Author: Matthew Adair

  • Don’t Buy a Cute Condo: Do This Instead to Create Wealth.

    Don’t Buy a Cute Condo: Do This Instead to Create Wealth.

    Have you ever dreamed about owning a cute condo in a bustling city?

    You know, the type of place where you can have your friends over and everyone gushes over how great your condo is?

    If so, you’re not alone.

    Many young professionals follow a traditional path in hopes of buying that cute condo as a “starter home.”

    First, they spend a lot of money for an education to get a good job.

    Then, after a few years of working that good job, they think about buying a starter home instead of continuing to rent.

    These young professionals go into the home-buying process knowing that the home they may purchase will only be a temporary fit.

    Even though it may be years down the road, they tell themselves they can simply upgrade if a significant other or children enter the picture.

    For professionals living in cities, the search for a starter home typically leads them to condo buildings.

    This makes sense. Condo buildings are attractive for a number of reasons.

    I get the temptation to buy a cute condo.

    Condo buildings are usually in locations ideal for young professionals.

    Condo buildings oftentimes come with enticing amenities.

    Plus, condo buildings typically offer one or two bedroom units, the perfect size for an individual.

    Because of these features, condo buildings tend to attract other young professionals, making the building even more attractive.

    While I never owned a condo in Chicago, I happily rented directly from owners in condo buildings for 10 years before buying my first rental property. So, I certainly appreciate the allure of living in a condo.

    All this being said, I highly encourage you to think twice before buying a condo, or any other “starter home” for that matter.

    That’s because owning a unit in a condo building comes with two significant downsides: (1) the actual cost and (2) the opportunity cost.

    Instead, I recommend you think about these two alternatives to buying a starter condo:

    1. Continue renting until you’re ready to buy a more permanent residence; or
    2. Buy a small multifamily building where you can live in one unit and rent out the other units.

    Before covering these two alternative ideas, let’s talk about the (1) actual costs of owning a condo and the (2) opportunity costs of owning a condo.

    What are the actual costs of owning a condo?

    The actual cost of owning a condo is like owning any other property, with one additional cost to be acutely aware of.

    Besides the mortgage, insurance, taxes, and maintenance, condo buildings involve an additional cost that can be very expensive:

    HOA Dues and Special Assessments.

    Remember all those attractive amenities that drew you to the building in the first place?

    Those amenities come with a price. Oftentimes, a substantial price.

    On top of the HOA dues, be aware of unexpected special assessments, which can wreak havoc on your finances.

    Special assessments may be needed to cover major maintenance or renovation projects in the building. When special assessments are due, you don’t have a choice but to pay up.

    Ask any former condo owner why they no longer own a condo. My bet is most of them will blame the HOA dues and special assessments.

    exercise equipment inside a typical condo building showing an amenity that you probably won't use very often and why you shouldn't buy a cute condo.
    Photo by Point3D Commercial Imaging Ltd. on Unsplash

    The other reason you’ll hear from former condo owners?

    They outgrew their place.

    This should not come as a surprise to any single person who buys a condo while also seeking a significant other.

    You know how the saying goes: first comes love… then comes marriage… then the condo’s got to go.

    That means additional money to prepare your condo for sale, for closing costs, and for moving expenses.

    By the time you add up all these costs, you likely won’t walk away with any profit from owning a condo as a starter home because you only gave yourself a few years to benefit from appreciation.

    Even if you do make a profit, it’s a gamble. Owning any home for a short period of time is not a good investment strategy. The transactional costs are simply too high.

    Besides these actual costs, you should also consider the opportunity cost of owning a condo early in your career.

    What is the opportunity cost of owning a condo?

    While you may be OK with taking on the risk and these actual costs, don’t ignore the opportunity cost of owning a condo.

    The opportunity cost refers to what you are losing out on by choosing to buy a condo.

    In this context, the opportunity cost is that whatever you paid for the condo could have been used to invest in other assets. For example, instead of a down payment on a condo, you could have invested in stocks.

    Or, you could have purchased a rental property that generates long-term wealth for you and your family (or future family). More on that below.

    So, before you opt for the cute condo, think about both the actual costs and opportunity costs involved.

    There’s nothing wrong with renting until you are ready to buy a more permanent home.

    Owning real estate is a long-term proposition. The conventional wisdom is that you should not buy a property unless you plan to hold it for at least 7-10 years.

    If you are not planning on staying in your starter home for at least that long, just keep renting. Invest your money elsewhere.

    Save yourself the headaches of being a homeowner while building your net worth through an increased saving rate and other investments.

    This is not groundbreaking information. This is Personal Finance 101.

    Yet, many young professionals can’t resist the temptation to finally own a property after years of school and finally earning an income.

    It’s up to you to set aside your ego, keep renting, and build a strong financial foundation.

    By the way, many smart people think it’s financially foolish to buy a primary residence instead of renting.

    And, I’m not just talking about buying a cute condo early in your career.

    These really smart people think it’s almost always a better idea to rent instead of own in any circumstances.

    While it’s beyond the scope of this post, you can find an in-depth analysis on the question of buying vs. renting in this video from Khan Academy.

    I believe in the power of real estate as an asset class, especially small multifamily properties.

    Instead of buying a condo for a starter home, consider these four reasons to invest in rental properties: 

    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.

    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.

    brown and white concrete building under blue sky during daytime reflecting you should buy a small multifamily property instead of a cute condo.
    Photo by Krzysztof Hepner on Unsplash

    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. 

    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.

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

    When you buy a small multifamily property, you can live in one of the units and rent out the others.

    If you pick the right property, you can end of living for free because your tenants pay your mortgagee.

    The strategy of living in a building you own while tenants pay for it has been around for ages. Brandon Turner popularized the name “House Hacking” for this timeless concept. 

    You can read all about house hacking on BiggerPockets here.

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

    My wife and I house hacked for years before buying our forever home.

    Without a doubt, there is no better strategy for entry level real estate investors than house hacking. We talked about the financial upside earlier in this post.

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

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

    Ignore them.

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

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

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

    Before buying that cute condo, think about house hacking instead.

    There’s no better time to house hack than at the beginning of your career. This one decision can pay massive dividends for years to come.

    No, your friends might not gush over your cute condo.

    But, you’ll be well on your way to generating long-term wealth for you and your family.

    Even if you’re not just starting out in your career, house hacking is still an incredible wealth-building strategy.

    My wife and I house-hacked until I was nearly 40 years-old with two kids. We wouldn’t be where we are today if we instead opted for a cute condo.

    Did you buy a starter home in your 20s or 30s? Any regrets?

    What do you think of house hacking?

    Let us know in the comments below.

  • Spend Money Based on Your Wealth Not Your Income

    Spend Money Based on Your Wealth Not Your Income

    Let’s say you are fresh out of law school working in big law.

    At the current salary scale, that means you’re making $225,000 in salary, plus another $25,000 or so in bonuses. We’ll call it $250,000 in total compensation.

    That’s a lot of money. 

    It’s so much money, in fact, that you convince yourself you can make some lifestyle changes.

    For starters, you figure it’s time to leave the old law school roommates behind and move into a nicer, but smaller apartment by yourself.

    Even though the tradeoff for living by yourself is paying more in rent, you justify it because your income is so high.

    Besides paying more in rent, you can’t help but order in more meals now that you’re earning a high income. Plus, you’re working long hours, afterall. Who has time to cook?

    Even though you survived on frozen chicken breasts in law school, that won’t cut it anymore now that you’re a practicing attorney.

    Finally, you start taking Ubers to get around town. It’s only $15 per ride, and you make more than $20,000 per month.

    Even though you took the bus or the “L” home in law school, you can afford a ride! Uber it is!

    Does this sound familiar to you?

    Maybe it sounds completely ridiculous?

    Personally, this story is all too familiar.

    When I graduated law school, I spent money based on my income instead of my wealth.

    As soon as I started making money after law school, I started spending on things I really didn’t need.

    About a year after I graduated, I moved into an apartment by myself. I started spending more freely. I took taxis (no Ubers back then) when I could easily have hopped on the bus or walked.

    What made it worse in my case was that I was not even making big law money. At the time, I was a judicial law clerk making around $70,000 per year.

    It was because I was careless with my money that I fell into credit card debt so quickly after beginning my career as an attorney.

    On top of my poor spending choices, I had student loan debt. Because I had debt and hardly any assets to my name, my net worth was less than zero dollars.

    That means I had negative wealth, even though I was earning a decent income.

    This is all background for the main question behind today’s post:

    Do you spend money based on your income or based on your wealth?

    Let’s revisit our fresh big law attorney who’s earning $250,000 per year.

    Earlier, I said “That’s a lot of money.”

    And, it is.

    But, what I should have said was, “That’s a lot of income.”

    See, earning a lot of money is not the same as having a lot of money.

    There’s a key difference.

    Income is temporary. There’s no guarantee that your income will always be there. People lose their jobs all the time. People also switch careers, which can result in lower income. 

    Wealth is your financial foundation. When you have money, meaning you don’t spend it, you can build wealth.

    Of course, when we talk about wealth, we are talking about all of your assets minus your liabilities. This is your net worth.

    When your liabilities are greater than your assets, you have a negative net worth, like I did when I graduated law school. By the way, the same is true for most people when they graduate law school.

    A high income is not a bad thing, but it can be a wasted thing. 

    A high income means you have a lot of money coming in.

    That’s not a bad thing, but it can be a wasted thing.

