Author: Matthew Adair

  • Better Results with a Savings Rate

    Better Results with a Savings Rate

    Do you remember when I asked, “What would you do with $20,000 right now?”

    Did you have a plan then?

    Do you have a plan now?

    Let’s turn this simple question into a hypothetical scenario.

    It’s time to learn one final (for now) important personal finance tracking metric, known as “savings rate.”

    Congratulations on your raise!

    Let’s say you’ve been at your job for a few years. Your current salary is $100,000.

    It’s salary review time, and you set up a meeting with your boss. You want to make sure she remembers all your major contributions from the past year.

    Prior to the meeting, you send her a letter setting forth your top accomplishments. It’s a hard letter to write. It doesn’t feel like a normal thing to have to brag about yourself.

    You remember seeing a quote somewhere, “If you don’t advocate for yourself, nobody else will.” You push on and send your boss the letter.

    On the day of your meeting, you’re nervous walking into your boss’ office. Why did I ask for this? She’s going to be so annoyed.

    Before you even sit down, she puts your mind at ease. Your boss has a welcoming smile on her face.

    She immediately thanks you for your thoughtful letter. She appreciates the reminder of all your accomplishments throughout the year.

    Your boss tells you that you’ve always been a valuable member of the team. She thanks you again for reminding here of some of the specific projects you worked on that year.

    It’s not a long conversation. Before you go, she asks what else the company can do to enhance your work experience. You walk out of her office feeling like a valuable member of the team.

    You’re happy that you initiated the meeting, even though you didn’t enjoy the process.

    A couple of weeks later, you receive an email that your salary is increasing by $20,000.

    You couldn’t be happier. You earned it.

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    Wait, a raise?

    Work continues as normal the rest of the week. By the time your next paycheck hits your bank account, you sort of forgot that you’re now making more money.

    After taxes and retirement contributions, your biweekly (every 2 weeks) paycheck is now for roughly $538 more. That comes out to $1,166 more money per month, which of course, is a very good thing.

    But, you need to figure out what you’re going to do with that money.

    Ideally, you’ll have a plan in place before you receive the money. Whether it’s a raise, a bonus, or you switch jobs and earn a higher salary, the thought process remains the same.

    Thinking about what to do with this new money is what I’m getting at when I ask, “What would you do right now with $20,000?”

    No, it’s not coming in one lump sump payment.

    Fine, you have to pay taxes on the $20,000 so it’s more like $14,000 in new money.

    The point of the question doesn’t change. What are you going to do with this money?

    3 options for what to do when you earn more money.

    You now have more income coming in each month. Let’s talk through some of the options on what you can choose to do with that excess money.

    Spoiler alert!

    I recommend you think long and hard about Option 3.

    Make more money, spend about the same.

    The odds are that you will make more money as your career progresses. Statistics show that the average salary for Americans tends to increase as we get older, up until about our mid-50s.

    Your career trajectory may be different, and you certainly may continue to make more money well-beyond your 50s.

    The takeaway is that you are most likely going to make more money. It’s up to you to make sure you put that money to good use.

    The best way to supercharge progress towards your ultimate life goals:

    Make more money, spend about the same.

    It’s easier said than done. But, this is the key to getting ahead in life with your personal finances.

    How can you measure whether you are saving more as you earn more?

    By tracking your savings rate.

    What is my savings rate?

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

    Savings rate = Money Saved / Money Earned

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

    I find it helpful to measure your savings 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 savings rate as a percentage. To see your savings rate percentage, all you need to do is multiply your savings rate by 100.

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

    Moving forward, when I refer to savings rate, I will be talking about your savings 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 pretty good. That’s a savings rate of more than 13%.

    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 savings rate percentage of only 1.3%.

    Follow these tips for calculating your savings rate.

    Just like we talked about when creating your budget, don’t overcomplicate this process. Here are some suggestions to help you easily calculate your savings rate:

    When you calculate your savings rate, be sure to use your take-home pay for “Money Earned.” This means the amount of money that hits your bank account after taxes and retirement contributions.

    Like we discussed before, you’ve already made a terrific choice by investing it for retirement. Feel good about that. For calculating your savings rate, ignore it. We are only concerned with tracking how much we are saving each month from our take-home pay.

    This next part gets a little bit tricky to explain, but it’s important.

    If you get paid biweekly (every other week), that means you will receive 26 paychecks every year (52 weeks / 2 = 26). If you are paid twice per month, like on the 1st and 15th of every month, you only receive 24 paychecks.

    OK, so what?

    To determine your monthly take-home pay, so you can calculate your savings rate, you need to know the amount you earn for the whole year.

    To figure out how much you earn in a full year, multiply the amount you receive in one paycheck by 26 (or 24). That’s your annual take home pay.

    Then, to calculate how much you earn per month, divide your annual take home pay by 12. This is the amount you’re going to use for “Money Earned.”

    Enjoying serene moment. Successful satisfied millennial woman resting on comfy sofa at home looking aside with dreamy smile imagining pleasant things creating new plans visualizing future vacation because she tracks her savings rate with Think and Talk Money.

    For “Money Saved,” include all of the money you are putting towards your Later Money goals each month (except your retirement contributions through work).

    I know it’s called savings rate, but for this purpose, include all your Later Money in the savings rate equation.

    Of course, we know that “saving” is different from “investing.” Saving is also different than paying down debt or any other personal financial goal you’ve set.

    It doesn’t matter. When calculating your savings rate, your goal is to see what percentage of your take-home pay is fueling our Later Money goals.

    What can I learn from tracking my savings rate?

    Tracking your savings rate will help you understand if you are making progress over time. It’s not about comparing yourself to someone else.

    Whatever your current savings 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 savings 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 savings rate and your net worth will steadily climb. You’ll experience that your Later Money goals are closer to becoming reality than you think.

    Let’s do the savings rate math together.

    Now that we know what our savings rate is and why it’s such a useful metric, let’s revisit our $20,000 raise to do some math together.

    Going back to our hypothetical, you were making $100,000 before your raise. Let’s assume that 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 Later Money goals.

    Using our savings rate percentage formulas above, we see that:

    • Money Earned = $5,833 per month ($70,000 / 12)
    • Money Saved = $1,000 per month
    • Savings Rate = $1,000 / $5,833 = .17
    • Savings Rate Percentage = 17%

    17% of your take home pay to fuel your Later Money goals is great!

    Now, let’s see what happens if you add your entire raise to fuel your Later Money goals.

    Earlier, we assumed that after taxes and retirement contributions, your take home pay increased by roughly $1,166 per month. With your raise, your annual take home pay has now climbed to $84,000, or $7,000 per month.

    Look what happens to your savings rate percentage when you add the full $1,166 to Money Saved (instead of spending it)

    • Money Earned = $7,000 per month ($84,000 / 12)
    • Money Saved = $2,166 per month
    • Savings Rate = .31
    • Savings Rate Percentage = 31%

    You more than doubled your monthly savings contributions and improved your savings rate to 31%!

    Think about how much more quickly you can reach your goals by planning out this one decision.

    I know what you’re thinking.

    This guy’s no fun!

    I earn a raise and he wants me to save it all.

    This is just an example. I’m not suggesting you have to, or even should, save your entire raise. I want you to spend your money on things and experiences that are meaningful to you.

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

    If you don’t want to save the full $1,166, can you save $600 each month while enjoying the rest? That’s still an incredible improvement.

    It’s your money and the choices are yours.

    Before you spend the whole raise though, think and talk it out with your people.

    Maybe you just need to ask yourself:

    “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.

  • Q&A: Look for a Valuable Side Hustle

    Q&A: Look for a Valuable Side Hustle

    In this week’s Q&A, we talk about how the timing was right to launch Think and Talk Money, why you should consider a side hustle, and what comes next for the website.

    As always, please email your questions or leave a comment below or on socials.

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    You have a lot on your plate. Lawyer, teacher, landlord, young kids… why launch Think and Talk Money now?

    I had been thinking about writing a book or starting a website for a couple years. Over the holidays, my dad gave me the final push I needed.

    We were casually chatting while the kids played in the other room. Out of nowhere, he said, “Matt, you should do it.”

    Do what?

    “You should write a book.”

    Oh, no biggie.

    I didn’t expect him to say that. He went on to explain how you get to a certain age and you look back on life and wonder where it all went. You think about all the things that you wanted to do but never got around to doing.

    No regrets, blogging then book.

    He knew I had been thinking about writing a book for a while and didn’t want me to regret not doing it.

    I thought about it and realized he was right. I would never forgive myself if I didn’t take this chance.

    Now that I’ve thrown this out there, I have to do it, right?

    There’s never a perfect time in life. If I didn’t start Think and Talk Money now, I might never have gotten around to it. Something always comes up. It’s too easy to make excuses.

    It’s true we have a lot going on. Fortunately, I had a system already in place that gives me time to write thanks to Hal Elrod’s The Morning Miracle.

    I hesitate to say a certain book “changed my life.” This might be one of them.

    For almost 10 years now, I’ve been waking up at 5:30 a.m. to read, journal, and relax. It’s so beneficial to have that time for myself, especially now with kids, before the day gets away from me.

    To learn more about the benefits of a daily morning ritual, check out Elrod’s miracle morning website.

    Since launching Think and Talk Money, I use my mornings to blog instead of reading. I like teaching and writing about personal finance, so my mornings are still enjoyable.

