Tag: financial independence

  • Powerful Money Lessons from Alone

    Powerful Money Lessons from Alone

    One of my favorite shows is Alone.

    I’ve been talking about it a lot lately with anyone willing, or in the case of my students, with anyone without a choice but to listen.

    If you haven’t seen it, the show is a competition between 10 survival experts who are dropped off in the middle of nowhere, completely isolated from all human contact. Each person is allowed to bring ten survival items, some clothes, and a safety kit. They all have cameras to film their journeys. Whoever survives the longest wins $500,000.

    It is astonishing what these people are capable of. They build their own shelters and catch all their own food. On a daily basis, they’re forced to solve problems. They have no one to help them, or to blame, but themselves.

    My favorite competitor is an Australian guy named Outback Mike. I was blown away by the ideas he came up with and the things he built. There was no mental or physical challenge that he backed down from.

    My wife and I first discovered Alone during the pandemic. It was the perfect show during that time of immense mental and physical hardship. There was something about the way each survivalist focused on that day’s tasks, and blocked everything else out, that resonated with us.

    Watching the latest season of Alone these past few weeks, it occurred to me that the show is full of analogies for the personal finance topics we discuss in the blog.

    I’ve found analogies to be great teaching tools, so here we go.

    1. Not all calories are created equal.

    The major challenge in Alone is getting enough calories to survive. Food is not exactly plentiful in the remote locations where the competitors are dropped off.

    To survive, competitors dedicate endless hours strategizing and looking for food. Common strategies include fishing, trapping, hunting, and foraging.

    One of the first things you learn is that not all calories are created equal. Calories from fat and protein are at a real premium. Even with an unlimited supply of berries and greens, the competitors make clear that you cannot survive for long periods without fat and protein.

    Besides the importance of the type of calories, the way the calories are procured is just as critical.

    This makes perfect sense in a survival scenario. If you expend 2,000 calories of energy to catch a fish, and that fish only provides you 1,000 calories of food, that is a losing proposition. If you continue on that trajectory long enough, you’ll starve to death.

    This is why contestants on the show always think about ways to passively procure food, such as setting traps or using gill nets. If they can obtain food passively, they can then use that time to rest (save calories) or on other necessary tasks.

    In the show, most competitors eventually tap out, on the brink of starvation, having failed to obtain enough food. It’s never for a lack of effort. It’s just really hard.

    So what do calories have to do with personal finance?

    Just as not all calories procured are created equal, not all dollars earned are created equal.

    This begs the question:

    If you think about what you do to earn money, are you the contestant trading 2,000 calories of energy for 1,000 calories of food?

    In other words, are you always working?

    landscape photo of man fishing on river near mountain alps symbolizing that not all dollars are created equal as discussed on Think and Talk Money.

    Let’s look at two hypothetical professionals.

    The first professional works 80 hours per week and earns an annual salary of $200,000.

    The second professional works 40 hours per week and earns an annual salary of $120,000.

    Which one would you rather be?

    Would your answer change if we convert the annual salary to an hourly rate?

    On an hourly rate, the first professional ends up earning $48 per hour.

    The second professional earns $58 per hour.

    If you’re still leaning towards the first professional who earns more overall but less per hour, did you think about how valuable that extra 40 hours per week could be?

    That’s time that could be spent on your true passions. It’s time that could be spent with friends and family. That’s time that could also be spent developing a skill or earning income through a side hustle.

    Looking at it another way, what if you could earn the same $200,000 without having to work 80 hours per week? This is where passive income streams come in.

    Like the gill net that catches fish without the active involvement of the fisherman, have you explored ways to make money while freeing up your time for other worthwhile pursuits? This is an unavoidable step on your way to financial freedom.

    For what it’s worth, I’m confident that the survival experts would all choose to be the person who makes more money per hour while also having more time available for other pursuits.

    2. Attitude is everything.

    Watching Alone, you see a wide range of personalities. While each contestant has the resume of a survival expert, one attribute always separates the winners from the losers: attitude.

    The contestants are forced into what would be impossible survival scenarios for the average person. It’s completely understandable to have tense, frustrating, and stressful moments.

    This isn’t me judging the contestants who have poor attitudes. I wouldn’t last an hour in the woods by myself. I’ve never even been camping. My wife caught more fish when she was six than I’ve caught in my whole life.

    This is just my observation that most of the time, contestants have similar survival skills. What separates the winners is their attitude and ability to recognize that things will go wrong.

    When things go wrong, they don’t blame anyone else or play the victim.

    Instead of getting frustrated and quitting, they think of solutions to the problem at hand. This is what so impressed me with Outback Mike.

    Yes, we all need a bit of luck in life to thrive. But, we need to put ourselves in position to benefit from luck when it comes our way. That takes intentional thought and effort.

    I’m guessing we all know very smart and talented people that have bad attitudes. When things don’t go their way, they immediately blame other people. Nothing is ever their fault. They feel entitled to success without doing the work.

    That type of person usually doesn’t lead a very happy or fulfilling life.

    For sure, that person would not last a week on Alone.

    3. Along with starvation, missing family is the hardest part.

    If it’s not starvation, odds are contestants will tap out because they miss their families. The physical challenges of being forced to survive on limited food in rugged conditions is hard enough.

    To do it alone and isolated from your family makes it nearly impossible.

    One of the most enlightening parts of the show is when the contestants reveal their mental struggles to the camera. Since they’re alone, and typically starving, we get to see raw emotion in real time. You learn a lot about the human condition in these moments.

    One unavoidable truth is that us humans are social creatures.

    We need our people. We need love and support and connection. Going through life alone goes against our DNA.

    Even the chance at winning more money than the contestants ever dreamed of is not nearly enough to keep them away from their families any longer.

    This is why I want to encourage you to not isolate yourself with your money decisions. Money touches all aspects of our lives. Don’t try to go it alone. Include your people in your money life. Talk to them. You will only be better for it.

    There’s one other lesson Alone teaches us about the importance of family. A lesson that is extremely relevant to me right now.

    When each season begins and the new contestants are introduced, my wife and I know right away who isn’t going to make it: the people with young kids.

    These people have all the skills necessary to survive. But, those skills don’t matter when they start missing their kids. The emotion is too strong. The longing to be with their kids overcomes all else. They simply do not want to miss another day of their kids’ lives.