    What you do with that money is what determines your wealth and financial progress.

    If you use your high income to acquire assets, you are winning the game. The same goes for paying off your liabilities.

    If you use your high income to buy expensive things, you’ll be stuck in place. At the end of the year, you’ll likely be in no better shape than someone making a fraction of what you make.

    That’s why I prefer to think about how much money I keep each year, instead of how much I make.

    Woman shopping car indicating we should spend money based on our wealth not our income.
    Photo by freestocks on Unsplash

    But, I thought high earners deserve to splurge!

    You may think that a new lawyer earning $250,000 per year should be splurging on life’s finer things.

    Would your opinion change if you acknowledged that lawyer’s net worth is a negative number?

    Think about it: most new lawyers leave law school with hundreds of thousands of dollars in debt. They also have little to no assets. That means they have a negative net worth. 

    Should someone with a negative net worth really be splurging on a fancy apartment?

    If that person is looking to build a solid financial foundation, the answer is obviously, “No.”

    This person should continue living like a law student and spending in accordance with his net worth, not his income.

    I recommend you use your high income to acquire assets and eliminate liabilities.

    Don’t get me wrong. I am not suggesting that earning a lot of money is a bad thing. 

    Having a high income is a major benefit.

    In fact, I recommend that all of my law students take the high paying job right out of school, if they can get it. 

    A high income means you can pay off your debt faster. It means you can build up your emergency savings and fund your investment accounts sooner.

    There can be no doubt that a high income can accelerate your progress to financial freedom.

    You just need to use that income to acquire assets and eliminate liabilities.

    As you take those steps, you’ll see your net worth climb, and you’ve earned the right to start spending more.

    We all know that it’s bad to live beyond our means. The problem is we don’t evaluate our means properly.

    You don’t have to be a personal finance expert to know that living beyond your means is a bad idea.

    Most of us intuitively understand that we should live within our means. Actually doing so can prove to be more problematic.

    Part of the explanation may be that we don’t think of our spending in terms of our net worth.

    We may not appreciate that if we are spending extravagantly while our net worth is still low, or even negative, we are living beyond our means. It doesn’t matter what our income level is.

    That’s why I recommend you spend based on your level of wealth (your net worth) instead of your income.

    Of course, this lesson applies to all of us, not just recent graduates. 

    This is challenging for lawyers and professionals who feel compelled to keep up with the Joneses. 

    When you’re making $750,000 per year, you may think you need to buy the $100,000 luxury car. Or, you may not hesitate to spend $10,000 to upgrade your family’s plane tickets to first class.

    But, can you really justify that level of spending when your net worth does not match up with your income? 

    What happens if that income goes away?

    Instead, you should prioritize saving and investing until your net worth justifies that higher spending threshold.

    a toy shopping cart with boxes piled up indicating we should spend money based on our wealth not our income.
    Photo by Shutter Speed on Unsplash

    Spending money based on your wealth does not spending from your wealth.

    When I say spend money based on your wealth, I don’t mean that you should spend from your wealth.

    In other words, this is not a post on spending down your wealth in retirement.

    Rather, what I mean is that you should consider your net worth before deciding how much of your income you are comfortable spending. 

    For example, if you earn $250,000 per year from your job and have a negative or low net worth, you should continue living like a law student.

    If you earn $250,000 per year and have a net worth of $1M, you would be justified in splurging from time-to-time.

    If you earn $250,000 per year and have a net worth of $10M, you shouldn’t worry about spending extravagantly with all of that income.

    Why not worry about spending so much?

    The reality is that your investment earnings on $10M will far exceed your $250,000 income from work.

    Even a 5% investment return on $10M would earn $500,000 per year, double what you earn from your job. You actually might start thinking about why you still have that job in the first place.

    These numbers are just for illustration purposes. Still, the idea is that your spending decisions should factor in your net worth at least as much, if not more so, than your income.

    Don’t ignore your wealth when it comes to spending. 

    Whenever you are evaluating your current financial position, especially your spending decisions, I recommend that you focus on your wealth at least as much as your income.

    Income is temporary. It can go away at any moment.

    If you are fortunate enough to earn a high income, use that high income to acquire assets and pay down liabilities. That means you’ll have to avoid spending extravagantly until your level of wealth can justify it.

    Wealth is foundational. Yes, there will be drops in the markets and your net worth can decrease. That is to be expected. 

    However, if you focus on spending in line with your net worth, you’ll naturally adjust your spending if your net worth temporarily drops. When it rises again, you can justify spending more. The key is to be flexible.

    If you can think in these terms, you will build a strong financial foundation that will give you choices down the road.

    At the end of the day, financial independence is all about choices. 

    The people who create choices for themselves will be the ones who don’t have to worry about money as they move through life.

    They will be the ones with true wealth that supports extravagant spending, if they choose. 

    That’s not a bad thing.

    Do you know people who spend money based on their income instead of their wealth?

    Why do you think people fall into that trap?

    Let us know in the comments below.

  • Furloughs Show Why You Need Savings and Parachute Money

    Furloughs Show Why You Need Savings and Parachute Money

    Making headlines this week, the federal government shut down, resulting in hundreds of thousands of federal employees being furloughed.

    When someone is furloughed, he doesn’t receive a paycheck. Even if that person eventually receives backpay, furloughs can be a huge problem for those individuals.

    Why?

    Because most people, even high-earners, live paycheck to paycheck.

    When you’re furloughed, money stops coming in. But, money keeps flowing out.

    The mortgage still needs to be paid.

    The kids still need to eat.

    The credit card balances are still due.

    As reported by CBS News:

    But even federal workers who eventually receive back pay can suffer during a shutdown, as many of them live paycheck to paycheck, [Dan Koh, former chief of staff of the Labor Department] added.

    “Even if you are entitled to back pay, a lot of people can’t go even a couple of days without their regularly scheduled paycheck,” he told CBS News. “If you have to pay your subway fare, for gas, if something breaks in your home, and you’re not getting paid, it places extreme stress on government employees,” he said.

    So, what can we do to help protect ourselves from furloughs or any other sudden loss of income?

    We can protect ourselves in two ways.

    First, we can protect ourselves with an emergency savings account.

    Second, we can protect ourselves with parachute money.

    For the ultimate protection, we can have a fully-funded emergency savings account and parachute money.

    Let’s take a look at exactly what that means.

    person using MacBook reflecting that the bills still need to be paid when you are furloughed, which is why emergency savings and parachute money are so important.
    Photo by Austin Distel on Unsplash

    Protect yourself from a sudden loss of income with an emergency savings account.

    The first savings account you need is commonly referred to as an emergency savings account. This is your ultimate security blanket for whatever life throws at you.

    For example, if you are furloughed and lose your source of income, your emergency savings will keep you afloat until you’re working again.

    The idea is to use your savings so you don’t have to pull from your long-term investments.

    Your emergency savings is not just for when you get furloughed or lose your job. Your emergency savings will also protect you in times of emergency (brilliant, huh?), like unexpected medical bills or expensive home repairs.

    The idea remains the same: instead of pulling from your investments, you will have cash available in your savings account to cover your needs.

    Aim for 3-6 months of Now Money saved for emergencies.

    Aim for building up 3-6 months of your Now Money saved in a dedicated emergency savings account.

    In your Budget After Thinking, Now Money represents the consistent, reoccurring expenses that you need to pay every month to take care of yourself and your family.

    Since you will only be using this money in times of emergency, you can, and should, forego some of life’s luxuries until you get back on track.

    The same is true for fueling your Later Money goals. Take a pause until you sort out whatever it was that caused you to spend your emergency savings in the first place.

    While your emergency savings account is your first line of defense when you are furloughed, I prefer having an extra layer of protection.

    I refer to this additional protection as Parachute Money.

    What is Parachute Money?

    Parachute Money is one of my favorite concepts in all of personal finance.

    The analogy goes like this:

    Pretend your life is like flying on an airplane.

    For whatever reason, you decide you need to get off this airplane. Maybe conditions outside of your control have forced you to jump. Or, maybe you’ve decided that it’s time to take control and make a change.

    Either way, you’re ready to jump. 

    All you need is a parachute.

    You have a choice between the only two parachutes on the plane.

    The first parachute has only one string (or line) connecting the canopy to the harness . You think to yourself, “This doesn’t seem very safe. What if that one string breaks? That would end very badly for me.”

    Then, you look at the second parachute. 

    The second parachute has 10 strings. You say to yourself, “OK, this one looks much safer. If one string breaks, the parachute still has nine other strings to keep me safe. Even if something goes wrong with one or two strings, I would glide safely to the ground.”

    It’s obvious which one of these parachutes to choose, right?

    OK, cool.

    But, what does a parachute have to do with money?

    Each of your income sources is like a string on your parachute.

    The central idea of Parachute Money is to create multiple sources of income so you are not beholden to any one source. 

    Picture each source of income as a string on your parachute. The more strings on the parachute, the stronger it is.

    With Parachute Money, if one of your sources of income dries up, like when you are furloughed, you are more than covered with your other income sources.

    Of course, the more sources of income you have, the stronger your personal finances are.

    Parachute Money includes your primary job, any side hustles, any income generating assets, and your emergency savings account. It also includes the income of your significant other, if you share finances.

    The key to Parachute Money: protect yourself with as many investment and income sources as you can.

    That’s why in addition to my primary job as a mesothelioma attorney, I invest in the stock market, own rental properties and am an adjunct law school professor.