    That being said, I may need to adjust the schedule to read the latest book in the Empryean series, Onyx Storm.

    How do you feel about side hustles?

    Short answer: I love side hustles.

    We’ll spend some time in a future post talking about all the advantages of having a side hustle.

    The obvious advantage is you can make more money. The important thing is what you do with that money to make the side hustle worth it. A side hustle is another time commitment, after all. If you’re going to take on the responsibility, make sure it counts.

    Before you consider a side hustle, have a plan in place for why you want additional money. Are you looking to pay down debt faster? Save for a wedding? Invest in your first rental property?

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

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

    Six months later he sought me out to share that the plan worked. His side hustle allowed him to pay off his credit card in less than six months. All while working a full-time job and attending law school par-time. I couldn’t have been happier.

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

    You Should Want to be Good with Money
    Part 1: How to Budget to Fix the Disappearing Dollar
    Why You Need to Fuel Your Savings

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

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

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

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

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

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

    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.

    I’m reminded of another conversation my dad and I had when I was in high school.

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

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

    You’re not thrown off by distractions because you’re locked in on accomplishing your goals.

    Smiling female bartender talking with customers as her side hustle to make extra money learned on Think and Talk Money

    After launching Think and Talk Money, I feel a heightened sense of focus. It’s benefitting me in all of my pursuits. I take care of business as best I can, while prioritizing my family and my health.

    I can see your eye rolls through your screen.

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

    The people who know me best would beg to differ.

    They might just tell you that I’m striving to build a life where I spend my working hours doing what is meaningful to me.

    I spend my personal time with the people that are meaningful to me.

    Have you ever used a HELOC to invest in real estate?

    Yes, I’ve used HELOCs, which stands for Home Equity Lines of Credit, to scale my real estate portfolio.

    This question leads to so many concepts we need to discuss, from debt and credit to investing. We’ll come back to HELOCs more fully in a separate post.

    The bottom line is using HELOCs to scale your investment portfolio is a more advanced strategy that I would not recommend for everyone. I probably wouldn’t recommend it for most people, even experienced real estate investors.

    I say that for good reason. When you hear HELOC, think debt. For many of us, debt is problematic and leads to negative emotions.

    I experienced these negative emotions associated with debt. I only got comfortable with taking on debt as I learned to trust myself again with the responsibility.

    HELOCs are like credit cards, just in another form of debt.

    My advice: if you have proven to yourself that you can responsibly handle debt, using a HELOC may be a worthwhile strategy for you.

    By responsible with debt, I mean:

    If you satisfy all of the above, a HELOC may be useful to scale your real estate portfolio. If you’re thinking about using a HELOC in the near future and want to talk it out, please feel free to reach out.

    What’s it like being a blogger?

    It’s only been five weeks, but I’m happy I took the chance to launch Think and Talk Money.

    It’s been fun.

    And, it’s been hard.

    First, the fun stuff. I’ve enjoyed writing and talking about personal finance concepts that are important to me. I’ve especially enjoyed all the interactions with our readers.

    One unexpected element I’ve appreciated is the sense of accomplishment that comes with publishing every post. This is very different from my experience as a lawyer where we typically work on a case for years before its conclusion.

    I’ve also had fun writing in a new style. I haven’t ever blogged before. I haven’t done any writing other than legal writing since college. If you’ve ever had the pleasure of reading a legal brief or court opinion, first off, I’m sorry. Second, you understand how different legal writing is from blog writing.

    Even though the writing styles are different, there is certainly some overlap in the fundamentals. My aim in both styles of writing is to be clear, concise, and informative. I hope to be somewhat interesting, as well.

    As a blogger, I’m still finding my voice, as they say.

    It can be challenging to make core personal finance concepts- like budgeting and saving money- educational, simple, and entertaining. If I’m doing my job, then my personal finance content should also be relatable and understandable.

    Please let me know you have any feedback on what’s working (or not working for you)!

    So, what’s hard about blogging?

    Now, for the hard stuff.

    My wife and I launched Think and Talk Money with zero knowledge, skills, or experience in starting a website.

    Can you tell? Be nice.

    We have no tech background whatsoever. Two months ago, I had no idea what SEO, caching, or plugins were.

    We also have no design or marketing background. I didn’t even have social media (other than LinkedIn) until we launched. The fact that we have 129 Instagram followers (don’t laugh) seems like a small miracle to me.

    My first post on LinkedIn had more than 12,000 impressions in the first few days. I still have no idea what that means, but it’s exciting!

    If you’ve ever started a website, you know exactly what I mean. Creating the content is only the first step. So much more goes into it behind the scenes. We’re still only scratching the surface.

    To sum it up, the tech stuff has been challenging and time consuming. We’ve learned so much already but have so much more to learn.

    Thank you to everyone who has reached out with tips and suggestions!

    What’s the end game for Think and Talk Money?

    I completely understand why this is an important question to think about. The truth is we’re just getting started and haven’t thought about Think and Talk Money in terms of an end game.

    I’ve always liked to teach and write, and this lets me do more of both. For now, our mission is to introduce the most important concepts of personal finance through the blog.

    We post three times per week on Mondays, Wednesdays, and Fridays.

    Some of the posts cover core personal finance topics in depth. Other posts are more targeted and address specific strategies or lessons.

    A writer engrossed in their work at a desk overlooking a tranquil lake, finding inspiration in the natural surroundings to write about personal finance at Think and Talk Money.

    There’s an intentional order to the way we’ve been introducing concepts. The order is important and mirrors the curriculum in my personal finance class for new lawyers.

    We started with money mindset, then moved to budgeting, then moved to savings.

    These are core personal finance concepts that we will always revisit in the blog. If your mind is not in the right place, it doesn’t matter if you know the particulars of how to budget or save.

    We’ll soon move on to topics like debt and credit, investing, and real estate.

    So, what comes next for Think and Talk Money?

    My wife and I are thinking about all the options: podcast, online courses, personal coaching, speaking events, and a book.

    Of all these options, the book might be the surest thing. I’ve wanted to write a book for a long time.

    Whatever happens, we’ll do our best to continue creating valuable content and listen to what our audience wants.

    Let us know if you have any thoughts or ideas on what should come next!

  • Why You Need to Track Your Net Worth

    Why You Need to Track Your Net Worth

    On the first of every month, I wake up at 5:15 a.m., brush my teeth, and put on my robe.

    I walk downstairs, pour a cup of coffee, and head to my favorite chair in the living room.

    I then power on my laptop and open an Excel file called “Adair Family Balance Sheet.” Using this basic spreadsheet, my wife and I have been tracking and discussing our net worth for years.

    It takes me about 20 minutes to update our family balance sheet each month. The hardest part is remembering all the passwords for our accounts.

    When I finish entering the new account values, I study the spreadsheet for about two minutes.

    I hope to see that our money efforts that month resulted in our assets increasing in value and our debts decreasing.

    When I’m finished with the updates, my wife grabs her coffee and sits with me. She will likewise study the family balance sheet for about two minutes.

    We’ll then spend about three minutes talking about the changes from the previous month.

    And, that’s it.

    It takes us less than 30 minutes each month to track and discuss what I consider the most important metric in personal finance.

    That’s all the time it takes to know if we are progressing towards our most important goals. By tracking our net worth, we can quickly see if we are making good money decisions or need to make adjustments.

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

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

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

    In this post, we’ll talk about what “net worth” means, how to track it, and why it’s so important.

    Let’s start with what net worth means.

    Going into hiding straight from a London pub.

    One night when I was studying abroad in London years ago, my good friend, Kais, and I were talking in a pub. I don’t remember what we were talking about when he offered:

    “If I was in trouble and needed to go into hiding, I could sell everything that I own, pay all my debts, put the leftover money in the bank, and be fine for a couple of years.”

    Uhh, OK…

    At the time, I had no idea what he was talking about.

    Still, I had to admit that it seemed pretty cool that he had that kind of financial flexibility. I knew I couldn’t survive for a couple of weeks, let alone a couple of years.

    People in an english pub talking about their net worth as learned on Think and Talk Money.
    Photo by Luca Bravo on Unsplash

    Looking back years later, I now realize that he was talking about his net worth.

    Kais, if you’re reading this, drop me a line to let me know you’re not hiding.

    So, what is net worth?

    Your net worth is simply all of your assets less all of your liabilities.

    Net Worth = Assets – Liabilities

    Yup, you only need those two numbers to calculate your net worth, the most important number in personal finance.

    There’s no complicated math involved. Just addition and subtraction, which couldn’t be easier in a basic balance sheet (or spreadsheet).

    Let’s start with understanding what counts as an asset.

    What are assets?

    An asset is anything that has economic value and can be owned or controlled.

    In even simpler terms, an asset is just about anything you can think of that could be exchanged for money.

    My family’s current assets include:

    • Retirement accounts for both me and my wife
    • College savings accounts for each kid
    • Health savings account (my favorite account… we’ll revisit)
    • Checking accounts
    • Savings accounts
    • Cars
    • Jewelry
    • Properties
    • Cash on hand

    Other common examples of assets include:

    • Collectibles (artwork, coins, designer bags)
    • Furniture
    • Household goods (TVs, appliances, rugs, etc.)
    • Clothes
    • Tools
    • Recreational gear (bicycles, golf clubs, boats)
    • Toys

    It’s up to you to decide what assets to include in your balance sheet. There is no strict science to it. That said, there’s no point in overstating (or understating) your assets. You (and your family) are the only ones who will be reviewing your balance sheet.

