Author: Matthew Adair

  • Your Saving Rate is the One Thing You Can Truly Control

    Your Saving Rate is the One Thing You Can Truly Control

    On your journey to financial freedom, there is only so much you can control.

    The reality is, like most things in life, much of our financial journey is out of our hands.

    If your gut reaction is that I’m wrong about that, that’s OK. I get it. I used to be in denial, too.

    Really smart people, like Think and Talk Money readers, don’t want to acknowledge that they aren’t in complete control of their financial lives.

    To illustrate my point, here are just a few things that you can’t control on your way to financial freedom:

    1. You can’t control the returns you’re going to get in the stock market. It’s reasonable to project 10% average annual returns based on historical performance. Also, we use 10% merely as a projection for planning purposes. But, there’s no guarantee anybody will earn 10% per year.
    2. You can’t control whether a real estate investment appreciates. We all certainly hope our properties increase in value over time. We do our best to target areas where appreciation is likely. But, once again, there’s no guarantee.
    3. You can’t control if your employer is going to give you a raise. Of course, you can work hard. Also, you can outperform all the metrics. You can go above and beyond to deliver massive value to your company. However, when it’s time for your annual salary review, it’s not up to you how much all that is worth.

    So, am I wrong about any of that?

    Gee, thanks for the doom and gloom, Matt.

    I know, I know. Not what you want to hear.

    Don’t be discouraged. All is not lost.

    There is one crucial element that you can control on your way to financial freedom.

    Today, we’ll focus on the one crucial element that you actually can control on your way to financial freedom.

    It’s such an important concept that Mr. Money Mustache’s blog post from years ago is still a classic: The Shockingly Simple Math Behind Early Retirement.

    Even more so, it’s such a powerful concept that you won’t find a personal finance blog, book or podcast that doesn’t emphasize its importance.

    What is the secret?

    What is the one thing you can control above all else?

    The one thing you can truly control is your saving rate.

    If you ignore every piece of investment advice out there and focus on your saving rate, you are going to be in great shape.

    Let’s examine why.

    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. 

    I also find it most useful to express your saving rate as a percentage. To see your saving rate percentage, all you need to do is multiply your saving rate by 100.

    Saving rate % = (Money Saved / Money Earned) x 100

    Moving forward, when I refer to saving rate, I will be talking about your saving rate percentage. It’s more informative to see what percentage of your money you are saving, rather than an amount with no context.

    What I mean is this: if someone asked me if saving $10,000 per year was a good target, I wouldn’t be able to comment with more context. 

    If that person was making $75,000 per year, I would say that seems OK. That’s a saving rate of more than 13%.

    On the other hand, if someone told me they were making $750,000 per year, and only saving $10,000, I would recommend that person revisit their Budget After Thinking.

    That’s a saving rate percentage of only 1.3%.

    That’s… bad.

    Flying back from Half Moon Bay, California to San Jose I captured this moment as we were descending over the Silicon Valley representing what we can control in life like our saving rate.
    Photo by Chris Leipelt on Unsplash

    What can I learn from tracking my saving rate?

    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.

    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. Like we just said, 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 experience that your Later Money goals are closer to becoming reality than you think.

    Why it’s important to focus what you can control, like your saving rate.

    My point here is show you how dramatically one decision can accelerate your progress towards your goals.

    Each additional amount saved is one step closer to financial freedom.

    Sometimes, we all need to ask ourselves:

    “Is spending more money right now on things I don’t really care about going to make me happier?”

    “Do I even want to go out to more restaurants? Or fancier restaurants?”

    “Do I despise my home/my car/my wardrobe so much that I must replace it immediately?”

    Only you can answer these questions. 

    Maybe you’ll realize that your life is pretty good right now as it is.

    You might just decide that you don’t need the extra money at this moment. 

    You’d rather use the money as fuel for what you really want in life.

    Here’s an example showing the importance of your saving rate.

    Scott Trench, author of one of my favorite money wellness books, Set for Life, is a big advocate of improving your saving rate.

    In a recent episode of his BiggerPockets Money podcast, Trench emphasized just how important your saving rate is using a simple example.

    Let’s use that example to explore how improving your saving rate can accelerate your journey to financial freedom.

    Assume that you earn $100,000 per year (after taxes for simplicity).

    You are a pretty good saver and save 20% of your income, or $20,000. For most people, targeting a saving rate of 20% is pretty solid.

    Of course, if you save 20% of your income, that means you spend 80% of your income, or $80,000 per year:

    • Take Home Pay: $100,000
    • Annual Spending: $80,000
    • Annual Savings: $20,000

    Based on the above, we can project how long you will have to work to fund one year of your life.

    Because you spend $80,000 per year and you save $20,000 per year, you would have to work four years to save enough money to fund one year of your lifestyle:

    $20,000 saved x 4 years = $80,000 saved (1 year of spending)

    In other words, you would need to work four years to buy one year of financial freedom.

    Not bad, huh?

    But, look what happens when you improve your saving rate.

    a woman sitting a desk with a a laptop computer representing what we can control in life like our saving rate.
    Photo by Alexandr Podvalny on Unsplash

    What happens if you double your saving rate from 20% to 40%?

    Now, let’s see what happens if you double your saving rate to 40%. That means you are saving $40,000 per year and only spending $60,000 per year.

    The result is that you now only need 1.5 years of work to fund one year of financial freedom:

    $40,000 saved x 1.5 years = $60,000 saved (1 year of spending)

    Notice that two things are happening at the same time when you increase your saving rate.

    First, you are saving more money each year. That’s a good thing.

    Second, you are spending less money each year. That’s another good thing.

    The result is that when you spend less money, you need to accumulate less money to fund your lifestyle.

    It’s a double whammy. In a good way.

    Should we complete our example by taking it one step further?

    Let’s say you have a 50% saving rate. That means you save $50,000 per year and spend $50,000 per year.

    How long do you have to work to buy one year of financial freedom?

    Only one year.

    $50,000 saved x 1 year = $50,000 saved (1 year of spending).

    Now, that’s cool.

    It’s motivating to think of your saving rate in terms of years to financial freedom.

    So, what’s the takeaway here?

    It can be extremely motivating to think of your saving rate in terms of how long you have to work until financial freedom.

    Each incremental amount that you save means you’re boosting your savings at the same time you’re reducing your spending.

    When you pull both of those levers at the same time, you accelerate your progress towards financial freedom.

    This thought process is especially helpful for people who feel that math is not their thing. It doesn’t get much simpler than viewing savings in terms of buying financial freedom.

    The cool part is that once you hit a 50% saving rate, you can essentially buy a year of financial freedom for every year that year work.

    Keep in mind that that this simple illustration ignores any investment returns you may get from your savings.

    Don’t worry, those investment returns will generally reduce the length of time you need to work even more. Check out Mr. Money Mustache’s post for more on that point.

    Setting aside investment returns, the purpose here is to drive home the point that the more you save, the faster you’ll reach financial freedom.

    That’s why it’s so important to focus on your saving rate. You can’t control everything, but you can certainly work on your saving and spending.

    Have you ever calculated your saving rate in terms of how quickly you can achieve financial freedom?

    Does this example motivate you to save even more?

    Let us know in the comments below.

  • How to Use the Sapphire Reserve for Free Flights

    How to Use the Sapphire Reserve for Free Flights

    One of my biggest financial challenges when I was in debt in my twenties was how to pay for travel.

    My thought process could be summed up as “do fun things now, worry about it later.”

    I did have some great trips, like going to Madrid and Rome with my brothers. I certainly don’t regret taking those trips.

    In hindsight, I would just pay for things a bit differently.

    Instead of recklessly paying for the trips with credit cards, I would have learned how to responsibly use credit card reward points.

    That’s what I do today, even though I’m in a much stronger financial position than I was 10-15 years ago.

    For some context, my family of five has settled into a predictable travel pattern for the past five years or so.

    We aim to take annual trips to Florida (escape the Chicago winter), Colorado (all the fun things) and California (visit my sister).

    Planning these trips well in advance gives me the advantage of strategizing how to pay for them, especially the expensive flights.

    The thing is: I can’t remember the last time I paid for any of these flights with cash.

    Instead, I use my Chase Sapphire Reserve points.

    @thinkandtalkmoney

    Sapphire Reserve Appreciation Post! #thinkandtalkmoney #chase #chasesapphirereserve #chasefreedomunlimited #unitedairlines

    ♬ original sound – Thinkandtalkmoney

    Why I’m happy I learned how to responsibly use my Sapphire Reserve points.

    Redeeming credit card points for travel has been a major factor in allowing me to stay on budget and continue fueling my investments.

    Have you heard?

    It’s expensive to take a family on vacation.

    But, I’m of the mindset that it’s also extremely important and a whole lot of fun.

    So, instead of skipping out on travel, I use my credit card points to offset the cost.

    Airplane tickets these days can be around $500 per person. By using my credit card points, I easily save $10,000 per year on flights.

    Over the past five years, that totals $50,000. That’s enough money to fully fund my son’s future college tuition in his 529 savings plan.

    To get all these points, you may be thinking that I must have 10 credit cards and constantly stress about which one to use for every purchase.

    Nope.

    I have just two credit cards.

    Here’s how I do it.

    Never spend money on your credit cards just to earn more points.

    With all credit cards, the more you spend, the more you earn. That’s true whether you are accumulating points or utilizing shopping or travel credits and other discounts.

    Before we go any further, please remember the first rule of responsible credit card usage: 

    Don’t spend money just to earn rewards. That’s a recipe for financial disaster.

    Using the Sapphire Reserve to get free flights is no exception to this rule.

    white ceramic cup with credit card and coffee pot indicating how I earn free flights using my sapphire reserve.
    Photo by Nathan Dumlao on Unsplash

    To read more about the responsible use of credit cards, check out my series on credit here.

    A good place to start is my post on 10 credit card tips for lawyers and professionals.

    If you’re currently working hard to pay off credit card debt, you can also check out my top 10 tips for paying off debt on a budget.

    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.

    I have two credit cards in my wallet: the Sapphire Reserve and the Freedom Unlimited.

    At this stage in my financial life, I value simplicity as much as anything else.

    That’s why I only use two credit cards.

    I use the Sapphire Reserve for travel (4 points per dollar spent on airlines and hotels) and dining (3 points per dollar). 

    Then, I use the Freedom Unlimited for everything else.

    The Freedom Unlimited earns 1.5 points across the board for every purchase. In contrast, the Sapphire Reserve only earns 1 point per dollar spent in non-bonus categories.

    Same as me, my wife only carries the Sapphire Reserve and Freedom Unlimited. That means we can combine points to maximize our rewards. 

    Together, we have a simple approach and still earn plenty of points.

    Now, let’s talk about whey the Sapphire Reserve and the Freedom Unlimited are the perfect combination for your wallet.

    Why it’s a great strategy to have the Freedom Unlimited and the Sapphire Reserve.

    If you have the Sapphire Reserve, the Freedom Unlimited is the natural companion for your wallet. These two cards work extremely well together to maximize travel rewards.

    Here’s why.

    As mentioned above, the Freedom Unlimited earns 1.5 points across the board for every purchase. For that reason, this is my default card for just about all spending other than travel and dining.

    But, there’s a catch.

    If you only have the Freedom Unlimited, the points you earn must be redeemed as cash back or through the Chase travel/shopping portals.

    As a rule of thumb, cash back rewards like this are not as valuable as transferring your points to a travel partner.

    Let’s emphasize that point for a moment: the best use of your credit cards points is almost always to transfer those points to a travel partner.

    This is true for Chase, American Express and any other credit card that offers point transfers.

    But, we just said that you cannot transfer your Freedom Unlimited points to travel partners.

    That’s where the Sapphire Reserve comes in.

    empty airplane with video screens on the back of the seat showing how to pay for free flights with your Chase sapphire reserve and freedom unlimited credit cards.
    Photo by Alexander Schimmeck on Unsplash

    You can combine your Freedom Unlimited points with your Sapphire Reserve points.

    If you have the Freedom Unlimited and the Sapphire Reserve, you can combine your points.

    This is the key to the whole strategy.

    With the Sapphire Reserve, you earn Ultimate Rewards points. You can transfer Ultimate Rewards points to certain travel partners, like United. Each point translates into one United mile.

    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.

    To recap the strategy:

    1. Use your Freedom Unlimited for all spending other than travel and dining.
    2. Combine your Freedom Unlimited points with your Sapphire Reserve Ultimate Reward points.
    3. Transfer your Sapphire Reserve points to a travel partner of your choosing, like United.

    And, that’s all there is to it.

    One final note: Make sure to send your Freedom Unlimited points to your Sapphire Reserve account, and not the other way around.

    As soon as I have enough Sapphire Reserve points, I transfer them to United and book a flight.

    I’ve found that the best use of my points is to transfer them to United for free flights. There are other options for travel partners, but with flights being so expensive, this is the best use for me.

    To take it a step further, my personal strategy is to purchase flights as soon as I have enough points.

    That’s because points tend to be worth less as time goes on.

    For example, a roundtrip ticket that costs you 30,000 points today might cost you 35,000 points the next time you look. You can think of it the same way you think of inflation reducing the purchasing power of your cash.

    Just last week I transferred my Sapphire Reserve points to my United account to purchase flights to visit my sister in California.

    Once I build up my point balance again, I’ll look to book another flight.

    My brother-in-law is getting married in Arizona next year. I’ll probably book those flights next.

    Do you use your Sapphire Reserve points for free flights?

    Now you know exactly how I use my Sapphire Reserve, combined with my Freedom Unlimited, to get free flights.

    With just these two credit cards, I’ve been able to pay for all of my family’s flights for the past five years.

    It takes a little bit of effort to maximize your credit card rewards, but the payoff can be well worth it.

    With the money I save on travel every year, I have a better chance of staying on budget and hitting my investment goals.

    That’s a win-win situation.

    Do you have the Sapphire Reserve? What about the Freedom Unlimited?

    How do you use your points?

    What are your favorite redemption options?

    Let us know in the comments below.

  • Should You Invest in Chicago Real Estate Right Now?

    Should You Invest in Chicago Real Estate Right Now?

    Anyone who knows me knows that I love Chicago.

    I was born in Chicago, lived most of my life in the city, and have never lived more than 35 miles outside the city.

    I love Italian beef.

    Of course, I love the Cubs.

    I even love O’Hare Airport because I can use my Chase Sapphire Reserve points for free flights anywhere in the world.

    Why am I talking about my love for Chicago?

    Because I regularly get questions like this from newbie real estate investors:

    “What markets are the best markets to invest in right now?”

    Or:

    “Should I invest in Chicago rental properties?”

    I’ll never tell you what you should or shouldn’t do. We all need to do our homework and take responsibility for our choices.

    But, I can give you some insight as to why I invest in Chicago.

    Whether you have any interest in Chicago or not, you should get some ideas on how to evaluate markets for yourself.

    Let’s get to it.

    What real estate markets are the best markets to invest in right now?

    This question comes up a lot when people start thinking about investing in real estate.

    The thing is: there’s no right answer.

    You might talk to 10 different investors with 10 different ideas on the best markets. No two investors evaluate a market (let alone a specific property) in exactly the same way.

    Some investors rely heavily on analytics. Even amongst these investors, you’ll get a difference in opinions. One investor may prefer quickly appreciating markets. Another investor may target cash flow.

    I like investing in Chicago because it’s a strong cash flow market. Cash flow is king, after all.

    Other investors prefer to trust the “feel” of a neighborhood over data. These investors typically invest locally and have an intimate knowledge of each block in the area.

    Through life experience, they have a good sense for what properties in their area will perform well.

    Personally, I combine both approaches. I look to local data and trust my common sense and life experiences.

    One of the reasons I prefer to invest in my local market of Chicago is because I’ve lived here my whole life.

    Not only that, I lived for years in the primary neighborhood I invest in.

    I know where the best restaurants and coffee shops are. I’ve experienced what the commute is like. There’s not a park or a playground that you could name that I haven’t been to with my kids.

    I keep tabs on developments and improvements in the area. I talk to friends and other local investors.

    Plus, I try to be a good steward for the buildings I own. They were built long before me and will be here long after I’m gone.

    Because I am personally connected to the neighborhood, I feel a certain pride and responsibility to do my part.

    Add it all up and I believe that I have a hometown advantage over outsiders who look at data but don’t know the neighborhoods and the tenant pool like I do.

    chicago river with buildings indicating the town that I want to buy real estate in.
    Photo by Aveedibya Dey on Unsplash

    The funny thing is most national investors want nothing to do with Chicago.

    If you read enough blogs or listen to real estate podcasts like I do, national investors have tended to shy away from the Chicagoland area.

    There has been a preference to invest in faster appreciating metros, like in the sun belt area.

    By the way, I’m totally cool with national investors targeting other parts of the country. That leaves more opportunities for me.

    Before you blindly follow what “everyone else” is doing, I encourage you to do your own research and trust your own instincts.

    Here’s an example to illustrate what I’m getting at.

    If I asked you what housing markets currently have the fastest selling homes, what would you guess?

    Phoenix?

    Charlotte?

    Tampa?

    Dallas?

    Nope.

    Milwaukee is first.

    Chicago is second.

    Be honest, did Milwaukee jump to your mind? What about Chicago?

    My guess is you ignored the Midwest entirely.

    If that was your initial thought, you might be surprised to learn that the Midwest has 12 of the fastest selling metros in the country.

    On top of that, 6 of the 12 fastest selling metros are in the Midwest.

    Here’s a breakdown from a recent report from Realtor.com on the fastest selling metros:

    Even as the national housing market slowed to a crawl in August, a handful of metros, half in the Midwest, defied the trend with the fastest-selling homes in the U.S.

    The typical U.S. home waited for a buyer for 60 days, a full week longer compared with a year ago, according to the August 2025 Housing Market Trends report from Realtor.com®. 

    Yet in Milwaukee the median for-sale property remained unsold for just 32 days—roughly half the national days-on-market figure for August, making it the fastest-selling metro among the top 50.

    Notably, of the 12 metros with the lowest median days on market (below 40), six were located in the Midwest, three in the Northeast, and three in the South.

    As an investor in, and resident of, the Chicagoland area, it did not surprise me that Chicago is the second fastest selling market.

    Anecdotally, I have plenty of friends and family currently looking for homes. There is very little inventory and high demand.

    That means quality homes sell quickly and for a premium.

    If you’re not overpaying, you’re not playing.

    I don’t need studies like this to convince me that the Chicago market is hot.

    That’s not good news if you’re a new investor trying to break into Chicago.

    However, if you already own property in Chicago and are ready to sell, you should be able to make a hefty profit.

    How about another recent study highlighting why investing in Chicago may not be a bad idea?

    In another recent report from GOBankingRates, Chicagoland dominated a list of the top 50 “safest, wealthiest” places to live in the country.

    A Chicago suburb was the number one city on the list. Also, Chicagoland claimed 12 of the top 50 suburbs in the country. That’s just about 25% of the top spots on the entire list.

    In total, 7 of the top 10 suburbs were located in the Midwest:

    1. Western Springs, Illinois
    2. Lexington, Massachusetts
    3. Winchester, Massachusetts
    4. Whitefish Bay, Wisconsin
    5. Huntington Woods, Michigan
    6. Ottawa Hills, Ohio
    7. Winnetka, Illinois
    8. Kenilworth, Illinois
    9. University Park, Maryland
    10. Upper Arlington, Ohio
    Down The Street in chicago the place that I love and where I invest in real estate.
    Photo by Chris Dickens on Unsplash

    So, what’s the point?

    When I see data like this, it gives me confidence in my investments in the Chicagoland area.

    Having 12 of the top 50 “richest and safest” suburbs in the entire country nearby reassures me that Chicago is still a major economic hub. That means lots of good paying jobs and economic diversity in the area.

    That, in turn, leads to a deep tenant pool of young professionals who want a part of the action. These young professionals want to rent apartments in trendy areas, such as I where I invest.

    Do reports like this mean Chicago is definitely a good market for you to invest in?

    I can’t answer that for you.

    What I can tell you is that I certainly plan to keep investing here.

    Historically, Chicago’s real estate market is often described by experts as a “mature market.”

    That means property values have steadily risen over time, but you don’t typically see major swings in value in either direction.

    In other words, you may not experience 30% annual appreciation, as was experienced in places like Tampa and Phoenix during the pandemic.

    At the same time, you won’t see double digit declines, like we’re currently seeing in some other cities.

    This reality played out during the pandemic years. Chicago’s market did not appreciate as fast as other areas nationally. However, as those markets cooled off during the past couple of years, Chicago has stayed red hot in comparison.

    In fact, for the past couple of years, Chicago has been one of, if not the, fastest growing markets in the country (alongside New York).

    So, what does all this data suggest?

    Should you rush off to invest in Chicago?

    There’s no right or wrong answer.

    I’m certainly not trying to convince you to invest in Chicago.

    It would be better for me if national investors continued to shy away so I can scoop up more undervalued properties in good neighborhoods.

    The bottom line is that as investors, we are all making the best decisions we can based not only on the available data, but also our own common sense.

    I would certainly avoid relying on AI or a single Google search to find “the best markets.”

    Keep in mind that within every major market, there are numerous submarkets. You may not realize that if you only looked at city-wide data.

    As much as I love the city, I would not invest in every Chicago neighborhood. I focus on 4-5 neighborhoods that I know well.

    The data didn’t lead me to that conclusion. Living in different neighborhoods and experiencing daily life convinced me where I should invest.

    I support my investment choices with the available data, but I don’t ignore my common sense and personal experiences.

    When you are choosing between markets, do your own research.

    But, don’t ignore your common sense.

    Investors, how do you balance the data with your own experiences?

    What factors are the most important to you?

    Let us know in the comments below.

  • Don’t Give Up When Being a Landlord Feels Heavy

    Don’t Give Up When Being a Landlord Feels Heavy

    There comes a time for every rental property investor when the job of being a landlord starts to feel like too much.

    It all starts to feel too heavy.

    You’ll want to quit.

    You’ll convince yourself that it’s much easier to be a passive stock market investor.

    When that moment as a landlord comes for you:

    Don’t quit.

    The long term benefits are too good.

    @thinkandtalkmoney

    Landlord Tip of the Week! ☑️🏡 #thinkandtalkmoney #rentalproperty #realestateinvesting #landlordtips #landlord

    ♬ original sound – Thinkandtalkmoney

    Remind yourself why you bought a rental property in the first place.

    I know there are tough moments. I’ve been there. Many times.

    In fact, my wife and I had a couple of experiences recently that pushed us close to that point of quitting.

    With the passage of enough time to reflect, I’m happy and proud of us for sticking with it.

    We’re still on track to achieve financial freedom quicker than we ever could have without our rental properties.

    Today, I’ll share a couple of experiences I’ve recently had as a landlord that had me thinking about quitting.

    If you’re a landlord, I’m sure you’ve had moments just like these.

    Here’s a look back at our recent experience leasing out two apartments.

    This past lease renewal season started off looking very strong. We were thrilled that 80% of our tenants signed on for another year.