    It is not easy to maintain an emergency savings account of 3-6 months.

    Having 3-6 months of emergency savings is a wonderful achievement. It takes time and discipline to build up that level of savings.

    Personally, I’ve struggled to accumulate a sufficient emergency savings account.

    It’s not that I have a low saving rate.

    It’s that I’ve chosen to prioritize investing in real estate for the past seven years. Whenever I had enough money saved up for a down payment, I bought another property.

    Admittedly, this was a risky strategy.

    That’s why I do not recommend this approach for most people.

    Instead, for just about everyone reading this, I would recommend you build up your emergency savings account before moving to other financial goals.

    a close up of person playing a board gam ereflecting that the bills still need to be paid when you are furloughed, which is why emergency savings and parachute money are so important.
    Photo by Yuri Krupenin on Unsplash

    Did you notice that I said “just about everyone reading this”?

    That’s because I think people who are protected by parachute money have earned the right to take more risks at the expense of their emergency savings.

    Let me explain.

    If you have parachute money, you can get away with a smaller emergency savings balance in the short run.

    I was comfortable underfunding my emergency savings account in the short run because I had a strong parachute with multiple income streams.

    As I mentioned, my wife and I were both working as attorneys and had various income streams. If one of our income streams dried up, such as during a furlough, we would have been protected by our other income streams.

    Because of these multiple income streams, we were comfortable taking on the risk of having a low emergency savings balance.

    If you are in a similar position and have multiple streams of income, you may also feel comfortable with a smaller emergency savings balance.

    From where I sit, you’ve earned the right to invest your money rather than letting it sit in a savings account. If that’s your choice, I wouldn’t blame you. I made the same choice.

    That said, I would not recommend you shortchange your emergency savings in the long run. While it’s OK to temporarily prioritize other investments, I still believe that an adequate emergency savings account is essential to a healthy financial life.

    That’s why I am now focused on building up my emergency savings instead of acquiring more real estate. I’ve reached a good place with my investments. Now it’s time to focus on protecting my family.

    I think of it like this: my parachute is otherwise very strong between my primary job, my adjunct teaching job, my rental properties, and my other investments.

    The one string that I need to add is a sufficient emergency savings balance. That’s why building up my emergency savings will be my top money goal for 2026.

    When you combine emergency savings and parachute money, you are as protected as possible.

    The ultimate level of financial protection comes from having an emergency savings account and parachute money.

    You are protected in a variety of ways if one of your income streams dries up.

    If you haven’t prioritized an emergency savings account or developing parachute money, let the recent government shutdown serve as a reminder of how important these concepts are.

    Whether you are in the tech industry or an attorney or a consultant, there’s no guarantee that your job will last forever.

    The overall economic outlook is hazy at best right now. Ask five “experts” what the economy will look like in two years and you’re likely to get five different answers.

    It’s up to each of us to build in multiple layers of protection in our financial lives to avoid disaster if our primary source of income dries up.

    Do you have an emergency savings account?

    How strong is your parachute?

    Let us know in the comments below.

  • A Reminder About the Intersection of Money and Life

    A Reminder About the Intersection of Money and Life

    By now, you should know that I love Chicago.

    It’s where I’m from, where I’ve chosen to raise my family, and where I primarily invest in real estate.

    Last night was a good night for Chicago sports fans.

    My favorite team, the Chicago Cubs, won a playoff series for the first time since 2017.

    While watching the game at home, I couldn’t help but think of how different my life is today than it was in 2017.

    Back then, I had season tickets and rarely missed a game. My wife and I were just about to get married. Life was good and about as easy as can be.

    From a financial perspective, we were pretty boring.

    By the way, being boring with money is not a bad thing.

    When it comes to money, boring is good.

    Back in 2017, my wife and I each made good incomes as attorneys. More importantly, we were happy saving a lot of the money we earned.

    We rented an apartment and had minimal expenses besides travel and our social lives.

    At that time, we had a good amount of savings because we were planning to buy a house after the wedding.

    Our only investments were in retirement accounts, like a Roth IRA and 401(k). We didn’t own any real estate.

    Life’s a bit different for me now.

    I don’t have season tickets anymore. We don’t travel as much.

    We have three kids and different financial priorities.

    Life is better than ever, but maybe not as easy as it was in 2017.

    OK, what does all this have to do with baseball?

    Last night at home, while watching the Cubs pull out a stressful victory, I started thinking about these things. I wasn’t in the crowd like in 2017, but I knew exactly how the fans were feeling.

    Each pitch was tense. The crowd went nuts after every Cubs hit or strikeout by a Cubs pitcher. Whenever the San Diego Padres had a rally going, every Cubs fan was nervous.

    In the end, the Cubs pulled out the victory and thousands of people now have memories they’ll never forget.

    There’s nothing better than playoff baseball. I love it and hate it at the same time.

    Watching the game, I thought of some of my favorite baseball memories. It was a good reminder of why it’s so important to think and talk about money.

    We say it a lot around here: money is only a tool. When used properly, you can use money to build lifelong memories. You can create stories that you’ll remember for the rest of your life.

    Stories like the ones I have from 2016 when the Cubs won the World Series.

    That’s when I met Phil and April.

    My nice friends, Phil and April.

    Throughout that World Series run, we sat next to the nicest couple in the world, Phil and April.

    Phil was a diehard Cubs fan. April was more reserved.

    Both were smart and very friendly. They were enjoyable people to sit with.

    We chatted baseball, mostly. Pitching changes. Send the runner. Question the manager. That sort of thing. Completely normal, unremarkable stuff. 

    Until Game 5.

    Game 5 was played on a crisp, October evening. Jackets and beanies weather in Chicago. Phil and April were sitting next to my brother and I, as usual.

    Mike Napoli was playing first base for Cleveland. Around the 3rd inning, a jerk four rows in front of us taunted Napoli with a crude, juvenile insult.

    It was apparent the jerk was doing his part to keep Old Style in business for another year.

    None of us liked what this jerk yelled.

    Phil especially didn’t like it.

    Phil was nice…and tough.

    Phil did what the rest of us were thinking but were too scared to do ourselves.

    Phil stood up. In so many words, Phil sternly recommended that the jerk knock it off and show some class.

    The jerk turned around, aggressively scanning the crowd for the man who had publicly shamed him. The jerk had that unmistakable look in his eye that meant, “Let’s dance.”

    My brother and I were a bit worried for our nice… and all of a sudden tough…friend, Phil. 

    Phil’s wife, April, did not look worried. She sat there like nothing strange was happening. Almost like she had seen this movie before.

    When the jerk locked eyes with Phil, he immediately saw that Phil was not backing down. If anything, Phil looked a little too eager.

    Well, the jerk was sloppy, but he had enough sense to recognize that he wanted no piece of Phil. He wisely turned back around and sat down quietly. 

    That was the last we heard from the jerk that night.

    Our nice (and tough) friend, Phil had restored order.

    chicago cubs sing lit up reminding me of why we spend money.
    Photo by Dastan Eraliev on Unsplash

    Phil’s on TV!

    On the day of the Cubs’ championship parade, my brother called me excitedly, “Phil’s on TV! Phil’s on TV!”

    It didn’t register right away who he was talking about.

    When I turned on the TV, sure enough, there was Phil, our World Series friend. I was so confused. Phil was giving an interview on set with the Cubs announcers.

    Our nice (and tough) friend, Phil? On TV? 

    I turned up the volume and listened to Phil talk about his experience watching the Cubs win the World Series. Maybe I was hoping he’d mention his nice friend, Matt. (He didn’t.)

    I still couldn’t figure out why Phil was on TV. 

    Why won’t they just put his name on the screen already!? 

    It wasn’t until the end of the interview that I learned who Phil was.

    All I could do was laugh. 

    Our nice, and confirmed tough, friend Phil is better known as World Wresting Entertainment (WWE) champion and icon, CM Punk.

    Oh, and his wife?

    WWE champion and bestselling author, AJ Mendez.

    Unknowing watching the Cubs win the World Series with two celebrities with a combined 3.5 million Instagram followers?

    Yup, that’s a story I’ll be telling for a while.

    A memory I wouldn’t trade for anything. 

    As much fun as the World Series was, my favorite Cubs memory actually took place during the 2015 season, the year before they won the World Series.

    It was during the 7th inning of Game 4 of the NLDS. This was the game where the Cubs knocked the rival St. Louis Cardinals out of the playoffs.

    In the 7th inning, with the Cubs up 5-4, Kyle Schwarber hit one of the most epic home runs in Cubs history, landing his moonshot on top of the new right field video board.

    It was such a feat, the ball is now enshrined where it landed.

    The entire stadium was rocking so loud, you could feel the ground shaking beneath your feet. Every fan was jumping up and down, hugging anyone close enough to touch.

    We were all dancing like nobody was watching. That moment was pure happiness. 

    I was there with my mom.

    A lifelong Chicagoan, she too was jumping up and down and high-fiving all the other diehard fans in our section.

    After the game, we met up with my wife at a restaurant and relived the victory over Champagne.

    That day with my mom and my future wife is one of the best memories I have.

    clear wine glass holding champagne, one of the best memories I have with my mom and spent money on.
    Photo by Oliver Sherwin on Unsplash

    What does this have to do with money?

    What does any of this have to do with money?

    When I say money is a tool to create stories and memories, this is what I mean.