    I personally don’t include all of our household items, but you are certainly welcome to. For me, it’s not worth the time and effort to determine how much I could earn by selling my TV or snowboard.

    a closet that is organized and neatly arranged with clothes, shoes, and accessories, illustrating items that could count as assets learned on Think and Talk Money.

    It’s perfectly acceptable if you want to tally up the value of your items. I think it makes sense to do so if you have a lot of nice things. If you choose to do so, aim for estimates, rather than precise values, to make your life easier.

    Why it is so important to acquire assets.

    Assets can, but don’t always, appreciate (increase in value) over time. For example, a property may appreciate over the long term, but a typical car will do the opposite and depreciate (lose value over time).

    Assets can also generate income, but don’t always. A good rental property should generate monthly cashflow. A stock portfolio can generate dividends (payments from companies to investors).

    On the other hand, a designer bag won’t generate income, unless you charge people to borrow it. Even so, a designer bag is still considered an asset because you could exchange it for money.

    To state the obvious, owning assets is a very good idea. Especially assets that appreciate and assets that generate income.

    When you own these types of assets, your net worth will increase over time without much extra effort on your part. You don’t have to specifically trade your time for money with these types of assets.

    Think of it like this: the best way to achieve financial independence is to own assets that increase in value over time and generate income.

    By tracking your net worth each month, you’ll know how your assets are doing.

    Does my home count as an asset?

    Some people, like personal finance legend Robert Kiyosaki, don’t think you should count your home as an asset. The argument goes something like, “You can’t really sell your home because then you wouldn’t have anywhere to live. So, you shouldn’t count it as an asset.”

    I couldn’t possibly disagree more.

    For many of us, our homes are our most important purchase in our lives. Over the long run, most of our homes will appreciate in value, even if not as much as we hoped.

    We spend years working to make money so we can pay down the mortgage. Each payment we make reduces our debt and increases our equity in the home, thereby improving our net worth.

    Don’t overcomplicate it. Include your home as part of your net worth. Just don’t forget to include the mortgage as a liability (we’ll discuss below).

    How do you determine the value of your home for purposes of tracking your net worth?

    Make it easy on yourself. The goal is to obtain a reasonable estimate. If you’ve worked with a real estate broker, ask her for the current value of your home. She will use recent “comps”, meaning similar comparable properties in the area, to come up with a fair value.

    You can also make a decent estimate of the value of your home by studying comps yourself. Platforms like Redfin or Zillow make it easy to see what homes have sold in your neighborhood.

    Look for homes as similar to yours as you can find. Focus on size, the number of bedrooms and bathrooms, and the quality of the finishes.

    Remember, this is not an exact science. We’re aiming for an estimate of your home value only for the purpose of measuring your net worth.

    On our family balance sheet, I only update the estimated value of our properties once per year. That’s good enough for me, and all you really need to do.

    Now that we know what assets are, we need to figure out what liabilities are to calculate our net worth.

    What are liabilities?

    A liability is any debt or obligation that you owe to someone else. Liabilities are most commonly found in the form of loans.

    Unlike assets, liabilities diminish your overall net worth.

    To speed up your path to financial independence, focus on reducing or eliminating liabilities.

    Closeup image of a woman holding and choosing credit card to use, which she knows counts as liabilities from Think and Talk Money.

    My family’s current liabilities include:

    • Lines of credit
    • Mortgages

    Other common examples of liabilities include:

    • Credit card debt
    • Student loan debt
    • Auto loans
    • Personal Loans
    • Consumer loans

    When you are beginning your career, it’s common for your liabilities to be greater than your assets. This is usually because of student loan balances.

    Remember our real life, really lost boy? He had a negative net worth for years.

    Don’t let that discourage you from tracking your net worth. Even if you’re in negative territory, each month is a chance to shrink that negative number, which means your net worth is increasing.

    Whether you are paying down debt, or adding to your savings or investments, the result is the same: your net worth increases.

    The reason for tracking your net worth also remains the same: individual progress, over time.

    Now that we know what assets and liabilities are, we can create our balance sheet and determine our net worth.

    Creating your own net worth balance sheet is very easy.

    I’m happy to share the spreadsheet I currently use to track my net worth. Subscribe to our weekly email newsletter, and send me a reply to the next email asking for my net worth spreadsheet.

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    On the top of my family’s net worth spreadsheet, each row represents an asset, or something we own.

    On the bottom of the spreadsheet, the rows represent the debts we owe.

    Each of the 12 columns (one column for each month) in the spreadsheet indicates the value of each asset at the end of the month.

    The reason I add a new column for each month, instead of just updating the values in a single column, is so I can easily see how our net worth has changed over time.

    Once all 12 months for the year are filled in, I start a new sheet and repeat the process. This helps us track how our net worth has changed over the long run.

    Since your balance sheet is for your eyes only (or your family’s eyes), feel free to design it however you want.

    On our family spreadsheet, I use different colors to illustrate the different types of assets we own and liabilities we owe:

    Turquoise for securities (stocks and bonds). Orange for checking accounts. Purple for savings and objects (like cars and jewelry). Green for properties.

    I like color coding because it helps me quickly visualize what we own or owe in each broad category.

    Here’s what a simple balance sheet looks like:

    If you want to create your own balance sheet, here’s what it might look like:

    AssetsJanuaryFebruaryMarch
    401(k)
    Roth IRA
    529 College
    HSA
    Checking
    Savings
    Car
    Home
    Rental Properties
    Total
    LiabilitiesJanuaryFebruaryMarch
    Credit Cards
    Mortgage
    Student Loan
    Auto Loan
    Total

    Once you input the amounts for each cell in the appropriate column, use the “sum” function to total your assets and separately total your liabilities.

    Then, all you need to do calculate your net worth is create one final row labeled “Net Worth”.

    In the “Net Worth” cell, simply use the “sum” function again to subtract the liabilities total from the assets total.

    JanuaryFebruaryMarch
    NET WORTH

    That’s all there is to it. Now, you know your net worth.

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

    By now, you should be thinking that it’s not too difficult to track your net worth.

    It takes my wife and I less than 30 minutes each month to track and talk about the most important number in personal finance.

    How can we spend so little time on the most important number in personal finance?

    Because we’re only looking for progress compared to what our net worth was previously.

    We’re not interested in anyone else’s numbers. We only care about making personal improvements for our family.

    If our net worth is increasing over time, it means we are heading in the right direction.

    It means that we are continuing to fuel our Later Money goals. We’re paying down debt. We’re letting our investments do their thing.

    If our net worth is decreasing, it means we need to consider making adjustments.

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

    If the issue is that our debt is increasing, or we haven’t fueled our investments that month, we make adjustments.

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

    That’s all there is to it.

    All before the kids wake up.

    Do you currently track your net worth?

    Have you found it useful to measure your overall financial health.

  • Money on My Mind: Capital One Edition

    Money on My Mind: Capital One Edition

    From time to time, I’ll post about current events and news I come across that adds to our recent discussions.

    In today’s post, we’ll talk about Capital One’s alleged deceptive practices, rising credit card balances, and how much we should save for retirement.

    Like with our Q&A posts, please leave a comment below, email me, or reach out on the socials if there are any stories you’d like to discuss here.

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    Let’s start with recent news that impacted me personally.

    A reminder to consistently evaluate your banking relationships.

    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%… from a bank that had been a leader in online savings accounts that I had banked with for 17 years.

    What the heck happened?

    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.

    It wasn’t just me. I am one of the many people that Capital One switched out of high interest rate savings accounts into inferior products. These deceptive practices are now the subject of a federal lawsuit brought by the Consumer Federal Protection Bureau.

    Dishonest word or phrase in a dictionary symbolizing how Capital One treated its customers by switching us to lower interest accounts.

    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.

    Capital One, of course, denies the allegations. Maybe they did nothing legally wrong. For me, I saw the deceit in my own statement and the damage was already done.

    Why do stories like Capital One’s alleged deceptive practices matter?

    It wasn’t the amount of interest I lost out on that bothered me.

    This all happened during that time we talked about when my wife and I were aggressively acquiring properties, so we never had a lot of money sitting in savings for an extended period.

    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.

    That said, I have to admit that writing this post is reopening old wounds.

    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.

    Now I’m getting hot all over again.

    “Take a deep breath,” as my son says to his sister when she’s crying.

    On the bright side, this experience was a good reminder of how important it is to look at our accounts regularly.

    You could also say it’s a good reminder to regularly think and talk about money so something like this doesn’t happen to you.

    No matter how much you trust your bank, keep an eye on your accounts.

    Americans are spending more on credit cards and carrying bigger balances.

    The Wall Street Journal reported this week that Americans are spending more on credit cards and carrying higher balances month to month.

    As The WSJ notes, “Bigger credit-card balances mean people are paying more in interest charges, with rates hovering around their highest levels on records. The average credit-card rate was around 21% late last year, according to data from the Federal Reserve.”

    These findings are consistent with a recently published study by The Federal Reserve reporting that consumers are using credit cards more often when compared to cash transactions.

    Higher credit card balances combined with more frequent credit card use is a problematic combination.

    I am no stranger to carrying a credit-card balance. These reports don’t come as a shock to me. Especially in an era where the cost of living is rising so sharply everywhere.

    It’s because I’ve personally felt the negative emotions tied to credit card debt that I never like seeing stories like these.