    I think about this lesson in the context of our daily lives. Like the professional in our example above working 80 hours per week, at what sacrifice do all those hours come? How many hours away from home is that? How much time away from our kids?

    When I think about those questions, I again think about what I would do with my time if I was financially free.

    I think about my Tiara Goals.

    Have you watched Alone?

    Do you agree with my observations?

    Let us know in the comments below!

  • Debt Snowball or Avalanche Better?

    Debt Snowball or Avalanche Better?

    Let’s take a deeper dive into the two most common strategies for paying back debt when you have multiple loans: Debt Snowball v. Debt Avalanche.

    In our post on how to confidently tackle debt, we discussed that it’s a smart idea to apply one of these strategies. Here, we’ll see why.

    You’ll notice we have lots of charts and numbers in this post. Don’t worry, you don’t need to do any math. I’ll show you how to use a simple online calculator to help you decide with strategy is best for you.

    Before we look at the strategies, always keep in mind the number one rule:

    Always pay the minimum required amount on every loan no matter what.

    Whatever strategy you end up using, always pay the minimum payment on every loan. If you fail to do so, you will be charged penalties and your credit history and score will be negatively impacted. You will also accrue interest on those penalties, compounding your mistake.

    Don’t worry if this sounds confusing right now. We’ll discuss credit cards and the responsible use of credit in detail in upcoming posts.

    The below strategies apply to any excess funds you have left after paying at least the minimum on every loan balance. No matter what, you need to make the minimum payment on each loan every single month.

    What is the Debt Snowball method?

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

    Remember, these strategies are for helping you pay back multiple loan balances.

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

    What is the Debt Avalanche method?

    The second strategy is referred to as Debt Avalanche. With this method, you will prioritize the loan with the highest interest rate, regardless of the balance.

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

    You can apply either of these strategies in the same way no matter how many loans you have.

    The first step in choosing a debt payoff strategy is to gather some basic information on each loan that you have.

    For each loan, you’ll need to find the outstanding balance, the interest rate, and the minimum required monthly payment. You can pull this information from your most recent monthly statement.

    Once you have this information, you can plug the numbers into a simple online calculator. By doing so, you’ll get an idea of how much it will cost you (in terms of time and money) to pay off these debts.

    I like using calculator.net.

    They have calculators for all sorts of different purposes, including a Debt Payoff Calculator. Using the Debt Payoff Calculator, you can decide the best payoff strategy for your personal situation.

    You may prefer the quicker emotional wins that come with the Debt Snowball method. Or, you may prefer the savings that come from the Debt Avalanche method.

    There’s no wrong answer. The choice is yours.

    Let’s see how Debt Snowball and Debt Avalanche work in practice.

    Note, for simple illustration purposes, the minimum payments in these examples remain the same throughout the life of each loan.

    Example 1: Two Different Credit Card Balances

    Imagine you have two credit cards with balances owed.

    Credit Card 1: $5,000 balance with a 15% interest rate and a minimum required payment of $150 per month.

    Credit Card 2: $10,000 balance with a 20% interest rate and a minimum required balance of $200 per month.

     BalanceRateMin. Pay.
    Credit Card 1$5,00015%$150
    Credit Card 2$10,00020%$200

    After creating a Budget After Thinking, you’ve determined that you have $1,000 per month to put towards these two loans. Because you have to pay a minimum of $150 to Credit Card 1 and $200 to Credit Card 2, you have $650 left to deploy.

    How should you do it?

    Debt Snowball

    If you apply the Debt Snowball approach, you prioritize paying off the loan with the smallest balance. That means paying $800 to Credit Card 1 ($150 minimum payment plus $650 remaining funds) until that loan is paid off completely. The remaining $200 needs to be applied to cover the minimum payment on Credit Card 2.

    Once Credit Card 1 is paid off completely, you will add that $800 payment to Credit Card 2 for a total payment of $1,000.

     BalanceRate.Min. Pay.Snowball
    Credit Card 1$5,00015%$150$800
    Credit Card 2$10,00020%$200$200

    Using calculator.net, you’ll see that it will take you 18 months to eliminate both loans with the Debt Snowball approach. It will cost you a total of $17,303.70, of which the total interest is $2,303.73.

    Importantly, Credit Card 1 will be completed paid off in 7 months.

    Debt Avalanche

    Now, let’s see what happens when we apply the Debt Avalanche approach. Under this approach, you would prioritize Credit Card 2 because it has the higher interest rate. That means you would pay $850 to Credit Card 2 and only the $150 minimum payment to Credit Card 1. Once Credit Card 2 is paid off, you would pay the full $1,000 to Credit Card 1.

     BalanceRateMin. Pay.Avalanche
    Credit Card 1$5,00015%$150$150
    Credit Card 2$10,00020%$200$850

    Using calculator.net, you’ll see that it will take you 18 months to eliminate both loans with the Debt Avalanche approach. You’ll end up paying a total of $17,071.84, of which the total interest is $2,071.87.

    It will take you 14 months to eliminate the first loan, Credit Card 2.

    Now, we can compare the results of using Debt Snowball or Debt Avalanche.

    Under the Debt Snowball approach, you’ll pay $231.86 more in interest. It will take you 18 months to eliminate both debts under each approach.

    However, under the Debt Snowball approach, it will only take you 7 months to completely erase one loan. Under Debt Avalanche, you will not erase the first loan until 14 months have gone by.

    Now that you have this data, you can decide whether you prefer Debt Snowball or Debt Avalanche. Some people may prefer the emotional win of eliminating one loan completely after 7 months using the Debt Snowball method.

    Other people will prefer the Debt Avalanche approach, which results in more savings. The tradeoff is that they won’t eliminate any loans completely until month 27.

    As we said before, there is no right or wrong answer. It is entirely a matter of personal preference.

    Why not just pay the same amount to each credit card?

    If you pay $500 to each credit card from the beginning, let’s see what happens:

     BalanceRateMin. Pay.Equal
    Credit Card 1$5,00015%$150$500
    Credit Card 2$10,00020%$200$500

    You will end up paying off both loans in 18 months and paying a total of $17,249.39, of which the total interest is $2,249.42. You won’t eliminate any loans completely for 11 months when Credit Card 1 is paid off.