    That left only 2 apartments to turnover.

    This was great news because vacancy is a rental property investor’s worst nightmare. Every week that an apartment sits empty is money down the drain.

    Vacancy can eat away your entire year’s profits. That’s why we usually offer current tenants the chance to renew at the same rent.

    When you do the math, it almost always works out than continued occupancy beats the prospect of higher rent plus vacancy.

    When you have an empty rental unit, doubt creeps into your mind. You start telling yourself that you’ll never find a new tenant and your place will sit empty forever.

    I know, I know. A bit extreme, right?

    But, I’m telling you. That’s where your mind goes. Any landlord out there knows what I’m talking about.

    So, when 80% of our tenants renewed for another year, we were very happy. We assumed that meant we would have an easy leasing season.

    As it turns out, that was not the case.

    Here’s what happened in each of these two apartments.

    For one apartment, we received an odd request.

    Before these tenants decided to leave, they made an odd request.

    As a side note, this apartment was the unit where my wife and I lived for about five years. We brought two babies home to that apartment.

    It’s located in the first building we ever bought and will always hold sentimental value for us.

    OK, back to the story. This past spring, we actually thought the former tenants would renew for another year. That would have meant 90% of our units would have stay leased for another year, a major win.

    When we first approached these tenants about renewing, they indicated that they wanted to stay. They were great tenants, so we were happy.

    Then came a unique request.

    These tenants were students and wanted to live at home for the summer. They asked if they could keep their stuff in the apartment but not pay rent for July and August since they wouldn’t actually be living there.

    We’ve had all sorts of requests from tenants over the years. Keeping an apartment without paying rent for two months was a new one.

    I understood the request from their perspective. Rent is a major expense. They didn’t need an apartment for the summer. They liked the apartment, but it was hard to justify paying for something they didn’t need.

    The problem from our perspective is not hard to spot. If we agreed to their offer, we would be left with the equivalent of 2 months of vacancy.

    Losing out on 2 months of rent payments is the equivalent of foregoing 17% of the total rent for the year.

    We thought about it. And as tempting as it was to not have to find new tenants, that arrangement was not going to work for us.

    Elephant isolated on white background illustrating that landlord life can feel heavy but a reminder not to quit.
    Photo by Kaffeebart on Unsplash

    Turnover is a chance to make property improvements.

    After they moved out, we took the opportunity to refresh the apartment. We knew this would take some time and result in at least a few weeks of vacancy, but the apartment needed some love.

    So, we replaced the flooring and painted the entire apartment. We did some needed repairs in the bathrooms (i.e. caulk, grout, new shower rod).

    Plus, we made a point to tackle any deferred maintenance throughout the apartment.

    We used a contractor for the work, so our involvement was limited to paying the bills and supervising the projects. Not exactly time intensive, but not exactly cheap either.

    When the work was finished, we lined up a number of showings and had the apartment rented out after a few of weeks of effort.

    In total, the apartment was vacant for 6 weeks.

    What did we learn from this experience?

    On the positive side, we now have a rehabbed apartment and fresh tenants. Plus, the apartment was empty for only 6 weeks instead of 8 weeks.

    On the negative side, it was stressful to get the apartment fixed up and re-leased.

    To state the obvious, it’s not fun spending money to fix up an apartment without a signed lease in place. Every week that goes by, money is going out without any money coming in.

    During that phase, you can’t help but doubt yourself as a landlord.

    Did we make the wrong choice?

    Should we have let the former tenants stay, even if that meant automatically sacrificing two months of rent?

    If we had gone that route, we would not have spent any money this year turning over the unit.

    We also would have had a less stressful leasing season. We would have saved a lot of time and mental energy if we didn’t have to worry about this unit.

    On the other hand, the apartment would still have needed a facelift as soon as it was empty. At some point, we were going to have to do the rehab. Now, that project is behind us.

    We also have great new tenants who seem more likely to stay for an extra year or two.

    In the end, I’m happy with the decision we made. That doesn’t mean it was right or wrong, but we made it through a unique challenge.

    I’m good with that.

    a man standing in a field with his back to the camera as evidence that sometimes it's better to split up with tenants that aren't working out.
    Photo by SAJAD FI on Unsplash

    The second learning experience involved letting our tenants out of their lease after two months.

    In our other vacant unit this past spring, the former tenants bought a condo so needed to move out. They had lived there for two years and were wonderful tenants.

    This unit was located in a different building from the one we just discussed. The building is in a terrific location and the units are in great shape.

    We’ve never had any trouble finding tenants. This year was no different.

    After three showings and very little effort, we happily signed a lease with new tenants. As a bonus, the former tenants had moved out early, so we were able to fill this unit with zero days of vacancy.

    All was well… until it was not.

    Let’s just say that after about six weeks, it was apparent that the relationship with our new tenants was not working out. The tenants were not bad people, but it was clear that we could not meet their expectations.

    Instead of living through a difficult year with these tenants, we offered them the chance to break their lease, without penalty. They accepted our offer and moved out two weeks later.

    We all remained civil and amicably split up. The tenants left the apartment in good shape and we all avoided unwanted confrontation.

    We re-listed the apartment and found a wonderful new tenant after one showing.

    In the end, we lost out on three weeks of rent between leases but now have a very happy new tenant.

    Upon reflection, I’m confident this was the right decision for all parties involved.

    The tenants could find a place more to their liking, and we could start over with a new tenant.

    So, what’s the takeaway from our experiences with these units?

    As a landlord, you are running a business. It won’t always be easy.

    You have to make business decisions, even when there’s no clear right answer.

    Sometimes that means foregoing profit and dealing with confrontation.

    In each of these instances, I’m happy with how things worked out. In the first instance, I sacrificed some of my profit this year to improve my asset.

    For the second apartment, it was clear that the relationship was not working. Even though we lost some money in the process, all parties involved should now be happier.

    These are tradeoffs I would readily make again.

    Even with stress like this, I’m not ready to give up on being a landlord.

    Compared to my day job as a lawyer, this is nothing.

    Should you become a landlord?

    The truth is my wife and I know so many people who have owned rental properties but did not like being landlords. There’s nothing wrong with that. It’s not for everyone.

    If you’ve been in, or are currently in a similar boat, I hope these experiences resonate with you.

    In the end, as stressful as it can be to run a business, this is also what makes being a landlord fun.

    What do I mean, fun?

    When you are a landlord, you are a business owner. You get to make the final decision. It’s your business and you are in control.

    Having that autonomy is a nice change of pace for most W-2 employees.

    Still, you may be faced with tough decisions. You may not know what to do in the moment. It’s helpful in those moments to have people to talk to so you can make the best decision possible.

    I happen to like being a business owner. However, it’s not for everyone.

    If just thinking about making decisions like these stresses you out, I would not recommend that you become a landlord.

    If you can handle the job, you can benefit immensely.

    Landlords- have you been in situations like this before? How did you handle the stress of the job?

    Let us know in the comments below.

  • Did You Win the $1.787 Billion Powerball Jackpot!?

    Did You Win the $1.787 Billion Powerball Jackpot!?

    No!?

    Me neither.

    It looks like there are two winners, one from Texas and one from Missouri, who will split the massive payout.

    It’s simply an astonishing amount of money. Congratulations to the winners!

    I can’t be the only one thinking that money like that could easily be a blessing and a curse, right?

    Hopefully, the winners take their time and come up with a plan to not only make sure the money lasts, but that they use it in a meaningful way.

    Well, just because we didn’t win doesn’t mean we can’t take advantage of this opportunity.

    In the spirit of the massive jackpot, I started thinking about what I would do in a more realistic scenario.

    Specifically, I asked myself:

    What would I do if I woke up tomorrow with $178,000 in my checking account?

    @thinkandtalkmoney

    What I’m doing if $178,000 hit my bank account today. #thinkandtalkmoney #lottery #personalfinance #financialfreedom #529plan

    ♬ original sound – Thinkandtalkmoney

    I know it’s not as exciting as thinking about what you would do with $1 billion, but I think it’s more important because it is actually realistic.

    Yes, I said realistic.

    I truly believe that if you are a high-earning professional, like a lawyer, consultant, or real estate investor, it will happen.

    There will come a point in your career (hopefully multiple points) where you earn a one-time windfall of $178,000.

    For example, it may come in the form of a bonus, a commission, or profits from a sale.

    When that time comes in your life, you want to be ready.

    The last thing you want to do is waste that golden opportunity. You may never get another chance to materially impact your life so much in one shot.

    So, let’s have some fun and plan out what we would do if we wake up tomorrow with an extra $178,000 in our bank accounts.

    Here’s exactly what I would do.

    The first thing I would do with $178,000 is pay off high interest debt.

    I think of a bonus like this as a one-time “Get Out of Jail Free” card.

    With $178,000, the first thing I would do is pay off any high interest debt that I have. High interest debt includes credit card debt, personal loans, and any lines of credit.

    My main financial goal this year was to pay off the rest of the HELOC we used to buy our last rental property. That’s my first move with this windfall.

    Once the debt is eliminated, I’ll be free to pursue more fun life goals. And, I’ll feel better without having that debt hanging over my head.

    slot machines in a casino on the Las Vegas Strip, Nevada which is not the best way to plan your financial future but is a good way to think about what you would do with a windfall.
    Photo by Steve Sawusch on Unsplash

    Next, I would set aside $15,000 to $20,000 for fun money.

    I would use about 10% of the money for fun right now. That comes out to approximately $15,000 to $20,000.

    That is the equivalent of a really nice vacation or two. Or, it could be new furniture for the house, new gadgets or toys (like a bike or golf clubs), or anything else that brings me joy.

    I’m a firm believer that we have to enjoy the journey while we’re on it. Having eliminated all high interest debt, I’ve earned the privilege to have some fun with a responsible portion of this money.

    The strange thing is that for people who are dedicated to achieving financial freedom, spending money can be very difficult.

    The temptation is to save and invest every possible dollar. As tempting as that may be, I encourage you to resist the urge to “live in the spreadsheet.”

    This is a chance to do something for yourself that brings joy and happiness. Whatever that is for you, take advantage.

    Otherwise, what’s the point in working so hard in the first place?

    Next, I would revisit my Tiara Goals for financial freedom.

    Let’s say after paying off high-interest debt and setting some money aside for fun, I have $100,000 remaining.

    What you do with the remaining $100,000 will vary depending on where you currently are in life and what your main priorities are.

    This is why I always talk about the importance of having your ultimate life goals written down and consulting them regularly.

    I refer to my ultimate life goals as my Tiara Goals. Before I save and invest the remaining $100,000, I’m going to look at my Tiara Goals for inspiration.

    With my Tiara Goals in mind, my top priorities right now are to eliminate HELOC debt, pay for my three kids’ college, and build my emergency fund.

    Each one of these priorities align with my Tiara Goals and help me get closer and closer to true financial independence.

    Because I have been aggressively acquiring real estate for the past seven years, college savings and emergency savings have been secondary goals.

    Now that I’m not presently in the market for more rental properties, I can prioritize saving for college and emergencies.

    With this windfall, I can make significant headway to satisfy both of those goals.

    I would then use $67,000 to fund my son’s college education.

    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.

    For my calculations, I targeted the premier in-state university where I live (the University of Illinois). I assumed a 10% average annual rate of return on my investment and a 5% annual increase in tuition.

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

    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.

    So, with the next $67,000 of my windfall, I would fully fund my kid’s in-state tuition.

    Disclaimer: if you’re doing this math for your own three-year-old, keep in mind that I’ve already begun to fund my son’s 529 account. The $67,000 is the difference that I need to add today in order to hit my goal. If you do the calculations yourself, you might come up with a different number.

    With my son’s college tuition taken care of, I would move onto my next goal, which is to fund my emergency savings account.

    Before we get to that, you may be wondering why I targeted the in-state school for my projections instead of aiming for a more expensive private school.

    Why did I target in-state tuition?

    It’s not that I don’t want my kids to have the option to attend a more expensive private school.

    It’s that I have other goals that I want to accomplish in my life at the same time I’m saving for college. I view the in-state tuition target as a reasonable, minimum goal to strive for.

    And, if my kid chooses to attend a more expensive private school, I plan on having additional ways to pay for it.

    For example, my overall financial plan includes owning rental properties even after my kids go to college. I can use that rental property income to help pay for college.

    Additionally, I plan on still earning income through a primary job. I can use that income to help pay for their college.

    Between now and then, I can invest in more rental properties, a traditional brokerage account, or any other investment vehicle of my choosing.

    I’ll still have the option to use that money to pay for college. The benefit is that I’ll have more flexibility.

    Plus, you never know. Maybe my kid will earn a scholarship. Maybe my kid does not end up going to college.

    Having different investments besides a college savings plan means that I’ll have options.

    slot machines showing 7's, which is not the best way to think about your future but is a good time to think about what you would do with a windfall.
    Photo by SLNC on Unsplash

    I would save the remaining $33,000 in an emergency savings account.

    Finally, I would take the remaining $33,000 and put it into a high-interest savings account.

    I have no immediate needs for this money. I have income coming in from a variety of sources, including my primary job, my rental properties and my job as an adjunct professor.

    However, it’s been a goal of mine for a few years to bump up my emergency savings. It’s been a risk not having much saved up for emergencies, and I’m taking this chance to eliminate that risk.

    Because I’m not currently in the market for more real estate, I can save this money for emergencies instead of worrying about a down payment for my next acquisition.

    With my emergency savings account more adequately funded, I can better protect myself should disaster strike.

    That’s why I’m putting the final $33,000 in my emergency savings account.

    How would you use $178,000 today?

    So, that’s how I would use a $178,000 windfall today.

    It’s not as fun as thinking about $1.78 billion, but it’s a more realistic thought experience.

    In case you’re wondering, if I had more money to invest at this point, I would focus on my baby girl’s college. I would use the same methodology that I used to plan for my son‘s college.

    No matter the amount of money, it’s good to have a plan ahead of time. As a high-earning professional, the odds are that you will earn a significant bonus like this at some point in your career.

    It might not be $178,000, but the thought process will work no matter what the amount is.

    The takeaway is that it’s always a good idea to have a plan before you earn the money.

    Enjoy some. Save and invest the bulk of it.

    What would you do with a windfall like this?

    Let us know in the comments below.

  • Financial Independence is Not About a Life of Deprivation

    Financial Independence is Not About a Life of Deprivation

    Stop me if you’ve heard this advice before:

    “Cancel all your subscriptions and save $1,000 a year!”

    “Cut out your morning coffee if you really want to be wealthy!”

    “Buy your Christmas presents in January when the sales start!”

    Because of advice like this, there’s a common misconception that people who want financial independence have to lead a life of deprivation.

    Nope.

    I refuse to believe that.

    Financial independence about so much more than that.

    Financial independence is not reserved for people willing to cut their spending to the bone.

    It’s for anyone willing to make intentional money decisions, including the decision to earn more money and not cut spending.

    How did financial independence become synonymous with deprivation?

    As my three-year-old asks during story time, “And, then there’s a problem?”

    Yes, son, there’s a problem.

    Too many people believe that financial independence is only about cutting spending.

    That’s a big problem that is holding people back.

    See, most of us lawyers and professionals work a ton of hours. We are already making major sacrifices.

    To throw in major reductions in spending on our way to financial independence is not a worthwhile tradeoff.

    Life is too short. None of us are guaranteed tomorrow.

    I learned this lesson a long time ago by representing clients with mesothelioma, a sudden and fatal cancer.

    That’s why I never encourage anyone to cut out spending on things and experiences that make them happy today.

    Does this mean we should all go out and spend every dollar we make?

    Of course not.

    No matter what, you’ll always need to live within your means.

    If you are spending more than you’re earning, you’ll never be financially independent.

    However, if you earn decent money and invest it the right way, you will reach financial independence.

    And, you don’t need to stop spending money on the way.

    FIRE has taken on an unintended meaning.

    One of the problems in the personal finance space is that many people first learn about financial independence in the context of FIRE (Financial Independence, Retire Early).

    Unfortunately, there’s a stereotype that FIRE is only for people willing to aggressively lower their expenses.

    In other words, the mistaken belief is that people who practice FIRE can only survive if they cut out most of life’s luxuries.

    Even though this misconception fails to capture the true spirt of FIRE, the damage has already been done.

    Too many people who I speak with get so discouraged by hearing “cut, cut, cut!” that they lose all interest in pursuing financial independence.

    It’s not that these people are financially irresponsible. They mostly live within their means and save for important goals.

    At the same time, they want to enjoy everything that life has to offer. And as mentioned above, I don’t mean enjoy life “years down the road.” They work hard and want to spend money to enjoy life today.

    For people like this, FIRE’s perceived focus on deprivation is unappealing.

    This is one of the reasons I don’t like to use the word FIRE around here. I prefer FIPE: Financial Independence, Pivot Early.

    Standing on a sheer ledge illustrating that financial independence is about having more, not spending less.
    Photo by Jason Hogan on Unsplash

    Have you noticed in the blog that we talk more about investing than cutting expenses?

    If you’ve been a consistent reader of the blog, you likely noticed that we haven’t talked much about cutting back on spending lately.

    We’ve been focused on creating wealth through investing, whether your preference is to invest in stocks or real estate.

    I certainly encourage people to generate as much fuel as possible for their investments, especially early in their careers.

    That way, you can benefit from long-term wealth generators like compound interest and appreciation.

    Generating more money to invest, of course, involves making spending choices. These types of choices are the essence of the budgeting process.

    However, instead of focusing on cutting your expenses to the bone, I recommend you create a reasonable Budget After Thinking that you can actually stick to.

    If you eliminate all the fun stuff, no budget will last very long.

    In a lot of ways, this advice is like dieting. Sure, you can lose 10 pounds in a few weeks if you eliminate every indulgence. But, how long is that diet going to work?

    I recommend that you have a budget that you can stick to long term. Then, commit yourself to fighting lifestyle creep as you start making more money.

    If you can do those two things, you don’t have to dramatically cut your expenses.

    Yes, you have to keep your spending within reason.

    No, you don’t have to cancel all your subscriptions.

    Focus on earning more, not just spending less.

    A good friend of ours just made $750 by doing one property showing. In total, she probably worked an hour to earn that money.

    Compare that to the advice of cutting out your daily coffee ritual. If you consciously deprive yourself of coffee every day for an entire year, you could save about $1,000.

    What would you rather do?

    Work just a little bit more with a side hustle of your choosing, or cut out something that you enjoy each morning?

    Do you really have to think that long about it?

    Of course, you already know which option I’m pursuing.

    woman sitting by water Bodega Bay ocean with woman standing by water illustrating that financial independence is about having more, not spending less.
    Photo by Becca Tapert on Unsplash

    I am a big fan of side hustle.

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

    My first side hustle was as an adjunct professor at a local law school, teaching just one class. I eventually turned that into teaching four classes.

    In the meantime, I also launched a rental property business with my wife, now managing 11 units in Chicago and Colorado.

    We’re doing this with three young kids at home. I’m not bragging. My point is that I roll my eyes whenever anyone tells me he is too busy to make extra money.

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

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

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

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

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

    Lawyers, like most professionals, have the ability to earn more money if they generate business. That means bringing in clients.

    How can you find these clients?

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

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

    Either one of these pursuits could be your side hustle.

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

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

    OK, but I don’t even like coffee.

    I know, I’m picking on coffee. Coffee is an easy target, but it’s just one example.

    Maybe coffee is not your problem. Let’s say that you’ve cut out family vacations.

    Family vacations can be expensive. There’s no doubt about it.

    But instead of eliminating vacations, what if you could find a way to earn an extra $5,000? That could turn into a really nice family vacation.

    For some people, this is a no-brainer. They find a way to earn more money.

    Other people will simply skip the family vacation because it’s too expensive.

    At this stage in my life, I’m not willing to do that. I have three young kids. I already feel like they’re growing up too fast.

    A year ago, my daughter wouldn’t let go of my hand when I walked her to school. Now, she’s “too cool” to waive goodbye to Daddy.

    The idea of skipping out on family vacations does not appeal to me at all. I know that there will come a day when I would really regret that choice.

    Instead of eliminating family vacations, I would rather find a way to make more money.

    You can have anything you want; you just can’t have everything.

    Warren Buffett famously told his kids that they could have anything they wanted. They just couldn’t have everything.

    That sums up my approaching to spending. If there’s something I truly want that doesn’t currently fit in my budget, I would prefer to earn more instead of giving up on having that thing or experience.

    I might get there through a side hustle. I might get there through investing. If it’s something I value enough, I will get there one way or the other.

    If you focus on your income, not just cutting expenses, you can continue your journey to financial independence without giving up these things that make life special.

    Or, you can cut out the coffee and vacations, if that’s your preference.

    I’d rather challenge myself to make more money so I don’t have to make those sacrifices.

    Do you think financial independence is only for people willing to aggressively cut their spending?

    Or, do you agree that financial independence is for anybody willing to work for it?

  • When Money is Tight, Think Even More About The Future

    When Money is Tight, Think Even More About The Future

    “Money is tight.”

    “I’m worried about today. I’ll deal with tomorrow later.”

    “If I cut out vacations and saving for retirement, I can make it work.”

    Have you ever heard money excuses like this before?

    I recently had a couple of great talks that got me thinking about comments like this. These talks led me to think about common money mindsets we sometimes have when we’re worried about paying for things today.

    For many of us, the natural inclination when money is tight is to ignore the future and focus on today.

    The pattern goes something like this:

    Go to work, pay the bills, keep food on the table.

    Wake up and do it all over again tomorrow.

    Dream about life-enriching experiences and retirement later.

    The problem with this money mindset: how are you ever going to break the cycle?

    How are you ever going to progress towards financial independence so your life is not stuck on auto-pilot?

    My challenge to you?

    When money is tight, think long and hard about the future. Think about what comes next.

    Use a challenging period in your life as motivation to do things differently.

    It helps to picture yourself 10 years from now. Imagine you don’t do anything differently.

    Same Job. Same bills. The cycle continues.

    Do you like what you see?

    If you do, no need to read any further. Keep doing what you’re doing.

    If you don’t like what you see, let me share another perspective with you.

    Let’s use the future as motivation to make the hard decisions today.

    That way, you can spend your money (and time) on the things and experiences that bring you happiness in life.

    How do we break the cycle?

    It all starts with revisiting our spending choices and our Budget After Thinking.

    Budgeting is about having a plan ahead of time.

    The art of budgeting is to know what you want to do with your money before it hits your checking account.

    Otherwise, it’s too late. Those dollars will disappear.

    In fact, the word “budget” is synonymous with “plan”.

    Some dollars will be used to pay your ordinary life expenses, some dollars will be used for all the things in life you love, and some dollars will go to your financial goals.

    That’s all there is to it.

    When it comes to budgeting, I divide my money into three primary categories:

    1. Now Money
    2. Life Money
    3. Later Money

    Now Money

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

    These are expenses that you can’t avoid and should be relatively fixed each month. If you have expenses for kids, pets, and other fixed life expenses, be sure to include them in your Now Money category.

    a note pad and person writing goals with black pen to illustrate the importance of not ignoring your Later Money goals.
    Photo by Glenn Carstens-Peters on Unsplash

    Life Money

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

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

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

    Later Money

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

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

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

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

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

    Your budget is really just about finding fuel for the best things in life.