    Indoor shot of unhappy young lady using mobile phone in front of laptop and analyzing home finances and credit card bills.

    I understand that some people don’t have options besides using credit cards because of life circumstances. I’m hopeful that through money wellness education, more and more people will realize that they do have options.

    I’m not saying it’s easy. But, there is a path forward. You can create a money plan that is consistent with your life goals and does not include high-interest debt.

    How much money should you have saved for retirement by age 50?

    Investopedia recently summarized reports from three major 401(k) providers on the average balances people have in their 401(k) plans. These articles can be helpful to measure your progress. Just be careful on what you take away from them.

    We all have different goals in retirement. That could mean when we hope to retire. Or, how we plan to spend our money in retirement.

    Plus, some of us have different investments, such as real estate holdings, that would not be reflected in studies like this.

    For many of the same reasons that I’m not a fan of a rigid 50-30-20 budget framework, I don’t find these types of comparisons too helpful. I prefer we strive for personal improvement, like fitness instructors have been teaching us for years.

    Let’s look at one of the potential issues with articles like these. Empower reports that the average balance for someone in their 50’s is $592,285, and the median balance is $252,850.

    That’s a big difference. Let’s refer back to high school math (ok fine, Google) for a refresher on what “average” and “median” are.

    The average balance is calculated by adding up everyone’s account balance and dividing by the total number of people. The median reflects the middle account balance if we list everyone’s balance from smallest to largest.

    Using Empower’s data, the average balance seems skewed on the high side. This is likely because of a subset of high net worth individuals driving the average up. The median value is probably a more informative number for the average American.

    Let’s put this all another way. Whether my colleague has $50,000 saved or $500,000 saved should not impact my retirement planning. The amount he has saved doesn’t matter to me.

    Instead of talking about his numbers, I can still benefit from talking to him about his goals. I should be talking to him about his money mindset, like what motivates him to save in the first place.

    Am I saving too little or too much for retirement?

    Since 2011, I’ve represented individuals with mesothelioma, a terminal cancer caused by exposure to asbestos. Most of my clients are in their 70’s and don’t get the chance to enjoy their retirements because of their mesothelioma.

    My perspective on work, family, and life has undoubtedly been shaped by visiting with my clients in their homes and talking about their life experiences. I am forever grateful for what I have learned in these moments.

    When I see stories like this one from The WSJ about the financial regrets of people over age 80, I pay attention. I read these stories about people who are living longer than they expected and can’t help but think of my clients with mesothelioma who won’t have that same experience.

    I also think about Bill Perkins and his excellent book, Die with Zero. You can read more about Perkins and his philosophy that many of us are saving too much for retirement on the Die with Zero website.

    For my own money decisions, I’m still sorting out these three competing realities:

    1. Some people, like my mesothelioma clients, don’t get to enjoy a full retirement;
    2. Others outlive their money in retirement; and
    3. Still other people saved more than they’ll ever spend in retirement.

    My main takeaway is that I want to make choices today that allow me to spend more time with the people I love and more time doing the work that I love. However those three realities play out in my own life, I’m confident I won’t regret living this way.

    This mindset is what led me to start Think and Talk Money. I enjoy helping people think through these types of choices.

    Please help me spread the word about Think and Talk Money so more of us can consider these important concepts.

  • How to Best Optimize your Savings

    How to Best Optimize your Savings

    In our last post, we talked about the importance of fueling your savings and how savings differ from investments.

    Here, we’ll discuss how to best optimize your savings so you are protected in times of emergency and can achieve your short-term goals.

    We’ll also talk about whether you should automating your savings, and if it makes sense to start saving while you’re paying off debt.

    Let’s begin with the most important savings account we all need: an emergency savings account.

    The first savings account you need is an emergency savings account.

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

    For example, if you lose your source of income, your emergency savings will keep you afloat until you find a new source of income. The idea is to use your savings so you don’t have to pull from your long-term investments.

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

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

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

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

    Why aim for saving enough Now Money instead of saving enough to cover your total Budget After Thinking?

    Because Now Money represents the consistent, reoccurring expenses that you need to pay every month to take care of yourself and your family. Since you will only be using this money in times of emergency, you can, and should, forego some of life’s luxuries until you get back on track.

    Man protected from the crisis because he has 3 to 6 months of emergency savings thanks to think and talk money.

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

    Come on Matt, should I save 3 or 6 months of Now Money?

    It depends! Personal finance is personal.

    If you have no dependents, 3 months worth of savings is a good benchmark. In most circumstances, that should give you enough time to get back on your feet.

    If you have dependents, that means you are responsible for additional humans, sometimes tiny humans. These humans are counting on you for support. Targeting 6 months of savings is a good idea so you can continue to provide for them.

    You should also consider your source and consistency of income when deciding how much you’ll need saved for emergencies. If you are not paid regularly throughout the year, you should target a larger amount in your emergency savings to cover those longer gaps between pay.

    When you are part of a dual-income household, you may be able to get away with less emergency savings since two people are contributing to the monthly bills. If one of you suffers a sudden job loss, the other person’s income can still be used to keep the household afloat.

    One last thing: Building up to 3-6 months of emergency savings will take time. Don’t pressure yourself to accomplish this goal overnight. Each month, you can add to this account until you reach your target. Any and all progress is good progress.

    Do not rely on credit cards for emergencies.

    Unfortunately, many of us rely on credit cards to pay our bills. When we do this, our debt grows and cancels out any gains we’re making through our savings and investments.

    Just as you shouldn’t pull from your investments in times of emergency, you should not rely on credit cards to protect you.

    Savings is also for more fun, short-term goals.

    We just talked about the first savings account you need, an emergency savings account. I agree with you that thinking about emergency savings is not exactly fun. Job loss… medical treatment… car repairs. Yup, not fun.

    Let’s talk about more fun stuff. Savings is also for short-term goals, whatever those goals are for you. This is your Later Money in action fueling your life goals.

    Remember, we said emergency savings was your first account. Not your only account.

    Once you’ve identified your specific Later Money goals, it’s a good idea to create separate savings accounts, or buckets, for each goal. This will help you visualize the progress you’re making towards each goal. It will also help you not use your savings that was intended for one goal on something else.

    Happy wedding photography of bride and groom at wedding ceremony paid for with savings learned on Think and Talk Money

    What kind of savings buckets might you have? Before I got married, I had separate savings accounts for:

    • Engagement ring
    • Wedding
    • Down payment on a home
    • Travel
    • Cubs Season Tickets
    • Emergency Savings
    • Budget Busters

    I had a specific amount in mind for each category and would make transfers each month into those buckets. Not each account received an equal amount.

    For example, I knew how much I needed for Cubs tickets, usually payable at the end of the year, and divided that amount by 12 months.

    The amount needed to purchase something like an engagement ring was more… fluid.

    My students in recent years have suggested other savings buckets, as well. We’ve talked in class about saving for a car, saving for holiday presents, and saving for kids’ schooling.

    Whatever your savings goals are, using separate buckets will help you stay on track.

    Setting up separate savings accounts online is easy.

    It’s easy to set up separate savings accounts online with most major banks. Once you create your initial account, you can create sub-accounts that will appear on the same landing page as your primary account. Each account will have an individual account number, and you can label them however you like.

    When you do set up your savings accounts, it’s a good idea to have a different bank for your primary checking account and your savings accounts. This will help you resist the temptation to spend your savings. Out of sight, out of mind, and all that.

    I’ll soon have a post on my favorite online savings accounts. There are a number of them out there that offer good interest rates and a solid user experience.

    Automating your savings is a good idea, but I don’t personally automate.

    I automate a lot of my money tasks, like setting up automatic bill payment for every bill that comes to mind. This includes my mortgages. I also have automatic deductions taken from my paycheck for my 401k plan.

    Automating your money is a very good idea. In The Automatic Millionaire, David Bach explains how the single step of automating your finances can help you live rich and retire richer. You can learn more about Bach’s philosophy on his website.

    I don’t disagree with Bach and implement many of his strategies in my own life. The Automatic Millionaire is definitely worth a read.

    Still, I don’t automate my savings transfers.

    I automated my savings transfers in the past and learned that I prefer the emotional high of manually making savings transfers.

    Money is emotional. This is just one example.

    Happy young couple making savings transfer online in computer app and feeling an emotional high thanks to Think and Talk Money

    I like how it makes me feel to go into my checking account and transfer that month’s Later Money to my savings. It makes me feel good to see the pop up on my computer: “Your transfer is complete!”

    I like that feeling so much that I’m not worried about skipping a savings transfer. That moment gives me a lot of joy.

    Whether you choose to automate or manually transfer into your savings account, please make sure the dollars are not disappearing and are actually going towards your most important goals.

    If you have debt, should you still build up your emergency savings?

    During my money wellness class, I usually get a question like this:

    “Should I build up my savings while I’m paying off student loans or other debt?”

    My recommendation is different depending on the type of debt. That’s because interest rates are generally much lower for student loans or mortgages than for credit card debt.

    In a future post, we’ll talk about what is commonly referred to as “good debt” and “bad debt.” Student loans and mortgages, in my opinion, represent good debt. Credit card debt is almost universally considered bad debt.

    Typically, good debt has much lower interest rates than bad debt. You might be paying 20% or more on your credit cards and closer to 8% on your student loans (and probably even lower on your mortgage).

    If you have high interest credit card debt, pay that off first before you prioritize savings. It doesn’t make any sense to pay 20% interest to a credit card company just so you can earn 4% interest in a savings account.