    My brother and I still joke about our nice friends, Phil and April. I wouldn’t trade that memory with my mom for anything.

    These are the types of experiences that I want more of.

    These memories, and the desire for more like them, continue to motivate me today.

    I want to be good with money, not so I can stash it in the bank, but so I can use that money to create joy for me and my family.

    Beyond that, watching the crowd at Wrigley Field last night reminded me of why I started a personal finance blog.

    It excites me to try and help people make intentional money decisions for meaningful experiences with meaningful people.

    Talking money is really just talking life.

    You may not be a baseball fan, but this conversation illustrates a foundational concept of Think and Talk Money.

    Yes, we discuss money.

    But, we’re really talking about our lives and our experiences.

    Money is just a tool to help us. 

    And before you get cynical on me, of course money is not required for good experiences. That’s not the point.

    What I’m suggesting is that if we’re all spending so much of our time each week at work, shouldn’t we spend some time thinking about the money we earn so we can maximize experiences like I had with my mom? 

    Think and Talk Money is all about awakening that thought process so we can use the tool of money to fuel meaningful lives.

    You might not use that tool to get Cubs tickets.

    But, what if you started thinking about money as just a currency that you trade to get your time back so you can do more of what you want with who you want?

    Whatever it is that you’re after in life, thinking and talking about money will help get you there.

    Have you used money as a tool recently to create stories and memories?

    Let us know in the comments below.

  • Why Cash Back is Not the Best Value for Points

    Why Cash Back is Not the Best Value for Points

    If you have a travel rewards credit card, you likely have the option to use your points for cash back instead of transferring them to travel partners.

    With the cash back option, you can exchange your points at a 1:1 ratio, meaning one point equals one cent. It may be easier to think of it as 100 points equals 1 dollar back.

    Cash back is the easiest way to redeem value for your points. With a few simple clicks, you can either receive a direct deposit in your checking account or have a credit applied to your statement.

    Sounds pretty good, right?

    Yes, it may be tempting to exchange your points for cash. Before you do, I have a suggestion for your consideration:

    Don’t do it.

    With only slightly more effort, you can get so much more value out of those points by transferring them to a travel partner.

    Today, we’ll look at an example to drive this point home. We will focus on three ways to book the same flights using only points earned with my favorite credit card, the Chase Sapphire Reserve.

    After reviewing the options, you should see that the cash back option is by far the least attractive.

    First, let’s think about why credit card companies make it so easy to redeem your points for cash.

    Credit card companies want you to take cash back for your points.

    The truth is that credit card companies are hoping you take the cash back offer.

    When you take cash back, you are saving the credit card company money. That’s why they make it so easy for you to receive cash back with just a few clicks.

    When you transfer your points to travel partners, it costs the credit card companies more money. That is one of their justifications for the higher annual fees on travel rewards cards.

    They are hoping to recoup some of that cost by charging a fee.

    For the same reasons, it’s also why rewards cards that don’t charge an annual fee only offer the cash back option.

    Are you more interested in saving the credit card companies money or in saving yourself money?

    If you want to save yourself money, read on.

    But, isn’t cash more valuable than points?

    I know how enticing it can be to have 70,000 points in your account and immediately turn that into $700.

    That’s real money.

    However, those points could be worth so much more money if you stay patient and use them to pay for your next vacation.

    While putting a specific value on credit card points is not an exact science, there are some reputable companies that have undertaken the task.

    For example, The Points Guy currently values Chase Ultimate Rewards points at 2.05 cents per point.

    Credit Karma values Chase Ultimate Rewards points at 1.71 cents per point.

    As mentioned above, cash back typically rewards you with 1 cent per point.

    That’s a real difference.

    But, that cash can offset my credit card bill! Who has time to travel anyways?

    I want the cash back to help pay my bills this month!

    I’m too busy to travel!

    These are some of the justifications I hear from people who choose to take cash back.

    I encourage these people to think about what they’re really saying.

    For instance, if you really need to trade in your points to pay off your credit card bill, then you need to revisit your budget and spending choices.

    I understand that sometimes money is tight and unexpected expenses pop up. That’s what your emergency savings account is for.

    Ultimately, your credit card points should be viewed as a fun bonus, not as a key factor in paying your bills on time.

    Now, if you are too busy to take even one trip a year, it’s probably time to think about why you’re working so much.

    And, if you don’t even like to travel, you probably shouldn’t have a travel rewards credit card in the first place.

    OK, with this context behind us, let’s take a look at a sample itinerary and see which option you prefer.

    people using credit card devices on brown table to use points instead of cash back
    Photo by Christiann Koepke on Unsplash

    Three ways to book flights to Colorado for a ski vacation without using money.

    For this example, we’ll focus on Chase Ultimate Rewards points, which is what you earn using the Chase Sapphire Reserve.

    My favorite way to redeem my Chase Ultimate Rewards points is to transfer them to United for free flights.

    Let’s say you live in Chicago and want to go skiing in Colorado this winter. You have plenty of points saved up and you want to put them to good use.

    You are a savvy traveler so you’re not messing around with peak holiday travel prices.

    Instead, you wait until the holiday rush is over and plan your long-weekend trip from January 8 to January 13 (Thursday to Tuesday). That allows for four full days of skiing with a couple of easy travel days built in.

    Let’s consider three options for booking these tickets without using any actual money:

    1. Buy the tickets directly from the airline then reimburse yourself with cash back from your points balance.
    2. Transfer your Chase Sapphire Reserve points to United and purchase the ticket with United miles.
    3. Purchase the ticket through the Chase travel portal and pay with points.

    Option 1: Buy the tickets directly from the airline then reimburse yourself with cash back.

    In this first option, you check out United.com to see what decent flights would cost you if you paid in cash. The good news is that United has direct flights from Chicago to Denver (two United hubs) throughout the day.

    You want to work a half-day on Thursday so choose the 2:36pm departure.

    Coming home, the last thing you want to do is wake up early on your final day of vacation. So, you choose the 5:42pm return flight.

    For a refundable roundtrip ticket, this itinerary will cost you $304.96.

    Not bad, right? It pays to wait for the holiday season to die down.

    You decide to purchase the ticket using your Chase Sapphire Reserve, earning 4 points per dollar for a total for 1,220 points.

    Of course, you know that $304.96 is the equivalent of 30,496 Chase Sapphire Reserve points (1 point equals 1 penny; 100 points equals 1 dollar).

    After buying the ticket, you go to your Chase portal and convert 30,496 points into cash back, which equals $304.96.

    The end result is that this option costs you 30,496 points but no real money.

    One side note: Because you purchased this itinerary with your Chase Sapphire Reserve, the 1,220 points you earned reduced the true cost of the ticket to 29,276 points. However, these points will be deposited into your account after your next statement closes so don’t actually help you here.

    Option 2: Transfer your Chase Sapphire Reserve points to United and purchase the ticket with United miles.

    Next, let’s see what happens If you wanted to book this exact same itinerary by transferring your Chase Sapphire Reserve points to United.

    Looking at United.com, this exact same itinerary costs 19,000 points.

    You login to your Chase account and instantly transfer 19,000 points to United. Then, you return to United’s website and book the flights.

    Remember, the cash back option cost you 30,496 points for this same itinerary. By transferring your points to United, you saved 11,496 points.

    That’s 60% of the points you need to book another plane ticket on this itinerary. You may have enough points leftover to bring a friend!

    And, if you really wanted to, you could even book this itinerary using United miles, and then give yourself $114.96 cash back as a thank you gift with your remaining points.

    I personally wouldn’t do that- I would just save those points for the next plane ticket.

    You should now see how much money you’re leaving on the table if you opt for cash back instead of redeeming your points for travel.

    On just this one trip, you saved $114.96. Think about how much that savings adds up if you book more than one plane ticket each year.

    woman standing and holding credit card to get points for travel not cash back.
    Photo by Clay Banks on Unsplash

    Option 3: Purchase the ticket through the Chase travel portal and pay with points.

    As a third option, you could use your points to purchase this itinerary directly through the Chase travel portal.

    Pursuing this option would cost 20,331 points. That’s definitely a better option than the cash back option, but not quite as valuable as booking directly through United.

    If you choose to go this route, be aware that you may lose out on certain perks available when booking directly through the airline.

    That’s because using the Chase portal is the equivalent of booking through a travel agent. You may not get to choose your seat, receive upgrades, or other benefits you’d get by booking directly with the airline.

    Regardless, since it’s less expensive to book directly through the airline, I don’t see any real benefit to choosing Option 3 over Option 2 in this scenario.

    That said, don’t write off Option 3 in every circumstance. There are certainly times when it’s a worthwhile option to consider.

    I have used the Chase travel portal extensively to book boutique hotel overseas. These types of smaller, independent hotels are not typically affiliated with any credit cards and may not have rewards programs.

    In that instance, I can use my points instead of cash to stay at these wonderful hotels.

    So, what option would you choose?

    With very little effort, you can save yourself real money by transferring your credit card points to travel partners.

    I encourage you to think about this strategy before you elect to take cash back.

    Do you prefer cash back? What is your favorite points redemption option?

    Let us know in the comments below.

  • How Does Your Net Worth Compare to People Your Age?

    How Does Your Net Worth Compare to People Your Age?

    Pop quiz!

    What is your net worth?

    Kudos to you if you can answer that question quickly and relatively accurately.

    Knowing your net worth indicates you are likely making intentional choices with your money. You likely are more concerned with how much money you keep, not how much you make.