    This is where we circle back to the importance of having a clear understanding of what we want out of our money.

    Money is just a tool.

    Ask yourself:

    “Is your current spending aligned with how you want to use your money to fuel your goals and ambitions?”

    If not, you can make incremental adjustments as you progress towards your ideal spending alignment.

    The idea is to continuously add more fuel to our Life Money and Later Money. Why?

    These are the buckets that represent the things we love the most (Life Money) and our most important life goals (Later Money).

    When money is tight, resist the urge to cut these expenses from your budget. These are the expenditures that oftentimes give meaning to life and allow us to build a future on our terms.

    Instead, focus on the Now Money bucket as much as possible.

    For some ideas on how to do that, check out my Top 10 Budgeting Tips for Lawyers and Professionals.

    You can make small adjustments, which are usually easier and faster to put in place. These adjustments might include dining out a bit less, cutting out a concert, or cancelling a gym membership or subscription you don’t use.

    You can also make big adjustments, like moving to a cheaper part of town or getting rid of you car.

    Small or big, the key is that when you make these adjustments, you repurpose that money in a thoughtful and intentional way. You’re now starting to align your budget with your money motivations.

    These adjustments will give you options in the future.

    With each thoughtful decision, you’re progressing towards your best money life. Most importantly, you’re learning about yourself and developing lasting habits. You won’t get discouraged and give up on budgeting.

    Rise to your ultimate life goals with Later Money or get stuck behind.
    Photo by Ian Chen on Unsplash

    What do you really want out of life?

    Creating a Budget After Thinking is really all about one question:

    What do you really want out of life?

    When you prioritize Life Money (experiences) and Later Money (financial freedom), each dollar you spend or invest brings you one step closer to that ideal life.

    If you are totally consumed with Now Money, you’ll struggle to build the life that you really want.

    I started thinking about what my ideal life would look like when I wrote down my Tiara Goals for Financial Freedom in 2017.

    By that point in my life, I had paid off my student loan debt and was about to get married.

    My soon-to-be wife and I had good money coming in, but I never truly thought about what I wanted in life. Sure, I had thought about things like having a family and being able to take vacations. 

    But, I never carved out time to purposefully think hard about what I actually wanted. I had never asked myself what truly motivates me.

    I never allowed myself to dream about financial freedom.

    The truth is, I don’t think I had ever visualized a life that wasn’t dominated by a full-time job.

    Up to that point, my whole life had revolved around getting an education and then getting a job. I never pictured a world where I might not need a full-time job to provide for myself and eventually my family. 

    I had read about the concept of being financially free, but it always seemed like a possibility for other people, not me.

    Writing this years later, I feel sad for that version of myself for having such limiting beliefs.

    Whenever someone tells me she doesn’t make enough money to dream about the future, I think about those same limiting beliefs I used to have.

    That’s the cycle I’m hoping to help people break.

    When money is tight, think about the future.

    When it comes to spending choices, resist the urge to cut the things from your budget that make life what it is. That might mean money spent today on memorable experiences, like vacations.

    Or, it might mean money saved and invested to provide yourself more options down the road.

    The key is to break the thoughtless spending cycle that can make your life feel like it’s stuck in place.

    Create a Budget After Thinking that prioritizes what you truly value.

    Money might still be tight, but you’ll know you’re spending on things that matter.

    You’ll know that you’ll have options in the future.

  • How to Use Two Simple Metrics to Compare Investments

    How to Use Two Simple Metrics to Compare Investments

    If you had $200,000 saved up, should you invest in the stock market or in a rental property?

    In our previous post, we explored why you may want to consider investing in both the stock market and in rental properties.

    However, without the proper tools at your disposal, the choice between investing in stocks or investing in real estate can be tricky.

    Fortunately, there are a couple of quick and easy ways to analyze the strength of a rental property as compared to investing in the stock market.

    Today, we’ll dive into two metrics that investors use to quickly compare investments across asset classes. The two metrics are known as:

    1. Cash-on-Cash Return on Investment (CoCROI)
    2. Return on Investment (ROI)

    With just these two metrics, you’ll be able to quickly compare the returns of a potential rental property to the typical returns of the stock market.

    You can also quickly compare two different rental properties.

    Then, you can decide what’s the best investment for your personal situation.

    One note before we begin:

    Don’t worry if math is not your thing. There are plenty of online calculators like this one that will do all this math for you.

    The key is to understand what the math is telling you. That way you’ll know what to do with the information that the online calculators pump out.

    So, before you go running off to one of the online calculators, stick around and see how the math works and what it all means.

    Now, let’s think about your options with that $200,000 you’re sitting on.

    The S&P 500 historically earns 10% annually.

    Before looking at our two real estate metrics, let’s establish a baseline comparison with the stock market.

    The S&P 500 has historically earned an average annual return of 10%.

    By investing in an index fund that tracks the S&P 500, like I do in my 401(k), I have a pretty good chance of earning consistent returns in the long run.

    Sure, there may be ups and downs. And, there are no guarantees the S&P 500 will continue performing at 10%.

    But, check this out:

    Since 1996, the S&P 500 has ended the year in positive territory 23 times and negative territory only 7 times.

    In other words, the S&P 500 has generated positive returns three times more frequently than it generates negative returns.

    And even with those 7 negative years, with the exception of 2000-2002, the S&P 500 returned to positive territory the following year.

    What this all means is that while the S&P 500 will drop occasionally, the down periods are historically short-lived.

    Because of this historical consistency, I feel comfortable using 10% as a baseline to compare other investments with.

    Note that predictable returns does not mean guaranteed returns.

    There are no guarantees in the stock market or with any other asset class.

    To recap: the S&P 500 has historically provided an average annual return of 10%.

    While not guaranteed to continue in the future, 10% average annual returns represents a safe projection for our calculations.

    That means we can use 10% as a baseline investment return to compare other potential investments to.

    With this baseline in mind, we can now move to our two real estate metrics.

    a calculator and a pen on top of paper to show you how to use CoCROI and ROI to evaluate different investments.
    Photo by Aaron Lefler on Unsplash

    Calculate your Cash Flow.

    The first step in evaluating any real estate deal is to calculate the expected cash flow.

    For a detailed explanation on how to analyze real estate deals and calculate cash flow, check out my post here.

    To keep in simple, cash Flow is whatever money you have left over after paying all expenses. Think of it as your monthly profit.

    Today, we’ll use an example of a hypothetical property that is listed for $1,000,000.

    Here’s a quick snapshot of how you might calculate the cash flow on this property:

    Asking Price: $1,000,000

    Monthly Rent: $9,000

    Mortgage Payment (Principal and Interest)$4,500
    Taxes$900
    Insurance$300
    Utility Bills$300
    Property Upkeep$200
    Preventative Maintenance$200
    Vacancy Rate (5%)$300
    Unexpected Repairs (5%)$300
    Property Improvements (5%)$300
    Total Monthly Cost$7,300

    Cash Flow = Income – Expenses

    $1,700 = $9,000 – $7,300

    This hypothetical property has a monthly cash flow of $1,700.

    That means it has annual cash flow of $20,400, a number that we’ll need for our next calculation.

    So, is this property a good deal?

    That brings us to our first metric, Cash-on-Cash Return on Investment.

    What is Cash-on-Cash Return on Investment (CoCROI)?

    Cash-on-Cash Return on Investment (CoCROI) measures how much cash flow a property earns in one year relative to how much money was initially invested.

    The formula looks like this:

    CoCROI = Annual Cash Flow / Total Cash Invested

    With this simple metric, we can compare the return of a potential rental property to the returns of any other investment, like an S&P 500 index fund.

    Then, we’ll have some useful information to decide if this is a good deal.

    Keep in mind that CoCROI does not factor in appreciation, debt pay-down, or tax benefits. That analysis comes with our next metric.

    To continue our example above, we know the annual cash flow on this property is $20,400.

    Let’s assume our down payment is 20% of the purchase price, or $200,000.

    In addition to the down payment, we paid $10,000 in closing costs and invested another $5,000 to clean up the property before renting it out.

    In total, our initial investment is $215,000.

    Let’s plug those numbers into the CoCROI equation:

    CoCROI = Annual Cash Flow / Total Cash Invested

    .095 = $20,400 / $215,000

    The CoCROI on this property is .095 or 9.5%.

    Does a 9.5% CoCROI automatically mean this is a bad deal?

    Back to the important question: is an initial investment of $215,000 to earn $20,400 in annual cash flow a good idea?

    What does the math tell us?

    We now know that the return on this property in the first year falls just short of the S&P 500’s 10% annual return.

    Does a 9.5% CoCROI automatically mean this is a bad deal?

    Not at all.

    The answer will depend on what your preferences and goals are as an investor.

    Keep in mind that CoCROI is a projection tool designed to measure the expected return on this rental property in just the first year.

    Because of all of the variables at play, use CoCROI to help you compare investments. But, don’t make your investment choices based solely on the CoCROI.

    Also keep in mind that CoCROI is a quick and easy way to compare the initial investment on one rental property to another rental property.

    If you’re evaluating a lot of properties, you can quickly see which ones give you the best initial return on your money.

    To recap, CoCROI is a great way to quickly compare the returns on different investments in the first year.

    However, what if we wanted to evaluate the long-term investment potential on a property?

    For example, what if we plan to hold a property for 10 years?

    By holding a property for 10 years, we’ll ideally profit through appreciation and debt pay-down, not just through cash flow.

    Let’s learn how to factor in those profits by calculating our overall Return on Investment (ROI).

    Data reporting dashboard on a laptop screen to show you how to use CoCROI and ROI to evaluate different investments.
    Photo by Stephen Dawson on Unsplash

    What is Return on Investment (ROI)?

    Return on Investment (ROI) factors in cash flow, appreciation, and debt pay-down. It also factors in the sales expenses associated with selling a property after a defined holding period.

    Put it all together and ROI is a great way to project the overall returns on an investment over time.

    The ROI formula looks like this:

    ROI = (Total Profit / Total Investment) / Years

    Let’s continue our example to calculate the ROI on this property over a 10-year period.

    The first step in calculating ROI is to total up the cash flow.

    We already know that this property will earn $20,400 in annual cash flow.

    Over 10 years, that means we will earn $204,000 in total cash flow.

    Remember, cash flow is only part of our total profits.

    Next, we need to calculate the equity we will earn through appreciation and debt pay-down on this property.

    Next, figure out the expected appreciation and debt pay-down.

    To calculate the rest of our total profits, let’s start with some basic assumptions.

    First, let’s assume that this property will appreciate at 3% annually.

    Using an online calculator like this one, we learn that our property will be worth $1,343,916 in 10 years.

    In other words, since we bought the property for $1,000,000, we have earned $343,916 in appreciation over those 10 years.

    Next, we need to calculate how much our loan balance has decreased over those 10 years. This is known as loan amortization.

    Recall that our initial loan was for $800,000 because the property cost $1,000,000 and we put 20% down.

    Again, we can use a simple amortization calculator like this one to do the math for us.

    Assuming a 6.5% interest rate and a 30-year loan, we will have $678,209 remaining on our balance after 10 years.

    Since our loan balance started at $800,000, this means that we have earned $121,791 in debt pay-down over those 10 years.

    By adding the appreciation and debt pay-down together, we learn that our total equity in this property after 10 years is $465,707.

    If we add up our total cash flow, appreciation, and debt pay-down, we see that our total income on this property is $669,707.

    Don’t forget to factor in the costs of selling the property.

    When we sell this property, we will incur some costs that we don’t want to ignore in our analysis.

    Let’s assume that we will pay 6% to real estate agents, 2% in closing costs, and another $15,000 to fix up the property before selling.

    In total, that adds up to $107,513 in costs associated with selling this property.

    When we subtract the sales expenses from our total income, we see that our total profits on this property after 10 years are $562,194.

    Now that we know our total profits, we can calculate the ROI.

    How to Calculate ROI.

    We now have all of the pieces we need to calculate the ROI on this property.

    As we added up above, our total cash flow, appreciation, and debt pay-down, combine for a total income on this property of $669,707.

    When we subtract the sales expenses from our total income, we see that our total profits on this property after 10 years are $562,194.

    We also saw above that we made a total investment of $215,000 (our down payment plus closing costs) to acquire this property.

    Now, we can plug this information into the ROI formula.

    ROI = (Total Profit / Total Investment) / Years

    .261 = ($562,194 / $215,000) / 10

    ROI or Total Return: 26.1%

    In the end, this property generates a total annual return of 26.1%.

    So, what should you do with your $200,000?

    Is this property a good deal?

    Would you be better off investing in an S&P 500 index fund and earning 10%?

    Using CoCROI and ROI can help you make that decision.

    As an investor, you may be thrilled with a 9.5% CoCROI or 26.1% ROI.

    On the other hand, you may not be interested in doing the work and taking on the risk involved with owning that rental property.

    Remember, we are making projections based on a number of variables. Nobody can predict exactly how an investment will perform.

    In the end, only you can answer this question based on your personal preferences.

    The point in doing the math is to provide additional data points so you can make the best decision possible.

    There’s no right or wrong answer.

  • How to Think About Investing in Both RE and the Stock Market

    How to Think About Investing in Both RE and the Stock Market

    Let’s say that you have $200,000 that you want to invest.

    Up to this point, all of your investments are in the stock market, mostly through tax-advantaged retirement accounts like a 401(k).

    However, you’ve recently started thinking about buying your first rental property.

    You have an important question to sort through:

    Should you buy your first rental property or just keep investing in the stock market?

    This is a common dilemma for all real estate investors, not just people thinking about buying their first rental property. Personally, I’ve been thinking about this question quite a bit lately.

    The way I see it?

    Why not do both?

    Why not build your overall investment portfolio to include both stocks and at least one rental property?

    @thinkandtalkmoney

    Happy to provide the geniuses a place to live. #thinkandtalkmoney #realestateinvesting #rentalproperty #genius

    ♬ original sound – Thinkandtalkmoney

    Today, we’ll explore why you may want to invest in the stock market and own rental properties.

    If you’ve been on the fence about buying your first rental property, this post will help you think about why it may be a good idea.

    Real estate is my favorite asset class.

    It’s no secret that real estate is my favorite asset class. Without my four rental properties, my journey to financial freedom would look much different.

    I’m confident that real estate will remain a powerful asset class moving forward.

    That’s because no matter how much the world changes with AI, quantum computing or any other new technology, I know one thing will always be true:

    People will always need a place to live.

    At this point in my life, I know that I’ll never become a brilliant coder or software engineer solving the world’s hardest problems.

    But, I can provide the geniuses a place to live.

    That’s why I’m comfortable with the majority of my net worth being in real estate right now.

    By investing in rental properties, I can make money in four different ways:

    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.

    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.

    Even though I love owning rental properties, I still invest in the stock market.

    While there are certainly real estate investors out there who are 100% committed to real estate, I’m not one of them.

    Even with my passion for rental property investing, I have a significant portion of my net worth in the stock market.

    For one reason, I enjoy having some totally passive income streams. Compared to being a landlord, there is essentially zero work involved in being a passive stock investor.

    For another reason, I see the value in having multiple, diverse streams of income to help protect me against life’s uncertainties.

    Plus, like many of you, my investing journey began with my employer-sponsored 401(k) plan.

    401(k) investing is easy and relatively straightforward. With automatic contributions from my paychecks, I don’t even need to think about funding my account.

    As a W-2 employee since 2009, without even thinking about it, I’ve invested regularly in the stock market and enjoyed the benefits of compound interest.

    As my career progressed and my family grew, I added investment accounts to my portfolio.

    Besides my 401(k), my favorite investment accounts include a Roth IRA, 529 college savings accounts for my three kids, and a Health Savings Account.

    In conjunction with my rental properties, I view each of these different investments as part of my overall strategy to reach financial independence.

    Combined, I refer to these different investment and income streams as Parachute Money.

    Reach for the sky. Sometimes normal is too boring. invest in both real estate and the stock market for a safe landing with Parachute Money.
    Photo by Vlad Hilitanu on Unsplash

    What is Parachute Money?

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

    Pretend your life is like flying on an airplane.

    For whatever reason, you decide you need to get off this airplane. You decide to take control and make a change. 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?

    Why is having Parachute Money important?

    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, you are more than covered with your other sources.

    Likewise, 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 I own stocks and own rental properties.

    Should I buy a rental property or stick with the stock market?

    Lately, I’ve been asking myself this very same question, “Should I look into buying a fifth rental property? Or, should I invest that money in the stock market?”

    There are certainly lifestyle considerations that go into this question beyond just the strength of the investment on paper.

    For example, owning rental properties means taking on a job. On the other hand, investing in the stock market is mostly passive.

    If you’re not ready for the job of being a landlord, then you should stick with investing in stocks.

    Setting lifestyle considerations aside, we all have limited dollars available to invest. And, we work hard for those dollars.

    When we choose to put those hard-earned dollars to work for us, we want to make sure we’re getting a good return on our investment.

    It’s hard enough deciding where to invest your money once you’ve decided on the asset class. Take real estate, for example.

    Even if you know you want to buy a rental property in a specific area, there might be hundreds of potential properties available.

    Picking the right property is not easy and requires some careful analysis.

    How much more difficult does the decision become when you’re not even sure if you should invest in real estate or invest in the stock market?

    That decision can start to feel overwhelming.

    The perfect landing with a parachute indicating the importance of having parachute money through real estate and the stock market.
    Photo by Ali Kazal on Unsplash

    Deciding between various asset classes can feel overwhelming.

    With so many investment choices out there, it can be difficult to choose where to invest your money. That’s why it’s useful to have a way to compare one type of asset class to another.

    Then, you can consider investment opportunities in different assets classes and make informed choices on where to invest.

    Fortunately, we can use two simple metrics to help with this analysis:

    1. Cash on Cash Return on Investment (CoCROI)
    2. Return on Investment (ROI)

    Real estate investors have long used these two metrics to decide if a potential property is a good deal compared to investing in the stock market.

    In our next post, we’ll take a close look at each of these metrics. We’ll learn how each of these metrics can help you compare a rental property investment to typical stock market returns.

    Don’t worry if math is not your favorite thing.

    These two numbers are easy to calculate with an online calculator. The key is to make sure you understand the underlying principles and variables that go into the calculations.

    Are you comfortable investing in rental properties and the stock market?

    I like to invest in rental properties and the stock market to protect myself from economic and life uncertainties.

    I don’t want to be all-in on only one asset class.

    So, I view my rental properties and my stock investments as parachute strings working together to protect me should my airplane start going down.

    Because I’m comfortable investing in both rental properties and the stock market, I need a way to help choose between options across those asset classes.

    In our next post, we’ll learn how to do just that.

    Do you invest in the stock market and in rental properties?

    Which asset class did you invest in first?

    Is part of your reasoning for investing in both asset classes to add layers of protection to your overall finances?

    Let us know in the comments below.

  • Coast FIRE Will Help You Realize When Enough is Enough

    Coast FIRE Will Help You Realize When Enough is Enough

    What are you chasing in life?

    Professional accolades?

    Tens of millions of dollars?

    The ability to retire someday?

    Do you even know?

    Most lawyers and professionals have a complicated relationship with their careers. That’s a topic for another day. Suffice it to say, the relationship evolves over time.

    In the beginning, we’re mostly satisfied to have a decent job. We’re proud of what we’ve accomplished to get this far. We can put our skills to use and start living like adults.

    This phase typically lasts until we develop confidence and realize that we’re pretty good at our jobs. We know that we can take on more responsibility and perform more challenging work.

    At this point, we begin to work harder than ever. Oftentimes (but not always), we make more money.

    We tell ourselves that we’re doing important work. We even start to earn recognition and receive awards from professional groups.

    The thing is: we haven’t ever questioned why we’re doing it and what we’re chasing.

    Somewhere along the way, our work becomes our identities.

    Is your job the most important thing in your life?

    How would your spouse or kids answer that question about you?

    When your job is the top priority in your life, your health, relationships, and personal interests all take a back seat.

    Many of us prioritize our jobs above all else until we get around to retiring in our sixties or seventies.

    We never stop to think about whether there’s another way. We’re stuck on autopilot.

    Earn a paycheck, buy nice things, save for retirement.

    It’s that last part that we oftentimes use as justification for working so much: saving for retirement.

    Part of the problem is that we’ve been programmed to think that saving enough for retirement is a never-ending challenge.

    We’ve been brainwashed to think that unless you save 10-20% of your paycheck for the rest of your life, you’ll never comfortably retire.

    These fears are strong enough to push us to chase more money. To save endlessly for retirement.

    Because if you don’t save enough, so we’re told, you’ll never get that lake house in Wisconsin you’ve always dreamed about. Instead, you’ll be living in your kid’s basement.

    Now, don’t get me wrong. Saving for retirement is extremely important. It’s one of the bedrocks of personal finance.

    But, saving enough for retirement is not an impossible goal. It is most definitely an achievable goal.

    For many of us, it’s achievable earlier in life than we ever thought possible.

    Once you accept the fact that you actually can save enough for retirement, you give yourself permission to ask, “When is enough is enough?”

    This is where Coast FIRE comes in.

    With the money mindset hack of Coast FIRE, you can tell yourself, “I have saved enough for retirement. Cross that major goal off of the list.”

    Enough is enough.

    With retirement taken care of, you can think about what else to do with your time and money.

    That might mean staying exactly where you are: same job, same house, same vacations. If it ain’t broke, don’t fix it.

    If it is broke, you can pivot.

    You can start to dissect exactly what it is that you’re chasing in life.

    a sign that says enough is enough indicating when you have enough saved for retirement you can pivot to other pursuits because of Coast FIRE.
    Photo by Suzi Kim on Unsplash

    What is Coast FIRE?

    Coast FIRE is a subset of FIRE for people who are not necessarily trying to retire early.

    Instead, the idea is to aggressively fund your retirement accounts early on so you have more options as your career progresses.

    The reason you’ll have options is because once you hit your projected magic retirement number, you no longer need to fund your retirement accounts.

    You can sit back and let compound interest do its thing. Your retirement years are covered.

    With retirement covered, you don’t need to earn as much money. You can focus more attention on your present-day self. That might mean working less hours or working the same amount but in a different job.

    This is the essence of Coast FIRE: knock out retirement planning early on to create more career flexibility later.

    Coast FIRE does not mean complete financial independence.

    When you reach Coast FIRE, you are not financially independent because you still need money coming in to fund your current lifestyle.

    But, you need less money because you no longer need to save for the important goal of retirement. That means you have earned some financial freedom, but not complete freedom.

    That’s OK.

    Remember, the part that separates Coast FIRE from traditional FIRE is that early retirement is not the goal.

    Instead, Coast FIRE means continuing to work until normal retirement age (like age 65) but having more freedom in what you do for work.