    On the other hand, if you have student loan debt or mortgage debt, I recommend you start building your emergency savings account while you’re simultaneously paying down that debt.

    Yes, paying 8% interest is mathematically worse than earning 4% in savings account. If you are driven strictly by the math, you should pay off that 8% debt before you start saving in a 4% interest account.

    Never forget that money is emotional.

    But, money is emotional. I think it’s worth paying the interest on your good debt so you can experience your savings growing.

    Plus, if you do have an emergency that requires you to tap into your savings, you won’t have to rely on credit cards and pay the much higher penalty.

    Keep in mind that if you go this route, you still need to make your required debt payments. We are only talking about extra money that you have available that could go towards additional debt payments or to savings.

    The temptation to ignore your savings is real, especially when you have debt.

    The temptation will be there to pay off whatever debt you have as quickly as possible and forego saving altogether.

    I still feel this temptation every month. Should I contribute my next dollar to building up savings or paying down mortgages?

    For most of the past year, I was laser focused on paying down mortgage debt. More recently, I’ve reassessed and have been working to build up my savings.

    Having talked it over with my wife, we want to make sure we’re protected should something unexpected happen, even if that means temporarily slowing down our progress on our mortgages.

    This way, we won’t end up in a cycle of using credit cards to cover us in times of need.

    If you’re faced with a similar decision, know that you’re already ahead of the game by even thinking about how to use your Later Money to fuel your goals.

    Whether you are paying down debt or increasing your savings, you are heading in the right direction.

    Please drop a comment below if you have any additional tips to share!

    Do you prefer automatic savings or manual transfers?

    What are some of your favorite savings buckets you’ve used?

  • Why You Need to Fuel Your Savings

    Why You Need to Fuel Your Savings

    Would it surprise anyone to learn that most Americans are not satisfied with the amount they have saved?

    Let’s take look at some of the key findings in the recently published Yahoo Finance/Marist Poll 2025 National Survey on the State of Savings:

    • Only 10% of households are completely satisfied with the amount of money they have saved.
    • Only 20% reported saving more in 2024 than in 2023.

    These numbers are scary. You can read more here. The scariest part for me is that these results aren’t surprising at all. They closely mirror the stats I first showed my students back in 2021 when discussing savings.

    Why are these numbers so scary?

    In the abstract, I can understand why these stats may not seem too scary to you.

    Let’s look at another stat that illustrates what happens when we don’t have adequate savings:

    • About 33% of households would not be able to pay their bills or expenses for one month, if faced with a sudden loss of income.
    • This number rises to 38% of Gen Z and 41% of Millennials who report they could not pay their bills for even a month.

    What do these numbers mean?

    1 in 3 people currently reading this post, in the comfort of their homes they have worked so hard for, would not be able to afford those homes for even one month if they suddenly lost their jobs. It’s worse for Gen Z and Millennials.

    Maybe you’re on the train commuting to work while reading this. How many people are in the train car with you? 30 or so? Pick out 10 passengers, really look at their faces.

    Seats of a passenger car in a European train with 1 of 3 people sitting on it not able to pay their bills for one month if they lost their jobs.

    They’re just like you, typically good people, working a job to provide for themselves and their families. If these 10 people suddenly lost their jobs, they wouldn’t be able to pay their bills next month.

    Count me in the group of people not completely satisfied with their savings.

    If you read these stats and are honestly not worried about your savings, you are in the minority and are doing a tremendous job managing your personal finances.

    Keep up the good work and please let us know in the comments below what strategies are working for you.

    On the other hand, if you’re being honest with yourself, you’re most likely in the 90% of people that are not completely satisfied with their savings.

    Count me in this group.

    From 2017 to 2024, my wife and I prioritized using all of our available money to acquire real estate. The downside was limited funds available for savings.

    We now have work to do to build our savings back up. Instead of presently shopping for investment properties, we are now focused on paying down mortgage debt and increasing our savings.

    Most people attribute their low savings to rising cost of living.

    What is the most common explanation given by people that have so little saved? Rising cost of living across the nation:

    • Nearly 66% of Americans believe that the cost of living for the average family is not affordable in their area.

    Millennials and Gen X are the most worried about the cost of living, with more than 70% of each group feeling unprepared. 64% of Gen Z and 59% of Baby Boomers likewise feel unprepared.

    Cost of living includes necessary expenses like housing, food, transportation, and healthcare. In other words, Now Money.

    There are any number of reasons we can point to that are combining to drive up the cost of living, like limited housing inventory, higher interest rates, and more expensive groceries.

    Father and daughter buying apples in grocery store as part of rising cost of living nationally

    Whatever the reason for why costs are going up, I’m more interested in adapting and thriving in the current environment rather than making excuses.

    So, what exactly can we do to improve our savings?

    We can first eat Italian beef while working on our money mindset.

    Then, we can create a Budget After Thinking that fuels our goals.

    The next part, figuring out what to do with that money you generated for savings, is much easier. Before we talk about specific savings tips, let’s make sure we’re on the same page as to what we are trying to accomplish through saving.

    Savings are for short term protection and short term goals.

    When we talk about savings, what exactly are we talking about anyways?

    According to Merriam-Webster, saving means “the preservation from danger or destruction: deliverance.”

    Uhh, that’s intense.

    Scrolls down…

    Savings (pleural) means “the excess of income over consumption expenditures.” Much better.

    That’s about as simple as it gets. Savings is the money you have left over that you didn’t otherwise spend. In Think and Talk Money vocabulary, it’s your Later Money.

    In The Richest Man in Babylon, George Clason described savings with one of my favorite quotes in all of personal finance:

    “A part of all you earn is yours to keep.”

    Translation: you worked hard to earn that money. You should think about keeping some of it.

    Close up of baby girl wrapped in a security blanket symbolizing an emergency savings account learned on Think and Talk Money.

    Actively saving money to fuel your Later Money goals is a non-negotiable step towards financial independence.

    You can use your savings to protect yourself and your family in times of need. You can also use your savings for short-term goals, like paying for a wedding or a downpayment on a house.

    Think of it this way, your savings make it so all those hours you spend on the job- the time away from your family or your passions- was not for nothing.

    What is the difference between saving and investing?

    Keep in mind that savings is different from investments, although both count towards your Later Money.

    Savings is for (1) short term protection and (2) short term fuel for your life goals. Your savings is your security blanket for the here and now so you don’t have to take away from your wealth-generating investments at the wrong time.

    Keep this money in a dedicated savings account (or accounts) so the money is readily available when you need it.

    There is very little, if any risk, involved with saving money. That’s because reputable banks in most countries carry deposit insurance to protect your money. In the United States, deposits are protected up to $250,000 by The FDIC.

    So, how are savings different from investments?

    Investments are assets that you purchase with the goal of making a profit over time. That might be through the stock market, real estate, or any number of other options. Think of investing as the best way to supercharge your wealth over the long term.

    Investing is a major component of overall money wellness, but investing comes with risk. As the saying goes, “you don’t get something for nothing.”

    Because you can lose your money in any investment, it’s not a good idea to expect that money will immediately be there when you need it. That’s one reason why you should have savings distinct from your investments.

    One way to counteract investment risk is to invest for the long-term, so you don’t want to interrupt those investments for short-term goals. This is another reason why we need savings in the short term.

    One final point about saving vs. investing. There is a point when you will have enough saved in the bank that you can solely focus on growing your investments. This is a very comfortable place to be and where I am currently focused on returning.

    Saving is an essential part of overall money wellness.

    To recap, saving money to fuel our Later Money goals is crucial to overall money wellness. Sometimes, we’ll use our savings for protection, like in times of emergency. Other times, we’ll save with a clear goal in mind, like paying for a wedding or a house.

    Saving is not the same as investing, although both are important. The reason we save money, rather than invest it, is so that money is readily available when we need it.

    In our next post, we’ll discuss what to do with the money we are saving for maximum results. We’ll cover some key strategies for what to do with the money you have generated so your savings align with your overall money goals.

    Let me know in the comments below if you’re not completely satisfied with your savings, like me.

    Have you taken any steps to join the 10% of Americans who are completely satisfied?

  • Strong Motivation to Talk Money with Friends

    Strong Motivation to Talk Money with Friends

    My favorite teachers share a common gift of using analogies to make a teaching point more clear. My mentor and moot court coach in law school (he preferred we call him Sensei) was an expert at analogies.

    Back in law school, after working for months on a brief for a moot court competition, my team messed up and submitted a brief with a bad formatting error on the cover page.

    We knew we were going to get penalized, but after months of working on it, we still felt proud of our work. And, it felt good to be done.

    Diverse students high fiving together after completing a moot court brief.

    We called Sensei in celebration that we were finished. When we told him about the formatting error, he was… not pleased.

    “You fumbled the ball on the one yard line!”

    I told you he was good with analogies.

    Analogies can help us internalize key money concepts.

    I’ve found that analogies work well when trying to implement key money wellness habits into our lives. Like the idea of generating fuel for our ultimate life goals through our budgeting choices.

    I’m always on the lookout for new analogies to help make money concepts more relatable. It probably has to do with the common misconception that being good with money means knowing the ins-and-outs of the stock market.

    That just isn’t true.

    I want to help people realize that being good with money has little to do with understanding the stock market and more to do with generating money to invest in the first place.

    Relating money concepts to other familiar areas of life can help with that.