    It also likely means that you have a plan and are well on your way to financial independence.

    Well done!

    If you know your net worth, you might be wondering how you measure up to people your age.

    That’s what we’re going to look at today.

    First, let’s discuss why it’s important for all of us to track our net worth.

    Why is it important to 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.

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

    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.

    For a step-by-step guide to tracking your net worth, check out my post here:

    Why You Need to Track Your Net Worth Every Month

    Just like budgeting with two simple numbers, tracking your net worth is the best, and easiest, way to measure your money progress. 

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

    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.

    How do I know if I need to make adjustments based on my net worth?

    Speaking of making adjustments, it can sometimes be helpful to look at datasets to see how you measure up to the rest of the population.

    So today, we’ll look at two potentially helpfully net worth metrics.

    First, we’ll look at the average net worth of Americans by age.

    Then, we’ll look at the average net worth by age of the Top 1%.

    The goal is to give you some benchmarks so you can assess where you’re currently at. Then, you can decide if you want to make any adjustments.

    In other words, the point is to educate yourself so you can make intentional choices for your own situation. The point is not to start comparing yourself to your neighbors.

    OK, let’s get to it.

    green plant in clear glass cup indicating that net worth grows over time.
    Photo by micheile henderson on Unsplash

    What is the net worth of Americans by age?

    Below is the average and median net worth of Americans by age based on research from Empower.

    Keep in mind these studies are not perfect.

    It’s not an easy task to track and study net worth across a wide population. Not everyone tracks her net worth, let alone makes it easy for outsiders to track it.

    Use these figures as a rough guide to help your own decision-making. Just don’t get too caught up in the exact figures.

    Net Worth by Age


    Age    		Average Net WorthMedian Net Worth
    20s$121,004$6,609
    30s$307,343$24,247
    40s$743,456$75,719
    50s$1,330,746$191,857
    60s$1,547,378$290,447
    70s$1,444,413$233,085
    80s$1,342,656$233,436
    90s$1,212,583$205,043

    High school math refresher: The average is calculated by adding up all values in a dataset and dividing by the count. The median is the middle value of a dataset with an equal number of values above and below. Averages can be skewed by extreme values, so the median can give you a more accurate picture.

    Here are some observations about the average net worth of American by age:

    • Net worth tends to increase with age. No surprise there, right? As our careers progress, we tend to earn more and invest more money.
    • Net worth tends to peak in our 60s. This also makes sense. When people reach retirement age, they start to draw down their portfolio. They’ve spent decades accumulating wealth and eventually it’s time to spend that savings.
    • Notice the effects of compound interest. From the 20s to the 30s, we see that the median net worth nearly quadruples. That’s a 400% increase! However, it equates to a median net worth increase of only $18,000.
    • Compare that to the change from the 50s to 60s. We see that the median net worth increases by only 50%, but the result is an increase in nearly $100,000.
    • The takeaway is that when you have more money invested, smaller gains result in higher earnings. You could say, “the rich get richer.”

    What is the net worth by age of the top 1%?

    Next, let’s take a look at the average net worth by age of the Top 1%, thanks to an analysis of Federal Reserve data by DQYDJ.

    Remember, these are only rough figures. Use this data to help you strategize based on your current financial situation.

    Net Worth by Age of the Top 1%

    AgeTop 1% Net Worth
    18-24$653,224
    25-29$2,121,910
    30-34$2,636,882
    35-39$4,741,320
    40-44$7,835,420
    45-49$8,701,500
    50-54$13,231,940
    55-59$15,371,684
    60-64$17,869,960
    65-69$22,102,660
    70-74$18,761,580
    75-79$19,868,894
    80+$16,229,800

    Are these dollar amounts lower or higher than you expected?

    If these dollar amounts seem unattainable, remember that 99% of us will never hit these marks. Don’t get discouraged. You’re doing great work if you’re anywhere close to these numbers.

    Did you notice that the trends in the Top 1% net worth data are very similar to the average net worth by age data we previously looked at?

    We again see the net worth of the Top 1% peaking in the 60s.

    We also see the same effects of compound interest.

    This data reinforces the point that investing favors people who start early, even if the results do not materialize for decades. It takes time for compound interest to work its magic.

    young man and older man standing at bottom of stairs representing the importance of tracking your net worth.
    Photo by John Moeses Bauan on Unsplash

    Tracking your net worth is the best way to measure your personal financial progress.

    By now, you should have an idea of where you stand compared to the rest of the population.

    What can you do with this information?

    If you’re happy with how you measure up, that might mean you’ve reached a level of financial independence where you have options in life.

    Having options in life means that you’ve achieved the ultimate goal: FIPE (Financial Independence, Pivot Early).

    When you reach FIPE, you are free to pivot to a new challenge, if that’s what you want.

    On the other hand, maybe you looked at this data and learned that you are not as far along on your financial journey as you had hoped.

    Don’t panic.

    The benefit is that you can now make adjustments.

    What kind of adjustments can you make after learning your net worth?

    When you track and study your net worth, you can make adjustments while you still have time on your side.

    For example, you may decide that it’s finally time to boost your saving rate.

    After all, your saving rate is the one thing you can actually control on your way to financial independence.

    Or, you might take a fresh look at your Budget After Thinking to find ways to generate more fuel for your investments.

    And, it might mean saving and investing that one-time windfall instead of spending it on stuff you don’t really care about.

    Whatever decisions you make, knowing the average net worth by age can help point you in the right direction.

    It takes me less than 30 minutes per month to track my net worth.

    It takes me less than 30 minutes each month to track and study one of the most important numbers in personal finance.

    Each month, I’m only looking for progress compared to what my net worth was previously. 

    If my net worth increases over time, it means I am heading in the right direction.

    It means that I am continuing to fuel my Later Money goals. I am paying down debt. I’m letting my investments do their thing.

    If my net worth is not increasing, it means I need to figure out why and consider making adjustments. 

    Sometimes my net worth decreases because the markets are heading down. If that’s the case, I don’t do anything. At this stage in my life, I can afford to wait while markets tick back up.

    If the issue is that my debt is increasing, or I didn’t fuel my investments that month, I know I need to make adjustments. 

    By studying my net worth each month, I can catch these setbacks before they become a continuous problem.

    Do you track your net worth?

    Are you happy with how you measure up?

    If not, are you prepared to make the necessary adjustments?

  • How Much Money Did You Actually Keep This Week?

    How Much Money Did You Actually Keep This Week?

    The alarm clock goes off at 6:30 a.m.

    You groggily brush your teeth and hop in the shower.

    The hot water feels nice. Should I skip work today?

    Then, reality sets in. What time is my first meeting today?

    Shower done. Now, what to wear? The blue shirt? Again?

    Let’s go, let’s go! Pick up the pace! The kids need to get dressed and eat breakfast.

    Why are we always so rushed before school? Tomorrow, I’ll wake up earlier.

    The train will be here in 10 minutes. “Bye kids! Bye Honey!”

    I gotta get across the tracks! Speed walk!

    Phew. Made it.

    30 minutes to catch your breath before work starts.

    What day is it today? Tuesday?? It’s only Tuesday?!?!

    I’m tired.

    Do you ever notice the people on the train?

    Does this routine sound familiar to anyone?

    At least you’ll have something to show for it come pay day.

    Wait, you go through all that effort every day and you’re not saving a good portion of your paycheck?

    Let’s talk about that.

    When I take the train downtown, I can’t help but notice my fellow passengers.

    Some people are already cranking away on their laptops. Some are even on conference calls, which always surprises me.

    Why don’t they care that everyone is annoyed with them? Do the other people on the call know that they’re talking to someone on a train?

    But, I digress.

    Some passengers are reading books. A good portion of passengers are doomscrolling. Just about everyone has headphones in.

    It’s not that people look unhappy. They just seem to want to be somewhere else.

    Do you have similar observations?

    Most people don’t have a plan.

    It’s at times like these when I start to wonder how many of these people have a plan.

    I’m not talking about a plan for lunch or for getting to the gym after work.

    I mean a plan for how to spend their time and their money.

    Ideally, this plan would be based upon spending time on meaningful pursuits with meaningful people.

    My guess is most people have never really thought about this kind of plan.

    Instead, it’s go to work. Get a paycheck. Pay the bills.

    Same thing tomorrow. That’s as far as the plan goes.

    This routine may be enough for some, or even most, people. If that’s enough for you, there’s no shame in it. Holding down a steady job and providing for your family are accomplishments to be proud of you.

    But, let’s be real.

    You’re reading a personal finance blog.

    We spend a lot of time talking about financial freedom and creating options.

    You wouldn’t still be reading if you didn’t feel there was more to life than the daily train ride, right?

    You may not know how or when to get off the train, but you’re interested in finding out if it’s possible.

    Well, it’s definitely possible. But, you need to break the cycle and commit to a plan.

    Here’s a question to help you get started.

    How many hours do you work to make money?

    Wide view image of blank black spiral note pad and white marker with calligraphic inscription plan on yellow background meaning we all need a plan to keep our money.
    Photo by Volodymyr Hryshchenko on Unsplash

    Let’s say you work 2,000 hours per year to make money (40 hours per week, 50 weeks per year). 

    We won’t even count all the hours you spend getting dressed and riding the train.

    Also, we will pretend you’re not looking at your emails in the evening, on weekends, and on family vacations. 