    To put a bow on it: the main money mindset benefit of Coast FIRE is that you have options once you’ve already put away enough money for retirement.

    With retirement taken care of, you can:

    1. Switch to a lower paying job or lower stress job.
    2. Become a stay-at-home parent and live off of one spouse’s income.
    3. Start a business.
    4. Grow your side hustle.
    5. Take some time off to think about what you want to do next.

    With Coast FIRE, each of these options feels safer because you’ve already fully funded your retirement.

    Knowing when enough is enough.

    Towards the end of 2024, I had a breakthrough moment thinking about when enough is enough.

    Earlier that year, we had moved into our “forever home.” I had traded in my 20-year-old car for a new one. My wife and I were expecting our third child.

    As it happens, I was reading an excellent book on real estate investing written by Chad “Coach” Carson.

    His book is called 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.

    If anything, we’re closer to having too much on our plates. We self-manage our 10 units in Chicago and work closely with a property manager in Colorado.

    With our full-time jobs and kids at home, we’ve bitten off as much as we can chew.

    Our portfolio generates enough income to help fuel our current goals. If we were to continue expanding, the headaches could end up outweighing the financial benefits.

    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.

    Overload Patty Burger illustrating that enough is enough with Coast FIRE.
    Photo by Snappr on Unsplash

    What would you do with your time if money was not an obstacle?

    Whenever I think of Coast FIRE, I’m reminded of a conversation I had with a friend earlier this year.

    We were having lunch at a downtown Chicago lunch spot that’s been serving up epic burgers since the 1970’s. My friend and I are both balancing careers as lawyers in Chicago with young families at home.

    In between bites of a massive BBQ-bacon-cheeseburger, I asked him a question I like asking smart people:

    “What would you do with your time if money wasn’t an obstacle?”

    Without hesitation, he answered that he would work with his hands.

    He likes working on projects around the house. He gets immediate satisfaction from completing a repair or making an improvement.

    His answer was great and very relatable. My years as a landlord has taught me the same feeling of satisfaction in completing a project.

    What stood out to me the most was how quickly he answered the question. He knew exactly what he would do if money was not an obstacle.

    This simple question helps illustrate what I mean by Coast FIRE.

    When you achieve Coast FIRE, you can afford to take a pay cut. You can choose to work a job that you enjoy for less money.

    It’s not an easy goal to accomplish, but I can’t think of a better goal to strive for.

    By the way, since having that burger with my friend, he left his old job for one that better fits his life goals. I’m thrilled for him.

    Coast FIRE is not about giving up.

    Some critics of Coast FIRE argue that it’s just a catch phrase for quitting on your career too early. They say the consequences of having a “bad retirement” are too severe.

    The way I see it: having a “bad life” now in hopes of a “good retirement” later is not a worthwhile trade off.

    You can certainly prioritize making the most money in life. That might mean continuing to earn and earn so you can invest in the stock market or purchase more rental properties.

    But, at some point, you don’t need any more money. At some point, you need to know when enough is enough.

    Coast FIRE is about exactly that: knowing when enough is enough.

    Have you thought about when enough is enough?

    Does Coast FIRE help you visualize that moment?

    Let us know in the comments below.

  • How to Gain Confidence by Calculating Your Coast FIRE Number

    How to Gain Confidence by Calculating Your Coast FIRE Number

    Have you ever wondered if you really need to keep saving for retirement?

    Believe it or not, you may be closer than you think to achieving your retirement goals.

    That’s a very powerful realization.

    Think about the options you can create for yourself if you no longer need to save a hefty chunk of your paycheck for retirement.

    We recently explored some of these options while talking about the money mindset hack known as Coast FIRE.

    Today, we’ll look at some specific examples of how to calculate your Coast FIRE number so you can see how you stack up.

    By calculating your Coast FIRE number, you may just find that you have more options than you ever thought possible.

    Let’s explore.

    What is Coast FIRE?

    Coast FIRE is a subset of FIRE for people who are not necessarily trying to retire early.

    Instead, the idea is to aggressively fund your retirement accounts early on so you have more options as your career progresses.

    The reason you’ll have options is because once you hit your projected magic retirement number, you no longer need to fund your retirement accounts.

    You can sit back and let compound interest do its thing. Your retirement years are covered.

    With retirement covered, you don’t need to earn as much money. You can focus more attention on your present-day self. That might mean working less hours or working the same amount but in a different job.

    This is the essence of Coast FIRE: knock out retirement planning early on to create more career flexibility later.

    Coast FIRE does not mean complete financial independence.

    When you reach Coast FIRE, you are not financially independent because you still need money coming in to fund your current lifestyle.

    But, you need less money because you no longer need to save for the important goal of retirement. That means you have earned some financial freedom, but not complete freedom.

    That’s OK.

    Remember, the part that separates Coast FIRE from traditional FIRE is that early retirement is not the goal.

    Instead, Coast FIRE means continuing to work until normal retirement age (like age 65) but having more freedom in what you do for work.

    To put a bow on it: the main money mindset benefit of Coast FIRE is that you have options once you’ve already put away enough money for retirement.

    With retirement taken care of, you can:

    1. Switch to a lower paying job or lower stress job.
    2. Become a stay-at-home parent and live off of one spouse’s income.
    3. Start a business.
    4. Grow your side hustle.
    5. Take some time off to think about what you want to do next.

    With Coast FIRE, each of these options feels safer because you’ve already fully funded your retirement.

    Your Coast FIRE number is not the same as your FI number.

    As we’ll explore below, your Coast FIRE number is different from your FI number (what I sometimes refer to as your magic retirement number).

    Your Coast FIRE number is the amount you need saved up today to stop saving anymore for a traditional retirement. You still need to earn money to fund your current lifestyle.

    Your FI number is the amount you need saved up today to retire and live completely off your investments for the rest of your life.

    You’ll see below that your Coast FIRE number is usually significantly lower than your FI number.

    This is especially true the further away you are from traditional retirement age. That’s because you have a longer time horizon for compound interest to do its thing.

    In fact, the reason Coast FIRE is such a powerful money mindset hack is because the Coast FIRE number seems much more attainable.

    This of it like this: have you ever felt that it seems impossible to save millions of dollars for retirement?

    The truth is you don’t have to come up with all that money on your own. Your job is to aggressively seed your retirement accounts early on so compound interest can do the heavy lifting.

    By funding your retirement accounts early in your career, you don’t need millions of dollars. You actually need way less.

    Calculating your Coast FIRE number will drive this point home.

    Bonfire on a coast with mountains in the background indicating the power of calculating your Coast FIRE number.
    Photo by Courtnie Tosana on Unsplash

    How do I calculate my Coast FIRE number?

    There are some great online calculators available to figure out your Coast FIRE number.

    You simply plug in a few variables, like your current age, desired retirement age, and anticipated spending in retirement. It couldn’t be easier.

    The Fioneers and WalletBurst each have easy-to-use calculators that I recommend. There are plenty of others, but these two are simple to use.

    What’s nice about each calculator is that you can play around with the inputs to explore various scenarios. You can also see how your Coast FIRE number is significantly lower than your FI number.

    The WalletBurst calculator has a helpful graph for visualizing your progress towards Coast FIRE.

    The Fioneers calculator has a nice feature where you can input other sources of passive income, like income from a rental property.

    As we know, adding just one rental property to your investment portfolio can massively shrink your magic retirement number and accelerate your journey to financial freedom.

    If you’re thinking about rental property investing to supplement your retirement income, check out my recent post:

    Shrink Your Magic Retirement Number With One Rental Property

    Note: The Fioneers’ calculator is a Google Sheet you can download, but you need to enter your email address first. You do not need to enter an email address to use the WalletBurst calculator.

    Using these calculators, let’s take a look at a few examples.

    Let’s explore three different scenarios where knowing your Coast FIRE number can be very useful:

    1. Clarke is 35-years-old and ready for a new job.
    2. David is 40-years-old and worried about paying for college.
    3. Dorothy is 28-years-old and just paid off her student loans.

    In each of these examples, we’ll assume a standard retirement age of 65 and an annual rate of return of 10% (on par with the historical results of the S&P 500).

    We’ll also factor in a 3% inflation rate (the historical average in the United States).

    Finally, we’ll assume a safe withdrawal rate of 4.7% in light of the updated “4% Rule.”

    In case you missed it, Bill Bengen, creator of the 4% Rule, just released a new book with some fun news for all of us saving for retirement.

    Bengen’s updated research shows that it’s safe to increase your withdrawal rate in retirement from 4% to 4.7%.

    Bengen’s new book is called A Richer Retirement: Supercharging the 4% Rule to Spend More and Enjoy More.

    Let’s dive in.

    Coast FIRE Example 1: Clarke is 35-years-old and ready for a new job.

    Clarke is 35-years-old and is ready for a career change.

    His job at a prestigious law firm has taught him a lot and he’s made good money. But, the stress and the hours are starting to take a toll on his personal life and on his health.

    He’s ready to pivot.

    Because he was making good money, Clarke maxed out his 401(k) retirement plan for the past 8 years. He now has $400,000 saved up. He also currently adds $5,000 to his various retirement accounts each month.

    His goal is to have $200,000 annually to spend in retirement.

    Based on the above variables, Clarke’s Coast FIRE number is $559,009.

    At his current saving rate, he will reach Coast FIRE in three years. That means that at the age of 38, he will no longer need to fund his retirement.

    He could then pursue a lower paying, lower stress job without sacrificing his retirement years.

    Note: Clarke’s FI number (magic retirement number) is significantly higher: $4,255,319.

    That’s a big number and can seem intimidating. His Coast FIRE number is more encouraging to think about.

    Yes, he’ll have to keep working to fund his current lifestyle. But, he can choose to work a lot less.

    What if three years still seems too far away for Clarke?

    Using the Coast FIRE calculator, Clarke learns that if he ups his retirement contributions from $5,000 per month to $8,000 per month, he will achieve Coast FIRE in two years.

    That’s powerful information. If he boosts his saving rate even more, he can pivot even faster.

    Armed with the knowledge of his Coast FIRE number, Clarke has a newfound motivation to stick it out at his current job for just a bit longer.

    two boats near stone island indicating the power of calculating your Coast FIRE number.
    Photo by Jan Tielens on Unsplash

    Coast FIRE Example 2: David is 40-years-old and worried about paying for college.

    David had a kid about a year ago and is freaking out about paying for college. He knows that it’s important to prioritize his own retirement before prioritizing his kid’s college.

    David has $300,000 saved for retirement. His goal is to spend $150,000 annually in retirement. He currently has $6,000 available to invest each month, whether that’s for retirement or college.

    Let’s help David out by using the Coast FIRE calculator.

    Plugging in these variables, we see that David’s Coast FIRE number is $588,029.

    Notice how David’s Coast FIRE number is higher than Clarke’s, even though he plans to spend less in retirement. That’s because he has a shorter time horizon and less currently saved.

    This is another reminder to start investing early and often.

    Even so, David is in great shape for retirement. At his current pace, David is 5 years away from reaching Coast FIRE. His daughter will only be six-years-old at that point.

    That means that David will still have 12 years to prioritize saving for his daughter’s college, all while knowing that his retirement is covered.

    This knowledge makes David feel much better. He’s no longer worried about paying for his daughter’s college at the expense of saving for retirement.

    Coast FIRE Example 3: Dorothy is 28-years-old and just paid off her student loans.

    Dorothy is 28-years-old and is in the early stage of her career as a lobbyist in Washington D.C. She lives with 3 roommates outside of town and keeps her expenses very low.

    Dorothy has her whole life ahead of her so hasn’t thought too much about the specifics of retirement.

    But, she knows enough to think and talk money with her friends and family every once in a while.

    In one of these conversations, she learned about Coast FIRE and was interested in calculating what her number is. Dorothy thought about how amazing it would be to pursue a life on her own terms without worrying about retirement.

    Dorothy just finished paying off her student loans. Because she was focused on her loans, she currently has only $10,000 saved for retirement.

    She now plans to roll the $5,000 per month she had been using for loan payments into her retirement account.

    Because she was so far away from retirement, Dorothy thought it was best to error on the side of caution with her annual spending projections.

    So, Dorothy estimated that she would need $250,000 annually in retirement, much more than both Clarke and David figured.

    Based on the above, Dorothy’s Coast FIRE number is $435,153. She can achieve Coast FIRE by the age of 38!

    Dorothy’s Coast FIRE number is significantly lower than Clarke’s and David’s, even though she plans to spend way more in retirement.

    Of course, this is because she is getting started so early.

    Knowing that she can fund her entire retirement in just 10 years, Dorothy makes it a priority to do so.

    By the age of 38, she will be free to pursue any line of work she chooses without needing another dollar to fund her seemingly extravagant retirement.

    That makes Dorothy very happy.

    Use a Coast FIRE calculator to figure out your own number.

    The above examples show how knowing your Coast FIRE number can be so liberating.

    When you calculate how much you’ll need to retire, you may be surprised at how close you actually are.

    If you’ve been avoiding making big life decisions because of anxiety about retirement, knowing your Coast FIRE number can be a huge help.

    Clarke, David and Dorothy calculated their Coast FIRE numbers and were able to come up with manageable plans.

    Each person is on track for a desirable retirement, all while creating options for themselves earlier in life.

    Having options is a great thing.

    Have you calculated your Coast FIRE number?

    Were you surprised how close you actually are to achieving your retirement goals?

    Let us know in the comments below.

  • Why Coast FIRE is a Powerful Money Mindset Hack

    Why Coast FIRE is a Powerful Money Mindset Hack

    Are you working a job you don’t like because you’re worried about saving enough for retirement?

    Well, what if you already have more than enough saved for retirement?

    Would that give you confidence to think about switching jobs? Maybe to a job that pays less but better fits your life goals?

    Think about it.

    If you didn’t have to save another dollar between now and retirement age, would that give you more career freedom?

    Would you start looking for that job you really want instead of the job that pays the most?

    To explore these questions, let’s look at the money mindset concept known as “Coast FIRE.”

    @thinkandtalkmoney

    Overview of the Coast FIRE 🔥 movement. #thinkandtalkmoney #coastfire #finiancialindependence #financialfreedom

    ♬ original sound – Thinkandtalkmoney

    What is Coast FIRE?

    Coast FIRE is a subset of FIRE for people who are not necessarily trying to retire early.

    Instead, the idea is to aggressively fund your retirement accounts early on so you have more options as your career progresses.

    The reason you’ll have options is because once you hit your projected magic retirement number, you no longer need to fund your retirement accounts.

    You can sit back and let compound interest do its thing. Your retirement years are covered.

    With retirement covered, you don’t need to earn as much money. You can focus more attention on your present-day self. That might mean working less hours or working the same amount but in a different job.

    This is the essence of Coast FIRE: knock out retirement planning early on to create more career flexibility later.

    Coast FIRE does not mean complete financial independence.

    When you reach Coast FIRE, you are not financially independent because you still need money coming in to fund your current lifestyle.

    But, you need less money because you no longer need to save for the important goal of retirement. That means you have earned some financial freedom, but not complete freedom.

    That’s OK.

    Remember, the part that separates Coast FIRE from traditional FIRE is that early retirement is not the goal.

    Instead, Coast FIRE means continuing to work until normal retirement age (like age 65) but having more freedom in what you do for work.

    To put a bow on it: the main money mindset benefit of Coast FIRE is that you have options once you’ve already put away enough money for retirement.

    With retirement taken care of, you can:

    1. Switch to a lower paying job or lower stress job.
    2. Become a stay-at-home parent and live off of one spouse’s income.
    3. Start a business.
    4. Grow your side hustle.
    5. Take some time off to think about what you want to do next.

    With Coast FIRE, each of these options feels safer because you’ve already fully funded your retirement.

    That’s a powerful feeling.

    You can take a pay cut for a better job with Coast FIRE.

    Let’s say you earn $200,000 and save 20% of your salary ($40,000) for retirement.

    Once you reach your retirement goal, you no longer have that $40,000 obligation. You have achieved Coast FIRE.

    With that extra $40,000, you have options. You could:

    1. Live it up and spend the money on stuff you don’t care about.
    2. Repurpose the money towards another financial goal.
    3. Switch to a more attractive job that may only pay $160,000.

    Whatever you choose, the point is that you have options.

    If your job is slowly killing you inside, Coast FIRE provides the money mindset to explore other jobs.

    It’s no secret that lawyers typically work long, stressful hours. That’s why burnout amongst lawyers is unfortunately a common occurrence.

    For example, you may have begrudgingly taken a high-paying job out of law school to pay down your loans faster. By the way, there’s nothing at all wrong with that.

    Now, with your loans gone and your retirement savings in good shape, maybe you’d like to explore a less stressful job.

    Maybe you’re ready to pursue that less lucrative career that was the reason you went to law school in the first place.

    Maybe you’re ready to stay at home with your kids and live off of one spouse’s income.

    Of course, burnout is not limited to lawyers. Many professionals today are experiencing burnout.

    Have you been putting off that career change? Does this sound too familiar?

    Coast FIRE allows you to find a job that fits your life better knowing you don’t need to make as much money.

    aerial view of beach with mountains in the backdrop indicating the power of coast FIRE as a money mindset hack.
    Photo by Rod Long on Unsplash

    Financial Independence Pivot Early (FIPE)

    If you’ve been a follower of Think and Talk Money, you know I don’t like the term “FIRE.”

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

    If you’re anything like me, you didn’t pay all that money to go to law school just to retire in your peak-earning years. There’s plenty of meaningful work still to do.

    It’s not uncommon for people to hear about financial independence and immediately think that’s only for people who want to quit their jobs and retire on a beach somewhere.

    I don’t think that’s what financial independence is about at all.

    Financial independence is all about creating options.

    When you’re financially independent, you can make decisions based on your core values instead of making decisions based on money.

    You can pivot.

    That’s why I believe in FIPE not FIRE.

    I prefer to think about pivoting, not retiring.

    Pivot means to adapt or improve through modifications and adjustments.

    That sounds appealing to me.

    Retire means to withdraw, to retreat, to recede.

    None of those things sound appealing to me at all.

    Retiring sounds like moving backwards. I’m not working so hard to achieve financial freedom so I can move backwards in life.

    With FIPE, financial independence is still the primary goal. But, the endgame is not to withdraw or retreat.

    The endgame is to adapt and improve how you spend your working hours.

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

    It’s not about quitting work entirely.

    It’s about the freedom to pivot to other work, if you want. I’m convinced that humans are meant to be productive. We are social creatures who at our core want to be contributing.

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

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

    That’s what FIPE is all about.

    And, that’s what Coast FIRE allows you to do.

    Financial independence is about much more than retiring early.

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

    I love this part of FIRE: the idea of creating enough income streams so that you have the freedom to do what you want with your time.

    I share the primary goal of saving more money and spending less to achieve more life freedom.

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

    The problem becomes when people are so focused on achieving FIRE that they sacrifice too much of their current lives.

    Yes, you’ll achieve FIRE faster if you save 90% of your salary.

    But, what kind of life are you left with in the meantime?

    Coast FIRE is less about the grind and more about enjoying the process.

    The goal is still to be financially independent, even with the recognition that it will take longer to get there.

    seashore during daytime showing the money mindset hack of Coast FIRE.
    Photo by britt gaiser on Unsplash

    FIPE and Coast FIRE work well together.

    FIPE and Coast FIRE are similar because they are for people who are looking for change but are not looking to retire.

    By having enough saved up for retirement before you make that change, you’re giving yourself a layer of protection.

    You’re giving yourself the freedom to explore better work situations for your personal situation.

    That’s why Coast FIRE and FIPE work well together.

    Both money mindsets actually encapsulate the entire purpose of financial independence in the first place:

    To create options.

    Read Die with Zero by Bill Perkins

    If you don’t like the idea of Coast FIRE and foregoing future retirement contributions, you need to read Die with Zero.

    No money mindset book has led to more passionate conversations with my friends and family members than Die with Zero.

    First, Perkins encourages us to think about whether we are working too many hours.

    In Perkins’ view, the problem is that we are sacrificing the best years of our lives. Instead, we could be creating lifelong memories.

    In that same vein, Perkins makes a strong case that many of us are saving too much for retirement.

    Also, Perkins questions the conventional wisdom of waiting until we die to pass money onto our kids. Instead, he suggests helping our kids earlier in life when the money will be more meaningful.

    Read Die With Zero. This money mindset book will motivate you to book that vacation you’ve been putting off.

    Also, read A Richer Retirement by Bill Bengen.

    Bill Bengen, creator of the 4% Rule, just released a new book with some fun news for all of us saving for retirement.

    Bengen’s updated research shows that it’s safe to increase your withdrawal rate in retirement from 4% to 4.7%.

    If you are retiring today, it gets even better. Bengen’s research shows that you can safely withdraw around 5.25%.

    Bengen’s new book is called A Richer Retirement: Supercharging the 4% Rule to Spend More and Enjoy More.

    If you’re not sure about how much you need to save for retirement, Bengen has the answers. He’s done the research and done the math.

    His conclusions will give you the confidence to select a magic retirement number that works for you. Once you reach that number, you don’t have to worry about saving more for retirement.

    Coast FIRE will open your eyes.

    Coast FIRE is a powerful money mindset hack.

    When you reach Coast FIRE, you no longer need to save for retirement.

    That gives you a lot of options, including switching to a job that better suits your lifestyle.

    If you feel like you’re far away from retiring, Coast FIRE is the money mindset hack to start making you feel better about your progress.

    In our next post, we’ll do some math together to figure out what your Coast FIRE number is so you can measure your progress.

    Are you interested in creating options to pivot instead of retire?

    Have you thought about Coast FIRE in the past?

    What about FIPE?

  • Shrink Your Magic Retirement Number With One Rental Property

    Shrink Your Magic Retirement Number With One Rental Property

    “Wait- how much do I need to save for retirement!?”

    Have you ever felt that way after learning how much money you think you need to retire?

    I’ve certainly felt that way in the past.

    The prospect of saving millions of dollars in order to retire can seem impossible, especially when you’re just starting out.

    You may have even wondered, “How do people even come up with these retirement numbers?”

    The most common answer to that question is the “4% Rule.”

    Using the 4% Rule, you can calculate your magic retirement number and determine how much money you need to save for retirement to maintain your current lifestyle.

    The 4% Rule suggests that you can safely withdraw 4% of your investments in year one of retirement. Then, you can safely withdraw 4% plus an adjustment for inflation in subsequent years. 

    If you do so, you can expect your money to last for 30 years.

    Today, we’ll take it one step further.

    Let’s explore how owning even a single rental property can further reduce the amount you need to save for retirement.

    The results may shock you- in a good way.

    @thinkandtalkmoney

    4% rule plus a rental property=chef’s kiss for retirement #thinkandtalkmoney #rentalproperty #retirementplanning #4percentrule

    ♬ original sound – Thinkandtalkmoney

    How to use the 4% Rule to forecast your magic retirement number.

    First, let’s look at an example using the 4% Rule to forecast your magic retirement number.

    In some fun news, Bill Bengen, creator of the 4% Rule, just released a new book showing that it’s safe to increase your withdrawal rate in retirement from 4% to 4.7%.