    Fresh vegetables being added to soil in a garden, symbolizing healthy financial habits learned at Think and Talk Money.

    This is one of the things I like best about teaching personal finance. Money touches all aspects of our lives, whether we like it or not. So, talking about money is really just talking about life. Sometimes that means using analogies.

    Which leads us to Peloton.

    See you on the leaderboard.

    My wife and I bought a Peloton bike during the pandemic, probably like a lot of you. I’m still a big fan, especially because of the flexibility an at-home workout provides when juggling life with kids.

    If you’re also a Peloton fan, who are your favorite instructors? For me, it’s Alex Toussaint and Matt Wilpers. And recently, Selena Samuela, because she loves Fourth Wing.

    It occurred to me the other day that my friends and I talk about Peloton a fair amount. I pretty much know who all their favorite instructors are and what type of music they ride to. I’ve been accused of having a hot bike that juices my score, which I continue to deny.

    There’s nothing better than doing a Peloton ride at home and seeing that your friend is doing the same ride. It gives you a jolt of energy to know your friend, in that exact moment, is doing the same thing as you.

    You know where I’m going with this Peloton analogy.

    It’s long been normal to talk about and motivate each other to exercise. But, it’s still considered taboo to talk about money.

    Why can’t we talk about money the same way we talk about exercising?

    I’m guessing that you know exactly what your closest friends and family members do for exercise. Weights? Yoga? Jogging? You also know which people do nothing at all.

    I’m also guessing you have no clue what motivates each of these people to work 2,000 plus hours per year to make money.

    Or, what their strategies are for using that money they make to fuel their life goals.

    Exercising has long been made better with a personal trainer or a friend to keep you on track. Those days when you don’t feel like working out, having someone to push you is a great advantage.

    Why shouldn’t we seek out that same great advantage when it comes to our money, something that touches every aspect of our lives?

    Fit people lifting dumbbells together during a workout session symbolizing thinking and talking about money.

    This idea extends well beyond exercise habits. I’m sure you know your friends’ current favorite travel destinations, books, and food?

    For me, it’s Colorado, Fourth Wing, and Italian beef, obviously.

    Do you know your friends’ current money goals?

    For me, it’s paying down mortgage debt on our rental properties.

    What are you waiting for?

    When we moved to our new neighborhood, the first people we met at the playground were a lovely couple that own a local fitness center. They’re also real estate investors and have young kids, like us.

    We’ve become friends and have had some amazing talks about life and money. In one such talk, I mentioned that I was thinking about starting Think and Talk Money.

    My friend heard me out and didn’t say a word until I finished. He then looked me square in the eyes, like only a coach could do, and said, “What are you waiting for?”

    He was absolutely right. A few months later, I launched Think and Talk Money and sent him a message thanking him. I was grateful for our talk about life. He was happy to have motivated me.

    Our friends can help with money just like they can help with exercise.

    Lately, I’ve thought about how much my friends and I can help each other if we talked about money concepts just like we talk about Peloton.

    One thing to mention, I don’t want to give you the idea that we’re constantly talking about exercise. It comes up from time to time, every once in a while. That’s enough of a reminder to pay attention to our fitness. Talking money is the same thing.

    You don’t have to bring up money with your friends every week or even every month. How about just every once in a while when it’s on your mind? I think you’ll find your friends are the best people to help you stop worrying about money.

    I think you’ll also find that you can be the one helping and motivating your friends. You don’t have to be an expert. Sharing any ideas can help jumpstart the thought process for your friends. That’s a really good feeling.

    Always remember, the amount of money we have doesn’t matter anymore than our scores on the bike. There’s no reason to talk about numbers unless the people in your life are comfortable with that.

    One caveat, I encourage you to talk specifics with certain people who are impacted by your money choices, like a spouse or partner.

    The point of talking money is not to compare yourself to others.

    Fitness instructors know that it’s not helpful to tell people to compare themselves to each other. We’re all built physically different and emotionally different. Instead, they encourage us to seek personal improvement, consistently over time.

    That’s how we should be talking money with our friends.

    We all basically agree with this concept, right? That it’s not helpful to compare ourselves to others. That’s a lesson that’s been drilled into our brains since we were kids.

    Let’s remember that lesson when we start approaching our friends to talk money. It’s not how much money any of us have, it’s what we’re doing with that money to fuel our goals that matters.

    Do you talk to your friends about paying for college?

    Many of my friends have young kids like me and saving for college is a common goal we share.

    In news that’s not news to anyone, college is expensive.

    Wouldn’t it be beneficial for us to talk about how we’re planning to pay for it?

    Students in university paid for by parents who learned good money habits on Think and Talk Money

    By talking about paying for kids’ college educations with your friends, you may learn about education-specific investment accounts, like 529 plans, which is a common strategy we’ll soon discuss.

    You may also learn less common, but potentially more appealing, strategies for your situation. An example is buying an investment property when your kids are young with the intention of selling it years later to pay for college. This is what Brandon Turner did, and he’s a very smart guy.

    The idea is you may learn something that makes it more likely to achieve your goals, whether that’s paying for college or anything else, like saving up for a wedding or paying off student loans.

    Is there a stronger motivation than helping your friends and loved ones?

    You don’t have to talk numbers. Talk about the strategy and help each other stay consistent. You both will benefit.

    Is there any stronger motivation in life than helping our friends and loved ones? On the same note, what better people to learn from than your friends, people you know and trust.

    That’s what talking money is all about.

    Leave a comment below if you’ve talked money with any of your friends lately.

    How did it go?

    Did you learn anything that you’d recommend when approaching the topic of money?

  • Better at Making or Keeping Money?

    Better at Making or Keeping Money?

    When people learn that I’ve been teaching money wellness to law students, I usually get a reaction like, “I need that class! I know nothing about investments and the stock market.”

    It’s a fair reaction. Investing in the stock market can be complicated. Most of us never learn basic stock market principles, let alone how to manage an investment portfolio.

    It’s also a reaction that has always fascinated me. Yes, wanting to learn about investing is important. But, it’s not where money wellness begins.

    I often wonder, why do people automatically assume that money wellness means investing? There are so many things that we need to get right before we can focus on investing.

    Learning about the stock market wasn’t going to help me when I was struggling with debt. I needed to first figure out how to make better spending choices and get out of debt. I needed to play defense before I could go on offense.

    Yes, investing is important.

    No, it shouldn’t be the first thing we think of when we hear money wellness.

    We’ve hardly mentioned investing so far in this blog.

    Have you noticed that so far in the Think and Talk Money blog we have hardly even mentioned the word “invest”?

    That’s because in order to invest, we first need available money.

    To have available money, we need a budget that actually works.

    To have a budget that actually works, we need honest, powerful life goals.

    Are you starting to see why we first talk about money mindset? Then we moved on to budgeting?

    We will talk about investing once we have a plan to continuously generate money to invest.

    We will soon talk about investing. A lot. Don’t worry. In my money wellness class, we discuss in depth the importance of investing to create wealth.

    Here at Think and Talk Money, we will also talk extensively about investing, including in the stock market and in my preferred asset class, real estate.

    Investing is not as hard as generating money to invest.

    For now, our goal is to establish sound habits so we have real money to consistently invest over time. It doesn’t make sense to learn how to invest until we have a strong foundation in place.

    I think you’ll also find that investing is really not that hard. If learning how to do it on your own doesn’t sound like something you want to do, there are professionals that can do it for you. Whether it’s a good idea to go that route is something we’ll discuss so you can make an informed decision.

    If you do hire a professional to invest your money, you still need to know enough so you can talk to this person.

    Plus, this person will likely tell you that your ongoing mission is to generate more cash to fuel investments. That’s what we’re focusing on now.

    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.

    You could be a terrific investor. If you only have $1,000 to invest a single time, your upside will be limited. If you continuously generate $1,000/month of Later Money to invest, your options (and your wealth) will grow exponentially.

    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.

    Maybe that’s not your path. Still, these skills are critical whether you are a consultant, a writer, or a teacher. Would you agree that having money issues and stress at home can distract you from performing your job at the highest level?

    How many hours per year do you work to make money?

    Lately, when people ask me why I’m so passionate about money wellness, I respond with a question of my own that goes something like this:

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

    We won’t even count all the hours we spend getting dressed and commuting to our jobs.

    We also will pretend we’re not looking at our emails in the evening and on weekends.

    We definitely won’t count the hours we’re staring at the ceiling fan because we can’t sleep.

    OK, so that’s 2,000 hours (plus) per year, to make money.

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

    Let that sink in for a moment.

    How many hours do you work every year to make money? 2,000? 3,000? I’m guessing a lot of those hours are stressful.

    Now, how many hours do you think about what to do with that money?

    Do you spend any hours at all talking about what to do with that money?

    This is why I am passionate about money wellness. Most people spend the vast majority of their lives worried about making money and practically no time at all thinking about what to do with that money.

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

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

    Think and Talk Money is about encouraging each other to make purposeful money choices.

    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?

    Multicultural group of women stacking hands together - Female community concept with different girls support each other - Girlfriends hugging outdoors encouraging each other to visit think and talk money.

    Think and Talk Money is all about actively thinking and talking about money so we can help each other make informed choices with our hard earned money.

    Whether you make a lot of money or a little money, it doesn’t matter. What you choose to do with that money is up to. It’s your life.

    All I want is for you to make those choices from a position of informed confidence.

    One response to “Better at Making or Keeping Money?”

