pay. Our net pay is what we earn after all deductions are subtracted from our gross pay. 

    Deductions reduce our taxable income and may include voluntary contributions to our 401(k) and HSA.

    That’s all nice so far.

    Not so nice is that our paychecks are further reduced by mandatory tax withholdings. 

    For high earning lawyers and professionals, taxes can easily reduce our W-2 income by 25%-40%.

    The question as year-end approaches is: can we take any steps now as W-2 employees to reduce our taxable income?

    The short answer is: yes, but the options are limited.

    Let’s dive in.

    Do you expect to take the standard deduction or itemized deductions?

    Before we look at the options to reduce your taxable income, the first question is whether you plan to take the standard deduction or itemized deduction.

    The standard deduction is an amount set by the IRS that reduces your taxable income and likely your tax bill. Here are the standard deductions for tax year 2025 and 2026:

    How does the standard deduction reduce your taxable income?

    Let’s say you are single and made $100,000 in 2025. If you take the standard deduction, you can reduce your income to $84,250. That means you only owe taxes on $84,250 instead of $100,000.

    Assuming you elected typical tax withholdings from your paycheck throughout the year, you should get a tax refund upon filing your tax return.

    Besides the standard deduction, the other option to reduce your taxble income is to itemize your deductions.

    When you choose to itemize, the IRS allows you to claim deductions for expenses like mortgage interest, state and local taxes you paid, and gifts to charity.

    Here’s a draft of Schedule A (Form 1040) which shows the common deductions if you itemize:

    Importantly, if you take the standard deduction, you cannot also itemize your deductions. It’s one or the other.

    So, before you start thinking about ways to lower your taxable income, you first need to decide if you’ll save more money by itemizing.

    Generally speaking, most W-2 employees take the standard deduction. It’s the easiest way to file your taxes and provides the biggest refund for most typical W-2 employees.

    On the other hand, if you have a mortgage, pay a good amount in state and local taxes, and/or make sizable charitable contributions, you may benefit from itemizing.

    Donate to charity before the year ends to increase your itemized deduction.

    Let’s say you and your tax professional decide you would benefit from itemizing. Maybe you reached that conclusion because the amount you pay in mortgage interest plus state and local taxes already surpasses the standard deduction.

    If that’s the case, you may be wondering if there is anything you can do to further reduce your taxable income this year.

    As you can see on Schedule A, the options for reducing your taxable income as a W-2 employee are limited.

    You cannot control what you’ll pay in mortgage interest (that’s already determined). The same goes for your state and local taxes.

    As a high earning attorney or professional covered by health insurance, it’s unlikely you’ll qualify for the medical expenses deduction.

    The bottom line is that the only realistic option to reduce your taxable income as a W-2 employee is to make additional charitable contributions.

    That leads us to today’s year-end tip.

    Consider making additional charitable donations in 2025 if you want to reduce your taxable income.

    This doesn’t mean that you have to donate more money that you previously budgeted for. You can simply accelerate the timing of when you make those contributions so you receive tax benefits this year.

    For example, let’s say you budgeted for and typically donate $100 per month to your favorite charity. If you wanted to reduce your taxable income for 2025, you could instead make a lump sum contribution for $1,200 before the year ends.

    The benefit is that you can claim a larger tax deduction for 2025 and get some of that money back as part of your tax refund. How much you get back depends on a variety of factors, most notably your tax bracket.

    At the same time, your favorite charity benefits from your full donation sooner.

    It’s a win-win for you and the charity.

    an orange gift box with a red bow reflecting the best way for W-2 employees to reduce their taxable income.
    Photo by Ubaid E. Alyafizi on Unsplash

    As employees, we are accustomed to having significant taxes withheld from our paychecks.

    As a W-2 employee, if you were hoping for more ways to reduce your taxable income… don’t look at me.

    The tax code favors business owners and real estate investors.

    We’ve become so accustomed to paying taxes as W-2 employees that none of this should surprise us. Taxes are just part of the bargain when you’re an employee.

    In contrast, owning rental real estate comes with massive tax benefits.

    I earn income through W-2 employment and rental properties. 

    As a W-2 employee and a real estate investor, I know firsthand that not all income is created equal.

    My W-2 income is heavily taxed every month. I have very few ways to reduce my taxable income, like we just saw above.

    On the other hand, I have a number of completely legal ways to reduce my rental property income.

    Real estate investors benefit from massive tax benefits. 

    The federal government has long encouraged investment in real estate. People need places to live, work, and socialize.

    The government long ago decided to reward investors who take on the risk of providing these opportunities.

    These incentives come largely in the form of tax benefits.

    To accomplish its goal, the government allows real estate investors to deduct certain rental property expenses from their income.

    When you earn rental income, you must report this income on your tax return. Rental income is treated the same as ordinary income.

    However, the major difference between rental income and W-2 income is that there are a number of completely legal ways to deduct certain expenses from your rental income.

    Common rental property expenses may include mortgage interest, property tax, operating expenses, depreciation, and repairs. We’ll touch on a few of these deductions below.

    With all of these available deductions, the end result is that most savvy real estate investors pay little, or nothing, in taxes on their rental income each year.

    Yes, you read that right.

    I’ll say it again, just to be clear:

    Most savvy real estate investors legally pay nothing in taxes on their rental income each year.

    Would you rather have rental income or W-2 income?

    This post is not meant to be a primer on income taxes, but we can use a very basic tax bracket calculator to highlight the distinction between rental income and W-2 income.

    I currently receive both types of income so readily appreciate the difference in how each form of income is taxed.

    Let’s say you live in Illinois and are a high-earning lawyer or professional making a gross annual income of $250,000. Based on 2024’s federal tax rates, you will owe $53,015 in federal income tax. That’s 21% of your income.

    an example of how much you'll pay in taxes if you earn $250,000 as a W-2 employee.
    Source: taxact.com

    Illinois is one of the 42 states that also levies a state income tax. Illinois levies a flat state income tax of 4.95%. For our example, that means an additional $12,375 in taxes each year.

    In total, a W-2 employee earning $250,000 in Illinois pays $65,390, or nearly 26%, in income taxes each year.

    Again, this is not meant to be a tax primer. And yes, most W-2 employees take the standard deduction, meaning they’ll get a small refund when they file their tax returns. 

    Still, there’s no getting around the reality that when you’re a W-2 employee, you have limited options to reduce your taxable income. 

    In the end, you will pay a significant percentage of your income to the government every year.

    Real estate investors have a number of legal tax deductions at their deposal. 

    On the other hand, a real estate investor earning $250,000 in rental income likely pays very little, or even nothing, in income taxes.

    How is that possible?

    We already mentioned that the government allows real estate investors to deduct rental expenses.

    For today’s purposes, I’ll highlight one key deduction that shows just how much the government wants to encourage real estate investment:

    Depreciation.

    What is Depreciation?

    Depreciation is an accounting method that allows real estate investors to deduct some of the cost of owning a property over time.

    This accounting process is not a trick and is completely legal.

    Calculating your property’s depreciation can get complicated and is best left to the tax professionals.

    In general terms, if you own residential rental property and use standard depreciation like me, you can deduct the cost of owning that property over 27.5 years. 

    Each year, you can then reduce your rental income by that annual depreciation.

    Here’s an example to help illustrate how depreciation works.

    Let’s say you buy a rental property for $500,000, and the closing costs are $10,000. The property’s in excellent shape so no capital improvements are needed. 

    That means your total initial cost for this rental property is $510,000.

    When you buy a rental property, you are actually buying the land and the building. Your city, county or town’s assessor typically attaches a value to each the land and the building.

    For depreciation purposes, only the value of the building is depreciable. The land is not.

    In our example, let’s say the land was valued at $110,000. You are not allowed to depreciate the value of the land.

    So, your depreciable basis is the initial cost of the property less the land value:

    Initial Cost – Land Value = Depreciable Basis

    $510,000-$110,000=$400,000

    For residential rental properties, you can spread out that depreciable basis over 27.5 years to figure out the annual depreciation.

    Depreciable Basis / 27.5 = Annual Depreciation

    $400,000 / 27.5 =$14,545.45

    What this means is that you can deduct $14,545.45 from your rental income each year. 

    Combined with the other available deductions, you can see why real estate investors end up paying very little, or nothing at all, in rental income taxes each year.

    Note: If you sell your rental property, you are responsible for paying depreciation recapture tax, which is a topic for another day. To keep it simple, depreciation recapture is a non-factor for this conversation for many reasons. The most important reason for that is because you have to pay this tax even if you never claimed depreciation on your tax return.

    Don’t forget to make your charitable gifts if you itemize your taxes.

    I firmly believe every lawyer should only at least one rental property to accelerate his path to financial independence.

    If you’re not a real estate investor, you may want to consider this conversation on taxes as you plan your financial goals for 2026.

    Maybe a rental property is in your future.

    For now, if you are a W-2 employee, consider making additional charitable donations in 2025 if you want to reduce your taxable income.

    Charitable gifts may just be the only way to reduce the amount you pay in taxes this year.

    Do you take the standard deduction or itemize?

    If you itemize, do you know of other ways for a typical W-2 employee to reduce his taxable income?

    Let us know in the comments below.

  • On Track to Max Out Your Retirement Accounts This Year?

    On Track to Max Out Your Retirement Accounts This Year?

    Hey, want to hear something exciting?

    The IRS just gave us an early gift for 2026: higher maximum contribution limits for retirement accounts, like a 401(k) or Roth IRA!

    If that doesn’t excite you… you’re reading the wrong blog.