    Bengen’s new book is called A Richer Retirement: Supercharging the 4% Rule to Spend More and Enjoy More.

    If you’re at all interested in FIPE (Financial Independence Pivot Early), Bengen’s book is a must read.

    Bengen’s research is significant because it means you can safely retire with even less money. That’s because the higher your safe withdrawal rate, the less you need squirreled away to maintain your lifestyle.

    In light of Bengen’s updated research, we’ll use 4.7% as our safe withdrawal rate.

    Let’s say that your lifestyle costs you $10,000 per month, or $120,000 per year.

    To figure out how much you would need in investments to cover your current lifestyle for 30 years, divide $120,000 by .047.

    Current Spending / 4.7% (.047) = Magic Retirement Number
    $120,000 / .047 =$2,553,191.49 

    Based on the updated 4.7% Rule, you need $2.55 million to maintain your current lifestyle in retirement.

    By the way, under the original 4% Rule, you would need $3 million in investments ($120,000 / .04 = $3,000,000.00).

    See why people are excited about the updated 4.7% Rule?

    Does saving $2.55 million for retirement seem like an impossible task?

    Saving $2.55 million for retirement may seem like an impossible task.

    If that’s your initial reaction, be sure to check out my ongoing series on investing. We cover everything you need to know to start investing with confidence.

    You may be surprised to learn that If you start investing early and often, reaching $2.55 million is actually not that hard.

    Even so, there’s another way to massively shrink your magic retirement number: owning rental properties.

    Why would anyone want to own rental properties?

    There are four main reasons why I 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.

    decorative lights under a tree at night showing how one rental property can shrink your magic retirement number.
    Photo by Jay on Unsplash

    Before we look at an example of how owning rental properties shrinks your magic retirement number, here’s 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.

    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.

    With these benefits in mind, let’s see what happens when we add a single rental property to your portfolio.

    How owning a single rental property lowers your magic retirement number.

    Let’s continue our example from above where your current lifestyle costs $120,000 per year. We learned that means your magic retirement number is $2.55 million based on the 4.7% Rule.

    Now, let’s add a single rental property into the mix.

    Let’s assume that you own a rental property that cash flows $2,000 per month. That’s a total of $24,000 per year.

    Remember, your cash flow is the profit remaining after paying your mortgage, taxes, insurance, and any other costs.

    To learn how to properly run the numbers on a potential rental property, click here.

    With $24,000 per year generated by your rental property, you don’t need your investment portfolio to fund your entire $120,000 lifestyle.

    Instead, your investments only need to generate $96,000 per year ($120,000 – $24,000 =$96,000).

    So, let’s plug $96,000 into our magic retirement number formula:

    Current Spending / 4.7% (.047) = Magic Retirement Number
    $96,000 / (.047)=$2,042,553.19

    By adding a single rental property to your portfolio, you’ve lowered your magic retirement number by half a million dollars!

    You now only need $2.04 million to maintain your current lifestyle in retirement.

    Macro X-ray of some mushrooms with false coloring showing how to shrink your magic retirement number with one rental property.
    Photo by Mathew Schwartz on Unsplash

    What happens to your magic retirement number if you pay off your mortgage?

    This example shows how your magic retirement number drastically shrinks with the addition of just a single rental property.

    Keep in mind that in this example, we assumed that you have a mortgage on your rental property. That mortgage obviously reduces your cash flow.

    But, what if you paid off that mortgage before you retired?

    Let’s finish our example by assuming that you have a 30-year fixed rate mortgage and your payment is $3,500 per month. And, you make it a goal to pay off that mortgage before you retire.

    Once the mortgage is paid off, you can add that $3,500 to your monthly cash flow.

    That increases your monthly cash flow on this property from $2,000 to $5,500. Annually, that’s $66,000 in cash flow.

    Continuing our example, you now only need your investment portfolio to generate $54,000 per year ($120,000 – $66,000 =$54,000).

    Look what happens when we plug $54,000 into our magic retirement number formula:

    Current Spending / 4.7% (.047) = Magic Retirement Number
    $54,000 / .047 =$1,148,936.17

    By paying off the mortgage on this single property, you’ve now reduced your magic retirement number by $1.4 million dollars!

    You now only need $1.15 million to fund your current lifestyle in retirement.

    Have you considered adding a rental property to your overall investment portfolio?

    The point of this post is to show you how owning even a single rental property can reduce your magic retirement number.

    Think about what would happen if you owned two rental properties. Or, what about three rental properties?

    If you can handle the job of being a landlord- which I’m betting is easier than your job as a lawyer or consultant or doctor- owning rental properties is a great way to accelerate your journey to financial freedom.

    After seeing the math, you may want to consider adding a rental property (or two) to your overall investment portfolio.

    Are you intimidated by the thought of saving enough for retirement?

    Have you done the math with the 4.7% Rule to see how much you really need?

    Have you considered adding a rental property to your portfolio to shrink you magic retirement number?

    Let us know in the comments below.

  • Is the 4% Rule Actually More Like the 4.7% Rule?

    Is the 4% Rule Actually More Like the 4.7% Rule?

    Bill Bengen, creator of the 4% Rule, just released a new book with some fun news for all of us saving for retirement.

    Bengen’s updated research shows that it’s safe to increase your withdrawal rate in retirement from 4% to 4.7%.

    If you are retiring today, it gets even better. Bengen’s research shows that you can safely withdraw around 5.25%.

    Bengen’s new book is called A Richer Retirement: Supercharging the 4% Rule to Spend More and Enjoy More.

    If you’re at all interested in FIPE (Financial Independence Pivot Early), Bengen’s book is a must read.

    What is the significance of raising the safe withdrawal rate from 4% to 4.7%?

    If you are years away from retirement, you may be wondering, “Why does it matter if you withdraw 4% or 4.7% in retirement?”

    There are two ways to answer that question.

    Number 1: the higher the safe withdrawal rate, the more you can safely spend in retirement without running out of money.

    That sounds fun.

    You know what’s even more fun?

    Number 2: the higher the safe withdrawal rate, the less money you need to save before you can retire.

    That means you may be even closer to retirement than you previously thought.

    That sounds like even more fun, right?

    We’ll take a look at the math in a moment.

    The title of Bengen’s book says it all: “spend more and enjoy more.”

    Here at Think and Talk Money, enjoying our money is one of our primary objectives.

    We are not interested in building the biggest bank accounts just so we look good on a spreadsheet. We are interested in building a life where we are in control.

    That means spending money on what is important to us. It means spending more time with the people who are important to us.

    So, how does a higher safe withdrawal rate help us?

    Let’s explore that by first reviewing the 4% Rule

    What is the 4% Rule?

    The 4% Rule suggests that you can safely withdraw 4% of your investments in year one of retirement. Then, you can safely withdraw 4% plus an adjustment for inflation in subsequent years.

    If you do so, you can expect your money to last for 30 years.

    Without getting too technical, the 4% Rule is based off of research looking at historical investment gains, inflation, and other variables.

    As an example, let’s say you have $1 million in your portfolio.

    According to the 4% Rule, you can safely withdraw $40,000 in year one (4% of your portfolio), then 4% adjusted for inflation in each subsequent year, and not run out of money for 30 years.

    Using the updated “4.7% Rule”, you can safely withdraw $47,000 in year one.

    This simple example shows how you can take your current retirement savings and project the amount you can safely spend so your money lasts 30 years.

    El portero de San Juan FC, Tienes que crear tu propia suerte.-Fabien Barthez, illustrating the importance of having a target like the 4.7% Rule.
    Photo by ÁLVARO MENDOZA on Unsplash

    The 4% Rule also works in reverse. 

    By that I mean you can use the 4% Rule to ballpark how much money you’ll need in retirement to maintain your current lifestyle.

    We’ll look at exactly how to do that below.

    In either case, the 4% Rule is an effective and easy way to start thinking about a magic retirement number.

    How to use the 4% Rule based on your current savings.

    We mentioned above that the 4% Rule works two ways. 

    First, you can take your current retirement savings and calculate how much you can safely spend so your money lasts 30 years.

    If you have $1 million invested, the 4% Rule says you can safely spend $40,000 annually and expect your money to last 30 years.

    Here’s how the math works:

    Current Savings x 4% (.04) = Annual Retirement Spending
    $1,000,000 x .04 =$40,000.00

    Using the 4.7% Rule, the math looks like this:

    $1,000,000 x .047 =$47,000.00

    That’s a useful calculation, especially if you’re nearing retirement age and just want to know how much you can spend each year.

    But, what if you don’t exactly know when you want to retire? 

    Your main priority may not be to retire by a certain age. Instead, your aim may be to retire with enough money to maintain your current lifestyle. You’re determined to continue working for as long as it takes.

    To calculate that magic retirement number, you can once again use the 4% Rule. This time, in reverse.

    How to use the 4% Rule based on your current spending habits.

    The second way to use the 4% Rule is to start with your current spending habits to project how much money you’ll need to maintain that level of spending in retirement. 

    This may seem obvious, but to do so, you’ll first need to know your current spending habits. 

    If you don’t know how much you’re currently spending on a monthly basis, take a look at our budgeting series here.

    The good news is that once you’ve created a Budget After Thinking, this next part is easy.

    To calculate your magic retirement number based on current spending, simply follow these steps:

    1. Add up the amount your’re spending each month in Now Money and Life Money.
    2. Take that number and multiply it by 12 to see how much your lifestyle costs per year. 
    3. Divide that yearly spending by .04

    That’s your magic retirement number.

    Current Spending / 4% (.04) = Magic Retirement Number

    Now, let’s use some real numbers to help illustrate how to use the 4% Rule to project your magic retirement number.

    Here’s how to use the 4% Rule to forecast your magic retirement number.

    Let’s look at an example using the 4% Rule to forecast your magic retirement number.

    Let’s say that you reviewed your Budget After Thinking and learned that you spend $6,000 per month in Now Money and $4,000 per month in Life Money. 

    Combined, that means your lifestyle costs you $10,000 per month, or $120,000 per year.

    To figure out how much you would need in investments to cover your current lifestyle for 30 years, divide $120,000 by .04.

    Current Spending / 4% (.04) = Magic Retirement Number

    Under the original 4% Rule, that means to maintain your current lifestyle of spending $120,000 per year for 30 years, you would need $3 million in investments.

    In other words, your magic retirement number is $3 million.

    a chalkboard with the word possible written on it showing what's possible with the 4.7% Rule.
    Photo by Towfiqu barbhuiya on Unsplash

    If that number seems impossibly high to you, the updated 4.7% Rule should make you feel a little better:

    Current Spending / 4.7% (.047) = Magic Retirement Number
    $120,000 / .047 =$2,553,191.49

    Based on the updated 4.7% Rule, you now only need $2.5 million instead of $3 million to maintain your current lifestyle in retirement.

    That’s fun news.

    Use the 4% Rule as an easy projection tool, not an actual withdrawal rate.

    Whether you want to use the 4% Rule or the updated 4.7% Rule, keep in mind that these are projection tools.

    I view the 4% Rule as a tool to ballpark your magic number, as opposed to a strict withdrawal rate once you actually retire. 

    I point that out because there’s some debate in the personal finance community as to whether 4% is still a safe withdrawal rate in today’s economic environment. 

    For our purposes, I’m not too concerned about that debate.

    Once you get to retirement, your actual withdrawal rate may be higher or lower than 4% depending on a variety of factors. Put another way, you will need to adjust how much you withdraw each year based on factors outside your control.

    Regardless, the 4% Rule is a great way to start thinking about how much you’ll need to save for retirement. Attaching an actual number to your retirement goals is extremely helpful.

    Like Bengen argues in A Richer Retirement: Supercharging the 4% Rule to Spend More and Enjoy More, the point of saving money now is to spend it and enjoy it later.

    For people who are used to saving aggressively during their working years, it can be hard to switch to a spending mindset.

    Whether you’re nearing retirement or still have years to go, A Richer Retirement: Supercharging the 4% Rule to Spend More and Enjoy More will help you find that balance.

    Have you read A Richer Retirement: Supercharging the 4% Rule to Spend More and Enjoy More? What did you think?

    Will you update your retirement planning based on the new 4.7% Rule?

    Let us know in the comments below.

  • Capital One Settlement: A Reminder to Evaluate Your Bank

    Capital One Settlement: A Reminder to Evaluate Your Bank

    How long have you been with your current bank?

    Do you even remember why you opened an account with that bank in the first place?

    For many of us, we opened our first “adult” bank accounts in our 20s. We probably just picked the closest bank to our apartment. I doubt many of us (myself included) put much thought into who we banked with.

    Because it’s human nature to resist change, I’m guessing many of us have never thought about whether that bank is still a good fit at the current stage of our lives.

    In light of Capital One’s massive class action settlement based on allegations that it deceived its customers, now seems like as good a time as ever to revaluate who we bank with.

    More on the settlement below.

    First, a little personal context about why I’m thrilled that Capital One is not getting away with its deceptive scheme.

    I banked with Capital One for many years.

    For a long time, I used Capital One for all my savings accounts. When I started law school in 2006, there was a Capital One cafe right next to my school.

    You could get a cup of coffee for $.75 and talk to a banker at the same time. It was a cool concept and convinced me to bank with Capital One.

    I told everyone about how great Capital One was. I had Capital One savings accounts and a Capital One credit card. You could say I was a huge Capital One fan.

    Key word: was.

    In November 2023, I had been a loyal Capital one customer for 17 years. This was during the time period when interest rates on savings accounts were rising dramatically. 

    Many banks were advertising rates as high as 4% or 5%, which were higher than most of us had ever seen.

    One day that November, for whatever reason, I logged into my Capital One account to see what rate I was earning.

    I was sure it would be in the 4% range, and probably closer to 5%, since Capital One was a leader in online banking.

    When my statement loaded, I was shocked.

    0.30%!

    Shocked probably isn’t the right word. I was disgusted. 

    0.30% in 2023 might as well have been 0.0%.

    I refused to believe that a bank that I had banked with for 17 years could do this to a loyal customer.

    What the heck happened?

    Well, Capital One, unbeknownst to me, switched my savings from its high interest platform into an account with the much lower interest rate.

    At the same time, Capital One was still advertising and offering top rates to new customers.

    When I discovered the sneaky switch, I immediately closed all of my accounts and transferred my money to a new bank. I no longer have a Capital One credit card, either.

    It wasn’t the amount of interest I lost out on that bothered me. 

    This all happened during that time when my wife and I were aggressively acquiring properties, so we never had a lot of money sitting in savings for an extended period.

    So, my anger wasn’t just about the interest.

    For me, it was about the principle. I don’t want to have any relationship with a bank that would do that to its customers, especially long-term customers like me.

    I did a quick search in my inbox and found a Capital One statement from December 2022 showing a 0.30% interest rate. That means Capital One had deceived me for at least a year before I caught on. 

    I have to admit that writing this post is reopening old wounds. Although, learning about the settlement definitely helps.

    a bank sign lit up in the dark as a reminder to always evaluate your banking relationships.
    Photo by POURIA 🦋 on Unsplash

    I am happy to report that Capital One did not get away with it.

    It wasn’t just me who was getting ripped off by Capital One.

    I am one of the many people that Capital One switched out of high interest rate savings accounts into inferior products.

    These deceptive practices were subject of a federal lawsuit brought by the Consumer Federal Protection Bureau.

    Additionally, disgruntled customers filed a class action lawsuit to recoup the interest that people like me missed out on.

    All is well that ends well, right?

    I am pleased to share that Capital One agreed to a $425 million class action settlement for its deceptive practices.

    A court hearing for final approval of the settlement has been scheduled for November 6, 2025.

    If you are, or were, a Capital One 360 Savings account holder at any time from September 18, 2019, through June 16, 2025, you are automatically eligible for benefits. You do not need to fill out a claim form.

    Note: if you’d like to update your mailing address or receive an electronic payment, you can do so here.

    What are the terms of the settlement?

    According to the Notice of Settlement:

    Capital One shall pay $300 million, to be used to make pro rata payments to settlement class members relative to the approximate amount of interest each settlement class member would have earned if their 360 Savings account(s) had paid the interest rate then applicable to the 360 Performance Savings account.

    Translation: if you had a Capital One 360 account, you are going to be paid “some” of the interest you were owed.

    The reason I say “some” is because of the word “relative” in the above paragraph from the notice.

    Capital One allegedly cheated customers out of $2 billion in interest. The settlement is for $425 million. Based on that discrepancy, it does not appear we will get all of the interest we are owed.

    Hopefully, I’m wrong about that and we all receive the full interest we are owed.

    Disclaimer: I am not involved in the settlement negotiations and this is not legal advice.

    If you remained a customer, you will receive an additional settlement amount:

    The second component consists of $125 million, which will be paid by Capital One as additional interest payments to settlement class members who continue to maintain 360 Savings accounts (presently approximately 3/4 of the settlement class). In order to accomplish such additional interest payments, Capital One shall maintain an interest rate on the 360 Savings account of at least two times the national average rate for savings deposit accounts as calculated by the FDIC.

    Translation: If you continue to bank with Capital One, you will receive some additional money. How much you’ll get is complicated.

    By the way, I am happy to learn that customers who stayed with Capital One despite its deceptive practices will earn some additional money.

    In the end, regardless of how much we receive, this news makes me very happy.

    I don’t really care about the payment at this point. I’m happy that Capital One isn’t getting away with its deceptive practices.

    And, I’m happy that news of the settlement serves as a good reminder for all of us to evaluate our current banking arrangements.

    Even with the settlement, I still won’t bank with Capital One again. I cancelled my accounts as soon as I learned that the bank was ripping me off.

    Maybe I’m being childish, but I still refuse to give my business to a company that blatantly deceives its long-time customers.

    ATM showing the importance of always evaluating your banking relationship.
    Photo by Johnyvino on Unsplash

    Why do stories like Capital One’s deceptive practices matter?

    The lesson here is that we all need to regularly evaluate our banking relationships. There is no such thing as “set it and forget it” when it comes to our money.

    You could say stories like this are good reminders to regularly think and talk about money.

    The last thing any of us needs is to be tricked by our own banks. The more we talk about what’s going on, the better chance we will catch these schemes before it’s too late.

    The point is: no matter how much you trust your bank, keep an eye on your accounts.

    No, I am not so cynical that I think all banks are out there intentionally ripping us off.

    However, massive scandals like this are not the only red flags to look out for. Banks notoriously have hidden fees and confusing rules.

    If you are not paying attention to your money, you may be unknowingly paying fees or missing out on better opportunities. It’s up to each of us to regularly evaluate whether our bank is continually providing us with the services we need.

    Are you a current or former Capital One customer?

    If this is the first you’re hearing about Capital One’s deceptive practices, will you continue to bank with them?

    Let us know in the comments below.

  • Stop Feeling Guilty and Annoyed About Spending Money

    Stop Feeling Guilty and Annoyed About Spending Money

    No matter how far along you are on your personal finance journey, you will always need to make choices on how to spend your money.

    I recently wrote about how I felt annoyed when I wanted to buy a new bike and new golf clubs.

    You have to make decisions like this whether you make a lot of money or very little money.

    The more money you make, the harder these choices can be. When I was in my 20s, traveling and a social life were my biggest spending challenges.

    Now that I’m in my 40s, it’s making good spending choices for not only me, but my wife and three kids.

    The other day, I confessed that I was annoyed because my goal to pay off debt was keeping me from buying a new bike or new golf clubs.

    What I’ve realized since then is that I also felt guilty about spending money on myself when I could better spend that money on my kids.

    I felt guilty because my five-year-old wants to learn how to ride a bike. I should buy her a bike and teach her to ride before I splurge on a new bike for myself, right?

    With powerful feelings like annoyance and guilt, how can we make good spending decisions even as we make more money?

    Don’t ignore key personal finance fundamentals even as you start to make more money.

    What I’ve learned as my career and family obligations evolve is that it’s easy to forget the little things I used to focus on when money was tight.

    This recent experience reminded me that I need to step back and focus on personal finance basics.

    I’m not alone in needing a reminder from time to time about personal finance fundamentals, like budgeting. I talk to plenty of people who tell me that they kept a budget in their 20s but not so much in their 30s and 40s.

    They share with me that even though they’re making more money, it seems like they have less and less money to spend.

    I totally get it because I was the same way. I tracked every penny I made in my 20s until I learned how to stay on budget with two simple numbers. Recently, I haven’t been as diligent.

    My recent dilemma with the new bike and golf clubs reminded me to go back to the fundamentals.

    The benefit is that by remembering the basics, I can help myself by taking the anxiety and guilt out of these types of spending choices.

    So, what are the fundamentals I’m referring to?

    After I wrote that post about the new bike and golf clubs, I reviewed my top 10 budgeting tips for lawyers and professionals.

    My Top 10 Budgeting Tips for Lawyers and Professionals

    1. See the ball go through the hoop.
    2. Don’t cancel your social life.
    3. Talk to your friends about your life money.
    4. Keep on traveling.
    5. Spark and cut.
    6. It’s OK if you occasionally exceed your spending.
    7. Make a game out of it, like the $500 challenge.
    8. Buy it if you want it, but not right away.
    9. You don’t have to go big or go home.
    10. Plan ahead for budget busters.
    person walking inside shopping center showing that we all have choices to make when it comes to our spending.
    Photo by Heidi Fin on Unsplash

    These budgeting strategies helped me realize that I can choose to spend money on what I want and shouldn’t feel guilty or annoyed.

    The key is understanding how a certain purchase fits into the rest of my overall spending.

    On this occasion, 3 of my top 10 budgeting tips stood out and helped me with what to do about the new bike and golf clubs.

    Let’s take a look.

    6. It’s OK if you occasionally exceed your spending.

    What should you do if you overspend one month? Don’t get discouraged and give up. Before all your hard work goes to waste, take the next month to course correct. 

    If you overspent by $300 in August, make it a priority to underspend by $300 in September.

    Is this easier said than done?

    Well, sure. It’s always easier to say you’re going to do something. The hard part is following through. It will take discipline to get back on track. What will drive that discipline? 

    Once again, it’s your ultimate life motivations that we’ve talked so much about (and will always continue to talk about). Without that clear vision of your ideal life in front of you, no budget will ever last.

    Don’t panic. Course correct. Stay on track.

    Even though I didn’t buy the new bike or golf clubs, if I chose to do so, I could course correct the next month.

    Going over budget for just one month is fixable. The key is to not blow my budget multiple months in a row.

    If I did that, I would end up digging a hole so deep that it would be a major challenge to get back to good spending levels.

    8. Buy it if you want it, but not right away.

    Just because I didn’t buy the bike or golf clubs yet doesn’t mean I can’t buy them in the future when the time is right.

    I always think of my mom when I see something that I want to buy but know I shouldn’t buy it right away.

    About 10 years ago, my mom bought me a jacket for a birthday present. It was the exact jacket I wanted. How did she know, I asked her. “You mentioned it when we were downtown four months ago.” Four months ago!