    Compared to the Debt Snowball approach, splitting the payments evenly means four more months to pay off the first loan completely. That means you’re waiting longer for your first emotional win.

    Compared to the Debt Avalanche approach, you’ll end up paying $177.55 more in total interest. If you’re looking to maximize your savings, splitting payments is not the way to go.

    As you can see, whatever your preference is, it makes sense to pick either Debt Snowball (fastest emotional win) or Debt Avalanche (most money saved).

    Personally, I prefer the Debt Snowball approach.

    I prefer the Debt Snowball approach because of the emotional win that comes with eliminating a debt in less time, sometimes even twice as fast.

    That victory is more important to me than saving $231.86 spread out over 18 months (the length of time it takes to eliminate both debts).

    If you prefer paying the least amount in interest, I won’t argue with you. There’s nothing wrong with saving money. It’s a personal choice.

    That said, there is one instance where I prefer Debt Avalanche to Debt Snowball.

    If you have Bad Debt, like credit card, always pay that debt first.

    Bad Debt typically has significantly higher interest rates than other forms of debt, like student loans, auto loans, or mortgages.

    Compare these current (February 2025) average interest rates for various types of loans:

    It’s not hard to see that credit card debt comes with a significantly higher interest rate than any other form of common debt.

    This is why I recommend you always pay your credit card debt first.

    Let’s look at a second example to illustrate this point.

    Example 2: Auto Loan and Credit Card Balance

    Auto Loan: $8,000 balance with an interest rate of 5% and a minimum required payment of $50 per month.

    Credit Card: $20,000 balance with an interest rate of 20% and a minimum required payment of $400 per month.

     BalanceRateMin. Pay.
    Auto Loan$8,0005%$50
    Credit Card$20,00020%$400

    Just as before, you’ve determined that you have $1,000 per month to put towards these two loans. Because you have to pay a minimum of $400 to your credit card and $50 to your auto loan, you have $550 left to deploy.

    How should you do it?

    Debt Snowball

    If you apply the Debt Snowball approach, you would prioritize paying off the loan with the smallest balance. That means paying $600 to your Auto Loan until that loan is paid off completely. The remaining $400 needs to be applied to cover the minimum payment on your credit card debt.

    Once the auto loan is paid off completely, you will add that $600 to the credit card debt for a total of $1,000.

     BalanceRateMin. Pay.Snowball
    Auto Loan$8,0005%$50$600
    Credit Card$20,00020%$400$400

    Using calculator.net, you’ll see that it will take you 37 months to eliminate both loans with the Debt Snowball approach. It will cost you a total of $36,753.16, of which the total interest is $8,753.18.

    Importantly, the auto loan will be completed paid off in 14 months.

    Debt Avalanche

    Now, let’s see what happens when we apply the Debt Avalanche approach.

    Under this approach, you would prioritize the credit card loan because it has the higher interest rate. That means you would pay $950 to the credit card and only the $50 minimum payment to the auto loan. Once the credit card is paid off, you would pay the full $1,000 to your auto loan.

     BalanceRateMin. Pay.Avalanche
    Auto Loan$8,0005%$50$50
    Credit Card$20,00020%$400$950

    Using calculator.net, you’ll see that it will take you 34 months to eliminate both loans with the Debt Avalanche approach. You’ll end up paying a total of $33,822.14, of which the total interest is $5,822.17.

    It will take you 27 months to eliminate the credit card debt.

    We can again compare the results of using Debt Snowball and Debt Avalanche.

    Under the Debt Snowball approach, you’ll pay $2,931.01 more in interest. It will also take you three months longer to eliminate both debts.

    On the plus side, your auto loan will be completely paid off in 14 months, which is nearly twice as fast as with Debt Avalanche.

    Some people may still prefer the emotional win of eliminating one loan completely after 14 months using the Debt Snowball method.

    For me, the price of that emotional win has gotten too expensive. I would prefer to save the $2,931.01 and have both loans paid off in less time, even if that means waiting longer to pay off a single loan.

    If you do this exercise with any normal credit card compared to another form of loan, you’re likely going to find that the credit card interest rates are so high that you should target those loans first.

    Do you prefer Debt Snowball or Debt Avalanche?

    As we said before, there’s no right or wrong answer. Money decisions are emotional. Paying off debt is the perfect example.

    Using a simple online calculator can help you make the best decision for your situation. All you need to do is find the balance, interest rate, and minimum payment for each of your loans and the calculator will do the rest.

    Whichever method you choose, stick with it. Save yourself the stress of doing mental gymnastics each month.

    The most important thing is that you are making your payments every month.

    Have you used Debt Snowball or Debt Avalanche?

    Which method do you prefer?

    Let us know in the comments below.  

  • How to Pay Off Debt on a Budget

    How to Pay Off Debt on a Budget

    In this post, we’ll learn how to pay off debt on a budget. In our initial series on debt, we first looked at some scary stats about how common debt is in society.

    We learned that 8 out of 10 people have some form of debt. We also learned that nearly half of credit card users carry a balance. Finally, we saw that consumer debt is a worldwide problem.

    By recognizing that debt is something that impacts nearly all of us, I hope that you stop feeling alone if your’e in debt. There’s no reason to be ashamed. You are not a bad person.

    If people were more willing to talk about money, you may not have had those feelings in the first place. You may have already learned how to pay off debt on a budget.

    Understanding how you got into debt is the first step in working your way out. That’s why we next looked at three big reasons why people are in debt.

    Of course, there are other explanations, but in my opinion, these three explanations sum it up:

    1. We can be careless with our money.
    2. We don’t plan ahead for emergencies.
    3. We try to keep up with the Kardashians.

    With these common causes in mind, we can now start focusing on how to pay off debt on a budget.

    These strategies can work whether you are trying to eliminate Good Debt or Bad Debt.

    In my experience, both Good Debt and Bad Debt can feel heavy. While Good Debt can help you achieve financial freedom, the debt will still hang over your head until it’s paid off.

    Before we get to my top 10 strategies to eliminate debt, let’s get one thing straightened out:

    If you’re looking for a magic wand to immediately erase all your debt, you’re in the wrong place.

    Paying off debt takes time. It requires patience and discipline. You may not notice much progress in the beginning, but you need to stick with it.