    For those of us who read (and write) personal finance blogs, maxing out our retirement accounts is a top priority.

    Remember, our saving rate is the one thing we can truly control when it comes to investing.

    Once we’ve committed ourselves to improving our saving rate, the next big question is what we should do with the money we’re saving.

    That leads us to today’s refresher on the two most popular types of retirement accounts: the 401(k) and the Roth IRA.

    With many lawyers and professionals earning raises and bonuses towards year-end, this is the perfect time to check in on your annual retirement contributions.

    The last thing you want to happen is for that extra, hard-earned money to go to waste.

    Plus, if you prioritized other financial goals earlier in the year, it’s not too late to increase your contributions in 2025 to the maximum level.

    This is exactly what I did recently. Having made good progress on my other 2025 money goals, I adjusted my 401(k) contributions to hit the maximum for 2025.

    A 401(k) is likely the first investment account you will have.

    401(k) plans are employer-sponsored retirement plans.

    Employees can elect to participate in their company’s 401(k) plan and choose from a variety of investment options, usually mutual funds and index funds.

    Most of us get our first exposure to the stock market through a 401(k) plan. The main exception is if you had a parent or relative open an investment account for you before you started working full-time.

    There are four major reasons to invest in a 401(k) plan.

    Let’s take a look at four major reasons to invest in a 401(k) plan.

    1. You can invest with pre-tax dollars. 

    When you invest in a traditional 401(k) plan, you are contributing pre-tax dollars. This is a great way to lower your taxable income in the year you contribute.

    For example, if you earn $100,000 per year and choose to contribute $10,000 to your 401(k), you have reduced your taxable income to $90,000. That’s an immediate tax savings for you.

    At the same time, you can invest that entire $10,000 without having to pay any taxes on that amount in the year you contribute.

    That means more money for investments rather than taxes. When you have more money invested, you can obviously earn more in returns. That’s the magic of compound interest.

    2. Your contributions are automatic. 

    Once enrolled in a 401(k) plan, your employer will automatically deduct money from your paycheck and invest it directly into your investment selections. 

    Because the money never hits your checking account, you won’t be tempted to spend it on things you don’t really care about.

    You also don’t have to worry about consistently making transfers into your account because it will happen automatically.

    It’s like having a forced savings account where you don’t have to do anything at all. It doesn’t get easier than that.

    Adirondack chairs representing retirement and that you still have time to meet your 2025 retirement goals.
    Photo by Aaron Burden on Unsplash

    3. Your earnings grow tax-free. 

    In addition to not being taxed on your contributions like we discussed above, you also won’t be taxed on your earnings.

    That’s a double tax advantage that acts to magnify the power of compound interest.

    Keep in mind that you will be taxed when you make withdrawals later on.

    Let that marinate for a minute. If you start contributing in your 20s and don’t withdraw from your 401(k) until your 60s, that’s 40 years of tax-free, compounded growth.

    This is a major incentive to invest in a 401(k), even more so than the ability to reduce your taxable income in the year you contribute.

    Rest assured, if you’re maxing out your 401(k), you can just roll your eyes the next time you hear someone complaining about taxes.

    You shouldn’t worry because you have investments that will grow for decades without any tax liabilities.

    4. Your employer may offer a match. 

    Many employers today offer a match to incentivize employees to contribute to their 401(k) plans.

    To qualify for the match, you must be participating in your company’s plan and make contributions yourself. The match is usually a percentage of your overall salary, usually between 3-6%. 

    For example, if you contribute 5% of your salary, your company may match you with an additional 5% contribution. 

    If your company offers a match, it’s a no-brainer to take advantage of that match.

    This benefit is so good that the employer match is often described as “free money.”

    I agree with the sentiment, but I don’t like the term “free money.”

    That’s because it implies that you have not earned that money as an employee for your company. If you’re a lawyer or professional, you spend countless hours away from your family to work a hard job. The employer match is compensation for your efforts.

    I prefer to think of the company match as a bonus you’ve rightfully earned. 

    The key is to accept that earned bonus by ensuring you are meeting the minimum requirements to qualify.

    401(k) Contribution Limits for 2026

    The IRS recently increased the maximum contribution that an individual can make in 2026 to a 401(k) plan. The new limits are $24,500, up from $23,500 this year.

    That means people earning $100,000 in 2026 can reduce their taxable income by nearly 25% if they max out the contribution. That’s huge, immediate savings.

    People aged 50 and over may be able to contribute even more, up to $8,000 more next year, up from $7,500 this year.

    Additionally, people between the ages of 60 and 63 will be allowed catch-up retirement plan contributions of up to $11,250 annually.

    A Roth IRA is another key retirement account that offers double tax benefits.

    A Roth IRA is another type of retirement account that also provides double tax benefits. 

    Unlike a 401(k), you make after-tax contributions to your Roth IRA. That means you don’t get any immediate tax breaks.

    However, you don’t have to pay any taxes when you withdraw the money (after age 59 1/2). This is the major perk of a Roth IRA.

    Additionally, just like a 401(k), your Roth IRA grows tax-free.

    As another bonus, you can withdraw your contributions tax-free and penalty-free at any time. Keep in mind there are penalties if you make withdrawals from your earnings before the age of 59 1/2.

    Why think about opening a Roth IRA?

    For many investors, it’s not a bad idea to consider opening a Roth IRA in addition to your 401(k). 

    For starters, there are contribution limits to each account. You may need more money in retirement than just what your 401(k) plan will provide. Investing in a Roth IRA at the same time is a way to boost your retirement income.

    For another reason, as discussed, 401(k) plans and Roth IRAs are treated differently from a tax perspective.

    Many retirees like having a Roth IRA in addition to their 401(k) so they have access to some tax-free money in retirement.

    Include me in that camp. I agree that it is beneficial to have some tax-free income in retirement from a Roth IRA to go along with your taxable income from a 401(k).

    You can open a Roth IRA with any number of investment companies, like Vanguard, Fidelity, and Charles Schwab.

    map and passports representing what is possible in the future if you max out your retirement accounts.
    Photo by Charlotte Noelle on Unsplash

    Roth IRA Contribution and Income Limits for 2026

    Just like with the 401(k), the IRS also raised the 2026 annual contribution limits for Roth IRAs. The limits in 2026 increased to $7,500, up from $7,000 this year.

    The IRA “catch-up” contribution limit also increased to $1,100 in 2026.

    There is a catch when it comes to Roth IRAs. Because of the amazing tax advantages, there are income limits associated with who may contribute to a Roth IRA.

    As explained by the IRS for 2026:

    The income phase-out range for taxpayers making contributions to a Roth IRA is increased to between $153,000 and $168,000 for singles and heads of household, up from between $150,000 and $165,000 for 2025.

    For married couples filing jointly, the income phase-out range is increased to between $242,000 and $252,000, up from between $236,000 and $246,000 for 2025. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains between $0 and $10,000.

    Are you on track to hit your retirement planning goal for 2025?

    There are only so many ways to invest in tax-advantaged accounts. The most savvy investors make sure that they are receiving as many tax benefits as possible.

    The 401(k) and Roth IRA are two of the most popular, and two of the only, ways to invest for retirement with incredible tax advantages. That’s why they are so important to fund during your working years.

    If you want to max out your accounts, there is still time in 2025, especially if you recently earned a raise or a bonus. Put that hard-earned money to good use. Don’t let the dollars disappear.

    Then, as 2026 begins, with the new limits in place, you may want to adjust your contributions so you can continue to hit the max level in your 401(k) and Roth IRA.

    Have you checked in on your retirement contributions lately?

    Are you planning to increase your contributions to hit the max level in 2025?

    What about in 2026?

    Let us know in the comments below.

  • Budget Busters are the Most Expected Expense of All

    Budget Busters are the Most Expected Expense of All

    Are you the type that gets mad at traffic?

    What about the type that gets mad at airport security lines?

    I was in an airport security line recently where multiple lines were merging into one when I heard a guy say to another traveler who he thought cut in front of, “I’m in line, too!”

    Clearly, he’s the type who gets mad in airport security lines.

    This always puzzles me.

    You know there’s going to be traffic. There’s always traffic.

    You know airport security lines are chaotic.

    Why do we let these things bother us?

    My theory is that because we didn’t plan ahead. We didn’t check the directions before leaving the house to avoid traffic. Or, we didn’t get to the airport early enough to not stress about security lines.

    The point is that you can’t stop traffic from happening just like you can’t avoid security lines at the airport.

    But, with the right planning, these inconveniences don’t have to ruin your day.

    What does this have to do with personal finance?

    Well, traffic and security lines are unavoidable.

    That doesn’t mean you have to like them. You just have to accept that they are part of life and things you can handle.

    You know what else is unavoidable?

    Budget busters.

    What are budget busters?

    Budget busters are any inconsistent expenditures, good or bad, that can derail your finances if not properly planned for.

    Good budget busters might include trips, weddings, and holiday/birthday gift shopping.

    Bad budget busters include unexpected car repairs, home repairs, or medical expenses.

    The key with budget busters is that you need to plan ahead. That’s because even though we know budget busters will happen, we just don’t know when they will occur.

    When I teach personal finance to young lawyers, this is one of the major areas of concern when it comes to budgeting. It is not uncommon for people to worry about how they’re going to pay for inconsistent, big ticket items.

    Remember, budget busters don’t have to be for only “bad” things, like repairing a furnace. More on that below.

    Budget busters can also be for fun things, like being a bridesmaid in your best friend’s wedding, which can easily cost you thousands of dollars.

    With the proper planning, you can handle these inconsistent expenses, good or bad.