    I shouldn’t have been surprised. My mom has one of those steel trap memories.

    If you only met her for five minutes and then saw her again two years later, don’t be surprised when she asks about your consulting gig, your trip to New Orleans, and that blue dress that she really liked.

    I learned from my mom’s gift strategy and modified it to help myself resist the temptation to make impromptu purchases. I don’t have her memory, but I do have a phone with a notes function. 

    When I see something that I might want to buy, I do my best to resist the temptation of buying it immediately and make a note in my phone. After a couple weeks, if I still want that thing, I buy it. 

    More times than not, I no longer want whatever it was that tempted me in the moment.

    If I still want the bike or golf clubs a few weeks from now, I can still buy them. By waiting, I also might benefit from end-of-the-season sales and can shop around for the best offers.

    10. Plan ahead for budget busters.

    Budget busters are any inconsistent expenditures, good or bad, that can derail your planning. 

    Good budget busters might include trips, weddings, and holiday/birthday gift shopping.

    We can also add a new bike and golf clubs to the good budget busters category. These certainly count as irregular expenses but can wreck our budgets if we don’t properly plan for them.

    Bad budget busters include unexpected car repairs, home repairs, or medical expenses.

    Note, budget busters are inconsistent; they are not unexpected. These expenditures are 100% predictable every year, we just don’t always know when they will surface. 

    woman counting dollar bills indicating the choices we all have to make with our spending and budget.
    Photo by Alexander Grey on Unsplash

    Planning ahead for budget busters is crucial to staying on track.

    To do so, open up a savings account, preferably at a different bank than your checking account. This helps isolate those funds so those dollars don’t disappear. 

    As part of our really lost boy’s Budget After Thinking, you’ll recall that we had a separate line item for budget busters in both our Now Money (bad budget busters) and Life Money (good budget busters).

    I encourage you to do the same. Each month that you don’t spend your budget buster money, transfer it to your savings account so it’s there when you need it.

    One more bonus tip for dealing with budget busters.

    We talked above about how to course correct when you exceed your budget in one month. On the flip side, what should you do when you’ve had a great month and underspent? 

    I recommend you transfer the amount you underspent to your budget busters savings account. Don’t let that hard-earned money sit in your checking account. 

    Those dollars will disappear. By transferring them to savings, those dollars will be at your disposal when needed.

    Instead of buying the bike or golf clubs now, I can transfer some funds in my savings account and wait to go shopping until I have enough saved up.

    Don’t ignore your budget even if you’re far along on your personal finance journey.

    My experience with the new bike and golf clubs served as a great reminder to revisit personal finance fundamentals, like budgeting.

    If you haven’t thought about your spending choices in a while, now is a good time to do it.

    The 10 budgeting strategies mentioned above have worked for me in the past and continue to work for me today. 

    If you review those top 10 strategies, I hope you see that making good spending choices does not have to make us feel annoyed or guilty.

    It just takes a little mental energy, exerted ahead of time.

    When making good spending choices becomes part of your everyday life, you can eliminate the guilt and anxiety that comes with tough choices, like buying a new bike or golf clubs.

    Have you been in a similar situation where you wanted to buy something but were worried about how it fit into your overall budget?

    What did you decide to do?

    Let us know in the comments below.

  • Debt is Really Annoying When you Want to Buy Fun Things

    Debt is Really Annoying When you Want to Buy Fun Things

    Debt can be really annoying.

    I’ve been having that thought a lot recently while on vacation with my family.

    Let me explain.

    With three young kids, I haven’t focused much on personal hobbies lately. However, being on vacation has allowed me to focus on some fun stuff, like biking and golfing.

    The annoying part?

    Hobbies can be expensive.

    I went for a great bike ride the other day. It was challenging and fun. I felt accomplished and fit. These are feelings I’d like to replicate as much as possible.

    So, when I got home, I started looking for a new bike online.

    The next day, I played golf. Same thing happened. Had a great time. Hit some good shots. Felt encouraged and excited about my golf game slowly improving.

    So, I went home and started shopping for new golf clubs.

    Whether it was biking or golfing, I realized how important hobbies are for all of us. I had fun and distracted myself from the stresses of life.

    I was tempted to buy a new bike or new golf clubs as a way to motivate myself to continue those hobbies.

    But, I’m not going to buy the bike or the golf clubs.

    At least not until I accomplish my 2025 money goals.

    Which brings us back to why I’ve been thinking lately about how annoying debt is.

    My main 2025 money goal is to eliminate HELOC debt.

    At the beginning of the year, my wife and I talked about our money goals for the rest of the year.

    After talking it through together and weighing all our options, we came up with these three goals for 2025: 

    1. Our first goal is to continuing paying down our mortgage debt. We used HELOCs to help us acquire some of our properties. Now that we’ve determined that “enough is enough,” we’re focused on paying back these loans.
    2. Our second goal is to build up our emergency savings. We mostly ignored our emergency savings between 2017 and 2024. It was risky and led to some touch-and-go moments that we’d like to avoid moving forward.
    3. Our third goal is to boost our contributions to our kids’ college savings accounts. We use what’s called a “529 college savings plan.” 529 plans are state-sponsored, tax-advantaged investment accounts. We use Illinois’ 529 plan because we receive a tax break as Illinois residents. Just about every state offers a 529 plan. They are a great way to save for college.

    With our plan in place ahead of time, we know where every dollar is going before we earn it. This takes the anxiety out of trying to figure it out after the money has already hit our bank account. 

    With less than half of the year remaining, we’ve made great progress on our goals. But, we still have a ways to go.

    We still have HELOC debt to pay off. And until that debt is gone, I’m not buying a new bike or new golf clubs.

    It’s important to me that I stay disciplined and stay on track with my goals.

    Even though I’m happy that I used HELOCs to build my real estate portfolio, I’ve felt how heavy that debt load can be.

    Now that the end is in sight, I don’t want to jeopardize my progress by buying expensive toys that I don’t really need right now.

    I can still go biking without a new bike. I can still play golf without new clubs.

    Most importantly, I know that the emotional high I’ll get from buying something new will dissipate quickly. And, I’ll still have that debt to carry around.

    So, for now, I’m passing on the bike and the golf clubs. I did make a note in my journal that these are things I might like to buy when the time is right.

    Until then, I’ll continue to prioritize my money goals and work to eliminate my HELOC debt.

    golf course with flag stick indicating what I'll buy when I'm out of debt.
    Photo by Michael Jasmund on Unsplash

    Student loan delinquencies continue to rise.

    According to the Federal Reserve Bank of New York, student loan delinquencies continue to rise:

    Missed federal student loan payments that were not previously reported to credit bureaus between 2020Q2 and 2024Q4 are now appearing in credit reports.

    Consequently, student loan delinquency rates continued to rise. In the second quarter of 2025, 10.2% of aggregate student debt was reported as 90+ days delinquent.

    You may not have HELOC debt like me, but the odds are that as a young lawyer or professional, you have student loan debt to pay off.

    You may have to make spending choices like I did with the new bike or new golf clubs.

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

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

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

    All debt acts as a roadblock to financial freedom.

    Student loans are no different.

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

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

    It was easy to forget about student loans during the pandemic. Now, student loans are once again a major financial obstacle for many lawyers and professionals.

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

    And when we do get rid of them for good, there might not be a better personal finance feeling in the world.

    Personally, I’ll never forget the day I made my last payment and shared the news with my future wife and family.

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

    You can check out the full post here.

    Top 10 Student Loan Tips for Lawyers and Professionals

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

    Have you ever felt how annoying debt can be?

    Whether it’s HELOC debt or student loan debt, all debt can feel really annoying. Debt can stop us from doing the things we really want to do in life.

    I don’t regret taking out student loans. I also don’t regret using HELOCs to build my real estate portfolio.

    It’s true that I wouldn’t be where I am today without my education and my rental properties.

    Still, I have to make choices with my limited dollars. I took on the obligation of paying back my debts, and until I do so, fun things are going to have to wait.

    When I finally do buy that bike or those golf clubs, it’s going to feel even better knowing I didn’t sacrifice my goals to get them.

    Have you made certain spending choices because of debt?

    How did you think about and eventually decide whether to move forward with that purchase?

    Let us know in the comments below.

  • The Best Ways to Come Up with a Rental Property Down Payment

    The Best Ways to Come Up with a Rental Property Down Payment

    Coming up with the down payment is probably the biggest impediment to lawyers and professionals who want to buy a rental property.

    If you’re serious about acquiring a rental property and are worried about the down payment, these tips will help get you moving in the right direction.

    Each of these strategies involves some sort of trade-off.

    There are no short cuts.

    In the end, the trade-offs are well worth it. Owning real estate is one of the best way to accelerate your journey to financial freedom.

    Let’s take a look at my list of the best ways to come up with a down payment for a rental property.

    @thinkandtalkmoney

    It’s no secret that in order to buy a rental property, you first need available money for the downpayment. But how? #thinkandtalkmoney #downpayment #hummingbird #financialfreedom #personalfinance

    ♬ original sound – Thinkandtalkmoney

    1. Increase your saving rate.

    Do you know what your current saving rate is?

    Your saving rate is simply the amount of money you save each month divided by the amount of money you make. I find it most useful to express your saving rate as a percentage.

    Saving rate % = (Money Saved / Money Earned) x 100

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

    In a moment, I’ll show you the math on how to quickly improve your saving rate whenever you earn a pay bump.

    You might be surprised to learn how many lawyers and professionals out there make a lot of money and maintain a very low saving rate.

    If your current saving rate is under 20%, you have a lot of room to improve.

    It’s not uncommon for people striving for financial freedom to have a saving rate of 50% or more.

    By the way, when I first start tracking my saving rate in my 20s, I had a negative saving rate.

    I was spending more than I was earning. If you’re currently in that position, it’s not too late to make some changes.

    If you’re serious about coming up with the money for a down payment, your saving rate is the place to start.

    2. Revisit your Budget After Thinking.

    If your current saving rate is under 20%, it’s time to look closely at your Budget After Thinking.

    If you haven’t created a budget before, the first step is to track your spending for three months. The goal is to find out where exactly your money is going.

    You may learn that you’ve been victim to the disappearing dollar.

    Once you have a decent idea where your money is going, the next step is to look for areas where you can reduce your spending.

    Ask yourself, “what spending is truly important to me and what spending can I cut?”

    As you start spending less and your saving rate improves, every additional dollar should go in a separate savings account earmarked for a future down payment.

    Real estate business finance background template. Calculator door key indicating the hardest part to buying real estate is coming up with the down payment.
    Photo by Jakub Żerdzicki on Unsplash

    3. Don’t spend your pay bump.

    Most lawyers and professionals have the opportunity to earn bonuses, commissions and raises throughout their careers.

    When you receive one of these pay bumps, don’t spend the money.

    Pretend like you never got it.

    Deposit this money right away into a separate savings account labeled “Down Payment Savings.”

    Here’s an example of how much your saving rate can improve when you don’t spend your pay bump.

    Let’s assume that before your raise, your take home pay was $70,000 per year after taxes and retirement plan contributions. 

    Let’s also assume you were putting $1,000 per month towards your down payment savings.

    Using our saving rate percentage formula above, we see that:

    • Money Earned = $5,833 per month ($70,000 / 12)
    • Money Saved = $1,000 per month
    • Saving Rate = $1,000 / $5,833 = .17
    • Saving Rate Percentage = 17%

    17% of your take home pay for a down payment is pretty good.

    Now, let’s see what happens if you earn a $20,000 raise and save your entire raise for your down payment.

    With your raise, your annual take home pay has now climbed to $84,000, or $7,000 per month. 

    Look what happens to your saving rate percentage when you add the full raise to your down payment account instead of spending it:

    • Money Earned = $7,000 per month ($84,000 / 12)
    • Money Saved = $2,166 per month
    • Saving Rate = .31
    • Saving Rate Percentage = 31%

    You more than doubled your monthly down payment contributions and improved your saving rate to 31%!

    Not spending your pay bumps is one of the fastest ways to accumulate enough money for a down payment on a rental property.

    This is exactly how my wife and I saved enough money to buy our four rental properties. It’s how we’re going to buy our next rental property.

    Whenever we earn a pay bump, we pretend nothing happened. We tell ourselves the money isn’t ours, yet. We put it in a separate savings account right away.

    Once we have enough to buy another rental property, we’ll go shopping again.

    4. Take on a partner.

    Many beginner real estate investors don’t have the money for a down payment on their own. One solution is to take on a partner.

    There are a lot of lawyers and professionals out there who want to invest in real estate but don’t want the hassle of finding a deal and being a landlord.

    That’s where you come in.

    You can offer to do all the work and your partner can put up the initial money. Then, you both share in the profits.

    If you go this route, make sure you’ve done your homework on evaluating potential properties. When you approach a potential partner, it’s important to demonstrate that you know what you’re doing.

    5. Ask Mom and Dad for help getting started.

    A recent study showed that half of parents provide their adult children with regular financial support.

    If your parents are in a financial position to assist you, it might be worth having the conversation with them about partnering up on a deal.

    The same as working with any other partner, your job is to do your homework and illustrate to your parents why buying a rental property is a sound investment.

    If you show them that you’re serious about reaching financial freedom through real estate, you’ll have a better chance of convincing them to partner with you.

    The advantage of partnering with your parents is that you should be able to get better terms than you would on the open market.

    Some people are too proud, or too deferential, to ask their parents for help. I understand it can be a sensitive topic.

    I also strongly believe that we all benefit when we talk about money with our loved ones. Even if your parents are not in position to help you directly, they may have other ideas to help you get started.

    Talking about money is not taboo. If you can’t talk about money with your parents, who can you talk to?

    6. Get a side hustle.

    If you’ve successfully created a budget and still need to generate more fuel, have you thought about a side hustle?

    Some lawyers and professionals reading this won’t even allow themselves to consider a side hustle. They automatically think, “I’m way too skilled or busy to even think about another job.” 

    In my personal finance class, we spend a lot of time challenging that notion. 

    Very few people- and I mean very few- are too important or too busy to take on a side hustle.

    For most of us, it’s an excuse.

    You may think you’re one of those “too important” people. 

    I would challenge you to assess whether you’re confusing “too important” with “too stressed” or “too tired” or “too cool.”

    Is continuing to worry about money really better than spending a few hours a week earning extra money doing something you love?

    The ideal side hustle is something you enjoy doing that can earn you extra money at the same time.

    Some examples of side hustles my students have come up with in class include:

    • Home Baker. Make homemade treats with your kids and sell them to parents who don’t have the time.
    • Bartending. Entice your friends to come to your bar by offering cheap drinks. You get to hang out with them and get paid at the same time.
    • Fitness instructor. Instead of paying $48 for the spin class you love, become the instructor and get paid to lead the class.
    • Dog Walker. If you love dogs and don’t currently have one of your own, what better way to fill that void in your life while making money. The same applies to babysitting.
    • Part-time Property Manager. Is there a better way to learn the business and make some money on the side than being a part-time property manager?
    Unicorn money box and coins stacked for saving money for a down payment.
    Photo by Annie Spratt on Unsplash

    7. Use a HELOC.

    Using a HELOC to buy investment properties is one way real estate investors scale quickly. I’ve used a HELOC to help buy investment properties three separate times.

    A Home Equity Line of Credit (HELOC) allows you to borrow money, in the form of a loan, against the equity in your home. Equity is the value of your home less what you owe on a mortgage.

    Think of a HELOC as a second mortgage on your property. Just like with a primary mortgage, when you open a HELOC, the bank charges interest and is protected by the equity in your home.

    You can use a HELOC as you would use cash, including for a down payment on a rental property.

    Once your HELOC is open, you can use the funds as you would cash.

    All you need to do is link your HELOC account to your primary checking account. You can make transfers into your checking account, as needed, up to your full HELOC credit limit. 

    With a HELOC, once the transfer hits your checking account, you can spend that money just as you would any other money.

    This is a huge advantage if you want to use a HELOC as a down payment to buy an investment property.

    That’s because lenders heavily scrutinize where you are getting the funds you plan to use to close on a property. HELOC funds are almost always allowed to be used for a down payment. 

    On the other hand, cash advances from credit cards are typically not allowed for a down payment on a conventional loans.

    For a deep dive into how I’ve used HELOCs three separate times to help buy rental properties, check out my post here.

    8. Consider a low down payment loan.

    There are numerous loan options available that require low down payments, or even no down payments.

    Here are some of the more common low-down payment loans:

    • 3% Conventional Loans. These are loans backed by the federal government and include Home Possible and HomeOne loans. I used a Home Possible loan to acquire my first rental property.
    • FHA Loans requiring as low as 3.5% down. FHA loans are also backed by the federal government and require a down payment of as low as 3.5%.
    • VA Loans and USDA Loans. These are both excellent loan products offering low down payments for those whoa re eligible.

    Besides these government-backed down payments, there are various private loan programs available that offer low down payments.

    With all of these loans, keep in mind that there are eligibility requirements that limit the accessibility of these programs. There are also additional fees and costs that need to be considered.

    The key is to do your homework and work with a mortgage broker who is well-versed in the available options for your personal scenario.

    Have you considered any of these options to help acquire a rental property?

    Coming up with the down payment is probably the biggest impediment to lawyers and professionals who want to acquire a rental property.

    If you’re serious about acquiring a rental property and are worried about the down payment, these tips will help get you moving in the right direction.

    Remember that buying and holding rental properties is a long-term game. If it takes you a couple of years to save enough for a down payment, that’s OK.

    The best real estate investors understand that owning rental properties is not a “get rich quick” strategy.

    Stay patient, save money, and your portfolio will grow immensely over time.

    Have you used any of the above strategies to acquire rental properties?

    What other strategies have you used?

    Let us know in the comments below.

  • Dreaming About Rental Properties but Ignoring Money Mindset?

    Dreaming About Rental Properties but Ignoring Money Mindset?

    Do you dream about owning rental properties so you can generate semi-passive income while spending more time with your family?

    @thinkandtalkmoney

    Nothing else matters if you don’t have the right money mindset. #thinkandtalkmoney #moneymindset #personalfinance

    ♬ original sound – Thinkandtalkmoney

    I want to hear about those dreams. What would you do with that time?

    Travel?

    Exercise?

    Read?

    It’s so motivating for me to learn what you would do with that kind of freedom.

    At the same time, it’s my job to remind you to not ignore key personal finance fundamentals while you’re dreaming about the future.

    When it comes to buying rental properties, this is especially true.

    Let me explain.

    If you’ve been keeping up with the blog, we’ve now learned how to run the numbers on potential real estate deals.

    In fact, I showed you that the analysis is not actually that hard. Your job is simply to account for the fixed costs and make informed predictions for the speculative costs.

    Then, we did the math together on an actual property in my target zone. By using a real example in Chicago, my goal was to further convince you that running the numbers should be easy.

    Finally, we talked about how to evaluate a rental property when the initial math looks bad. The truth is most rental properties are not going to immediately look like great investments. It’s our job as investors to negotiate and look for potential.

    By this point, you may be thinking that buying a rental property sounds great, except for one big problem:

    How are you supposed to come up with the money for a downpayment?

    Great question.

    It’s such a great question that it requires us to take a step back.

    Before evaluating rental properties, you need to evaluate your personal finances.

    It’s no secret that in order to buy a rental property, you first need available money for the downpayment.

    Unless you plan on taking on partners or getting the money from family, coming up with a sufficient downpayment is a major challenge.

    Yes, there are loan options available that require a smaller downpayment. We’ll soon talk about some of those options. I’ve used loans like this in the past.

    Still, a “smaller downpayment” does not mean “no downpayment.”

    So, how can you come up with a downpayment?

    For a downpayment, you need to have available money.

    To have available money, you need a budget that actually works.

    To have a budget that actually works, you need honest, powerful life goals.

    Does this sound familiar?

    It all comes back to money mindset.

    When was the last time you checked in on your money mindset?

    If you take a look at the Think and Talk Money homepage, you’ll see six main category tabs across the top of the page:

    Each one of these categories builds upon the previous categories.

    It all starts with money mindset.

    A strong money mindset is the foundation of the personal finance journey. Maintaining a strong money mindset requires constant and intentional thought.

    wooden boat on blue lake during daytime indicating what you can do with financial freedom.
    Photo by Pietro De Grandi on Unsplash

    I revisit my money mindset every week by taking a quick look at my Tiara Goals for Financial Freedom.

    It may seem overly simplistic, but money mindset is what separates people who reach financial freedom from those who struggle to get ahead in life.

    Don’t believe me?

    Budgeting is really not that hard. We all understand the basic concept: spend less money than you earn. Still, most of us can’t do it.

    The same applies to debt and credit. We all know to avoid debt. We know to use credit responsibly. So, why don’t we do it?

    Investing can seem complicated at first. Is it really that hard? Entire books and websites have been created to show you how to create massive wealth through simple index funds.

    What about buying rental properties? We did the math together. Analyzing deals is not that hard. The impediment for most people is coming up with the money for a downpayment.

    You may be in a similar boat right now. You want to buy a rental property but you’re discouraged because you don’t have the downpayment saved up.

    It’s not just about how much money you make.

    Buying rental properties is not just about how much money you make. Plenty of lawyers and professionals make a lot of money and struggle to come up with any excess money to invest.

    Sadly, the struggles don’t just relate to coming up with money for investments.

    Lawyers as a profession have long struggled with mental health issues. I first learned about these challenges during law school orientation. Today, I see it in practice.

    Being a lawyer is a hard way to make a living. When you work as a lawyer, the hours are intense and stress levels are consistently high.

    In 2023, the Washington Post analyzed data from the U.S. Bureau of Labor to determine what the most stressful jobs are. The study confirmed that lawyers are the most stressed.

    Of course, lawyers are not alone in struggling in this regard due to long, stressful hours.

    The same study showed that people working in the finance and insurance industries were right up there with lawyers as being highly stressed.

    Well, what can we do about it?

    How can we address these struggles?

    Where can we find money for a downpayment?

    I have some thoughts.

    How motivated are you to truly get ahead in life?

    Are you truly motivated to get ahead in life?

    Have you worked on your money mindset and found the motivation to actually create a budget that generates savings?

    If you’ve successfully created a budget and still need to generate more fuel, have you thought about a side hustle?

    When I mention side hustle, is your initial reaction that you’re too busy or important?

    Some lawyers and professionals reading this won’t even allow themselves to consider a side hustle. They automatically think, “I’m way too skilled or busy to even think about another job.” 

    In my personal finance class, we spend a lot of time challenging that notion.

    Very few people- and I mean very few- are too important or too busy to take on a side hustle.

    For most of us, it’s an excuse.

    You may think you’re one of those “too important” people.

    I would challenge you to assess whether you’re confusing “too important” with “too stressed” or “too tired” or “too cool.”

    Is continuing to worry about money really better than spending a few hours a week earning extra money doing something you love?

    Setting that conversation aside, the ideal side hustle is something you enjoy doing that can earn you extra money at the same time.

    Some examples of side hustles my students have come up with in class include:

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

    How about this idea for aspiring real estate investors: part-time property manager?