    It most likely took you years to get into debt, so be reasonable with your expectations of how long it will take to pay it off.

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

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

    1. Write down your Tiara Goals.

    Have you ever asked yourself what you would do with financial freedom?

    I asked myself that powerful question on a beach years ago and came up with my Tiara Goals.

    Debt is a major obstacle on the way to financial freedom. To help you stay motivated to eliminate debt, write down your version of Tiara Goals. By reminding yourself what you’re actually striving for, you’re more likely to stay on track.

    Whenever we talk about good money habits, it always starts with establishing strong motivations. This is especially true when it comes to debt. There are too many temptations that can push us off track.

    When you’re faced with these inevitable temptations, take a look at your Tiara Goals. I keep my Tiara Goals in my notes section on my phone. I also have a picture on my phone of the original sheet of notebook paper I scribbled on.

    All it takes is a quick glance at my most important life values to overcome whatever temptation is in front of me.

    Getting out of debt is not easy. Make it easier by regularly reminding yourself what you would do with financial freedom.

    2. Create a Budget After Thinking so the debt stops growing.

    If you’re currently in debt, it’s crucial that you stop that debt from getting larger. Think about it. If you’re paying off $1,000 of credit card debt each month, but you’re still spending $1,200 more than you earn, your efforts will be for nothing.

    Your debt is growing faster than you’re paying it off. You’re not getting any closer to being debt-free.

    That’s why to eliminate debt, you need to first create a Budget After Thinking.

    Once you’ve stopped the disappearing dollars and learned where your money is going each month, you can make thoughtful decisions to pay off debt on a budget.

    Then, you can be confident that any money you allocate to debt will actually lower your debt balance.

    3. Prioritize Later Money funds to pay off debt.

    As we’ve discussed, the art of budgeting is to generate fuel for your Later Money goals. The more fuel you can generate each month, the faster you will achieve your personal finance goals.

    There are lots of options on what to do with your Later Money. For example, you can invest in real estate or the stock market.

    When you’re in debt, I recommend you prioritize using your Later Money to eliminate that debt. This is especially true if you have Bad Debt, like credit card debt. Your number one money focus needs to be to eliminate that debt.

    This is the key to learning how to pay off debt on a budget.

    There’s a good reason to focus on paying off your Bad Debt.

    The interest rate on Bad Debt is generally very high. The amount you pay in interest each month will be significantly greater than what you may reasonably expect to earn through investments.

    If you only have Good Debt, like student loan debt, you have some more flexibility in whether to focus on that debt or your other investment goals. This is because Good Debt generally carries lower interest rates, so your investment returns may match or even exceed what you’re paying in interest.

    In this scenario, I suggest that you consider splitting your Later Money between debt pay down, savings, and investments. This is what my wife and I are currently doing in 2025.

    Seeing your savings and investments grow while focusing on how to pay off debt on a budget can provide an emotional lift. Establishing good savings and investment habits now will also have longterm benefits that should survive your debt phase.

    4. Apply our Top 10 Strategies for staying on budget.

    Our Top 10 Strategies for staying on budget will help you generate more money to allocate to debt. These tips are crucial if you’re trying to learn how to pay off debt on a budget.

    For example, when you see something that you might want to buy, make a note in your phone instead of buying it right away. After a couple weeks, you probably won’t even want that thing anymore. Take that money you didn’t spend and put it towards your debt.

    As another example, how about playing The $500 Challenge Game? When you come in under budget that month, use the excess funds to pay down debt.

    When you have debt, applying our Top 10 strategies to staying on budget can teach you something powerful. You’ll see for yourself that the emotional high of paying down debt is better than the feeling you’d get from spending that money on things you don’t care about. It’s important not to ignore these emotional wins when learning how to pay off debt on a budget.

    5. Talk to your people about how to pay off debt on a budget.

    Stop me if you’ve heard this before:

    Why do we insist on struggling with our money choices alone instead of talking to the people we trust and love?

    Talking money is not taboo. That includes talking about our current money goals and money challenges. Of course, it includes talking about how to pay off debt on a budget.

    I’m currently focused on paying down HELOC debt, building up my emergency savings, and funding my kids’ 529 college savings plans.

    What are your current money priorities? If you don’t want to share with us, are you sharing with your friends or family?

    I struggled with debt when I began my career as a lawyer. For years, I kept that to myself. I wish I had been more open. I’ve recently learned that many of my friends were struggling in the same way.

    The problem was that none of us talked about it. I think about how much stress we could have saved each other if we were just willing to talk about money like we talked about everything else. Instead, we hid our truths from each other. Even worse, we likely enabled each other’s poor spending habits.

    I now know that it didn’t have to be that way. I would have been better off if I was open about it.This part still bothers me today: I also might have helped my friends facing the same challenges just by starting the conversation.

    6. Track your net worth and savings rate for small wins.

    Remember that your net worth grows when you reduce your liabilities, meaning debt. When we think of net worth, it’s common to focus on growing our assets. Don’t forget that reducing your debts has the same impact on your balance sheet.

    For example, when tracking your net worth, eliminating $1,000 in debt is the same as an investment that grows by $1,000.

    Even when you’re focused on how to pay off debt on a budget, tracking your net worth can be very motivating. Every payment you make to reduce that debt improves your net worth.

    This is especially helpful if you are focused on paying off student loans or paying down a mortgage. You may not have many appreciating assets, but you can still make a positive impact on your net worth by reducing your debt.

    The same logic applies to tracking your savings rate. Measure and feel good about each additional amount you dedicate to eliminating debt. The goal is to stay motivated while you pay off debt on a budget.

    7. Pick a strategy and stick with it: Debt Snowball v. Debt Avalanche.

    There are two common strategies to consider when you hope to pay off debt on a budget. These strategies are referred to as “Debt Snowball” and “Debt Avalanche.”

    Debt Snowball means paying down your smallest debt balance first, regardless of interest rate. When you’ve paid off that loan completely, you then move to the next smallest balance, again regardless of interest rate.

    Debt Snowball is ideal for people that are motivated by the emotional wins that come with eliminating a loan completely, even if it costs more money in interest in the long run.

    Debt Avalanche means you pay down the debt that has the highest interest rate first, regardless of the balance. Once that debt is gone, you move to the loan with the next highest interest rate.