    If you don’t plan ahead, budget busters will make you mad in the same way people get mad at traffic and airport security lines.

    Budget busters are not unexpected expenses.

    You may sometimes see budget busters referred to as “unexpected expenses.”

    Nope, that’s wrong.

    Budget busters may be inconsistent, but they are not unexpected.

    It’s more accurate to say that budget busters are 100% expected expenses. We just don’t know exactly when they’re going to occur.

    Like with traffic and lines at the airport, budget busters are inevitable. It’s up to each of us to plan ahead to minimize the inconvenience and stay on track with our finances.

    I don’t make many guarantees around here. This is one I’m comfortable making:

    I guarantee that each of us will face potential budget busters throughout the year.

    In fact, I just experienced a potential budget buster on a cold November morning in Chicagoland.

    gray nest thermostat displaying 63 indicating that budget busters are the most expected aspect of your budget
    Photo by Dan LeFebvre on Unsplash

    I had a potential budget buster recently when I replaced a furnace.

    A couple of weeks ago, on a cold November morning in Chicagoland, I woke up with a broken furnace.

    It was certainly inconvenient and potentially a huge drag on my finances. The final cost to replace my furnace was more than $10,000.

    As much as I didn’t enjoy this expenditure, it was not an unexpected expense. My furnace was 20-years-old. We knew it was going to need replacing at some point. It was only a matter of time.

    That’s why it’s just not accurate to label replacing my furnace as an “unexpected expense.”

    No, I didn’t know when my furnace was going to break. But, I knew it was going to happen eventually. Because it was already 20 years-old, I knew it was probably going to happen sooner than later.

    Luckily, my wife and I had made it a priority this year to build up our emergency savings. We did not know what we would need the savings for, but we fully expected that something would pop up.

    I say “luckily” because in prior years, we would have been scrambling to find the cash to replace a furnace. That’s because we had prioritized buying investment properties at the expense of funding our savings account.

    That was a risk that made sense while we were growing our portfolio. Now, we’re more focused on protecting what we’ve built. Hence, prioritizing the emergency savings account.

    Because we have been steadily funding our emergency savings account this year, we just moved the money over to our checking account and paid for the furnace.

    We didn’t have to rely on credit cards or lines of credit to provide heat for our family.

    I even made a game out of it to take a bit of the sting out of this big expense.

    Plan for budget busters as line items in your Budget After Thinking.

    I recommend including two separate line items for budget busters in your Budget After Thinking.

    Have one line item in your Now Money category (bad budget busters) and one line item in your Life Money category (good budget busters).

    You likely won’t end up spending your budget buster money every month. That’s a good thing.

    The key is that each month that you don’t spend your budget buster money, transfer it to your savings account so it’s there when you need it.

    This is an important step. You don’t want to let that hard-earned money sit in your checking account. Those dollars will disappear.

    By transferring them to savings, those dollars will be at your disposal when needed.

    What kind of savings account am I talking about?

    Denver DIA Security Check Point representing that there's no reason to get mad at budget busters because they are completely expected and require planning.
    Photo by Scott Fillmer on Unsplash

    Be sure to have a separate savings account for emergencies, like budget busters.

    It’s a very good idea to keep your savings separate from your everyday spending. That means having a savings account and a checking account.

    Of course, the most important savings account you need is an emergency savings account. This is what I used to pay for my furnace.

    Ideally, you should open up a savings account at a different bank than your checking account. This helps isolate those funds so those dollars don’t disappear.

    There are lots of good options for high-yield, online savings accounts. I used to bank with CapitalOne, but then they burned me and thousands of other customers. Never again.

    I now use BMO Alto for my emergency savings account. They offer a good interest rate and a no frills product. Very simple and straightforward.

    Don’t be mad at budget busters.

    With the proper planning, you don’t have to be mad a budget busters.

    Include budget busters as line items in your Budget After Thinking.

    Open up an emergency savings account at a different bank than your primary checking account.

    When inconsistent expenses pop up, you’re covered.

    Save your frustration for traffic and security lines.

    Have you dealt with budget busters in the past?

    Were you prepared to deal with them? Or, do you wish you had planned better?

    Let us know in the comments below.

  • Make Money by Playing The Game of Big Expenses

    Make Money by Playing The Game of Big Expenses

    Let’s say you woke up at home in Chicagoland on an otherwise beautiful Sunday morning in early November only to discover that your heat wasn’t working.

    You call the repairman to come take a look, not having a choice but to pay the extra weekend fee because your house is an ice box.

    After arriving at your home, it doesn’t take the repairman long to diagnose the problem: your 20-year old furnace blew its motor.

    Ahh, lovely.

    You are presented with two options.

    Option 1: Repair the furnace for a staggering cost of $2,247. Ouch.

    Option 2: Replace the furnace (and the humidifier, surge protector, thermostat, etc.) for $13,000. Double ouch.

    So, what do you do?

    If it were me (spoiler alert: it was me), I would choose Option 3.

    Option 3: Play The Game of Big Expenses

    I wasn’t thrilled with either Option 1 or Option 2.

    Both options would cost me a lot of money just to keep my home livable. It brought on the same negative feelings as paying taxes or a parking ticket.

    Compare those negative feelings to the feelings associated with spending a lot of money on a vacation. Both expenses may cost the same, but with the vacation, your money turns into fun.

    You get to experience something positive with your money.

    Is there a way to turn a negative experience like replacing a furnace into something positive?

    I came up with a solution that has worked incredibly well for me.

    I call it The Game of Big Expenses.

    What is The Game of Big Expenses?

    We often talk in this space about how being good with money is not just about the numbers. Money is emotional. We are humans. We feel things.

    For example, I feel not awesome about spending $10,500 on a furnace.

    Because of these normal human feelings, I find that it helps to pretend like I’m playing a game. That’s why I came up with The Game of Big Expenses.

    The Game of Big Expenses will help you turn a negative money experience into something positive. It will help you establish and maintain a positive relationship with money.

    See, certain expenditures in life are unavoidable. Replacing my furnace in November in Chicagoland falls into that category. There’s nothing I can do about it except pay the money.

    I guess I could complain about inflation and tariffs and supply chains and how expensive everything is.

    Or, I could turn this bad news into a game.

    With The Game of Big Expenses, you take an unpleasant experience (like replacing a furnace) and turn it into a positive experience.

    Think of it as a lemons to lemonade thing.

    make Fresh Lemonade by turning the negative experience of big purchases into something positive by playing The Game of Big Expenses.
    Photo by Francesca Hotchin on Unsplash

    Here are the rules to play The Game of Big Expenses.

    OK, so how does playing a game turn a negative money experience into something positive?

    Actually, it’s quite simple.

    Let’s look at the rules of the game.

    Rules of The Game of Big Expenses:

    You have a big expense in front of you. See if you can pay less. Invest the difference. You win.

    It’s as simple as that.

    Negotiate the price. Then, invest the savings.

    Negotiating the price and saving money is always a good thing. However, it’s that extra step of investing the difference that will turn this negative experience into a positive feeling.

    Investing the difference is how you win the game.

    Let’s see how it works using my furnace example.

    Here’s how I played The Game of Big Expenses with my furnace.

    In this instance, the company gave me an estimate for $13,000. I told the salesman that I would look it over and get back to him the next day.

    I’ve never bought a new furnace before. What I learned is that it’s not really possible to find prices online to check if you’re overpaying. For example, doing your homework for a new furnace is much harder than shopping for a new car.

    There are some blogs and review sites that give you a very broad idea on prices. However, so much of the price depends on your geographic area, home size, and preferences that this information is not very helpful.

    I realized I was at a disadvantage in these negotiations with the furnace company. I didn’t even know where to begin in coming up with a better price.

    So, what did I do?

    I simply asked the company to work with me on the price.

    I didn’t turn it into a hostile negotiation. And, I didn’t haggle with the salesman. I just gave him some reasons to consider lowering the price.

    I pointed out that we are loyal customers who plan to be in our home for many years. We have a second furnace that is also 20 years old and will probably need to be replaced soon (knock on wood…)

    I told him that we are already members of the company’s annual maintenance club and hope to be for many years to come. We have genuinely appreciated the level of service and professionalism of their technicians.

    I also confessed to the salesman that I really didn’t want to shop around for another quote. I liked working with them.

    Based on all of the above, I asked if he could work with me on the cost before I started calling other companies.

    We had a very pleasant conversation that took all of 10 minutes.

    After hanging up so he could speak to his boss, he called me back and we agreed on a price of $10,500.

    That meant an instant savings of $2,500.

    It’s worth repeating: $2,500 of after tax savings for a 10 minute phone call!

    That’s the equivalent of a billable hour rate of more than $20,000!

    So, I had successfully negotiated the price down. That was step 1 of the game.

    Now, it was time to invest the difference.

    Let’s see what $2,500 would be worth in 25 years.

    Before investing the savings, I used a basic compound interest calculator, like this one from NerdWallet, to see how much that savings could be worth in the future.

    In this example, I projected a $2,500 initial deposit with a 10% estimated rate of return over 25 years.

    Why a 10% estimated rate of return?

    Because the stock market has historically returned an average annual return of 10%.

    Why 25 years?

    That’s about how many years I have before reaching the standard retirement age. (Plus, I liked the results with a 25-year time horizon.)

    OK, so how much does my $2,500 project to be worth in 25 years if it earned a 10% average annual return?

    $30,142.36!

    Think about that for a second:

    My 10 minute phone call to save $2,500 projects to be worth more than $30,000 in retirement.

    If you know of an easier way to make $30,000, please let me know!