    My wife and I recently needed some help with apartment showings. We reached out to one of our favorite young people in the world to see if she’d be interested.

    A chance to make some money on the side and learn a new skill?

    She jumped on board without hesitation.

    We’ve known her for years and were not the least bit surprised. She’s exactly the type of person who will no doubt be successful in whatever she chooses to do.

    There is always a way to make more money.

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

    Then, when you make that extra money, put it to work for you. Make all your hustle worth it.

    At that point, we can talk about investing or buying real estate.

    Unfortunately, most people don’t want to go through this process.

    woman walking on street surrounded by buildings and thinking about own rental properties.
    Photo by Timo Stern on Unsplash

    Too many lawyers and professionals come to me and primarily want to talk about investing or buying real estate.

    They want to skip the foundation and jump right to the more exciting stuff.

    Most of the time, these are people who have never kept a budget. Or, they have massive student loan debt with no real plan to pay it off. Maybe they have a good W-2 job but no other sources of income.

    When I start exploring their situations with them, it’s clear they haven’t thought much about the personal finance building blocks.

    When they mention how hard it is to save for a downpayment, they haven’t considered looking for a new job that pays more or starting a side hustle.

    Before jumping right to owning rental properties, these are the personal finance obstacles that need to be addressed.

    If this sounds like the situation you are in, your ongoing mission is to generate more cash to fuel investments.

    The fun part is once you’ve discovered your motivations and established strong habits, you will consistently have money available so you can invest month after month for the rest of your life.

    My wife and I would not own five properties today if we didn’t first learn personal money wellness. 

    My wife and I would not own five properties (11 rental units) today if we had not first learned money wellness fundamentals.

    I don’t just mean we wouldn’t have had money available to invest, although that is certainly true. 

    I also mean we wouldn’t have the skills and knowledge to successfully run our real estate business.

    If you’ve ever wanted to be a business owner or investor, working on personal finance skills now is critical.

    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 that made $1,000,000 per year, and at the end of the year, had only invested $20,000, what would your reaction be?

    What if you knew someone who made $100,000 per year and invested $20,000? Did your reaction change?

    How often do you think about your money mindset?

    Do you tend to think more about the “fun stuff” (investing, real estate) than the fundamentals (money mindset, budgeting, debt, etc.)?

    Let us know about your money mindset in the comments below.

  • How to Analyze a Property When the Initial Math Looks Bad

    How to Analyze a Property When the Initial Math Looks Bad

    Most rental properties that you evaluate are not going to immediately look like great investments.

    Does that mean you should just give up?

    No way.

    It’s up to us as real estate investors to research, negotiate and buy properties only at the right prices. Or, to buy properties that have untapped potential.

    Ideally, we can do both.

    The other day, we ran the numbers on an example property in Chicago that had caught my eye in.

    Through that example, we learned what costs to include in our initial analysis to quickly determine if a property was worth pursuing further.

    Today, we’ll look at the next step of the evaluation process.

    Specifically, we’ll focus on what we can do when the initial math on a potential property doesn’t look very attractive.

    Now, let’s get to it.

    Our example property is a small multifamily building in Chicago.

    Our example property is a five-unit apartment building listed for $1,800,000 and located directly in my target zone in Chicago.

    Remember, this analysis is for educational purposes only. You are responsible for running your own numbers on any potential deal.

    Here’s the listing description from my preferred listing site, Redfin:

    Fully Gut Renovated 5-unit building, a prime turnkey investment opportunity in the best Logan Square Location Possible. Double Vanities, Fully built out walk in closets, in unit W/D, tankless hot water heaters, thin shaker kitchens and full height quartz backsplashes are just a few of the features that make this building feel more like condo living. Perfectly situated just steps from the Logan Square Farmers’ Market, residents can enjoy an eclectic mix of trendy bars, restaurants, cafes, and shops right at their doorstep. Renovation done with full plans and permits, include a new roof, windows, insulation, drain tile system with sump pump, back deck, and still warrantied appliances!

    This property passed my initial screening, so we ran the numbers to see if it would be a good investment.

    Here’s what the initial numbers looked like:

    Asking Price: $1,800,000

    Monthly Rent: $13,840

    Mortgage Payment (Principal and Interest)$8,982
    Taxes$1,429
    Insurance$400
    Utility Bills$350
    Property Upkeep$200
    Preventative Maintenance$200
    Vacancy Rate (5%)$692
    Unexpected Repairs (5%)$692
    Property Improvements (5%)$692
    Total Monthly Cost$13,637

    Monthly Cash Flow (Rent – Costs): $203

    It took me less than five minutes to do this initial evaluation. 

    A few notes on the above numbers:

    • For the mortgage payment, I estimated a 25% downpayment, which is common for investment property loans, and a 7% interest rate.
    • Taxes are a major cost that can make or break any deal. Make sure you are familiar with how taxes are assessed in your market. For example, in Chicago, property taxes are reassessed every three years. That means taxes go up every three years. 
    • Many property listings will indicate the prior year’s taxes because they are lower. This particular listing has the prior year’s taxes, which I know are soon going to change for the worse. For now, I’ll run the numbers with the current taxes but would definitely account for higher taxes before moving forward with this deal.
    • Property insurance is a real wildcard these days. Insurance costs are going up everywhere. You’ll need to talk to a good insurance broker for an accurate estimate. I used my experience in the neighborhood with similar properties to make a reasonable estimate.

    The initial math on this property did not look great.

    In the end, I concluded that this is a beautiful property in a great location but would not be a good investment for me.

    The reason is simple: I invest for cash flow. For me, this property is way too expensive for only a couple hundred dollars of monthly cash flow.

    More specifically, I am not interested in shelling out a down payment of $450,000 (not to mention more for closing costs) to earn $2,400/year in cash flow.

    At a price point of $1.8 million, I would only be interested if this property had a monthly cash flow of at least $4,000 per month.

    For another investor, it’s possible that this would still be a good investment based on appreciation and debt pay-down. For me, that’s a big risk I’m not willing to take with that kind of money.

    So, what now?

    Is that the end of the analysis?

    Cross this property off the list and move on?

    Not even close.

    This is when the fun starts.

    person using laptop to evaluate a rental property using real numbers.
    Photo by Kaitlyn Baker on Unsplash

    What to do if you don’t like the results of your initial evaluation.

    Most of the time that you evaluate properties you won’t love the initial results.

    You should expect that to be the case.

    Think about it from the seller’s perspective. Ask yourself: why is the seller putting this property on the market?

    Obviously, the seller is trying to make a profit. Maybe the seller is a developer or flipper who just completed an expensive rehab. He might even have investors who paid for the project that now expect to be paid back, at a profit.

    The seller wouldn’t be doing is job if he didn’t try to find a buyer at a high asking price. He can always lower the price later on.

    Also, you can think of it another way.

    If a seller owns a wonderful property that is making tons of money every month, how motivated is he to actually sell?

    He may list the property at a high price just to see if anyone will bite.

    In our example, if the seller was cash flowing $4,000/mo, he’d probably just keep it.

    And, if he had that kind of cash flow coming in, he may just list it at an astronomical price because he doesn’t really need to sell it.

    Sure, there are exceptions. Some sellers don’t want to be landlords and others might just want to cash out. But, I don’t see very many of these situations.

    When these situations do pop up, you need to act fast because other investors will take notice.

    The point is these are just a few reasons why you will rarely find great investment properties based on your initial evaluation.

    Don’t give up.

    Your job is to figure out if a property has untapped potential that would make it a good investment.

    Now, let’s return to our example to see what I mean.

    Is the property overpriced?

    The listing price is only the start of the negotiation.

    The listing price may just be too high. In recent years, the listing price has oftentimes been too low, leading to bidding wars because of high demand and limited supply.

    Your job is to find a price that works for your cash flow needs. The seller may not accept your price, and that’s OK. You may need to move on.

    Let’s explore putting a price on our example property where it would be attractive for me.

    Keep in mind that I would want a monthly cash flow of $4,000 to move forward on this property.

    With that target in mind, I can return to the online calculator on Redfin to see at what price this property might make sense for me.

    Playing around with the calculator, I learned that I would need the price to drop to $1,100,000 to get around $4,000 in monthly cash flow (holding all other costs constant).

    That’s about a 40% price reduction.

    Do you think the seller would go for that?

    Not a chance.

    Depending on your market, sellers may be willing to negotiate the price. But, if you come in too low, they won’t take you seriously.

    If I were to move forward with this property, I would need to find ways to improve the math besides just the price. Still, I might be able to get it for below the asking price.

    For our example, let’s assume the seller would agree to knock 10% off the purchase price.

    Here’s what the numbers look like at 10% reduced purchase price.

    Offer Price: $1,620,000

    Mortgage Payment (Principal and Interest)$8,083
    Taxes$1,429
    Insurance$400
    Utility Bills$350
    Property Upkeep$200
    Preventative Maintenance$200
    Vacancy Rate (5%)$692
    Unexpected Repairs (5%)$692
    Property Improvements (5%)$692
    Total Monthly Cost$12,738

    With monthly rents of $13,840, that means this property is now cash flowing $1,002/mo.

    We’re heading in the right direction, but I think we can do better.

    Besides negotiating the purchase price, what if we can shop around and improve our mortgage?

    Start with the purchase price but see if you can further to reduce the overall cost.

    For example, can you shop around for a better mortgage?

    Let’s assume you can find a loan with a 6.75% interest rate instead of 7%.

    With a 6.75% interest rate, your mortgage payment drops from $8,083 to $7,880.

    Now, your cash flow increases to $1,211/mo.

    You can start to see how this part of the analysis works.

    The point is to reduce the costs of owning this property to improve your cash flow.

    What other ways can you reduce the costs?

    You should go through this process with each cost associated with the property.

    Maybe you can find insurance for less than $400/mo.

    Or, maybe you are willing and able to handle more of the maintenance responsibilities yourself.

    The idea is that each time you reduce your monthly costs, your cash flow goes up.

    If you can reduce the costs enough, a property may start looking appealing to you.

    two people meeting with laptops as they run the numbers together for a potential deal.
    Photo by charlesdeluvio on Unsplash

    On top of reducing the costs, can you can earn more income from this property?

    At the same time you look to reduce the costs, you should look to see if you can earn more income from a property.

    In other words, can you earn more rent per month than the current rate?

    This is where you’ll need to study the neighborhood to see what similar apartments are renting for. Your broker should be able to help you with this.

    In our example, let’s assume that you do your research and determine that the apartments are under-rented.

    In fact, you learn that each of the 5 apartments could earn $200 more per month.

    Adding that additional $1,000 per month brings our total cash flow to $2,211/mo.

    Now, this property is starting to look more enticing.

    You might be surprised how many sellers under-rent their properties.

    Over the years, my wife and I have been successful in finding properties that have been severely under-rented by the previous owners.

    We don’t renovate properties ourselves because we are busy professionals with full-time jobs and a family. We try to find properties that have bee nicely rehabbed but are currently under-rented.

    You may be surprised to learn that a property flipper doesn’t always know the local market as well as you. It could be that he is just in a hurry to get a property rented out so he can sell it and move on to the next job.

    If you become an expert on market rents in your local area, you can be the one who benefits.

    A few years ago, my wife and I purchased a three-flat in our local area. It was about a half-mile from where we lived at the time and was on our regular walking route. We took an interest in the rehab and followed its progression closely.

    When the property was completed, I saw the rental listings online. It was a beautiful property in a great location. I was shocked when I saw the units were listed for only $1,700/mo.

    This was my local area and I knew these units could easily go for $2,500/mo, if not more.

    When the property hit the market a few months later, we pounced and had it under contract the next day.

    When the original tenants chose to move out at the end of their leases, we quickly found new tenants happy to pay $3,100/mo.

    Sometimes sellers just don’t know what they have.

    Don’t fool yourself into thinking a property is a great investment by unrealistically changing the numbers.

    After reading this post, you can hopefully start to see how to run the numbers to make a potential property more attractive.

    In our example, we tweaked the purchase price, mortgage rate, and rental income to improve the cash flow enough to make this deal potentially attractive.

    After going through an analysis like this, you may be ready to make an offer. Just don’t get your hopes up too high.

    Sellers won’t always negotiate.

    Properties won’t always be under-rented.

    Many of your offers will end up getting rejected.

    Don’t quit.

    There will always be another property out there.

    If you can’t get a property with numbers that work for you, it’s time to move on to the next one.

    No matter how much you love a property, don’t fool yourself into thinking it’s a great investment if it’s not.

    Readers, have you made offers on properties that you knew were undervalued? Did you successfully cash flow on a deal that did not look great on paper at first?

    Let us know in the comments below.

  • How to Easily Evaluate a Rental Property with Real Numbers

    How to Easily Evaluate a Rental Property with Real Numbers

    For beginners, running the numbers on a potential real estate deal can seem complicated. 

    It doesn’t have to be.

    If you’ve been practicing good budgeting habits with your personal finances, this part should actually be easy. 

    The key is simple: more needs to come in than goes out.

    When you have more coming in than going out, that means you have positive cash flow.

    For lawyers and professionals acquiring rental properties to accelerate our journeys to financial freedom, we don’t need to overcomplicate things.

    What we need to know is whether a property is going to put more money in our pockets than it takes out.

    Today, we’ll look at a real example of how I quickly and easily evaluate potential deals in my primary market.

    If you haven’t already, check out my previous post on evaluating real estate deals for a detailed explanation on why I focus on the below elements.

    As a quick refresher, let’s first look at the fixed costs and speculative costs involved in evaluating rental properties.

    There are fixed costs and speculative costs involved in evaluating a rental property.

    Whenever you evaluate a rental property, there are some fixed costs and some speculative costs involved. This holds true whether you are a beginner or an experienced investor.

    It’s helpful to differentiate between the fixed costs and the speculative costs. In a lot of ways, we can control the fixed costs, but we cannot control the speculative costs.

    Fixed costs generally include reoccurring monthly bills that are relatively constant.

    The main fixed costs you’ll want to know when evaluating a rental property include:

    • Mortgage payment (Principal and Interest)
    • Taxes
    • Insurance
    • Utility Bills
    • Property Upkeep
    • Preventive Maintenance

    Speculative costs include those unpredictable, irregular costs that do not occur every month and maybe don’t even occur every year. 

    I separate the speculative costs into three main categories:

    • Vacancy Rate
    • Unexpected Repairs
    • Property Improvements

    Vacancy rate refers to the percentage of available units that are unoccupied at a particular time. When running the numbers on a prospective rental property, I recommend adding in the cost of 5% vacancy.

    When you own rental properties, things are going to break and require money to fix. If you target properties in decent condition, I recommend saving 5% of the monthly rent for unexpected maintenance. 

    If you don’t improve your property over time, you risk your unit becoming unattractive. Again, if you target decent properties to begin with, I recommend saving another 5% per month for property improvements. 

    With these costs in mind, we can now quickly and effectively run the numbers on any available property.

    Let’s take a look at a property that recently became available in my target market of Chicago.

    I regularly check available properties in my target area in Chicago.

    I have a searched saved on the Redfin app for multifamily properties within a certain price range in my target areas of Chicago.

    That makes it easy to scroll through the listings a few times every week to keep myself educated on my local market.

    I do this for a few reasons, regardless of whether I’m actively shopping for a property.

    white ceramic sink near brown wooden table indicating a nice rental property but do the numbers check out.
    Photo by Huy Nguyen on Unsplash

    First, I want to know what new properties come on the market. I’m interested to see if developers and rehabbers are still drawn to my area.

    I also check to see how much properties have sold for recently so I can stay on top of market conditions. For example, I’m curious if sellers are accepting below-asking-price offers and how long properties are staying on the market.

    I’m also looking to see if there have been any price reductions on properties that previously caught my eye.

    All of this simple research helps me move quickly when an attractive property becomes available.

    This research has also helped me develop a list of basic requirements I look for in a rental property.

    Before running the numbers, a property has to match my initial requirements.

    Before I run the numbers on any property, it has to satisfy some basic requirements. This is not an exhaustive list, but here are some of the most important factors my wife and I evaluate when considering rental properties in Chicago:

    1. Location, location, location. In Chicago, proximity to the L and social life (coffee shops, restaurants, bars, etc.) are crucial. Most of the young professionals we rent to are still in the “going out” phase of life. They want to live in fun neighborhoods so they can enjoy themselves when they’re not working. They typically stay in our apartments for 2-3 years, oftentimes before buying a place of their own and “settling down.”
    2. Taxes. Property taxes can eat away your cash flow. We have high property taxes in Chicago across the board, but taxes vary widely from neighborhood to neighborhood. I look for properties in areas that have more attractive taxes.
    3. Big bedrooms. One of the most common questions I get when I do apartment showings is, “Can I fit a king size bed in here?” People love big beds these days. This can be a challenge considering Chicago’s standard 25-foot wide lot. I look for properties with a minimum bedroom size of 10 x 10.
    4. Outdoor space. Young professionals want to have outdoor space, even if they never use it. When I was a renter, I always wanted an apartment with a balcony for my grill. It didn’t matter to me that I only used it a handful of times each year. Maybe having outdoor space made me feel more grown up?
    5. Parking. Even though Chicago is a very public transit-friendly city, people still like having cars. Because most young professionals aren’t using their cars every day, they want to keep it safe in a dedicated parking space.

    If a property becomes available that meets these requirements, I’ll then run the numbers.

    Only after confirming that a potential property meets these requirements do I actually run the numbers.

    There’s no reason to waste time on a property that may project well in a spreadsheet but will cause me nothing but headaches as a landlord.

    The other day, a new property popped up that caught my eye: 2501 N. Sacramento Ave.

    It’s a five-unit apartment building listed for $1,800,000 and located directly in my target zone.

    Here’s the listing description from Redfin:

    Fully Gut Renovated 5-unit building, a prime turnkey investment opportunity in the best Logan Square Location Possible. Double Vanities, Fully built out walk in closets, in unit W/D, tankless hot water heaters, thin shaker kitchens and full height quartz backsplashes are just a few of the features that make this building feel more like condo living. Perfectly situated just steps from the Logan Square Farmers’ Market, residents can enjoy an eclectic mix of trendy bars, restaurants, cafes, and shops right at their doorstep. Renovation done with full plans and permits, include a new roof, windows, insulation, drain tile system with sump pump, back deck, and still warrantied appliances!

    It’s not always the case, but in this instance, the pictures seemingly match the description of a beautifully renovated property. Of course, we can confirm the quality of the work when we tour the property.

    So, this property passed my initial screening. Now, I can run the numbers to see if it would be a good investment.

    By the way, I target gut-renovated properties because I have a full-time job as a lawyer and don’t have the time to dedicate to a major renovation project.

    Let’s plug in the numbers to see if this would potentially be a good investment property.

    Just because a property looks nice and is in a great location does not mean it’s a great investment. As investors, it’s our job to make sure the numbers work out so more money comes in than goes out.

    Using the cost categories above, we can pull most of the information we need directly from the listing.

    For example, Redfin (like most sites) provides a useful payment calculator where you can adjust the downpayment, interest rate, taxes, etc. for any property based on your personal situation.

    Home office vibes perfect for running the numbers on a rental property.
    Photo by Paul Calescu on Unsplash

    Here are some tips before you get started:

    • It’s a good idea to talk to your mortgage broker ahead of time to learn what mortgage rate you will likely qualify for and what downpayment you’ll need.
    • Remember, this is an initial evaluation. Before you make your final decision on a property, you’ll need to confirm these numbers with your real estate team during the due diligence period.
    • Try to be conservative with your projections. When you otherwise like a property, the temptation is real to modify the numbers so it looks better on paper.
    • You’ll notice listing agents may try to enhance a property’s value by suggesting “potential rent” or “market rent” instead of the actual rent. Don’t fall into this trap and end up with a nice-looking property that makes no money.

    OK, let’s look at the numbers on this property for educational purposes only. You are responsible for running your own numbers on any potential deal.

    2501 N Sacramento Asking Price: $1,800,000

    Monthly Rent: $13,840

    Mortgage Payment (Principal and Interest)$8,982
    Taxes$1,429
    Insurance$400
    Utility Bills$350
    Property Upkeep$200
    Preventative Maintenance$200
    Vacancy Rate (5%)$692
    Unexpected Repairs (5%)$692
    Property Improvements (5%)$692
    Total Monthly Cost$13,637

    Monthly Cash Flow (Rent – Costs): $203

    It took me less than five minutes to do this initial evaluation.

    I can see that based on these numbers, the monthly cash flow is $203. We’ll talk about what that means in a moment.

    A few notes on the above numbers:

    • For the mortgage payment, I estimated a 25% downpayment, which is common for investment property loans, and a 7% interest rate.
    • Taxes are a major cost that can make or break any deal. Make sure you are familiar with how taxes are assessed in your market. For example, in Chicago, property taxes are reassessed every three years. That means taxes go up every three years.
    • Many property listings will indicate the prior year’s taxes because they are lower. This particular listing has the prior year’s taxes, which I know are soon going to change for the worse. For now, I’ll run the numbers with the current taxes but would definitely account for higher taxes before moving forward with this deal.
    • Property insurance is a real wildcard these days. Insurance costs are going up everywhere. You’ll need to talk to a good insurance broker for an accurate estimate. I used my experience in the neighborhood with similar properties to make a reasonable estimate.

    So, what have I learned from running the numbers on this property?

    First, this is a beautiful property in a great location. If I made my decision based only on the pictures and the location, this would be a winner.

    Unfortunately, the numbers tell a different story.

    This property would not be a good investment for me. I invest for cash flow. For me, this property is way too expensive for only a couple hundred dollars of monthly cash flow.

    At a price point of $1.8 million, I would only be interested if this property had a monthly cash flow of at least $4,000 per month.

    Now, your preferences and goals may be different. Maybe you’re more focused on the other benefits of investing in real estate, like appreciation and debt pay-down. In that case, you may view this deal differently.

    So, is that it?

    Cross this property off the list and move on for good?

    Not necessarily.

    In our next post, we’ll explore ways to make this property a more attractive investment.

    We’ll take a look at how the numbers change if we can successfully negotiate the purchase price, find a better loan option, and improve the monthly rent.

    Real estate investors: let us know what you think of this property as a potential investment.

    Would you be interested in moving forward at these numbers?

  • Running the Numbers on RE Deals Should be Easy

    Running the Numbers on RE Deals Should be Easy

    For beginners, running the numbers on a potential real estate deal can seem complicated.

    It doesn’t have to be.

    If you’ve been practicing good budgeting habits with your personal finances, this part should actually be easy.

    The key is simple: more needs to come in than goes out.

    When you have more coming in than going out, that means you have positive cash flow.

    Today, we’ll discuss what information you need to forecast positive cash flow. My goal is to make this part of the process as simple as possible.

    I’ve read full books dedicated to evaluating the numbers on real estate deals. If you want to take a deep dive, I recommend Real Estate by the Numbers: A Complete Reference Guide to Deal Analysis by J. Scott and Dave Meyer.