    We definitely won’t count the hours you’re staring at the ceiling fan worried about tomorrow’s challenges at work.

    OK, so you’re working 2,000 hours (plus) per year to make money.

    My question is:

    How many hours per year do you think about what to do with that money?

    Let that sink in for a moment.

    You work a lot of hours. I’m guessing many of those hours are stressful.

    Yes, you get paid money in exchange for those hours.

    But, do you still have any of that money?

    Do you care more about making money or keeping money?

    Think back on how much time, energy, and sacrifice you dedicated to making that money.

    Hopefully, you saved and invested a good portion of that money.

    The problem is that most lawyers and professionals work incredibly hard, make good money, and don’t keep enough of it.

    They somehow find 2,000 or 3,000 hours per year to work.

    But, they won’t set aside even a few hours per month to think about what to do with all that money.

    This is why I am passionate about money wellness.

    Most people spend the vast majority of their lives worried about making money and practically no time at all thinking about what to do with that money.

    No, I’m not suggesting that you need to think about money for 2,000 hours per year.

    What I am suggesting is that even a little bit of time each week spent thinking and talking about money is just as important as the time you spent earning it.

    That’s how you break the cycle of mindlessly riding the train to work and start progressing towards financial freedom.

    It’s not how much money you make. What matters is how much you keep.

    Robert Kiyosaki put it best in Rich Dad Poor Dad, “It’s not how much money you make. It’s how much money you keep.”

    If you knew someone who made $1,000,000 per year, and at the end of the year, had only saved $20,000, what would your reaction be?

    Sadly, this is how most people behave with their money.

    They inherently know that they should be saving more, but they come up with excuses. They assure themselves that they’ll start saving more next year.

    On the other hand, what if you knew someone who made $100,000 per year and saved $40,000?

    Did your reaction change?

    This is the kind of person who will actually achieve financial freedom and have choices in life.

    It all comes down to how much you keep, not how much you make.

    It’s why your personal saving rate is so important.

    Don’t forget, your saving rate is the one thing you can truly control.

    Bambu eco toothbrush in a glass bottle symbolizing the morning rush to get out of the house.
    Photo by Superkitina on Unsplash

    What is a saving rate?

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

    Saving rate = Money Saved / Money Earned

    Just like staying on budget with two simple numbers, you can monitor your progress with this simple formula.

    I find it helpful to measure your saving rate based on your monthly income and savings. This way it matches up with your Budget After Thinking. 

    Tracking your saving rate will help you understand if you are making progress over time. 

    It’s not about comparing yourself to someone else. Whatever your current saving rate is, the goal is to seek personal improvement. 

    Just like with tracking your net worth, the purpose is to see if you are making personal progress over time.

    How can you make progress with your saving rate over time?

    When it comes down to it, there are really only two ways to improve your saving rate.

    1. You can spend less, and save more, of the money you’re currently making.
    2. You can make more money and save most of that money, all while keeping your expenses the same.

    Combining those two ideas is even better: make more money, spend about the same. 

    Use the excess money you make to fuel your Later Money goals.

    If you can do that, your saving rate and your net worth will steadily climb.

    You’ll realize that you’re closer to getting off the train than you think.

    How much money did you keep this week?

    When you get your next paycheck, pay attention to how much of that money you actually keep.

    Once you pay the mortgage/rent, car payment, and credit card bills, is there anything left for you?

    If your saving rate is low, this exercise should make you mad.

    Seeing 95% of your hard-earned money disappear as soon as it comes in should inspire you to make some adjustments.

    Those adjustments may be small at first. Over time, you’ll experience that it feels better to keep money than to spend money.

    Keeping money leads to options.

    Spending money leads back to the train.

    Have you ever observed your fellow commuters in the morning? What are your takeaways?

    Do you have a plan to get off the train, should that be your choice?

    Let us know in the comments below.

  • Are You Making Progress on Your 2025 Money Goals?

    Are You Making Progress on Your 2025 Money Goals?

    As summer turns to fall, it’s the perfect time to revisit the money goals you made at the beginning of the year.

    Summer travel season is over. The kids are back in school. For most people, this is a quieter time of year before the holiday season kicks into high gear.

    Plus, many professionals earn raises and bonuses as we move towards the end of the year. It’s crucial to have a clear idea of what to do with those raises and bonuses ahead of time so that hard-earned money doesn’t disappear.

    But, Matt, I didn’t make any money goals at the beginning of the year.

    That’s OK- you still have three months left this year to accomplish something you’ve been putting off.

    There’s no reason you can’t make a goal today and see how far you can get by New Year’s Eve. Why let these three months go to waste?

    To help you refocus on your money goals, here’s a status update on how I’m doing with my 2025 money goals.

    Let’s start off with some context.

    My goals in 2025 look a lot different than previous years.

    Leading up to 2025, my wife and I were focused on acquiring real estate. We now own five properties and are very happy with our current portfolio.

    We are not looking to add more properties at the moment. To make that decision, I owe a lot of credit to Chad “Coach” Carson and his excellent book, Small and Mighty Real Estate Investor: How to Reach Financial Freedom with Fewer Rental Properties.

    In his book, Coach Carson makes a compelling argument to think about when enough is enough.

    His message was about acquiring more and more real estate, to no end, but also applies to any pursuit in life.

    Reading Small and Mighty Real Estate Investor  helped my wife and I conclude that at this point in our lives, we have enough.

    We self-manage our 10 units in Chicago and work closely with a property manager in Colorado. If we were to continue expanding, the headaches could end up outweighing the financial benefits. 

    We want to build a life full of experiences and memories. That means we need more time, not more money.

    Acquiring and managing more properties right now would take up a lot of time. That tradeoff is not currently worth it to us.

    That’s the main reason why our goals look different this year than they have in the past.

    scissors and two paper clips beside opened spiral notebook which is perfect for revisiting your 2025 money goals.
    Photo by Alexa Williams on Unsplash

    My wife and I came up with 3 money goals earlier 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 is to continuing paying down HELOC debt that we used to help acquire some of our rental properties. Now that we’ve determined that “enough is enough,” we’re focused on paying back these loans.
    2. Build up our emergency savings. Our second goal is 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 is 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. Now, we’re focused on the next kid.

    Why is it so important to have a plan for your money ahead of time?

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

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

    Also, we can rest easy knowing that we’re making progress towards our personal finance goals.

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

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

    If you don’t have a plan in place, it’s going to be very difficult to accomplish your goals.

    How am I doing with my 2025 money goals?

    As I revisit my 2025 money goals, it’s fair to say that I’m happy with our progress but still have a ways to go.

    Here’s a look at my progress so far:

    1. Pay off the HELOC debt.

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

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

    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 savings 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 have been especially 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 Pay Off Debt on a Budget

    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.

    2. Build up our emergency savings.

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

    My challenge is that I’ve been so focused on eliminating my HELOC debt this year that I haven’t been able to address this goal yet.

    I’m still hopeful I’ll have a chance before the year is over.

    My goal is to have four months of living expenses saved up.

    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.

    Admittedly, it will take some time to complete this goal. If I can’t achieve this goal by the end of the year, it will become my top priority for next year.

    man in front of waterfall representing what you can do to accomplish your 2025 money goals.
    Photo by Caleb on Unsplash

    3. Fully fund college for our second kid.

    I recently used an online calculator to figure out how much money I would need to invest right now in my son’s 529 savings account to fully fund his college. We already hit our mark for my first kid.

    I learned that with an investment today of $67,000, I could fully fund my son’s in-state tuition. 

    Of course, the key is to let that money grow for the next 15 years to take advantage of compound interest.

    What an accomplishment that would be to not have to worry about his future college. I could cross that item off the “to-do” list once and for all.

    Then, it would be onto the next kid.

    Because my son is only three years-old, this goal is not as pressing as paying off my debt and fully funding my emergency savings account. Looking back, it was probably overly ambitious to include it as a goal for this year.

    Aim for the stars, land on the moon, right?

    Like my emergency savings account, this will be a top priority for next year.

    Are you making progress on your 2025 money goals?

    Don’t wait until the end of the year to look back on your goals. Take a few minutes today to assess your progress.

    There’s still plenty of time ahead of you to make any necessary adjustments.

    Maybe you’re getting a raise or a bonus soon. Maybe you’re about to earn a big commission.

    Revisit your goals so you have a plan for that money before it hits your checking account.

    How are you doing with your 2025 money goals?

    Let us know in the comments below.

  • Credit Card Tips: Commit to One Big Airline Transfer Partner

    Credit Card Tips: Commit to One Big Airline Transfer Partner

    In the world of premium travel credit cards, you’ll typically get the best redemption value by transferring your points to travel partners.

    My favorite premium travel card is the Chase Sapphire Reserve, which earns Ultimate Rewards points. You can transfer Ultimate Rewards points to certain travel partners, like United.

    Then, you can use those United miles to book airfare directly through United’s website. 

    This is my preferred method for getting maximum value out of my credit card points.

    This is true regardless of the credit card that you have.

    What you’ll notice is that most premium travel credit cards, like the Chase Sapphire Reserve and American Express Platinum card, have a designated set of travel partners.

    If you are in the market for a new premium travel credit card, here’s a credit card tip that sometimes gets overlooked:

    Pay close attention to the travel partners for each card.

    Then, commit to a single airline and prioritize flying with that airline whenever possible.

    Why commit to a single airline? Isn’t it better to have options?

    Not necessarily.