    Seeing these results turned this negative money experience into something positive.

    Instead of fixating on the cost of the furnace, I was now excited about the opportunity to invest.

    The Game of Big Expenses works for any big ticket item.

    What are the most expensive things that most of us pay for?

    Rent? A new car? Renovation projects?

    Think about how much you can save and invest if you play this game whenever a big expense is in front of you.

    Let’s look at another example of how the game works.

    Say you have $100,000 in student loans remaining at 7.5% interest and nine years of payment left.

    You are moving to a new apartment and successfully negotiate $100/month savings on your rent.

    Saving $100 per month is very nice.

    But, what if you used that savings to pay off your loans faster?

    Look at what happens using Calculator.net with just $100/month in extra payments:

    If you use that $100/mo to pay extra on your student loans, you will eliminate your loans 11 months faster.

    That’s nearly a year of your life back for a simple negotiation on your rent!

    Play the game. You won’t regret it.

    Don’t play the game for every small purchase.

    While the game could work for any small purchases, I don’t recommend you play it all the time. There’s no sense in driving yourself nuts by haggling over every small purchase.

    Save the game for when it really matters. Otherwise, the effort’s not going to be worth the savings. The juice has to be worth the squeeze. (Man, I must be thirsty.)

    Also, don’t get discouraged if you don’t always win the game. Sometimes, you may not be able to negotiate a better price. That’s OK. Not every game ends in a win.

    In those rare instances, what have you really lost? 10 minutes of your time?

    It’s still worth playing.

    Playing a game like this is really the essence of what it means to think and talk money.

    Games are supposed to be fun, right?

    And, nothing that I wrote about today is hard to do.

    You just have to keep the game of money somewhere near the front of your brain so you are aware of opportunities when they present themselves.

    The result is that with just a little bit of effort, you can consistently make great money choices.

    Playing this game is no different than playing The $500 Challenge game that my wife and I used to play when our spending got out of whack.

    We played that game over and over again to help us achieve our money goals.

    The best part of The $500 Challenge was more than getting our budget back on track.

    The best part was how much fun we had thinking of fun things to do that didn’t cost a lot of money. We had some of our best date nights while playing the game.

    Like in this situation of replacing my furnace, we took a negative situation (being way over budget) and played a game to turn it into a positive (fun date nights).

    Games like this help bridge the money gap of numbers and emotions. You might be surprised at how much fun you can have.

    You will certainly be happy with how much money you save.

    What do you think of The Game for Big Purchases?

    Maybe you’ve already been playing it?

    What other money games do you play to help keep your finances in check?

    Let us know in the comments below.

  • Why Investing in Index Funds is the Best Way to Invest in AI

    Why Investing in Index Funds is the Best Way to Invest in AI

    AI is everywhere.

    Breaking news, right?

    Even though AI has been around for a few years (ChatGPT came out in November 2022), it feels like you can’t avoid it today.

    Just about every major company out there is either selling an AI product or is using AI as a core piece of its customer experience.

    @thinkandtalkmoney

    Let me know if you agree or have another plan. #thinkandtalkmoney #ai #investing #moneytok

    ♬ original sound – Thinkandtalkmoney

    My law firm gets pitched just about every week on a new AI product, whether it’s to help with legal research, search documents, or organize case files.

    As a customer, I’ve had way too many AI chatbot conversations recently.

    One day I’m talking to a Hertz chatbot because I was overcharged for gas. The next day I’m talking to a SiriusXM chat pot to cancel my subscription. Then, United funneled me to a chatbot to switch my seat on a flight.

    Unfortunately, in each of the above examples, the chatbot could not solve my issue. After too much time wasted talking to the robots, I was transferred to a real life human where my issues were resolved promptly.

    By the way, is it accurate to say I “talked” to an AI robot? Can we really talk to things that aren’t alive? Like, if I was talking to my couch right now, you’d be worried about me, right?

    The point is, AI is here to stay. As time goes on, AI will make life easier for all of us, whether that’s at home or at work.

    And, that leads us to the question of the day.

    Am I personally investing in AI?

    A buddy asked me at work the other day if I’m investing in AI. It’s a pertinent question, considering what we just discussed.

    AI is everywhere.

    So, what can you do if, as an investor, you want a piece of the action?

    1. Do you need to predict the winners and the losers in the AI arms race?
    2. Should you place outsized bets on the companies that have a head start today?
    3. Maybe you follow the hot stock tip you heard at the Halloween party last weekend?

    Nope… nah.. and please don’t.

    There’s a much easier solution to make sure you get a piece of the AI action.

    It’s what I’m personally doing.

    Buy index funds.

    When you invest in index funds, you are investing in AI.

    The reality is that if you are an index fund investor like me, you are heavily invested in AI.

    Take a look at the extremely popular total stock market fund from Vanguard, VTSAX.

    Here’s how Vanguard describes VTSAX:

    Created in 1992, Vanguard Total Stock Market Index Fund is designed to provide investors with exposure to the entire U.S. equity market, including small-, mid-, and large-cap growth and value stocks. 

    So, when you own VTSAX, you own a piece of the entire US stock market.

    But, what does that actually mean? What do you really own when you own VTSAX?

    For starters, you own a lot of technology companies pouring a ton of money and resources in AI.

    Technology stocks make up 38% of VTSAX, by far the most of any sector.

    The next biggest sector is Consumer Discretionary at just over 14%.

    Guess what kind of companies fall into the Consumer Discretionary sector?

    Amazon, for one.

    Tesla, for another.

    Combined, Technology companies and Consumer Discretionary companies make up more than half of all VTSAX.

    To take it a step further, can you guess the largest individual holdings in VTSAX?

    In order, from the largest holding on down:

    • NVIDIA
    • Microsoft
    • Apple
    • Amazon
    • Facebook
    • Broadcom (semiconductors)
    • Alphabet (Google)
    • Tesla

    Does anyone doubt that these companies are heavily involved and invested in the latest technological advancements, especially AI?

    You don’t need to be a stock picker or a market analyst to reach that conclusion. You just need to be a regular consumer. You’ve surely had experiences like I’ve had with the chatbots.

    So, if you own VTSAX, you can truthfully say that you are heavily invested in AI.

    Why you should own index funds if you want a piece of the AI action.

    For my money, there’s no beating index funds.

    More important than my money, for my sanity, there’s no beating index funds.

    This is more relevant than ever with the emergence of technologies, that frankly, I can’t begin to comprehend how they work.

    The good news is that with index funds, I don’t have to know what a semiconductor is or how quantum computing works.

    I can just sit back and trust that at least some of the biggest companies in the world- with the most resources and the smartest people- are going to figure it out.

    When they do, I will own a piece of the action because I own index funds.

    Along the way, I don’t need to ride the ups and downs and bet my family’s future on one company or another. I can own them all.

    If you’ve been a consistent reader of the blog, you know that money is as much emotional as it is rational.

    I don’t want to be worried about my money any more than you do. I certainly don’t want to worry about which AI companies are going to win or lose.

    That’s why the reasons I love index funds take into account both the numbers and the emotions of investing.

    7 things I love about index funds.

    1. Anybody can do it
    2. No wasted mental energy
    3. Low fees
    4. Automatic diversification
    5. The closest thing to predictability
    6. I don’t have stock FOMO
    7. Good enough for Buffett, good enough for me
    white and black typewriter printer paper with artificial intelligence showing why I invest in index funds and don't have to pick any AI company.
    Photo by Markus Winkler on Unsplash

    1. Anybody can do it

    I’ve said it before, and I’ll say it again:

    Investing is actually the easy part.

    And, when I say investing is actually the easy part, I’m talking mostly about investing in index funds.

    You don’t need an MBA or a financial background. You don’t need to read the Wall Street Journal. Of course, you don’t need to guess which AI company is going to be the best.

    All you need to do is consistently fuel your investment account and to let compound interest work its magic.

    Oh wait, one more thing:

    You also need to read Think and Talk Money. I post three times every week. 

    Oh, and tell your friends about Think and Talk Money!

    2. No wasted mental energy

    It goes without saying that most professionals are busy people. On top of working our day jobs, we’re also doing our best to stay healthy, be good family members, and have some semblance of a social life.

    Some of us even have side hustles that occupy our time and mental energy.

    The last thing we need is another stressor in our lives, like actively trading stocks and studying the premier AI companies.

    I invest in index funds to take this stressor out of my life.

    Yes, I could pay someone a lot of money to manage my money for me.

    Or, I could invest in index funds and rest comfortably knowing that I’m going to be in great financial shape down the road when AI becomes even more prevalent.

    3. Low fees

    Because index fund are passively managed, the fees are significantly lower than actively managed mutual funds.

    My favorite index fund is Vanguard’s previously mentioned Total Stock Market Index Fund (VTSAX). This fund currently charges .04%, which is just about the lowest fee you will ever see.

    Compare that to the 1% fee commonly charged by investment advisors. Also, don’t forget it’s very difficult for even the professionals to beat the returns consistently generated by the S&P 500. 

    If you don’t think that difference in fees matters, check out my post on what a 1% fee really costs you:

    How Much Money a 1% Advisor Fee Really Costs

    While I can’t control what AI companies are going to succeed, I can control the fees I pay while I’m along for the ride.

    I’d rather pay .04% than 1%. 

    That’s especially true when there’s no guarantee that an advisor can perform better than the returns I earn through index funds. 

    4. Automatic diversification

    By investing in an index fund, like an S&P 500 index fund or a total stock market index fund, my stock portfolio is by definition diversified.