    But, the truth is that most of us lawyers and professionals targeting rental properties as a supplemental income stream don’t need that kind of depth.

    Sure, if you’re targeting large multifamily properties or hoping to make rental property investing a full-time pursuit, you’ll absolutely want to pick up a book like Real Estate by the Numbers: A Complete Reference Guide to Deal Analysis.

    For the rest of us acquiring rental properties to accelerate our journeys to financial freedom, we don’t need to overcomplicate things.

    What we need to know is whether a property is going to put more money in our pockets than it takes out.

    In other words, we want to buy assets, not liabilities. When we’re tracking our net worth each month, we want to see that a rental property is helping.

    So, the question is: how do I know if I’m buying an asset and not a liability?

    Let’s take a look.

    There are fixed costs and speculative costs involved in evaluating a rental property.

    Whenever you evaluate a rental property, there are some fixed costs and some speculative costs involved. This holds true whether you are a beginner or an experienced investor.

    Fixed costs generally include reoccurring monthly bills that are relatively constant.

    Speculative costs include those unpredictable, irregular costs that do not occur every month and maybe not even occur every year.

    It’s helpful to differentiate between the fixed costs and the speculative costs. In a lot of ways, we can control the fixed costs, but we cannot control the speculative costs.

    Regardless, we need to account for both in our deal analysis.

    Here are examples of fixed costs when evaluating a rental property.

    The clearest example of a fixed cost is your mortgage payment. If you take out a 30-year fixed-rate loan, you’ll know exactly what your monthly mortgage payment will be for the next 360 months.

    You’re required to pay that amount each month, that’s why it’s a fixed cost. Easy enough.

    I also include insurance costs and property taxes in my fixed costs. These are fixed costs, at least for 12 months at a time, that you are required to pay each month.

    You’ll oftentimes see the acronym PITI to reflect the above basic elements of a mortgage payment:

    • Principal
    • Interest
    • Taxes
    • Insurance

    It’s safe to also include utility bills, like water, trash, and common electricity, in your fixed costs since there shouldn’t be much variation month-to-month in these expenses.

    The same goes for landscaping, snow removal, and pest control. I refer to these fixed costs as property upkeep.

    The final category of fixed costs includes preventative maintenance, like regular HVAC tune-ups.

    black computer keyboard number pad indicating how easy it is to run the numbers on real estate deals.
    Photo by Aykut Eke on Unsplash

    Yes, it’s true that the cost of insurance, taxes, utilities and other bills will go up over time. But, you usually don’t see dramatic increases in these fixed costs year over year. At least, in ordinary times. Plus, rents also go up, which offset the higher costs.

    To recap, the fixed costs you’ll want to know when evaluating a rental property include:

    • Mortgage payment (Principal and Interest)
    • Taxes
    • Insurance
    • Utility Bills
    • Property upkeep
    • Preventive maintenance

    If your goal is monthly cash flow, there’s no excuse for ignoring any of these fixed costs when evaluating a rental property.

    Here are examples of speculative costs when evaluating a rental property.

    Speculative costs are, by definition, harder to forecast. Even for experienced investors, the best we can do is guess at what these costs will be.

    I separate the speculative costs into three main categories:

    • Vacancy Rate
    • Unexpected Repairs
    • Property Improvements

    What is vacancy rate?

    Vacancy rate refers to the percentage of available units that are unoccupied at a particular time. Obviously, vacancy is bad for rental property investors because we are not collecting rent from the unoccupied units.

    To calculate your vacancy rate, simply divide the amount of weeks (or days or months, if you prefer) in a year by the amount of weeks (or days or months) your rental unit was unoccupied.

    Then, multiply that number by 100 to see your vacancy rate as a percentage.

    If you have multiple rental units, add your units together to get your total vacancy rate, like I show you below.

    Vacancy Rate = (Weeks Unoccupied / Total Weeks) x 100

    For example, I have 10 rental units in Chicago. This past spring, we had eight lease renewals and two leases end.

    We filled one of the two units without a single day of vacancy. The other unit resulted in six weeks of vacancy so we could tackle some needed repairs. More on that below.

    This means that I had 6 weeks of vacancy spread over 10 rental units. To calculate my vacancy rate, I can take 520 (10 rental units x 52 weeks in a year) and divide that by 6 weeks:

    (6 weeks of vacancy / 520 weeks) x 100 =1.154%

    Now, what do we do with this information?

    This is where the guesswork comes in. That’s because there’s no guarantee that next year I will have a vacancy rate of only 1.2%. In some years, we have 5 or 6 units to turnover. We may have 24 weeks of total vacancy instead of 6 weeks.

    The best I can do is speculate what my vacancy rate will be moving forward.

    I wish I could tell you that a 1.2% vacancy rate is a good forecast. In reality, predicting 5% vacancy is a better idea. That allows for about 3 weeks to turnover a vacant unit, reasonable estimates in decent markets.

    So, when running the numbers on a prospective rental property, be sure to add in the cost of 5% vacancy.

    As an example, if a potential property brings in $6,000/mo in rent, subtract $300/mo to account for 5% vacancy.

    What are unexpected repairs?

    Remember the leaky toilet?

    When you own rental properties, things are going to break and require money to fix.

    Predicting how much money you’ll need for these unexpected repairs depends on a variety of factors.

    If you are handy and don’t have to pay a plumber to fix the leaky toilet, you’ll save money on these kinds of repairs.

    Likewise, if you have a new construction property instead of a 100-year-old property, you’ll likely need to do less repairs.

    The bottom line is you’ll have to make educated guesses how much you’ll need to save for these kinds of repairs.

    This is actually one of the main reasons I recommend beginner investors don’t quit their day jobs. It’s a powerful advantage to have income coming in from your primary job to help cover any major, unexpected expenses.

    If you target properties in decent condition, I recommend saving 5% of the monthly rent for unexpected maintenance. With our prior example of $6,000/mo in rent, you should deduct another $300/mo for unexpected repairs.

    You shouldn’t need to use that 5% every month, so that balance should build up until you need it.

    What are property improvements?

    I mentioned above that we took 6 weeks to improve one of our vacant units. The floors were in rough shape and the apartment needed a full paint job.

    By the way, these are two relatively easy jobs that can add a lot of value to a property.

    Since we were in great shape with our other units all being occupied, the timing was right to spend a bit of money and lose out on a bit of rent.

    In the end, we spent about $5,000 and have brand new floors and a nice looking apartment. We didn’t have to spend that money, but we risk our units becoming unattractive if we don’t keep them fresh.

    white and red love print box with numbers indicating it's not too hard to run the numbers for beginner real estate deals.
    Photo by Elena Mozhvilo on Unsplash

    How should you account for this type of property upkeep?

    Again, if you target decent properties to begin with, I recommend saving another 5% per month for property improvements. That’s another $300/mo subtracted in our deal analysis based on $6,000/mo in rental income.

    Too many beginner real estate investors skip these speculative costs in their deal analysis.

    It’s tempting to ignore these speculative costs when you otherwise like a rental property. You might see monthly rents of $6,000/mo and fixed costs of $5,000 and convince yourself that this is a great deal.

    By ignoring the speculative costs, you’ve ignored the additional $900 for vacancy, unexpected repairs, and property upkeep that this property will cost you.

    Those extra costs might make this property unattractive.

    You can easily find most of the information you need to run the numbers online.

    It has never been easier to access the key numbers you need to know when evaluating a rental property.

    Sites like Redfin and Zillow typically have all the information you’ll need for your initial evaluation.

    One of the most useful features of these sites is the mortgage payment estimator. You can quickly see whether the PITI payment is going to exceed the amount of rent you can reasonably expect.

    Because of high interest rates and high property costs, most deal analysis I’m doing today ends right there.

    Of course, if the PITI payment is too high, you can play around with the asking price to see at what cost the property might be worth pursuing. Just don’t forget to take into account the other costs discussed above.

    Note: above, I specifically wrote “initial evaluation.”

    Before closing on a property, you’ll want to confirm the numbers in the property listing are accurate and not being exaggerated.

    For example, you’ll want to get verification from the seller on the actual monthly rent. As part of the due diligence process, sellers are required to turn over the current leases.

    Sometimes you’ll see listings where the rent is listed as “maximum monthly rent” or “potential rent.” That means the seller is suggesting the apartment could rent for that much, but there is no lease in place for that amount.

    I’m always skeptical of listings like this. If it was so easy to obtain the maximum monthly rent, why didn’t the seller get leases for that amount? If they did, they could surely expect a higher sales price.

    Always confer with your real estate broker on what the rents are in your market. And don’t forget, a five-star real estate broker should be able and willing to teach you how to run these numbers.

    Likewise, you’ll also want to verify with your mortgage broker exactly what your monthly payment will be based on current rates and your qualifications. The same goes for verifying what your actual insurance costs will be.

    Did you notice that I did not include a cost for property management in the above?

    If you are pursuing your first rental property or have a small portfolio, I recommend you self-manage.

    Most importantly, you need to learn how to be a landlord.

    There’s no better training than first-hand experience. If you do end up hiring a property manager someday, you need to know how to “manage the property manager.”

    There’s another good reason why beginner investors should self-manage.

    Unfortunately, it’s hard to find good property managers who are willing to work with small investors. It’s a near certainty that your property manager will not care about your property as much as you do.

    Plus, because of the cost involved, a property manager will likely suck up most of your monthly cash flow.

    While it varies by market, in major cities you can expect a property manager to charge between 8% and 10% of the monthly rent. It’s hard to cash flow with that kind of drag on your profits.

    If your portfolio grows or your circumstances change to the point where you can no longer self-manage, be sure to factor in this major cost to your deal analysis.

    Buying a rental property does not require an advanced degree in math.

    If you’ve been reluctant to buy your first rental property because of that math involved, hopefully you now see that it doesn’t have to be that complicated.

    You need to account for certain fixed costs and predict some speculative costs.

    There are countless online calculators to help with the math. You can also use a basic spreadsheet.

    Plus, your real estate team can help you with running the numbers.

    In an upcoming post, we’ll run through some examples of how I run the numbers on potential rental properties.

    Experienced real estate investors: what did I miss?

    Beginner investors: what else would you like to know about running the number?

    Let us know in the comments below.

  • Does Being Good with Money Make You a Greedy Dragon?

    Does Being Good with Money Make You a Greedy Dragon?

    Have you ever been called a “greedy dragon” before?

    I hadn’t either before this week.

    I recently posted a video on socials talking about how lawyers and professionals should not let leaky toilets prevent them from investing in rental properties.

    Apparently, this video struck a nerve with the trolls.

    I was called a “bottom dweller”, a “demon”, and my personal favorite, a “greedy dragon.”

    I like dragons. So, that last one actually felt like a compliment.

    Why does being good with money wake up the trolls?

    There’s no shortage of internet trolls out there. And, there’s nothing special about me that caught the attention of the trolls this week.

    Haters are going to hate. Trolls are going to troll.

    But, there’s an important money lesson to be learned here thanks to the trolls.

    You see, these are the types of comments you get from people with limiting money beliefs. They’ve never thought about how money can be used as a tool to build a life of purpose.

    Instead, they only think of money as a dangerous weapon to be wielded for evil purposes. They automatically think that people with money are greedy.

    The saddest part is that these people would rather exert their energy attacking people than improving their own situations. These are the type of people who are likely to always be controlled by money, instead of the other way around.

    Now, I’ll give credit to the internet trolls where credit is due. At least these trolls are not hiding their limiting money beliefs.

    That’s a good first step that many of us can benefit from.

    You don’t need to stoop to the level of internet troll to have limiting money beliefs. These kinds of attitudes towards money are way more common than you think.

    One of my main goals in starting Think and Talk Money is for all of us to confront our limiting money beliefs so we can take control of our lives.

    If your relationship with money up to this point has held you back, you’re in the right place by reading this blog.

    Another good idea is to read a good money mindset book.

    A good money mindset book with help you think of your Money Why.

    Money mindset books can help you because they explore the emotional side of money. They will force you to think about money in a way you never have before.

    The best money mindset books don’t just talk about the numbers and math of personal finance. That not only makes the books more interesting to read, it also makes them so much more practical in the real world.

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

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

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

    Here are my favorite money mindset books, in no particular order:

    Being on vacation with family gives you plenty of chances to think about your Money Why.

    I highly doubt the average internet troll spends much time thinking about his Money Why.

    I’ve been on vacation recently and have had a lot of reminders of my Money Why. Of course, I’ve known my Money Why since I wrote down my Tiara Goals for Financial Freedom on a beach in 2017.

    Mission Bay Resort pool representing why I want to be good with money to build experiences with my family.
    Photo by Cory Bjork on Unsplash

    My number one goal is to be with my wife and kids as much as I want. The weird part is I wrote down that goal before I was even married or had kids.

    Yes, I want to provide for my family financially. But my Money Why is more than that. I don’t want to just provide money, I want to provide time. I want to be present and share experiences.

    To accomplish that goal, I need to be good with money. 

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

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

    To the Internet trolls, these goals make you a greedy dragon.

    What do you think?

    Is traveling with three young kids a vacation or just “parenting in a new location?”

    Anyone who’s vacationed with young kids knows that it comes with all sorts of challenges. I’ve heard vacationing with young kids described before as “just parenting in a new location.”

    There’s some truth to that. Figuring out sleeping arrangements, meals, and activities to keep the kids entertained can be a headache. It’s hard not to think that it would have been easier to just stay at home.

    Between the occasional meltdown and the tears, it’s fair to wonder why go through the hassle?

    I’ve had these thoughts creep into my head recently while on vacation with my family.

    Then, I realized why us parents do it.

    It’s to see your five-year-old try over and over again before finally reaching the Little Mermaid diving toy on the bottom of the pool for the first time.

    The pure joy on her face when she popped out of the water with the toy in hand is an image I hope I never forget.

    It’s to watch your three-year-old play with grandma and grandpa and hearing, “Grandpa, close your eyes!” as he completes his next prank to earn an eruption of laughter.

    It’s observing your wife at the playground as she manages a baby in a stroller while simultaneously encouraging her daughter on the swings and helping her son as he climbs too high.

    How she does it, and keeps a smile on her face, I’ll never know.

    It’s the little moments like this that make it all worth it.

    Is being good with money a requirement for these types of memories?

    Nah. But, if being good with money gets me more of these memories, I’m all in.

    It’s important to think about your Money Why regularly.

    Saying that I want to be good with money is not the same thing as saying that I want to be rich.

    Funny enough, people who are good with money oftentimes feel rich regardless of what their net worth is.

    A nice quote I saw at an ice cream shop saying you can't buy me love but you can buy me ice cream meaning you can buy experiences with money.
    Photo by Zoshua Colah on Unsplash

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

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

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

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

    1. Money can give you choices.
    2. Money can give you personal power.
    3. Most importantly, money can give you time.

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

    Being good with money does not make you greedy.

    Being good with money does not make you a greedy dragon.

    Money is nothing but a tool. You can use that tool to build a life on your terms for you and your family.

    For my money, there’s no better pursuit than that.

    Do you want to be good with money?

    What kind of life are you hoping to build?

    Let us know in the comments below.

  • Being Good with Money is About Consistent Choices

    Being Good with Money is About Consistent Choices

    Having taught personal finance to law students and young lawyers since 2021, I’ve picked up on a common theme.

    At the conclusion of class, my students tend to be motivated and excited to get good with money.

    This makes sense because we spend a lot of time thinking and talking about what our ideal lives look like. Then, we learn how to use money as a tool to build those lives.

    In the weeks following class, I usually hear from several students who want to follow-up about topics we cover in class, like side hustles or investing in real estate.

    I’ll meet each student for coffee downtown and give them some feedback on their ideas. I love these money talks over coffee.

    My students’ excitement to take control of their money and their lives is contagious.

    Their excitement rubs off on me. I leave these conversations motivated to check in on my own money strategies and goals.

    When our chat is wrapping up, I always encourage my students to keep me posted on their journeys. I invite them to check-in every few months so I can help keep them accountable and to adjust any plans we’ve put in place.

    Unfortunately, less than 10% of my students ever follow-up after these initial meetings.

    After a while, I figured out what was going on.

    See, every now and then, I’ll run into one of these former students at a lawyer event or hanging around the courthouse. I’ll ask them about work and life and eventually about the money plan we talked about.

    That’s when I usually hear something like, “I’m still thinking about that side hustle. I just put it on the back burner for now. I’m going to do it someday.”

    Do you see the problem?

    As a wise man once taught me, “someday” means “no day.”

    a sign that says today is a goo day meaning that someday is no day.
    Photo by Yuliia Martsynkevych on Unsplash

    Financial freedom is about consistent, intentional choices.

    Ask anyone who has reached true financial freedom how they did it, and you’ll pick up on something right away.

    You’ll quickly realize that people who reach financial freedom got there by making consistent, intentional choices with their money.

    They came up with a plan and they stuck with it.

    They didn’t say “some day.”

    Achieving financial freedom is not about being the highest earner or the best investor.

    It’s about consistency.

    There are endless ways to make money. The same goes for investing that money.

    You can reach financial freedom as a lawyer who invests in index funds.

    Just the same, you can be a consultant who owns rental properties.

    Or, an engineer who buys laundromats.

    The point is the avenue you choose to build wealth is less important than the consistency of your choices.

    For example, if you commit yourself to investing 20% of your salary in index funds, you will be well on your way to financial freedom.

    But, if you can’t follow through on your plan for more than a few months, you’re never going to get there.

    Of course, we’ve all experienced this tendency in various areas of life. The easiest examples to think of relate to fitness and healthy eating.

    How many of us have said we’re going to commit to working out five days a week or eating vegetables every meal, only to give up after a couple months?

    It’s not that we want to give up, just that the rest of life gets in the way. We tell ourselves that we’ll return to healthy living someday, which actually means no day.

    When it comes to your money choices, don’t let the rest of life get in the way. Money is such a powerful tool when wielded properly and consistently.

    Don’t waste this powerful tool.

    To help make consistent choices, think about why money matters.

    To help you make consistent money choices, the first step is to think about a simple and powerful question: why does money matter?

    For me and many others, money is about financial independence, which translates to the power to choose.

    When we have the power to choose, we have the power to live a life that conforms to our personal values. That means we can live on purpose, not on auto-pilot.

    What does it mean to live on purpose?

    It means that we can choose to spend our working hours doing what is meaningful to us. It means we can choose to spend more time with the people who are meaningful to us.

    My favorite part during my personal finance for lawyers class is when my students share their motivations with each other. We all learn so much from these honest conversations.

    It’s why I believe talking about money is so important. We all benefit from knowing that we’re not alone in our money worries. We can be inspired by hearing what our friends want from their money and their lives.

    The more you think and talk about why you want to be good with money, the clearer your motivations will become.

    To help you get started, here are three powerful reasons why I want to be good with money:

    1. Money can give you choices.

    This may seem obvious, but when you have money, you have choices.

    You can choose where to live. You can choose who you work for or can work for yourself. On a daily level, you can choose how you eat, exercise, relax, and travel.

    This holds true whether you make $50,000 or $250,000. Of course, your options may be different. The point is that when you’ve made good money choices, you’ll at least have options.

    2. Money can give you personal power.

    This is another way to say that money gives you control of your life situation.

    If you are in a bad relationship, a bad job, or just need a change, money gives you the personal power to do something about it. When you don’t have money, you may be stuck.

    3. Money can give you time.

    When you have enough money to be truly financially independent, you have earned the freedom to do whatever you want with your time.

    As I mentioned earlier, you can spend your working hours at a job that is meaningful to you. And, you can spend more time with people who are meaningful to you.

    It’s been said many times, “time is our most precious resource.”

    When you have money, you can buy your time back.

    woman in white long sleeve shirt reading book on beach during daytime because she is financially free and bought her time back.
    Photo by Constantin Panagopoulos on Unsplash

    What would you do with financial freedom?

    Years ago, I asked myself this important question. I wrote down my answer and called it my Tiara Goals.

    If you haven’t ever actively thought about what you would do with financial freedom, now’s the time to do so. It is extremely motivating.

    Even when you feel like financial freedom is only a distant dream for you, it’s important to actively think about what you want out of life.

    I’d even suggest that the further away you feel from financial freedom, the more important it is to think about what it would mean for you.

    When you’re at your lowest point, visualizing what you would do with financial freedom is a helpful escape.

    Don’t forget to write down whatever you come up with.

    Here are my 7 Tiara Goals for Financial Freedom:

    1. Be with my wife and kids as much as I want. Dad never missed a game. Mom never missed a game. Nana never missed a game.
    2. Not be forced to commute to work on Friday or Tuesday or whatever day, if I need that day for myself.
    3. Choose how to spend my working hours (representing clients, teaching, volunteering, building a business, etc.).
    4. Continue to study and learn constantly.
    5. Take at least one big trip every year.
    6. Never turn down an exciting or smart opportunity because I can’t afford it.
    7. Work alongside people that value my contributions. 

    Keep in mind that I wrote these goals before I had kids and before I was even married. This was also years before the pandemic when working from home was a foreign concept to most of us. 

    I think it says a lot that I was thinking about these things way back then.

    Being consistent means thinking just a little bit about money every week.

    My goal is to help you think even a little bit about your money choices every week. That way, your money life remains in balance with the rest of your life, and you can continually evolve and adapt your choices as your life changes.

    I want to encourage you to think, and to talk, and to choose. If all I do is help you and your loved ones think more purposefully about your money, Think and Talk Money will be a success. 

    Maybe your goal is also financial independence, or the power to choose and to live on purpose.

    Maybe it’s something else entirely. Whatever it is, discovering your motivation is the crucial first step. 

    It’s so important that I’ll encourage you to think about that motivation every week.

    I’ve learned that money is something that we all need to think about as a regular part of our lives. Not that we should only think about money. Or that we need to obsess over money. Simply that we can’t ignore money. 

    How sad is it when we realize our hard earned money has just vanished? That at the end of each month, we have less money?

    If this sounds familiar, you’re not alone. There are a lot of smart people who need somewhere to turn learn about money. Or, maybe just a reminder to actively think about their money. 

    You don’t have to struggle with making continuous money choices alone.

    Most of us could use someone to talk to or something to read to help us learn about personal finance.

    I hope Think and Talk Money can be that place for you.

    I can’t, and won’t, tell you what to do with your money. It’s your life, after all. But, I will strive to help you think and talk with purpose about your money.

    The basic money concepts are easy enough to understand. Consistently making good choices is hard. 

    Most of us could ace a quiz that asked, “Is it a good idea to spend more money than you earn every month and plummet deeper and deeper into debt?”

    Knowing what to do is not the same as actually doing it. Remember, someday is no day.

    That’s why it helps to not be afraid to talk about money. For some reason, most of us choose to deal with money on our own. I’d like to change that.

    There’s a stigma that we shouldn’t talk about money. I’d like to change that, too.

    That way, we all have a better chance of making intentional, consistent choices with our money.

    Have you been excited about money in the past only to lose that excitement not long after?

    Have you tried talking about money with your friends and family to help you stay motivated? If not, what is holding you back?

    Let us know in the comments below.