    Debt Avalanche is for people who would prefer to pay less overall interest, even if it will take longer to pay off a single loan and receive the emotional win.

    A snowball has grown large due to the force with which it rolls, tumbling down a forested mountain during the snowy season, lifting small amounts of snow along its path, illustrating the preferred method for how to pay off debt on a budget.

    We’ll discuss the pros and cons of each strategy in a subsequent post. Some people will prefer the emotional wins of the Debt Snowball method, while others will prefer the mathematical advantage of the Debt Avalanche method.

    Personally, I use the Debt Snowball method.

    I value the emotional wins of eliminating a debt entirely, even if it ends up costing me more in the long run. I am currently applying the Debt Snowball method to pay off HELOC debt.

    I’ve experienced firsthand that our money choices have more to do with emotions than they do math. If you prefer to play it strictly by the numbers, I completely understand.

    The key is that whichever strategy you pick, stick with it. You’ll save yourself a lot of unnecessary mental gymnastics by choosing one approach and then moving on.

    One word of caution: whichever method you choose, be sure to always pay the minimum on all of your loans. Otherwise, you’ll be in violation of your loan terms and face devastating penalties.

    The idea with either of these methods is to allocate whatever funds remain to the single loan you have prioritized after paying the minimum on all loans first.

    8. Think about loan consolidation or balance transfers.

    Whether you have credit card debt, student loan debt, or even mortgage debt, you may have the option to consolidate each type of loan into a single loan. If you do your homework, you should end up with a lower overall interest rate and have only one loan payment to make each month.

    If you choose to go this route, make sure you fully understand the fine print involved.

    For example, if you’re thinking about consolidating your student loans, you’ll end up sacrificing certain loan forgiveness provisions that accompany federal loans.

    The same caveat applies when considering a credit card balance transfer. A balance transfer is when you move the balance from one credit card to a different credit card with a lower interest rate. Most major credit cards accept balance transfers from other banks’ credit cards.

    The main reason to consider a balance transfer is if the card you are transferring into carries a significantly lower interest rate than your current card. In some instances, you may even qualify for a promotional rate with no interest charged for a limited period of time.

    I used balance transfers when I was focused on eliminating credit card debt at the beginning of my career. I did my homework and found a card that was advertising 0% interest for 12 months with no balance transfer fees. That meant that for an entire year, I paid no interest. Every payment I made went directly to lowering my overall debt.

    If you’re considering a balance transfer, be mindful that there are usually upfront fees involved, usually around 3%. That fee may end up cancelling out any benefit from doing the transfer in the first place.

    9. Get a side hustle to help pay off debt on a budget.

    You’re not too busy or too important for a side hustle.

    At the end of the day, there are really only two ways to more quickly pay off debt on a budget: spend less money and/or make more money.

    We already talked about creating a Budget After Thinking to help on the spending side.

    If you really want to get rid of your debt faster, earning more money and the same time you’re spending less money is a dominate combination.

    If you take on a side hustle, you can use every dollar you earn to pay off debt. Since this is new money you’re earning, you shouldn’t need it to fund your Now Money or Life Money.

    Avoid the temptation of using that money on things you don’t really want anyways. Think about how much faster that debt will disappear if you’re able to throw additional money at it each month.

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

    10. Don’t let yourself fall backwards while you pay off debt on a budget.

    When you do succeed in eliminating a debt, don’t let yourself fall back into bad habits. It’s hard to pay off a debt. It takes time. It takes patience and discipline.

    Don’t let it all be for nothing.

    When you pay off a loan, celebrate that accomplishment!

    Be proud of yourself and let that good feeling motivate you to continue on your journey towards financial freedom.

    Before you know it, debt will be part of your past life. You can shift all your attention to the opportunities that comes next for you and your family.

    Let us know in the comments below:

    Have you used any of these strategies to pay off debt on a budget?

    What about any other strategies to pay off debt on a budget that have worked for you?

  • Financial Freedom and Tiara Goals

    Financial Freedom and Tiara Goals

    A few months before we got married, my wife and I took a trip down to Florida. One afternoon, I headed out to the beach with a book, a notebook, and a few ice cold beverages.

    The weather was perfect. It was sunny but not too hot. Blue skies and just a slight breeze. The beach was quiet that afternoon. I set up my chair to face the ocean and started reading. This little break was exactly what I needed in the middle of “wedding planning.”

    I don’t recall the book I was reading that day. I’ve been meaning to look back at my journals to see if I can figure it out. Anyways, I’ll never forget what I learned about myself that afternoon.

    The author wrote about the power of financial freedom. We’ve discussed financial freedom in previous posts. The basic idea is that when you are financially free, you can choose how to live your life on your own terms. You can make important decisions based on what truly matters to you, as opposed to being forced down a certain path for money reasons.

    On the beach that day, the concept of financial freedom was not new to me. I had read about it for years. The concept really hit home that afternoon when the author asked a simple but powerful question:

    What would you do with financial freedom?

    Maybe the question really resonated with me because I was about to get married. It’s only natural to daydream about what life would be like after the wedding, even though my wife and I had been a couple for six years by that point.

    Over the years, we had talked a lot about what we wanted our lives together to look like. We knew long before the wedding how we each felt about major topics like starting a family and where we wanted to live.

    We were also on the same page when it came to money decisions. My wife and I met early on during my personal finance journey, not long after I had determined to get my money life sorted out. My wife still jokes that she was my first personal finance student.

    By the time we got married, I had been on my personal finance journey for about seven years. I was out of debt and was starting to think about the options that were now available to me. It was around this time that I learned one of the most powerful words in personal finance:

    DINK

    Back then, my wife and I were both working as lawyers in Chicago. We didn’t have any kids. I didn’t realize it until later on, but we were DINKs.

    DINK means “Dual Income No Kids.”

    When you’re in a relationship where you have two incomes coming in and are sharing financial responsibilities, you have the opportunity to supercharge your Later Money goals.

    If you are currently a DINK, or will soon be a DINK, please pay extra attention here.

    Don’t waste this powerful opportunity to supercharge your Later Money goals.

    This is what my wife and I were able to do, even if we didn’t know what a DINK was. We each had good incomes coming in and our monthly expenses were low. The two of us could comfortably share an apartment, instead of each paying for an apartment separately. That’s major savings each month.