    1. Kevin Avatar
      Kevin

      Great insight! The foundation is so important!

      Reply

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  • How to Stay on Budget with Two Simple Numbers

    How to Stay on Budget with Two Simple Numbers

    Most of us humans are pretty good at avoiding things we don’t like. The things I’ve done to avoid mayonnaise…

    Budgeting falls into this category of avoidance. Even though most of us can appreciate that budgeting is a crucial step in money wellness, we still avoid it.

    Some of us give it a shot, and usually quit before we notice meaningful improvements. Just as problematic, some of us obsess over our budgets in an unhealthy and unsustainable way. This was me for a while. My obsession was mint.com.

    I didn’t have a healthy relationship with budgeting apps.

    If you used mint.com like I did before it ended, do you also have nightmares about those red tracking bars? Mint.com users know exactly what I mean. Overspend $11 on groceries? Red bar. One too many lunches downtown? Red bar! A last minute Saturday morning yoga class? RED! BAR!

    It still pains me to think about how many hours of my life I wasted trying to recategorize expenditures so those red bars would turn green. If I just move this box of cereal from Groceries to Social Life, that Groceries bar will turn green. Oh wait, now Social Life is red. OK, move those movie tickets to Car Repairs.

    When my wife was still courting me, I introduced her to mint.com. You might be thinking, “Matt, why on earth would you introduce her to something that drove you crazy!?” Valid question.

    She was a good sport and gave it a shot for a little while. Thankfully, she was smart enough to realize tracking every penny wasn’t for her. The whole thing gave her more anxiety about money. Think about that. The idea was to create a plan for her next dollar so she didn’t have to worry about money. All I did was make it worse by introducing her to a budgeting app.

    There’s an alternative to tracking every penny for the rest of your life.

    That experience paved the way for my preferred budgeting method that my wife and I still use today. We discussed this method briefly in our recent Q&A post.

    Please keep in mind this method is for people who have already created a Budget After Thinking and are honestly dedicated to creating fuel for their Later Money. Only when you get to that point will you no longer need to track every penny. At that point, your money motivations will be so strong that you’ll stay on track without needing to track every expenditure.

    If you’re not there yet, don’t worry. You will be soon. Follow my top ten budgeting strategies until good habits become second nature. Then, move on to this simple plan.

    Part 3: How to Win the Budget Game

    My preferred tracking method is a version of zero-based budgeting.

    Zero-based budgeting was first introduced in the 1970s by Peter Pyhrr. (I don’t love the name, either.) The main idea is that every dollar has a job, something we already talked about in our conversation about eliminating disappearing dollars.

    In my version of zero-based budgeting, you don’t need to track every penny. You don’t need budgeting apps or complicated spreadsheets.

    You’ll only need to focus on two numbers each month to know whether you are on track or falling behind. I’ll show you those two numbers below.

    Before you get too excited, I need to reiterate this key point: if you want to succeed with zero-based budgeting, you still need to first create a Budget After Thinking. Otherwise, you won’t be able to figure out the key two numbers that you need to focus on.

    This step is for those people who have already tracked their spending for at least three months, made thoughtful adjustments so their spending is in line with their values, and now know exactly how much fuel they can generate for their Later Money every month.

    OK, so how does this all work?

    I mentioned there are only two key numbers you’ll need to focus on each month:

    1. Your checking account cushion.
    2. Your Later Money transfer amount.

    Let’s explore each number.

    1. Your checking account cushion is your safety net.

    A checking account cushion is the amount of money in your checking account that you don’t plan to spend. The purpose of the cushion is to give you a little breathing room so you can pay your bills, even if you overspend in one month.

    Without the cushion, if you have a tough spending month, you either need to skip paying certain bills or skip making your Later Money transfer. Neither option is acceptable. The first option leads you into debt. The second option halts progress on your most important life goals.

    The checking account cushion gives you protection.

    How much of a checking account cushion do you need?

    How much of a cushion do you need? It depends on whether you have consistent income (regular paychecks), or are paid inconsistently (commissions, freelance, contract, etc.)

    If you are paid with consistent paychecks, I recommend your checking account cushion equal the amount you’ve planned to spend in your Now Money category from your Budget After Thinking (don’t worry, example below). This amount should give you a comfortable safety net without leaving too much money in your checking account that could be better used elsewhere.

    If your pay is inconsistent, you’ll need a larger cushion to cover the larger gaps between pay days. I recommend you have double the amount of your Now Money. Note, you may have to tweak this amount based on your unique situation.

    In our really lost boy example, he received paychecks biweekly. A good checking account cushion was $3,600 (equal to his Now Money).

    This means that there should be $3,600 in his checking account to start each month. At the end of the month, after paying all of his bills and making his Later Money transfers, he should still have $3,600 left in his checking account. That’s his checking account cushion.

    It’s OK if your checking account cushion temporarily dips below the amount you started the month with. This could happen during the time of the month when you pay certain bills, like your rent or mortgage. Don’t worry. The amount in your account will climb back up once you receive your next paycheck.

    A final point: don’t spend this cushion. Fight the temptation to use your checking account cushion to pay off bills or debt. Without that safety net, zero-based budgeting does not work.

    2. Your Later Money transfer is the main reason you’re budgeting in the first place.

    This number reflects the whole purpose of budgeting in the first place: to create fuel for your ultimate goals in life. If you don’t know what your goals are, revisit our conversation on why you should want to be good with money. It all starts with what you truly want from your life and how you can use your money to get it.

    When you’ve created your Budget After Thinking, you’ll know exactly what this amount is. In our really lost boy example, the total Later Money transfers added up to $2,050. In future posts, we will discuss where to transfer and what to do with this Later Money. No matter what, the goal is to put this money to work for you to progress towards your goals.

    By focusing on just these two numbers, (1) your checking account cushion and (2) your Later Money transfer amount, you don’t have to track every penny. You’ll know if you are hitting your goals or falling behind just by looking at these numbers.

    Now that we know the two key numbers to focus on, let’s see how this all works.

    How to ensure you are on track with your money goals with just two numbers.

    Sticking with our really lost boy, he predetermined that his checking account cushion is $3,600 and his Later Money transfer amount is $2,050.

    At the start of the month, that means he had $3,600 in his checking account. Throughout the month, his checking account balance increased when he got paid (our really lost boy earned $7,500 per month). His checking account balance decreased whenever he paid for things like rent ($2,200) and any other bills.

    The checking account cushion ensured that he had enough to cover all of his expenditures throughout the month. For example, if his rent was due on Wednesday, and he wasn’t getting paid until Friday, his checking account cushion ensured that he had enough in his account to pay the rent on time. His cushion might fall temporarily below $3,600, but his next paycheck would soon replenish his account.

    As the month went on, various bills came due. Utilities may be due on the 7th of the month. Credit card bills on the 15th. These payments can all be automated so he didn’t have to actively worry about them. Again, his checking account cushion guaranteed he had enough in his checking account to pay them.

    Towards the end of the month, in a perfect world, our really lost boy would have exactly $5,650 left after paying all of his bills. He could then transfer the predetermined $2,050 of Later Money to his various Later Money accounts. He’s then left with a checking account cushion of $3,600 and is ready to begin the next month.

    This is not a “set it and forget it” budgeting method.

    This is not a “set it and forget it” budgeting method. Think and Talk Money is all about exerting a little bit of mental energy on your money every week. This budgeting method is a good illustration of what that means. You don’t need to track every penny, but you still need to pay attention to your money choices.

    To help you with that, I suggest that you glance at your banking or credit cards apps once a week to monitor your spending. If you use credit cards or electronic payments for most expenditures, it is quick and simple.

    The reason it’s a good idea to glance at your banking apps is to make sure you are relatively close to your spending targets. If you notice that you’re overspending in the first half of the month, you can make the appropriate adjustments before the month ends.

    This small amount of effort throughout the month is worth it. Every time you make that Later Money transfer at the end of the month, you’ll feel exactly what I mean.

    Don’t strive for perfection.

    I said above “in a perfect world” to highlight that we’re not striving for perfection. That’s an impossible standard. One month, our really lost boy might have only had $3,300 left after making his Later Money transfer. That’s fine. It’s a temporary blip that he could easily fix, if he’s honestly dedicated to his life goals. He had a couple of options.

    His first option was to course correct the next month by spending $300 less. That could mean temporary adjustments in his Now Money or Life Money, such as skipping a couple dinners out, doing yoga at home, and buying chicken instead of steak at the grocery store.

    His second option was to replenish his checking account cushion from his specific budget busters savings account. What is that, you ask? It’s a separate savings account to cover you if you have one of these higher-spending months so you can keep your money plan progressing.

    In some months, you will actually underspend.

    Where do you get the funds for such an account? Believe it or not, in some months, your spending will come in under budget. Let’s say our really lost boy had one of these good spending months in January. Maybe he did Dry January and ate all his meals at home for health reasons to compensate for all the holiday celebrations.

    In this example, the result was he spent $500 less in January than he had budgeted for. Instead of leaving that $500 in his checking account (bringing his cushion up to $4,100) where it turns into disappearing dollars, he transferred it to his budget busters savings account.

    Then, when he had a high spending month, he could make a transfer back into his checking account to keep his cushion at $3,600. All while continuing to make his Later Money transfers every month.

    If you constantly run out of money before making your Later Money transfers, this method is not for you, yet.