    For example, when I invest in an S&P 500 index fund, I essentially own a piece of 500 large companies.

    Some companies may go up in value, others may go down. I’ll never know which ones are going to make money or lose money.

    By investing in an S&P 500 index fund, it doesn’t matter. I’m covered either way.

    When it comes to an emerging technology with lots of companies vying for domination, it’s particularly important to not put all your eggs in one basket.

    That’s the point of diversification: smooth out the ride so I’m less susceptible to the fortunes of one particular company.

    VTSAX offers exposure to nearly the entire U.S. stock market, which consists of 3,598 companies.

    Some of these companies are going to figure out AI. Others, are going to fail. I’m good either way.

    Now, that’s really good diversification.

    5. The closest thing to predictability

    The S&P 500 has historically earned an average annual return of 10%.

    By investing in an index fund that tracks the S&P 500, like I do in my 401(k), I have a pretty good chance of earning consistent returns in the long run. 

    Sure, there may be ups and downs. 

    But, check this out:

    Since 1996, the S&P 500 has ended the year in positive territory 23 times and negative territory only 7 times. 

    In other words, the S&P 500 has generated positive returns three times more frequently than it generates negative returns.

    And even with those 7 negative years, with the exception of 2000-2002, the S&P 500 returned to positive territory the following year.

    What this all means is that while the S&P 500 will drop occasionally, the down periods are historically short-lived.

    Because of this historical consistency, index funds give me the best shot at predictability.

    Predictability seems more important than ever with the emergence of AI and the unknown effects AI will have on the global economy.

    Note that predictable returns does not mean guaranteed returns. There are no guarantees in the stock market. That’s why my preference is predictability.

    I’m very happy with consistent returns and a smoother ride.

    code showing why I invest in index funds instead of picking any individual AI company.
    Photo by Ilya Pavlov on Unsplash

    6. I don’t have stock FOMO

    Depending on the index fund you choose, you may own pieces of a handful of companies or as many as 3,598 companies.

    I invest in S&P 500 index funds and total stock market funds. That means I own pieces of lots of companies. 

    It also means I never have stock FOMO.

    You know what stock FOMO is, right? 

    Stock FOMO is when you find yourself in a conversation talking about something fun like your favorite new show. Then out of nowhere, someone volunteers the hot stock he bought that’s up 20%.

    If you have stock FOMO, you feel like you’re missing out by not owning that stock. You think to yourself, “Oh man, that guy’s going to be so rich and I missed the boat!”

    You might even run back to your desk so you can buy that hot stock, not realizing that you’ve probably already missed the train.

    Stock FOMO can cause a lot of stress. These days, everyone seems to have an hot AI stock tip.

    I don’t want that stress.

    So, I invest in index funds. 

    When a stock jumps 20%, I feel good because I already own every company in the U.S. stock market.

    No AI stock FOMO here.

    7. Good enough for Buffett, good enough for me

    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.

    It’s not just Buffett, though. One of my favorite authors on investing, J.L. Collins, wrote about the advantages of investing in a total stock market index fund in his seminal book, The Simple Path to Wealth. 

    In fact, Collins makes a compelling argument that the Vanguard Total Stock Market Index Fund (VTSAX) we discussed above may be the only stock fund that you’ll ever need.

    Buffett and Collins are smart guys. Taking advice from smart guys seems like a good idea to me.

    I highly encourage you read The Simple Path to Wealth.

    You can read my full review of The Simple Path to Wealth in my post here.

    What do you think of investing in index funds so you own a piece of every AI company?

    To recap, I own index funds so I can own a piece of every AI company. Doing so provides me numerous benefits, like:

    1. Anybody can do it
    2. No wasted mental energy
    3. Low fees
    4. Automatic diversification
    5. The closest thing to predictability
    6. I don’t have stock FOMO
    7. Good enough for Buffett, good enough for me

    My reasoning combines the emotional side and the rational side of investing. 

    Like you, I want to earn a nice investment return. At the same time, I don’t want to be worried about my investments 24-7.

    I certainly don’t intend on studying the financials of every technology company to try to guess who is going to win the AI race.

    Index funds give me the best of both worlds.

    Do you agree? If you are investing in individual AI companies, how did you choose which ones to bet on?

    Let us know in the comments below.

  • Why It’s So Important to Learn Personal Finance

    Why It’s So Important to Learn Personal Finance

    When I graduated law school in 2009, I never thought about money.

    Within a year, I had racked up $20,000 in credit card debt ($30,000 in today’s dollars).

    And, that was on top of my student loan debt.

    My salary at the time was $62,000. This was a problem. 

    After all these years, I still ask myself, “How did I let that happen?”

    The answer, I now realize, is actually pretty simple.

    I never learned about personal finance.

    I wasn’t thinking about money. And, I certainly wasn’t talking about money.

    It wasn’t until later that I learned that I had made every common money mistake in the book.

    • Rented a fancy apartment with a garage parking spot that I didn’t need?
    • Paid for Cubs season tickets I couldn’t afford?
    • Traveled coast-to-coast? Traveled overseas? Put it all on credit cards? 

    Check… check.. and check.

    It’s not that I intentionally decided to get into debt. Frankly, there was nothing unusual about me at all.

    I generally wanted to make good choices. I am a relatively smart human. You are, too. You’re reading a personal finance blog with the entire internet at your fingertips.

    Maybe you’re like me, and it hadn’t occurred to you that money was a thing you needed to learn about.

    I didn’t know the first thing about money when I began my career.

    When I graduate law school, I blindly assumed that I would earn a high enough income that I didn’t have to worry about money.

    As I fell deeper and deeper into debt, I realized what a huge mistake that was. 

    Maybe that’s why I still remember the day so clearly when I realized I was financially heading in the wrong direction.

    It was an ordinary Monday. I had grabbed my mail on the way out the door as I headed to my job at the courthouse. When I got to my desk, I opened my credit card statement and was stunned by what I saw.

    $20,000 owed ($30,000 in today’s dollars) one year into my career.  

    I was ashamed. I was supposed to be smart. Responsible. Trustworthy. 

    How could I be so foolish?

    Looking back, I shouldn’t have been so hard on myself. I had never learned about personal finances.

    It would be like getting upset today that I’m bad at playing the piano when I never learned how to play in the first place.

    I’m certain that if I taken a personal finance course, or read a personal finance blog, I wouldn’t have made the same mistakes.

    I would have saved myself a lot of worry, frustration, and time if I had a basic personal finance education.

    I also would have learned that so many others were struggling with consumer debt like I was. There was no reason to make it harder on myself by keeping my debt a secret and struggling alone.

    I unnecessarily did it the hard way, but I figured out personal finance.

    At that moment when the full weight of my debt hit me, I made it a priority to turn things around. 

    At the time, I didn’t know the solution.

    But, I had been trained to do research in law school so I could find answers to hard questions. So, that’s what I did.

    Along the way, I realized that the fundamental and basic personal finance principles are, well, basic.

    George S. Clason wrote “The Richest Man in Babylon” nearly a century ago. His collection of parables set in ancient Babylon is legendary. 

    Everyone should read it. His advice is simple and excellent: spend less than you earn. Save. Invest.

    The same fundamentals are as true today as they were then.

    Easy, right? 

    Not exactly.

    woman holding pen and paper symbolizing why personal finance education is so important.
    Photo by Unseen Studio on Unsplash

    Personal finance education should be a constant in your life. 

    Money is about continuous mindset and choices.

    The basic concepts are easy enough to understand. Consistently making good choices is hard.

    Even as I was racking up credit card debt, I could have aced a quiz that asked, “Is it a good idea to spend more money than you earn every month and plummet deeper and deeper into debt?”

    I knew that I was supposed to spend less than I earned. That didn’t stop me from overspending.

    Knowing the right answer is not the same as actually doing the right thing.

    The law students and lawyers I teach are smart people. Like me back in 2010, they generally know the right answers. They don’t need me to tell them to spend less than they earn.

    I help them get to the next level by building a strong money mindset. Then, we work on the habits and skills that will allow them to consistently use money as a tool to control their circumstances.

    It’s not enough to learn the basics of personal finance and then stop. As your life changes, you need to regularly evaluate your personal finances so your money stays in line with your values. 

    That’s why it’s important to make personal finance education a constant in your life, whether it’s through a blog, a course or coaching.

    Too many of us choose to struggle with money alone.

    For some reason, though, most of us choose to deal with money on our own. Alone, we struggle with anxiety about credit card debt and guilt about splurging on things we love.

    This has never made sense to me.

    Making good choices with our money is essential to a healthy and meaningful life.

    Why don’t we talk more about these things with our friends and family?

    That’s what I’m trying to change.

    I’m done with this stigma that we shouldn’t talk about money.

    I want us to get comfortable with the idea of going to our friends and loved ones to talk about money, just as we would talk about anything else.

    There should be no embarrassment or shame in it. We’re all dealing with the same challenges.

    By talking about money, we can help each other turn those challenges into opportunities.

    If we can alleviate our money stress, perhaps we can reverse the trend of lower happiness levels among young people today.

    Talking about money is not about numbers.

    We’ll have plenty more to say about how to talk money. For now, let’s agree that talking about money is not about prying into how many dollars we each have in the bank. 

    We can benefit by talking about our money mindset, habits, and strategies, while still keeping certain information private.

    Let’s also agree that talking money is a “no judgment” endeavor.

    We have all had different experiences that have shaped our relationship with money.

    It’s important not to pass judgment, especially when talking to our significant others. Your conversation won’t last very long if you ignore this advice.