    We didn’t have to worry about childcare. We were young so the odds of unexpected medical care were lower. All things considered, it was pretty easy to keep our Now Money to a minimum with plenty to spare for Life Money.

    This allowed us to fuel our Later Money goals, like having a nice wedding and saving up for a home or rental property. We had money in the bank and seemingly endless choices.

    And, I didn’t want to screw it up.

    Which brings us back to me sitting on the beach, thinking about what I would do with financial freedom, with maybe 1 or 2 less beverages in the cooler.

    What did I really want out of life?

    I put my book down and looked off into the ocean, thinking about what I wanted out of life. I started thinking about what my ideal life would look like. By this point, I was engaged in the type of deep thought where you don’t even realize what’s happening around you.

    It quickly occurred to me that I had never truly thought about what I wanted in life. Sure, I had thought about things like having a family and being able to take vacations.

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

    Without a doubt, I had never written down the answer to that powerful question: what would I do with financial freedom?

    I hadn’t ever allowed myself to dream about financial freedom.

    The truth is, I don’t think I had ever visualized a life that wasn’t dominated by a full-time job. Up to that point, my whole life had revolved around getting an education and then getting a job. I never pictured a world where I might not need a full-time job to provide for myself and eventually my family.

    I had read about the concept of being financially free, but it always seemed like a possibility for other people, not me. Writing this years later, I feel sad for that version of myself for having such limiting beliefs.

    That said, I completely understand why I felt that financial freedom was unattainable for someone like me. This was in the phase of my life where I had been preoccupied with eliminating debt. Because of that debt, I didn’t allow myself to dream about what life could look like if money wasn’t holding me back.

    This was also before my wife and I had rental properties. It was before we recognized the impact of side hustles and multiple streams of income. I had read about and understood these concepts in theory, but I hadn’t put what I learned into practice.

    That day on the beach, it was like a light went on in my head.

    After years of patience and discipline, I had climbed out of debt. I was now a DINK with Later Money in the bank waiting to be deployed. That meant I had created opportunities.

    I wasn’t financially free, but for the first time in my life, I allowed myself to accept that financial freedom was possible for me.

    This was one of the most powerful moments in my life.

    With that realization in my mind, I walked into the ocean to cool off and think some more.

    What would I do with financial freedom?

    There in the ocean, I wasn’t thinking about dollars or career goals. This was more important than that. I was thinking about what I wanted my life to look like if money was not an issue. I was thinking about what I would do with my time if I was in complete control.

    Floating there in the water, it was like I had an epiphany. Everything suddenly became clear to me. I ran out of the ocean to get back to my chair before I forgot what just popped into my head.

    I whipped out my top bound spiral notebook and started writing with a blue pen. Minutes later, I had written down seven answers to the question: what would I do with financial freedom?

    My “Tiara Goals” were born.

    Nearly eight years later, I still have that sheet of notebook paper. I keep it safe in a leather binder protected by a laminated page holder. It has those familiar tear marks on the top of the page where the paper connected to the spiral binding.

    Even though I have these seven goals memorized by now, I still look at this sheet of paper every month. Looking at this sheet is an incredible reminder of that day on the beach when everything became clear to me.

    A quick aside, I call my goals “Tiara Goals” because it’s a silly, but meaningful, description to me. Have some fun with what you name your goals. If you do it right, you’ll be thinking and talking about these goals a lot.

    What are my Tiara Goals?

    So, here are my original Tiara Goals from 2017, as scribbled on that sheet of paper and edited for clarity:

    1. Be with my wife and kids as much as I want. Dad never missed a game. Mom never missed a game. Nana never missed a game.
    2. Not be forced to commute to work on Friday or Tuesday or whatever day, if I need that day for myself.
    3. Choose how to spend my working hours (representing clients, teaching, volunteering, building a business, etc.).
    4. Continue to study and learn constantly.
    5. Take at least one big trip every year.
    6. Never turn down an exciting or smart opportunity because I can’t afford it.
    7. Work alongside people that value my contributions.

    Keep in mind that I wrote these goals before I had kids and before I was even married. This was also years before the pandemic when working from home was a foreign concept to most of us.

    I think it says a lot that I was thinking about these things way back then.

    Travelers couple look at the mountain lake. Adventure and travel in the mountains region in the Austria after thinking about what to do with financial freedom.

    In a future post, we’ll unpack each of these goals.

    While I haven’t reached financial freedom yet, I think I’m doing a pretty good job already living by these fundamental values.

    How do my Tiara Goals help me today?

    My Tiara Goals motivate me to continue striving for financial freedom. We’ve talked extensively about the importance of having strong money motivation in our lives. When we have these powerful motivations, we can stay on budget, get out of debt, and fuel our Later Money goals.

    We can obtain Parachute Money. We can choose to do meaningful work and choose to spend more time with people who are meaningful to us.

    No, it’s not easy to achieve financial freedom. But, it is a whole lot easier when you know what you are striving for in the first place.

    That’s why at the beginning of my financial wellness class, I ask my students to write down their own versions of Tiara Goals. I want to help them avoid the limiting beliefs that I had before that day on the beach.

    My favorite part of class is when my students share their Tiara Goals.

    Without a doubt, this is always my favorite part of class. When I say I’m on a mission to convince you that talking money is not taboo, I think of my students sharing their goals. I get so energized by hearing their goals. My students report the same sentiment after learning what drives their friends and peers.

    Over the years, my students have shared countless impactful stories. As unique as these goals can be, it’s remarkable how most of us want the same things in life. Year after year, I hear the same motivating forces:

    • Spend more time with my family.
    • Travel and enjoy experiences around the world.
    • Stay healthy and fit.
    • Provide for my children and my aging parents.
    • Work for a cause I believe in.
    • Have time to volunteer.

    I also regularly hear one thing that my students, and the rest of us, don’t want:

    • I don’t want to be stressed about money.

    Isn’t it telling that year after year, most of us want the same things in life? I’ve yet to hear anyone say that they dream about working endless hours and not taking their PTO.

    Be specific, but not too specific, when you think about financial freedom.