    For most of us, we are better off committing to a single airline (and hotel brand) to maximize rewards.

    Today, we’ll discuss some of the main reasons why you may want to commit to a single airline and base your credit card choice on that airline.

    To begin, let’s look at the travel partners for the two most popular premium travel cards, the Sapphire Reserve and American Express Platinum.

    Sapphire Reserve travel partners include United and Hyatt.

    Here is a list of the Sapphire Reserve travel partners:

    • Airlines:
      • AerClub, loyalty program of Aer Lingus
      • The British Airways Club
      • Emirates Skywards
      • Air France KLM – Flying Blue 
      • Club Iberia Plus
      • JetBlue TrueBlue 
      • Singapore Airlines KrisFlyer 
      • Southwest Airlines Rapid Rewards 
      • United MileagePlus
      • Virgin Atlantic Flying Club 
      • Air Canada Aeroplan
    • Hotels:
      • IHG One Rewards
      • Marriott Bonvoy
      • World of Hyatt

    The bottom line: if you prefer to fly United or stay at Hyatt hotels, as I do, the Sapphire Reserve is the card for you.

    American Express Platinum travel partners include Delta and Hilton.

    For comparison, here is a list of the American Express Platinum card’s travel partners:

    • Airlines:
      • British Airways Club
      • Cathay
      • Delta Sky Miles
      • Emirates Skyward
      • Etihad Guest
      • Flying Blue
      • Iberia Club
      • Qantas Frequent Flyer
      • Qatar Airways Privilege Club
      • SAS EuroBonus
      • Singapore KrisFlyer
      • Virgin Atlantic Flying Club
    • Hotels:
      • Hilton Honors
      • Marriot Bonvoy
      • Radisson Rewards

    If you prefer to fly Delta or stay at Hilton hotels, the American Express Platinum is a better card for you.

    Pay close attention to who the travel partners are.

    In my opinion, what matters most is who a credit card’s travel partners are, not the number of travel partners.

    In this context, it’s helpful to think of credit card travel partners in terms of “quality over quantity.”

    Why quality over quantity?

    As you can see, there is some overlap in transfer partners when it comes to foreign airlines. Both programs also allow transfer to Marriot Bonvoy.

    The thing is: I have my doubts that the average flyer will receive much benefit from these foreign airline transfer options.

    For starters, the major airlines like United and Delta have alliances with the major foreign carriers. You can easily book international flights through the big US airlines.

    Besides that, it takes a lot of effort to research and become an expert in maximizing transfers to these foreign carriers.

    Yes, it’s possible. But, is it worth it for the average traveler?

    I don’t think it is.

    Of course, I can say that based on personal experience.

    Airplane aisle during flight representing that you should pick one airline that partners well with your credit card.
    Photo by Suhyeon Choi on Unsplash

    For a time in my life, I did put the effort in to become an expert in point transfers.

    I used to exert significant effort to maximize point transfers.

    However, those days are over.

    My favorite strategy was to transfer my Chase Ultimate Reward points to British Airways so I could then book domestic flights on American Airlines metal.

    It worked well for flights to Florida and Colorado because the British Airways redemption chart at the time was based on distance flown instead of the actual cost of the ticket.

    Confusing, huh?

    It took time and effort, but the tradeoff was worth it at that point in my life. However, the program changed and this particular advantage went away.

    If you’re interested in playing the points game, there are endless websites dedicated to these kinds of strategies. Just know that it takes effort and time.

    What I’ve come to realize is that most of us don’t have the time or energy to become credit card transfer experts.

    That’s why I recommend you focus on the quality of the transfer partners instead of the quantity.

    On top of that, I recommend you focus on one airline.

    Select one airline to be your primary option.

    When you look at the above lists, you’ll notice that each credit card is partnered with a major US domestic airline.

    The Sapphire Reserve partners with United (and Southwest, if that’s your preference).

    The American Express Platinum partners with Delta.

    My recommendation is that you commit to one of these major airlines and then choose the credit card that matches that airline.

    How can you select the right airline for your situation?

    If you live near a United hub, go with the Sapphire Reserve.

    If you live near a Delta hub, go with the American Express Platinum.

    I live in Chicago, which is a major United hub. It’s an easy choice for me to prioritize United.

    a view of the wing of an airplane through a window indicating that you should select one airline that matches your credit card travel partners.
    Photo by Patrick Konior on Unsplash

    The advantages of committing to a single airline include more free flights and status.

    When you commit to a single airline, you have a couple of main advantages when it comes to rewards.

    1. You’ll earn free flights faster.

    The first advantage is that you’ll earn free flights faster.

    That’s because you earn miles whenever you buy a ticket and fly with that airline. The more you spend, the more miles you’ll earn.

    This is like supercharging your credit card points balance.

    For example, if you buy a $500 plane ticket on United with the Sapphire Reserve, you’ll earn 2,000 points (4 points per dollar spent on travel).

    For that same ticket, you’ll also earn 2,500 United miles (5 miles per dollar spent). If you have status with United, you’ll earn even more. More on that below.

    Assuming you transfer your Sapphire Reserve points to United, that’s a total of 4,500 miles earned on this one purchase.

    If you stay committed to United and repeat this same process for even a few flights, you’ll have enough points and miles to trade in for a free plane ticket.

    On the other hand, if you bought tickets on multiple airlines, the odds are you won’t have enough points and miles on any single airline to get yourself a free ticket.

    You may end up with an equivalent amount of points and miles, but they’ll be too spread out over different carries to be of use.

    This is one of the main reasons why I prefer to stay loyal to a single airline. I can more quickly earn free flights by focusing on a single rewards program.

    2. You have a better chance of earning status.

    The second big advantage of choosing one airline is that you have a better chance of earning status.

    With status, you’ll benefit from earning more miles, better boarding groups, free checked bags, better seat assignments, and a chance at free upgrades.

    For today’s conversation, let’s focus on the part about earning more miles.

    When you earn status on United, you earn bonus miles for every dollar you spend. The bonuses range from 2 to 6 miles per dollar spent depending on your status level.

    Even the lowest bonus level of 2 miles per dollar is the equivalent of 40% more miles earned. Using our example above, you would earn 3,500 United miles on a $500 ticket purchase (up from 2,500).

    If you bounce from airline to airline, you’ll have a hard time earning status.

    You may not care about free bags or upgrades, but you will be sacrificing miles and eventual free flights if you bounce around.

    If you don’t already have it, now is a great time to consider the Sapphire Reserve.

    Chase is currently offering a sign-up bonus of 125,000 points for the Sapphire Reserve, the largest bonus ever offered. 

    That translates to $2,562.50 in value, according to The Points Guy.

    I recently wrote about why I’m keeping the Sapphire Reserve in my wallet, even with the higher annual fee:

    Is the New Chase Sapphire Reserve Worth the Annual Fee?

    The bottom line is that I will still earn a ton of points each year, not to mention the other benefits, that the Sapphire Reserve will remain the primary card in my wallet. 

    Check out my post to learn how I evaluate credit cards and how I came to the no-doubt conclusion that the Sapphire Reserve is still worth it for me.

    Is there value in keeping both your Sapphire Reserve accounts open?

    After I wrote that post, a number of readers (with spouses, partners, kids, etc.) reached out asking if there is value in keeping separate Sapphire Reserve accounts. 

    It was such a good question that I wrote a full post addressing it:

    Is There Value in Keeping Both of Our Sapphire Reserves?

    The short answer is that my wife and I each had Sapphire Reserve cards before we got married. We eventually closed one of the accounts and kept the other one open. 

    Today, we still each have a physical Sapphire Reserve card through the “authorized user” option on just the one account.

    Keeping just one account between the two of us saves a bit of money, but more importantly, keeps things much easier for us.

    As I mentioned, I value simplicity right now.

    I recommend most couples with two accounts do the same.

    Nonetheless, there may be valid reasons why you would want to keep both accounts open.

    For my complete thoughts, and the reasons why you might want to keep both Sapphire Reserve accounts open, check out my post here.

    Keep it simple by selecting one airline that lines up with your credit card.

    There’s no need to overcomplicate premium travel rewards credit cards for the average lawyer or professional.

    Pick your favorite airline. It’s probably the one with a hub nearby.

    Then, pick the credit card that lines up with that airline.

    Fly with your preferred airline whenever possible. Use your credit card to buy the flight and earn points.

    I live in Chicagoland, so it’s an easy choice to fly United and use my Sapphire Reserve.

    What is your preferred airline?

    Does it line up with your current travel credit card?

    Let us know in the comments below.

  • Refinance Now or Wait for Mortgage Rates to Drop?

    Refinance Now or Wait for Mortgage Rates to Drop?

    The big news this week was that the Federal Reserve cut rates for the first time in 2025.

    Naturally, those of us who bought homes in the past couple of years are starting to think about refinancing.

    In case you missed it, here’s a key takeaway from the announcement, as reported by CNBC:

    The Federal Reserve on Wednesday approved a widely anticipated rate cut and signaled that two more are on the way before the end of the year as concerns intensified over the U.S. labor market even as inflation is still in the air.

    With the rate cute, the important question people are asking is: should I refinance my mortgage now or wait for rates to drop even lower?

    Today, I’ll share exactly what I’m doing with my mortgage.

    First, let’s discuss one common point of confusion.

    The federal funds rate is not the same thing as mortgage rates.

    When we see news like we did this week that the Fed is cutting rates, many of us think that means mortgage rates automatically drop.