    Each session I’m with my students, I learn from their experiences and money mindset, same as they learn from mine. I encourage them to continue the conversation outside the classroom with their loves ones. 

    When my students report back, they tell me how empowered they felt after starting these conversations. The more we can talk money, the less we’ll feel alone. We’ll all make better choices because of it.

    mindfulness sign symbolizing why personal finance education is so important.
    Photo by Lesly Juarez on Unsplash

    Talk about money mindset with your significant other, family, and friends.

    If you want to know where to begin the conversation with your loved ones, start with money mindset.

    Money mindset touches every aspect of personal finance, so it’s the natural place to start.

    I didn’t realize the power of money mindset until I wrote down my Tiara Goals for financial independence on a beach in 2017.

    People tend to skip this step. They want to jump straight to investing and real estate before learning about money mindset.

    But, why focus on investing if you and your significant other are not aligned on what those investments are for?

    The same logic applies to budgeting. While very few people enjoy the budgeting process, it’s a crucial step to generate fuel for our savings and investments, which ultimately fund our major life goals.

    The progression matters. Only after we’ve learned about budgeting, saving, and how to responsibly use debt and credit cards should we focus on investing and real estate investing.

    Talking about money is not taboo.

    There’s no reason to embark on your journey to financial freedom alone.

    Read a personal finance blog. Take a personal finance course.

    Talk about money.

    Share your accomplishments and struggles with your friends and loved ones. You’ll only be better off for it.

    If I can be of any help on your journey, please don’t hesitate to reach out.

    Don’t forget to subscribe to my email list for all the latest money topics I’m thinking about.

  • Practice Strong Money Fundamentals Before Investment Dreams

    Practice Strong Money Fundamentals Before Investment Dreams

    When I teach my personal finance seminar to lawyers or law students, I typically reach out ahead of time asking about topics of interest.

    The most common response I get is something like, “I want to learn about investing.”

    The other common response is, “I want to invest in real estate.”

    I totally get it. Investing in the stock market and owning real estate are sexy topics.

    Without a doubt, these are both important topics to cover in a personal finance seminar. We spend a lot of time in my course and here in the blog talking about investing and owning real estate.

    Of course, the best way to generate wealth is through consistent investments over a long time horizon.

    So, my students are asking the right questions when they are concerned about investing and real estate.

    But, they’re skipping a few crucial steps.

    The thing is, investing is actually the easy part.

    The hard part is constantly generating enough money to fuel those investments.

    That’s why investing and owning real estate are “Day 2 topics.” On Day 1, we have to build the foundation.

    Think about it like this:

    • Before we can invest, we need excess money to invest.
    • To have excess money to invest, we need a budget that actually works.
    • For a budget that actually works, we need clear motivations.
    • Clear motivations means a strong money mindset.

    Can you spot the issue of investing without a solid foundation?

    When my students ask me a question about how to start investing, I tend to respond with a question of my own:

    “How much savings does your budget generate each month?”

    Yes, I know. It’s so annoying to answer a question with a question.

    This particular question usually leads to a double dose of annoyance from my students.

    My students are first annoyed that I ignored their question about investing. They didn’t come to me to talk about something boring, like budgeting.

    They want to know about the exciting stuff, like earning huge returns in the stock market.

    Next, after this initial annoyance fades away, another form of annoyance sets in.

    My students get annoyed because they can’t actually answer the question.

    They realize they have no idea how much money they’re saving each month because they don’t have a budget.

    That’s a problem.

    Not having a budget is a problem for anyone who wants to consistently invest.

    To be a successful investor, you need to consistently fuel your investments. There will be ups and downs in the markets. That’s to be expected.

    Your job is to stay in the game and keep feeding your accounts.

    For example, most of us can be successful investors by simply investing in an index fund, like VTSAX.

    Once we’ve selected that investment, our job is to constantly add money to your investment account.

    That means having a budget that works.

    If you skip this part of the process, sure, you may be savvy enough to open and initially fund the account. But, my prediction is you won’t be fueling that account regularly.

    Having a budget for your personal finances is even more important when it comes to owning real estate.

    Investing in real estate means running a business. Money comes in and money goes out. To be successful, you have to make sure that more money comes in than goes out.

    This is obvious stuff, right?

    The same logic applies to your personal budget: if you want to get ahead in life, more money needs to come in than goes out.

    The problem is most people have a hard enough time managing their personal finances. How are they going to handle managing business finances?

    That’s why I ask my students, “If you haven’t mastered this idea with your personal budget, are you sure you want to take on the stress and risk of an investment property?”

    It’s usually around this point when my students start nodding in understanding.

    paper airplane in a window of airplane reflecting that we need to have a plan with our money before dreaming on investments.
    Photo by Sebastián León Prado on Unsplash

    Before focusing on stocks or real estate, make sure your personal finances are in order.

    My goal here is not to dissuade you from investing in stocks or real estate.

    We all need to invest if we want to generate wealth.

    My goal is to help you avoid the mistakes that so many of us make in the early stages of our careers.

    One of the biggest mistakes I see is people wanting to jump to the final steps in the process without starting from a strong foundation.

    If you’ve been following along on the blog, you likely noticed the progression in topics we’ve covered. This is the same progression that we follow in my personal finance course.

    You’ll see links to each one of these topics featured on the top of the Think and Talk Money homepage:

    We initially covered each of those topics in order from top to bottom. First, we talked extensively about the mental side of money. Without having your money mindset in the right place, nothing else matters.

    We then spent a lot of time talking about personal finance fundamentals, like budgeting, saving, and handling credit and debt responsibly. 

    Only after having our personal finance foundation in place did we talk about more fun concepts like investing and real estate.

    There’s a reason we’ve covered these topics in this order. 

    If your money mindset is not in the right place, you won’t be able to stay on budget. 

    If you can’t stay on budget, you’ll likely fall into debt. 

    When you’re falling deeper and deeper into debt, it doesn’t make a lot of sense to prioritize investing.

    Why bother with investing if any profits are just going to disappear?

    Let’s focus on that last point for a minute. 

    What sense does it make to invest if you’ve never proven to yourself that you can use those investment gains responsibly?

    I never want to see people take on the risks of investing just to have any profits disappear because they don’t have a strong personal finance foundation in place.

    For example, imagine someone does the work to find and sustain a good rental property that generates $1,000 per month in cash flow. 

    It’s not easy to earn that much. It takes time and effort, not to mention the risk involved.

    If that same person blows the $1,000 he earned on things he doesn’t care about, what was the point? 

    Why take on the risk and do the work if the money will all be gone by the end of the month?

    Unfortunately, this is how many people go through life. They work hard, make good money, and then have nothing to show for it.

    I don’t want that to be your fate. I want you to have a plan for your money before you earn it. 

    That means sticking to a budget that consistently moves you closer to living freely on your terms.

    Most of us don’t know where our next dollar is going. 

    The reason most people never get ahead with their finances is because they don’t have a plan for where their next dollar is going. 

    Their income hits their checking account, they spend it on this or that, and pretty soon that money has disappeared. They haven’t used the money to advance any of their priorities.

    It’s just gone.

    To me, this is one of the most important money mistakes that we need to fix right away. We definitely need to fix it before we start fantasizing about big investment returns. 

    If not, you’ll just be making the same mistakes, just with more money to lose.

    Having a plan for our money, before we earn it, is essential if we want to reach our goals. With a plan, we can eliminate the disappearing dollars with confidence that our money is being used to serve our purposes.

    How do you create a plan for your money before you earn it?

    You need to have a budget.

    If you don’t currently have a budget that results in excess money at the end of each month, I encourage you to start there before thinking bout real estate.

    sign saying I feel like making dreams come true indicating that we need to have a plan with our money before dreaming on investments.
    Photo by Peter Fogden on Unsplash

    When you have strong fundamentals in place, money becomes fun.

    Being good with money doesn’t have to be stressful. Once you have the fundamentals in place, you’ll start to see how each dollar you earn gets you one step closer to financial freedom.

    Before you think about investing in stocks or in real estate, make sure that your personal finances are in order. 

    Otherwise, the effort, stress, and risk of investing is not worth it. Any dollar you earn is likely to disappear as quickly as it comes in.

    To prevent that from happening, establish good money habits before you buy real estate. 

    In the end, you’ll be so happy that you did.

    For any investors out there, did you jump in before establishing strong personal money habits first?

    Did any benefits you earned from investing simply disappear because you didn’t have a plan for those dollars ahead of time?

    What advice do you have for beginners thinking about investing?

    Let us know in the comments below.

  • That’s a Wrap: Another Successful Personal Finance Seminar

    That’s a Wrap: Another Successful Personal Finance Seminar

    I just wrapped up another personal finance seminar with a great group of law students. After two full days of leading class, my voice is hoarse and my body is sore.

    And, I had so much fun.

    Can’t wait to do it again!

    @thinkandtalkmoney

    I’m writing about everything I taught myself here: thinkandtalkmoney.com

    ♬ SUPA GOOD!!! (from Dog Man) – Yung Gravy

    Here’s a recap of the ground we covered.

    If you’re interested in learning more about my personal finance course for law students and young lawyers, please reach out.

    I’ve taught law students and lawyers, both in-person and virtually, and would be happy to discuss how I can help you or your group.

    My favorite part of class is when my students share their Tiara Goals.

    We spent the first portion of class talking about money mindset. Without the right motivations, none of the other tools matter.

    Without a doubt, this is always my favorite part of class.

    When I say I’m on a mission to convince you that talking money is not taboo, I think of my students sharing their goals.

    I get so energized by hearing their goals. My students report the same sentiment after learning what drives their friends and peers.