    When we talk about what we do with financial freedom in class, I encourage my students to get specific without being so precise that the goal becomes restrictive. When we’re thinking about goals related to financial freedom, the idea is to focus more on big-picture, core values.

    There will be a time and a place to strategize how to get there. The point here is to help define what you’re even trying to get in the first place.

    For example, instead of “spending more time with family,” I would suggest something like, “never miss my child’s soccer game or dance recital because of work.”

    Instead of “travel around the world,” I would suggest “at least one overseas trip of at least 2 weeks per year.”

    Adding that little bit of specificity will help you visualize what you’re striving for with your money decisions.

    Don’t get discouraged if you think you are not close to financial freedom.

    Even when you feel like financial freedom is only a distant dream for you, it’s important to actively think about what you want out of life. I’d even suggest that the further away you feel from financial freedom, the more important it is to think about what it would mean for you.

    When you’re at your lowest point, visualizing what you would do with financial freedom is a helpful escape.

    If you haven’t ever actively thought about what you would do with financial freedom, hopefully this post will encourage you to do so.

    Don’t forget to write down whatever you come up with.

    I suggest you share your version of Tiara Goals with your friends and loved ones. It’s OK to keep some of your goals private. By sharing, you will get the benefit of them cheering you on. You’ll also hopefully encourage them to share their goals with you, which can be very inspiring.

    Have you thought about what you would do with financial freedom?

    Have you ever written it down or shared your answers with others?

    What are your Tiara Goals?

    Let us know in the comments below!

  • Better to Ignore Mortgage Rates

    Better to Ignore Mortgage Rates

    In today’s Q&A, we’ll address two great questions from readers about shopping for a home in today’s environment. We’ll also talk through how to know if you have enough Parachute Money.

    As always, please continue to reach out with your questions on our socials or by replying directly to our weekly newsletter emails. I personally read and reply to every email.

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    Should I wait for mortgage rates to drop before buying a home?

    This question has been on people’s minds for a few years now. Ever since rates started climbing from the all-time lows during the pandemic, people have been hoping they might significantly drop again.

    In my humble opinion, that ain’t happening. At least not anytime soon.

    Google “Are interest rates going to drop” and you’ll find that nearly every major news outlet and mortgage lender has a prediction. Most predictions right now are about the same. US News summed it up just about perfectly:

    Analysts expect the 30-year fixed mortgage rate to stay elevated between 6% and 7% for the next two years. Just two months ago, economists thought it would fall into the 5% range by the second half of 2025. With such wild fluctuations in the forecast, you’d be just as likely to get a satisfactory mortgage rate outlook from a Magic 8 Ball: Cannot predict now. Ask again later.

    Nobody knows what’s going to happen with rates. Just two months ago, US News thought rates would drop. Now, they’re expected to stay elevated. What are you supposed to do with that information?

    I recommend you ignore it.

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

    Why do I recommend you ignore mortgage rates?

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

    1. Mortgage rates stay the same.
    2. Mortgage rates go up.
    3. Mortgage rates go down.

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

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

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

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

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

    The data shows that homes have become more expensive historically and in the recent past. In 2024, U.S. homebuyers paid nearly double what they paid for homes in 1965, accounting for inflation. More recently, in Chicago for one example, home prices are up more than 9% since just last year.

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

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

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

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

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

    Not so fast.

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

    So, what happens when lots of people are waiting to buy the same thing? Demand goes up. When demand goes up, you have more competition to buy that same house. That means prices go up. You’ll end up paying more money for the house, even with a lower interest rate.

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

    If mortgage rates end up dropping later on, I’ll refinance my loan into the lower rate. I may pay more on a monthly basis in the short term, but long term, I have the house I want at the best available current rate.

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

    Forget about the rates. If rates do end up going down in the future, you can still benefit by refinancing.

    My wife and I are considering buying a home that would be the most expensive home ever sold in the neighborhood. Is that a bad idea?

    This is another great question. Opinions will certainly vary, so I encourage you to talk to your inner circle to get a variety of perspectives.

    Personally, I have no problem buying the most expensive property in a neighborhood, under one condition: I plan on holding that property for at least 10 years.

    Like the data above shows, home prices tend to go up historically. Since 1990, home prices nationally have appreciated on average at a rate of 4.4%.

    If you’ve done your homework and are shopping for real estate in good neighborhoods, it’s only a matter of time before another home sells for a higher price.

    The longer you hold the real estate, the more home appreciation works in your favor.

    Appreciation is one of the best reasons to invest in real estate, after all.

    When we bought our first rental property in Chicago in 2018, we paid the highest price for any 4-flat in our neighborhood. At the time, we were a bit concerned that we were overpaying. Those worries were short lived. With seven years of appreciation working in our favor, numerous properties have sold since then for significantly more money.

    Family walking into new home just purchased illustrating it's not always a bad idea to buy the most expensive home in neighborhood as learned on Think and Talk Money.

    Yes, there are always going to be dips in the market. Do not expect your home to steadily appreciate every year. This is why my one condition is to hold the property for at least 10 years. When you hold property (or any investment) for the long run, time is on your side. You can wait out any dips in the market.

    As long as you’ve done your homework and are willing to hold a property for the long run, I would have no hesitations in buying the most expensive property in a neighborhood.

    I’m fascinated by the concept of Parachute Money. My question is: how will I know if I have enough Parachute Money?

    The idea of Parachute Money is one of my favorite concepts in personal finance. Check out our post here to learn more about how empowering Parachute Money can be.

    To know how much Parachute Money you need, look back at your Budget After Thinking. All you need to do is add up your monthly Now Money and Life Money to figure out how much Parachute Money you’ll need to maintain your current life.

    For example, let’s say your budgeting process taught you that you need $6,000 of Now Money and $4,000 of Life Money each month. Your Parachute Money target is $10,000.

    If your goal is to walk away from your primary job, you’ll need to create $10,000 of income streams not counting that primary job. That could be from any combination of investments and side hustles. Once you hit $10,000 in parachute strings, you should be able to safely walk away from that job.

    Note that for calculating your Parachute Money, you can ignore your Later Money goals. The reason why relates back to the purpose of Parachute Money.

    The purpose of Parachute Money is to be able to choose to walk away on your own terms while continuing to support yourself.

    Presumably, choosing to walk away from a bad situation accomplishes one of your primary goals for saving and investing money in the first place.