    Always remember the goal of your Budget After Thinking is to generate fuel for your life goals. If you’re not making these Later Money transfers, you’ve defeated the purpose of having a budget in the first place.

    Don’t feel embarrassed or sad if that happens to you. Take it as a sign that you need to explore your Now Money and Life Money spending to see what adjustments you can make. Once you’ve found those adjustments, you can come right back to my version of zero-based budgeting.

    If you want this plan to work, where you only need to focus on two numbers instead of tracking every penny, you need to be honest with yourself that you’re ready for this.

    Decide for yourself what budgeting method works best for you.

    If you’ve been successful tracking your spending in a spreadsheet or a budgeting app, and enjoy the process, you should continue to do so. If it ain’t broke, don’t fix it, right?

    On the other hand, if you’ve created a Budget After Thinking and consistently hit your Later Money goals, you’re probably ready to stop tracking every penny, if you’d like.

    To recap, my version of zero-based budgeting is for those people who want to continue to fuel their Later Money goals without the anxiety of the spreadsheet. Instead, focus on those two numbers: (1) your checking account cushion and (2) your Later Money transfers. This is what I’ve been doing for years and it has worked.

    Happy boy with a bundle of money dollars cash who has a checking account cushion and Later Money.

    If your cushion falls short one month, that’s OK. We are not striving for perfection. Make up for it the next month or use your budget buster savings account to replenish your checking account. And, keep making your Later Money transfers.

    Has anyone else experienced mint.com anxiety? Are you currently using a budgeting app? How do you like it? Has any tried zero-based budgeting?

    Let us know in the comments below.

  • Help a Professor Out: Ask Your Money Questions Here

    Help a Professor Out: Ask Your Money Questions Here

    Think and Talk Money’s motto is “Money Wellness Together.” The more we all talk, the more we all benefit. The best way to keep the conversation going? Ask questions!

    I’ve learned through teaching in law schools for the past 15 years that most of us prefer seminars with questions and answers to long lectures. Thanks for all the great questions so far! I’m hoping we can do a Q&A post like this just about every week.

    Please keep the questions coming in the comments on any post, by responding to our newsletter, or on Instagram.

    In our first Q&A post, we’ll cover my favorite personal finance books, whether you should keep your condo as a rental unit, and the most important question of all: what is Italian beef?

    1. Do you have a favorite personal finance book that you would recommend?

    What a great question. I always recommend starting with books that focus on money mindset. Like we always talk about, the first step is getting our money mindset in the right place. I would start with:

    1. Rich Dad Poor Dad by Robert Kiyosaki. There’s a reason this is the best selling personal finance book of all time. If you read Rich Dad Poor Dad, your entire money mindset will be changed. Kiyosaki brilliantly shares the stories he learned growing up from his Rich Dad (really his best friend’s dad, very successful real estate investor/business owner) and his Poor Dad (his actual dad, highly educated/traditional career path). Using these two role models in his life, he makes a very compelling and easy to follow case that most of us go about life and money all wrong.

    Read Rich Dad Poor Dad. It will light a fire under you like no other book I’ve read.

    2. Think and Grow Rich by Napoleon Hill. Another longtime classic that will shift your money mindset. I first read this book in college when I learned my friend’s dad offered him $50 if he read this book. $50 to read a book? I’m in.

    Originally published in 1937 and recently updated, Think and Grow Rich, will convince you that we can all be successful. Hill studied innovators like Henry Ford and Thomas Edison. In the updated version, you’ll learn about modern figures like Bill Gates and Mary Kay Ash. To translate the title into my own words: Wake up! Use your brain! You can be successful in any walk of life if you just stop sleepwalking through life like everyone else and do something!

    Read Think and Grow Rich. You will be motivated to do that thing you’ve been saying you would do, but haven’t yet.

    3. The Richest Man in Babylon by George S. Clason. A third classic originally published nearly 100 years ago. Clason wrote a simple collection of fables set in the ancient city of Babylon to illustrate the power of fundamental money habits: earn, save, invest, protect. Through his stories, you’ll see how you can get ahead in life by practicing strong financial wellness habits.

    Read The Richest Man in Babylon. You’ll understand the building blocks of a healthy financial life.

    4. Your Money or Your Life by Vicki Robin and Joe Dominguez. Vicki Robin and Joe Dominguez are often credited for laying the groundwork for the Financially Independent Retire Early (FIRE) movement. They have a lot to say about the relationship between money, work, and time.

    Most of us are doing it all wrong. We chase money at the cost of our precious time. By making good choices about how to earn money- and as importantly what to do with that money- you can get the most out of your money and your life.

    Read Your Money or Your Life. You will start to value your time for what it’s really worth.

    5. Die with Zero by Bill Perkins. Perkins makes a strong case that many of us are saving too much for retirement. We work too many hours and save more money than we’ll ever need. Instead, we could be using that money during the best years of our lives to create lifelong memories.

    Perkins also questions the conventional wisdom of waiting until we die to pass money onto our kids. He suggests helping our kids earlier in life when the money will be more meaningful.

    Read Die With Zero. You won’t wait any longer to book that vacation you’ve been putting off for no good reason.

    If you have read these books already, but it was some time ago, read them again. I didn’t fully appreciate all the lessons until I was years into my career and knew what it felt like to work for money.

    2. $500 Challenge? I could never do that! 

    In Part 3 of our series on budgeting, I gave you 10 of my favorite tips to help stay on budget. One of the tips involved a game my wife and I play called the “$500 Challenge.”

    Part 3: How to Win the Budget Game

    If $500 is a nonstarter for you, increase the amount of the game. Whether you play with $750 or $1,000 or more, the point of the game remains the same. If $500 is too much for you, pick a smaller number that works. The amount doesn’t matter. The point is to set a number for yourself that will get you back on track after overspending in the previous month. January is a great time to play the game.

    3. When I’m creating my budget categories, does my health club membership count as Now Money or Life Money?

    When I said I‘m not a fan of a rigid budgeting framework like 50-30-20, this question illustrates exactly why. Elizabeth Warren popularized 50-30-20 in her book, All Your Worth: The Ultimate Lifetime Money Plan, first published in 2005.

    In a 50-30-20 framework, you must choose what category to put your health club membership in. Same with every other borderline expenditure. What if you think working out should be Now Money, but it pushes you over 50%? OK, just move it to Life Money. Wait, now I’m over 30% in my Life Money. Why is this so hard?

    men and women biking in gym, spinning in health club, thinking about their money and their lives.

    Take it from me and my students who have attempted 50-30-20 budgeting, making these choices gets to be very frustrating. What is the point in agonizing over decisions like this?

    So, what should you do with your health club membership?

    It doesn’t matter! You saw in our really lost boy’s budget that I counted it as Now Money. Today, I’d actually probably count it as Life Money. How’s that for an answer!?

    Instead of agonizing, pick a category and leave it there. The whole purpose of our budget is to generate fuel for our Later Money. Whether that fuel comes from adjustments to Now Money or Life Money is irrelevant.

    In our Budget After Thinking, we’re not limiting ourselves by rigid frameworks and agonizing over spending categories. We’ve got better things to focus on, like creating more fuel for our dreams.

    4. Do I need to actively budget forever?

    Nope! I’m going to do a post soon on what I recommend for people that have done the budgeting thing for a while and have a pretty good idea what their spending is. If you’re at that point, and are relatively responsible, you won’t need to track your spending anymore.

    Let’s look at a quick example. Say you learned that your Budget After Thinking includes $1,000 of Later Money. That means each month, your top priority is to put that $1,000 of fuel towards your financial goals.

    In this plan, you’ll need a “cushion” in your checking account to make it work. In this example, let’s use $5,000 as our cushion. At the end of the month, after you’ve made your Later Money transfers out of your checking account, and you’ve paid all your bills and credit cards, you should have $5,000 left.

    If you have less than $5,000 left, compensate the next month by spending less so you get back to $5,000 at the end of month 2. If you’ve way overspent, that’s an indication you are not ready to stop budgeting.

    No matter what, don’t short your Later Money. Do the $500 challenge if you need to. If you have more than $5,000 left, transfer the surplus to your savings account so you can use the excess to cover budget busters or top off your checking account if you overspent a little the previous month. 

    This budgeting process is similar to zero-based budgeting, a concept that’s been around for a long time. I find this method takes almost all of the anxiety out of budgeting. The key is you just have to be disciplined enough that if you have less than $5,000 left at the end of month 1, you course correct in month 2 so you’re back on track. 

    5. I am thinking about either selling my condo or keeping it as a rental unit. What should I do?

    I’m a real estate investor, so my mind always goes first to keeping the condo as a longterm rental unit. Based on the question, it seems this reader is interested in real estate investing, too. If that’s true and your financial situation permits, I would consider keeping the condo as a rental unit.

    It could be a great way to see if you like being a landlord without putting time and resources into acquiring a different property. Best case scenario, you hold the condo for many years and it turns out to be a great investment. Worst case scenario, you sell it in a year or two if being a landlord isn’t your thing.

    Of course, there are so many factors that go into real estate investing. You need to do your homework first on whether your condo is a plausible rental unit. Leave a comment below or reach out on Instagram if you need some help deciding if your condo might be a good rental unit.

    6. What is Italian Beef?

    This person, I cannot help.

    Fortunately, there’s a current Emmy winning show out there about Chicago and Italian beef!

    Thanks for all the questions! Please keep them coming in the comments on any post, by responding to our newsletter, or on Instagram.