    Over the years, my students have shared countless impactful stories. As unique as these goals can be, it’s remarkable how most of us want the same things in life.

    Year after year, I hear the same motivating forces:

    • Spend more time with my family.
    • Travel and enjoy experiences around the world.
    • Stay healthy and fit.
    • Provide for my children and my aging parents.
    • Work for a cause I believe in.
    • Have time to volunteer.
    • Enjoy more hobbies like baking, golf, jogging, sewing, and pickleball.

    I also regularly hear one thing that my students, and the rest of us, don’t want:

    • I don’t want to be stressed about money.

    Isn’t it telling that year after year, most of us want the same things in life?

    I’ve yet to hear anyone say that they dream about working endless hours and not taking their PTO.

    Be specific, but not too specific, when you think about financial freedom.

    When we talk about what we do with financial freedom in class, I encourage my students to get specific without being so precise that the goal becomes restrictive.

    When we’re thinking about goals related to financial freedom, the idea is to focus more on big-picture, core values.

    There will be a time and a place to strategize how to get there. The point here is to help define what you’re even trying to get in the first place.

    For example, instead of “spending more time with family,” I would suggest something like, “never miss my child’s soccer game or dance recital because of work.”

    Instead of “travel around the world,” I would suggest “at least one overseas trip of at least 2 weeks per year.”

    Adding that little bit of specificity will help you visualize what you’re striving for with your money decisions.

    Don’t get discouraged if you think you are not close to financial freedom.

    Even when you feel like financial freedom is only a distant dream for you, it’s important to actively think about what you want out of life.

    I’d even suggest that the further away you feel from financial freedom, the more important it is to think about what it would mean for you.

    When you’re at your lowest point, visualizing what you would do with financial freedom is a helpful escape.

    If you haven’t ever actively thought about what you would do with financial freedom, hopefully hearing about what my students shared in class will encourage you to do so.

    Don’t forget to write down whatever you come up with.

    I suggest you share your version of Tiara Goals with your friends and loved ones. It’s OK to keep some of your goals private.

    By sharing, you will get the benefit of them cheering you on. You’ll also hopefully encourage them to share their goals with you, which can be very inspiring.

    Matthew Adair preparing slides for a personal finance seminar for law students and lawyers showing that after completing another personal finance seminar with a great group of law students, I feel energized to use my money as a tool to build a life I'm proud of.

    Budgeting is all about generating fuel for your ultimate goals in life.

    Following our chat about money mindset, we launched into budgeting.

    The essential purpose of making a budget is to generate fuel for your ultimate goals in life. This fuel is what feeds your savings, pays off debt, and grows your investments.

    It’s not easy to track every penny. It’s not enjoyable to realize that your dollars are disappearing on stuff you don’t care about. But, these are crucial steps on the way to financial independence.

    Learning how to create a budget that you’ll actually stick to is so important that we practiced implementing a Budget After Thinking in class.

    Debt and credit are essential parts of a healthy financial life.

    After focusing on the fundamentals of budgeting, we moved on to debt and credit.

    Most of us have (or will have) some form of debt, whether it’s credit card debt, student loan debt, or mortgage debt.

    With the right tools, we can attack that debt and eliminate it as quickly as possible.

    Just as important, we can appreciate how we got into debt in the first place so we don’t make the same mistakes again.

    When we talked about credit in class, we emphasized that credit impacts our largest purchases in life, like buying a home or a car. For that reason, it’s essential to understand how our credit history impacts our credit score.

    From there, we explored why credit cards are a privilege.

    I am a big fan of using credit cards responsibly to earn free travel. If you don’t overspend and pay your bills in full every month, credit cards can be a useful tool.

    Student loans are front of mind for most law students and young lawyers.

    Of course, no personal finance seminar geared towards law students and young lawyers would be complete without addressing student loans.

    This year, we focused on the changes to federal student loans. We learned how to navigate paying back loans while advancing some other important financial goals, like investing.

    Building wealth through investing.

    Following our conversation on student loans, it was time to talk about building wealth through investing.

    When it comes to investing, the key is to let compound interest work its magic.

    With time on your side, you can concentrate on low fees, the proper asset allocation, and consistently fueling your investments.

    Using an online calculator, we saw how even seemingly small contributions to our investments will make a huge difference over the long run.

    This point demonstrates why we begin with budgeting before we talk about investing. Remember, one of the main purposes of your budget is to create money for your investments.

    Every dollar that you invest rather than spend early in your career will lead to massive wealth if given enough time.

    Real estate is my favorite asset class.

    Finally, we discussed real estate, a topic that I am very passionate about.

    We learned how to analyze when the time is right to buy a home (and when not to buy a home). We then saw how having a strong money foundation is key to qualifying for the best mortgages.

    From there, we moved on to real estate investing. With real estate, investors benefit from cash flow, appreciation, debt pay down, and tax breaks.

    For people pursuing financial independence, there may not be a more powerful strategy than buying a small multifamily property, living in one of the units, and renting out the others. This strategy is known in some circles as “house hacking.”

    With this one decision, you can eliminate your housing costs entirely, which is traditionally the largest expense in our budgets.

    That means you can repurpose the money you had been spending on housing to other goals, like paying off student loan debt.

    At the same time, you have a long-term asset that you can keep for years after you decide to move out. That asset can kick off monthly cash flow, which can be saved for other investments or used to pay for current living expenses.

    Matthew Adair saying cheers after completing another personal finance seminar with a great group of law students, I feel energized to use my money as a tool to build a life I'm proud of.

    Money is nothing more than a tool.

    In the end, I encouraged my students to recognize that money is nothing more than a tool that can be used to build a life on our terms.

    When we learn how to use money in this way, we control the circumstances. The circumstances don’t control us.

    Being good with money involves consistent choices. I can’t make those choices for you, but I can give you the tools to properly think through and evaluate whatever dilemma you face.

    I left my students with one final request: keep the conversation going with your loved ones and friends.

    Talking about money is not taboo. We can all learn so much from each other if we are just willing to share and listen.

    There’s no reason to struggle with money decisions alone.

    Our journeys towards financial independence should not be solo missions.

    We can achieve financial wellness together.

    All we need to do is think and talk about money.

    If you’re interested in learning more about my personal finance course for law students and young lawyers, please reach out.

    I’ve taught law students and lawyers, both in-person and virtually, and would be happy to discuss how I can help you or your group.

  • The Ultimate Landlord Tip: Choose Your Tenants Wisely

    The Ultimate Landlord Tip: Choose Your Tenants Wisely

    What’s more important: choosing the right property or choosing the right tenants?

    If you ask any experienced landlord, you’ll get the same answer every time:

    Choosing the right tenants.

    @thinkandtalkmoney

    One wrong tenant can turn your dream property into a nightmare. #landlordtips #RealEstateTok #thinkandtalkmoney #moneytok

    ♬ original sound – Thinkandtalkmoney

    Yes, choosing the right property is important. Of course, you need a property that will attract the right kind of tenants.

    But, selecting the property is a one-time decision during the acquisition process.

    As a landlord, choosing the right tenants is something you need to do constantly.

    When you choose your tenants wisely, your experience as a landlord can be very rewarding.

    When you fail to choose your tenants wisely, life as a landlord can be very difficult.

    Let’s dive in.

    Choosing the right property is just the first step as a real estate investor.

    When my wife and I bought our first rental property, we were fortunate that our real estate broker took the time to mentor us.

    He was a fellow investor and landlord and had learned a lot over the years.

    He has helped us in countless ways, including putting together a list of features we look for in every rental property.

    Here are some of the most important factors we evaluate when considering rental properties in Chicago:

    1. Location, location, location. In Chicago, proximity to the L and social life (coffee shops, restaurants, bars, etc.) are crucial. Most of the young professionals we rent to are still in the “going out” phase of life. They want to live in fun neighborhoods so they can enjoy themselves when they’re not working. They typically stay in our apartments for 2-3 years, oftentimes before buying a place of their own and “settling down.”
    2. Taxes. Property taxes can eat away your cash flow. We have high property taxes in Chicago across the board, but taxes vary widely from neighborhood to neighborhood. I look for properties in areas that have more attractive taxes.
    3. Big bedrooms. One of the most common questions I get when I do apartment showings is, “Can I fit a king size bed in here?” People love big beds these days. This can be a challenge considering Chicago’s standard 25-foot wide lot. I look for properties with a minimum bedroom size of 10 x 10.
    4. Outdoor space. Young professionals want to have outdoor space, even if they never use it. When I was a renter, I always wanted an apartment with a balcony for my grill. It didn’t matter to me that I only used it a handful of times each year. Maybe having outdoor space made me feel more grown up?
    5. Parking. Even though Chicago is a very public transit-friendly city, people still like having cars. Because most young professionals aren’t using their cars every day, they want to keep it safe in a dedicated parking space.

    There are certainly other factors we consider, but these are some of the first things we look for thanks to the guidance of our real estate broker.

    Once you choose the right property, the hard part begins.

    If you are going to be a landlord, selecting the right property is just the first step.

    An equally important decision soon follows, one that you will need to repeat every time you turnover an apartment.

    Of all the lessons our mentor taught us, this is probably the most important one:

    Choose your tenants wisely.

    You can have the best property in the world in the best location with the best amenities.

    If you have lousy tenants, managing that property will be a total nightmare.

    Not only will the experience be miserable, your bottom line will likely suffer.

    I know a number of landlords who have had such bad experiences with tenants that they sold their properties.

    I’ve known other landlords who stopped offering up their homes for short-term rentals because of difficult guests.