    Nope.

    The federal funds rate is not the same thing as a mortgage interest rate. That said, mortgage rates are indirectly tied to the federal funds rate.

    No need to overcomplicate things. The typical homeowner (and I include myself in this category) does not need to fully understand how mortgage rates and the federal funds rate relate to each other.

    Instead, the typical homeowner just needs to know that when the Fed cuts rates, mortgage rates also tend to drop, but not always.

    For those curious, here’s a quick synopsis from Bankrate:

    The U.S. Federal Reserve sets borrowing costs for shorter-term loans by changing its federal funds rate. This rate dictates how much banks pay each other in interest to borrow funds from their reserves, kept at the Fed on an overnight basis.

    While this rate isn’t the same as the rate you’ll pay for your mortgage, they are related. As the cost for banks to borrow increases or decreases, the cost for you to borrow tends to follow suit.

    And when the Fed doesn’t change the federal funds rate, it generally encourages lenders to maintain mortgage rates in the current range.

    The takeaway is that when the Fed cuts rates, it’s likely that mortgage rates will also drop.

    But, there’s one more piece to the story.

    Mortgage rates often drop before the Fed actually cuts rates.

    It may sound backwards, but mortgage rates usually factor in pending rate cuts before the Fed actually announces its decisions.

    To that point, look at how mortgage rates were already dropping over the past month in advance of this week’s announcement:

    The Federal Reserve’s rate cut this week is rippling through the housing market, sending mortgage rates lower and spurring a jump in refinancing.

    The 30-year fixed mortgage rate averaged 6.26% for the week ending September 18, down from 6.35% last week, according to data released Thursday by Freddie Mac.

    This is the fourth-straight week of declines as mortgage rates fell in anticipation of the Fed’s quarter-point rate cut on Wednesday.

    As you can see, mortgage rates were already declining for weeks in anticipation of the Fed’s rate cut.

    The point is that it’s not always clear when the right time to refinance is. It’s not as simple as saying “the Fed cut rates, so now I’ll refinance.”

    To help you make a good decision, I’ll walk you through my current thought process when it comes to refinancing.

    First, here is some context about my personal situation.

    person using MacBook reflecting whether now is the right time to refinance with rates dropping.
    Photo by Austin Distel on Unsplash

    I bought my home in early 2024 when rates were high.

    When I bought my home in early 2024, we took out a 30-year fixed-rate mortgage at 6.875%. At the time, we were very pleased with a rate under 7%.

    In the back of my mind, I hoped I would have a chance to refinance in the next few years. But, I didn’t hinge my decision based on whether I could eventually refinance or not.

    I’ve long been an advocate for buying a house when the time is right in your life, regardless of mortgage rates.

    My wife and I decided early last year that the time was right to buy our “forever home.”

    I was about to turn 40. We had two kids and were thinking about a third. It felt like we had started to outgrow our small apartment in the city.

    Of course, we enjoyed the short commute downtown. We liked walking to stores, restaurants and coffee shops. But, those opportunities to enjoy the city were harder to come by with two young kids at home.

    Plus, my daughter was one school year away from starting kindergarten. We thought it would be nice if she made some friends in the neighborhood before kindergarten started.

    Add it all up and the time was right for us.

    Besides these personal factors, I had a suspicion that home prices were only going up.

    For years, buyers in the Chicagoland area have struggled with a limited supply of quality homes. I had been watching the market and observed that the good houses went under contract quickly.

    I had no way of knowing for sure that prices would continue to rise, but time has proven that we were right to buy when we did.

    Since early last year, prices have only gone up in Chicagoland, despite elevated mortgage rates.

    That’s why my advice is to buy a home when you’ve decided it’s the right moment in your life to do so. Make that decision regardless of what current mortgage rates are.

    In other words, ignore mortgage interest rates.

    Here’s why.

    Why do I recommend you ignore mortgage rates when buying a home?

    There are really only three things that can happen to mortgage rates over time.

    Mortgage rates can:

    1. Stay the same.
    2. Go up.
    3. Go down.

    In any of those three scenarios, there’s no point in basing your decision to buy a home only on the current rates.

    Let me explain. 

    Let’s say you have a crystal ball and can look three years into the future. Looking into your crystal ball, let’s play out each of the three scenarios mentioned above.

    1. Your crystal ball shows you that mortgage rates stayed relatively consistent. 

    Since rates stayed the same, there would be no point in waiting to buy a home because of rates. The rates three years from now are the same as they are today. 

    By waiting, you’re likely going to experience that homes have gotten more expensive. The longer you wait, the more expensive they are going to be.

    This is exactly what has happened in Chicagoland where home prices are up more than 9% since just last year.

    On top of the recent trends, the historical data confirms that homes have become more expensive. In 2024, U.S. homebuyers paid nearly double what they paid for homes in 1965, accounting for inflation.

    So, even if rates stay the same, prices are likely to go up the longer you wait. In this context, you shouldn’t sit around waiting for them to drop. 

    2. Your crystal ball shows you that mortgage rates went up.

    If rates go up, it’s easy to conclude that it’s a mistake to delay your home buying decision. Higher rates, combined with higher prices, is… not good.

    Let’s move on to the third scenario, which is the scenario people sitting on the sidelines are usually waiting for.

    3. Your crystal ball shows you that mortgage rates went down.

    This is the scenario that many people are waiting for. When rates go down, you can afford a more expensive home. That’s a good thing, right?

    Not so fast. 

    Do you think you’re the only person sitting around waiting for rates to drop? For the same reasons that you’re waiting, many other people are also waiting.

    So, what happens when lots of people are waiting to buy the same thing?

    Demand goes up. When demand goes up, you have more competition to buy that same house. That means prices go up.

    You’ll end up paying more money for the house, even with a lower interest rate.

    Take it from me, bidding wars are not fun. I would much prefer to get the house I want without the added competition. 

    If mortgage rates end up dropping later on, you can always refinance (the topic of today’s discussion).

    You may pay more on a monthly basis in the short term, but long term, you have the house you want at the best available current rate.

    So, there you have it. No matter what happens to rates, in my opinion, you’re best off shopping for a home when the time is right in your life. 

    And, this leads us back to our question of the day: is now the right time to refinance?

    closeup photo of street go and stop signage displaying wait reflecting whether now is the right time to refinance with rates dropping.
    Photo by Kai Pilger on Unsplash

    Should I refinance now or wait for mortgage rates to drop?

    We would need to dust off our crystal ball again to know exactly when the time is right to refinance. Just like everyone else, I cannot predict if mortgage rates will continue to drop.

    Rates have already been dropping for the past month in anticipation of the Fed cutting rates this week.

    Plus, in the announcement, the Fed signaled two more rate cuts this year. That means rates may continue to drop.

    Of course, there’s no guarantee the Fed will cut rates. Economic factors can always lead the Fed to change course. And, further rate cuts do not guarantee that mortgage rates will continue to simultaneously drop.

    So, am I personally going to refinance right now?

    For now, I’m holding off on refinancing.

    My guess- and it’s only a guess- is that mortgage rates will continue to drop. In my current financial situation, I’m OK with taking that risk.

    My current rate is 6.875%.

    As a general rule, I wait to refinance until I can qualify for a rate at least 1% lower than my current rate. For this decision, I’m waiting until rates drop into the “5s.”

    Besides the monthly cost savings, which could be substantial, I am excited for the potential emotional high of dropping my rates into the “5s.”

    By the way, this is the emotional side of money that has nothing to with the numbers. It will just feel good to be under 6% for the next 30 years.

    How will I know when I can qualify for a rate under 6%?

    This is why you need to have a great mortgage broker on your real estate team.

    I don’t have the qualifications or the time to closely monitor the mortgage rate market. By keeping in touch with my mortgage broker, he’ll know exactly where my head’s at.

    Then, he can keep an eye on things for me and let me know when the rate I’m personally eligible for drops below 6%.

    Never underestimate the importance of having a great mortgage on your side. The right broker can save you thousands and thousands of dollars over the long run.

    If you need help evaluating mortgage brokers, check out my post:

    How to Evaluate a Great Mortgage Broker for your RE Team

    Is there risk involved with waiting for rates to drop?

    Is there risk in waiting?

    Absolutely!

    Rates may not drop any further. They could even start to go back up.

    I’m willing to take that chance right now.

    I can comfortably afford my current housing expense, so I’m not desperate for the cost savings that might result from a refinance.

    Plus, there are costs involved with refinancing.

    Just like when you initially buy a home, there are closing costs associated with refinancing. Those costs can eat away at any savings generated by refinancing if your new rate is not low enough.

    There are also time costs involved in refinancing. If you haven’t had the pleasure, it’s not a whole lot of fun to track down and provide all of the required documents to the underwriters.

    At this point, those costs are too high for me to justify refinancing. That’s why I usually target a 1% drop in rates, which should be enough to make the cost and effort worth it.

    Are you refinancing now or waiting?

    Now you know exactly how I’m thinking through the decision on whether to refinance.

    I’d like to see a 1% drop before I commit to a refinance. That will save me enough money each month to make it worth it.

    It will also give me the emotional high of dropping into the “5s” for the next 30 years.

    On the other hand, if rates don’t drop, I’m comfortable with my current situation.

    Without a crystal ball, I feel good about this thought process.

    Are you currently thinking about refinancing?

    What factors are you weighing?

    Let us know in the comments below.