    When you’re forced to sell your rental property too soon or stop earning rental income, you’re missing out on the four main reasons to invest in real estate.

    If you don’t choose your tenants wisely, you’ll miss out on the four main reasons to invest in rental properties.

    Here are the four main reasons to invest in real estate:

    1. Monthly cash flow
    2. Appreciation
    3. Debt pay-down
    4. Massive tax benefits

    When these benefits combine, real estate investors can generate significant wealth over the long run.

    Below is a quick breakdown of each of the four main benefits. 

    For a more detailed description of each benefit, you can read my series on investing in real estate here.

    1. Rental property cash flow is king.

    With cash flow, you can cover your immediate life expenses. For anybody hoping to reach financial freedom, it is essential to have income to pay for your present day life expenses. 

    For my money, cash flow from rental properties is the best way to pay for those immediate expenses.

    If your present day expenses are already covered, you can use your cash flow to fund additional investments. 

    That might mean buying another rental property or investing in another asset class, like stocks.

    If you don’t choose your tenants wisely, you might not be able to collect the rent on time.

    You may have to evict a tenant or ask a tenant to part ways.

    Or, you may have costly maintenance and repairs that eat away all your profits.

    Whatever the case may be, when you are not receiving timely and consistent rent payments, your cash flow suffers.

    This is especially problematic if you depend on monthly cash flow to pay your living expenses.

    Old Caucasian woman shopping for fruit and choosing wisely like what a landlord needs to do when selecting tenants.
    Photo by Beth Macdonald on Unsplash

    2. Long-term wealth through appreciation.

    Appreciation simply refers to the gradual increase in a property’s value over time. 

    While cash flow can provide for my immediate expenses, appreciation is all about the long-term benefits.

    Like investing in stocks over the long run, real estate tends to go up in value. The key is to hold a property long enough to benefit from that appreciation.

    To benefit from appreciation, all I really need to do is make my monthly mortgage payments, keep my property in decent condition, and let the market do the rest.

    Appreciation takes time to materialize.

    When you don’t choose your tenants wisely, your experience as a landlord may be so miserable that you end up selling prematurely.

    If you have lousy tenants and choose not to hold your property long-term, you won’t benefit from his massive wealth-generator.

    3. With rental properties, other people pay off my debt.

    When I buy a rental property, I take out a mortgage and agree to pay the bank each month until that mortgage is paid off. At all times, I remain responsible for paying back that debt.

    However, I do not pay that debt back with my own money. 

    Instead, I rent out the property to tenants. I do my best to provide my tenants with a nice place to live in exchange for monthly rent payments.

    I then use those rent payments to pay back the loan.

    As my loan balance shrinks, my equity in the property increases. Equity is just another way of saying ownership interest.

    When my equity in a property increases, my net worth increases.

    Of course, if your tenants are not paying rent consistently and on-time, you’ll be stuck paying off your own debt.

    Depending on your overall financial situation, you might not be able to pay the mortgage without the rental income coming in.

    That’s a big problem for obvious reasons.

    4. Real estate investors earn massive taxes benefits.

    When you earn rental income, you must report this income on your tax return. Rental income is treated the same as ordinary income.

    However, the major difference between rental income and W-2 income is that there are a number of completely legal ways to deduct certain expenses from your rental income.

    Common rental property expenses may include mortgage interest, property tax, operating expenses, depreciation, and repairs. We’ll touch on a few of these deductions below.

    With all of these available deductions, the end result is that most savvy real estate investors pay little, or nothing, in taxes on their rental income each year.

    Yes, you read that right.

    I’ll say it again, just to be clear:

    Most savvy real estate investors legally pay nothing in taxes on their rental income each year.

    However, if you don’t have rental income coming in because you didn’t choose your tenants wisely, this benefit is not so helpful.

    How to choose your tenants wisely.

    Now that you understand why it’s so important to choose your tenants wisely, the next question is how to do it.

    The first, and most important, rule to remember is that you are not allowed to discriminate when screening potential tenants.

    That should go without saying.

    For more information, please refer to The Fair Housing Act, which prohibits discrimination based on race, color, national origin, religion, sex, familial status, and disability.

    You also need to be aware of any local rules in your area.

    Disclaimer: While I am a lawyer, I am not your lawyer and am not providing legal advice. This post is for educational purposes only.

    The next most important rule is that you need to personally meet every tenant before you sign a lease.

    Forget about credit scores and income sources and references for a minute. You can confirm all of that during the application process.

    Before you get to any of that, you need to see what kind of person you may be getting into a relationship with.

    You are going to be depending on this person for your livelihood for the next 12 months or more. You can’t afford to get this decision wrong.

    Choosing the right tenant is like dating. No, you don’t have to love this person. You don’t even have to like the person. But, you have to do your best to figure out if he’s going to make your life miserable.

    Avoid the temptation to sign a lease with the person qualified applicant who walks through the door. Make sure an applicant is a good fit, even if this means saying no to people who otherwise qualify on paper.

    Ask yourself these questions when you’re sizing up a potential tenant.

    When meeting a potential tenant, ask yourself these questions:

    • Is he pleasant to be around?
    • Does he seem reasonable?
    • Is he a jerk?
    • Is he rude?
    • Does he seem respectful?
    • Is he a complainer?
    • Does he give off “party-until-2am” vibes?
    • Is he sloppy?
    • Does your apartment seem to match what he’s looking for?

    By asking yourself these questions, you give yourself a better shot at finding a good tenant for your apartment.

    Why is this so important?

    There are going to be times when things go wrong. Dishwashers break. The tenant upstairs will be too loud. The hot water heater stops working.

    When these things happen, the last thing you want is to be dealing with a jerk on top of the problem that needs to be fixed.

    Trust your gut. Use your common sense.

    You won’t be right 100% of the time, but you will be in a much better situation if you put in the effort to personally meet potential tenants before signing a lease.

    A landlord working in an office on a virtual call interviewing a prospective tenant because choosing your tenants wisely is critically important.
    Photo by LinkedIn Sales Solutions on Unsplash

    Does your apartment seem like a good fit for the potential tenant?

    Don’t ignore that final question above.

    A landlord-tenant relationship is a two-way street. You want to find someone who will be happy in the apartment.

    However, landlords oftentimes focus only on whether a potential tenant is a good fit for the landlord.

    Yes, that’s important. But, it’s just as important that the apartment seems like a good fit for the tenant.

    For example, maybe a potential tenant tells you that outdoor space is on the top of his wish list.

    If you convince him that outdoor space is not very common in your area, sure, you may close the deal. But, is closing the deal all that matters?

    In this example, you’re stuck with someone for 12 months or more who’s living in an apartment without the number one thing he wanted. That could lead to an unhappy tenant who can’t wait to move on after his lease expires.

    Think about it like this: if you end up with a tenant who doesn’t really like the apartment, he could make your life difficult during the lease term.

    He might go out of his way to find things to complain about. Or, he might not be cooperative when you need to access his apartment for routine maintenance or future showings.

    Plus, he’ll be more likely to move out at the end of his lease instead of renewing for another term.

    Because vacancy is a landlord’s worst nightmare, your goal should be to find tenants who might end up renewing their lease at the end of the term.

    The point is: part of your job as a landlord is to think about whether your apartment is a good fit for a potential tenant, not just whether a potential tenant can afford the rent.

    You won’t always be successful in choosing your tenants wisely.

    Despite your best efforts, you may end up in a difficult situation with your tenants. This happened to me recently.

    We have an apartment building in a terrific location with units that are in great shape. We’ve never had any trouble finding tenants.

    This year was no different.

    After three showings and very little effort, we happily signed a lease with new tenants. As a bonus, the former tenants had moved out early, so we were able to fill this unit with zero days of vacancy.

    All was well… until it was not.

    Let’s just say that after about six weeks, it was apparent that the relationship with our new tenants was not working out. The tenants were not bad people, but it was clear that we could not meet their expectations.

    Instead of living through a difficult year with these tenants, we offered them the chance to break their lease, without penalty. They accepted our offer and moved out two weeks later.

    We all remained civil and amicably split up. The tenants left the apartment in good shape and we all avoided unwanted confrontation. 

    We re-listed the apartment and found a wonderful new tenant after one showing.

    In the end, we lost out on three weeks of rent between leases but now have a very happy new tenant.

    Upon reflection, I’m confident this was the right decision for all parties involved.

    The tenants could find a place more to their liking, and we could start over with a new tenant.

    If you can’t do the tours yourself, set up a virtual meeting before signing the lease.

    Since 2018, my wife and I have done every apartment showing ourselves (except one unexpected occurrence when we were out of town).

    This is the best way to truly get a read on what kind of person you may be renting an apartment to.

    If you can’t do the tours yourself, the next best thing is to set up a virtual meeting before you enter into a lease.

    With apps like Zoom and FaceTime, it’s easy to set up a 15 minute call. At that time, you can find out more about the potential tenant and ask yourself the questions we covered above.

    Putting in this extra effort is what separates successful landlords from those who give up and sell their properties prematurely.

    Choose your tenants wisely.

    Showing apartments and interviewing tenants is not always fun.

    It’s time-intensive. It may lead to awkward conversations. You may not love meeting new people.

    But, it’s critically important to the success of your rental property business.

    Being a landlord takes effort. If you are hoping for completely passive income, opt for index funds, not rental properties.

    Choosing the right property is just the first step.

    Choosing the right tenants is equally as important.

    Landlords: what are things you look for in a potential tenant?

    Have you made mistakes in choosing your tenants previously?

    Let me know in the comments below.