    At this phase of your life, it’s OK to temporarily set aside your Later Money goals. If and when you choose to seek new sources of income, you can start fueling your Later Money goals again.

    The exception to this rule is if you have debt obligations that are not accounted for in your Now Money. If that’s the case, be sure to include your debt obligations in your Parachute Money target.

    One last thing about Parachute Money: achieving true Parachute Money is hard. Just remember, the payoff could be extremely valuable to you: not having to work your primary job if you choose not to. That’s the definition of financial independence.

    Thanks again for all the great questions!

    If we didn’t get to your question this week, we’ll do our best to get to it in an upcoming post.

  • Scary Stats to Know about Debt

    Scary Stats to Know about Debt

    My four-year-old daughter created a game recently that I’ll call “The Raise Your Hand Game!”

    At random times, she’ll say something like, “Raise your hand if you have an ‘M’ in your name!”

    I raise my hand. Refusing to play along is not an option.

    With my hand in the air, she’ll nod in approval that I participated and didn’t lie.

    That’s the whole game.

    Let’s play. I’ll be the host.

    “Raise your hand if you currently have debt!”

    Come on, play along. Get those hands up.

    Nearly 80% of you should have your hand in the air.

    Yup, 8 out of 10 of us have some form of debt. Put another way, just about everyone reading this post has debt. That’s why learning to effectively deal with debt is a core personal finance concept.

    For the next couple of weeks in the blog, we’re going to focus on debt so we can continue our progress towards financial independence.

    Those of us who can successfully eliminate debt will move closer and closer to financial independence.

    Those of us who don’t want to learn will remain debt’s financial prisoner.

    As we begin our discussion on debt, let’s start with some scary statistics.

    According to the Federal Reserve Bank of New York, total household debt in the United States grew to $18.04 trillion by the end of 2024. That’s such a big number, it’s hard to know what to do with that information.

    Let’s break it down by the type of debt:

    • Credit card balances increased by $45 billion from the previous quarter and reached $1.21 trillion at the end of December 2024.
    • Auto loan balances increased by $11 billion to $1.66 trillion.
    • Mortgage balances also increased by $11 billion and reached $12.61 trillion.
    • HELOC balances increased by $9 billion to $396 billion.
    • Other balances, reflecting retail cards and other consumer loans, increased by $8 billion.
    • Student loan balances increased by $9 billion to reach $1.62 trillion.

    While these numbers are still too big to comprehend, one powerful conclusion is hard to miss:

    In every category, the amount of debt increased from the previous quarter.

    This pattern of increasing consumer debt has been consistent for some time now. HELOC balances have increased for eleven consecutive quarters. Credit card balances have increased or remained the same for 10 of the last 11 quarters.

    Now, let’s look at the statistics on a per household basis.

    Per household, we see the same picture of increasing consumer debt in the United States.

    According to an Experian report that compared consumer debt per household from 2023 to 2024, we see that:

    • Credit card balances increased 3.5% to $6,730.
    • Auto loan balances increased 2.1% to $24,297.
    • Mortgage balances increased 3.3% to $252,505.
    • HELOC balances increased by 7.2% to $45,157.
    • Student loan balances actually decreased by 9.2% in 2024 to $35,208. This one’s an outlier due to federal loan forgiveness programs.

    Let’s look closer at credit card debt for a moment.

    According to a recent survey looking at credit card debt in 2024 by Bankrate.com:

    • 48% of credit card holders carry a debt balance, an increase of 9% since 2021.
    • 53% of the people have been in credit card debt for more than a year.
    • The main causes of credit card debt are unexpected medical bills (15%), car repairs (9%) and home repairs (7%).

    According to another Bankrate.com survey, 33% of Americans report they have more credit card debt than emergency savings.

    These last couple stats helps us begin to understand why so many people fall into debt in the first place. It goes back to our previous conversation about the importance of emergency savings. When we don’t have savings, the first place we turn is to our credit cards.

    Consumer debt is a worldwide problem.

    While the above statistics are specific to the United States, you’re not off the hook if you live elsewhere. In fact, the data in your nation may be worse.

    Any readers in Denmark, Norway or Switzerland?

    According to a recent study by Compare the Market, these three nations lead the way with the highest household debt. The same study ranked the United States at number 18.

    What can we learn from these scary debt statistics?

    Whether we look at the national figures or per household numbers, the picture is clear.

    Worldwide, we have a consumer debt problem. And, it’s getting worse.

    For most of our conversation on debt, we’ll focus on credit card debt. Most everyone agrees this is the worst kind of debt to have. It’s also the type of debt that’s the most relatable applicable to many of us, regardless of where we are in our careers.

    Before we go any further, it’s important to understand the two main reasons why I share studies like these about debt.

    1. If you are currently in debt, please know that you are not alone.

    These scary stats make it abundantly clear that many of us are struggling with debt. You probably don’t know if your friends and family are in debt because we’ve been brainwashed not to talk about money.

    As you know, I’m on a mission to change that.

    Nearly half of us in America are burdened with credit card debt. And yes, it is a heavy burden. There’s no sense in trying to convince yourself that you’re not worried about it.

    The good news is there are proven strategies for getting out of debt that we will learn in upcoming posts.

    These strategies are not hard to implement, but they are challenging to stick with. Temptation to overspend is everywhere. To succeed in eliminating your debt, you need to have strong motivations.

    Personal finance always come back to your money mindset. Just like with budgeting, I can give you proven techniques and strategies.

    If your money mindset is not in the right place, it won’t matter. You’ll stay in debt, or worse, your debt will continue to increase.

    2. If you think you are immune from falling into debt, think again.

    When we are presented with statistics like this, it’s not uncommon for us to be in denial. We might say to ourselves:

    “No, I understand that other people are in debt. But, that won’t happen to me.”

    Or, “No, I make good money. I can pay off my credit card debt if I really wanted to.”

    If it were really that easy, then why do half of Americans carry credit card debt? Why is our credit card debt growing instead of shrinking?

    You may not currently be in credit card debt, and that’s a very good thing. But, what if one of those emergencies mentioned above surfaces in your life?

    • If you were hit with a large, unexpected medical bill, could you cover it without credit cards?
    • What if your roof needs to be replaced? Or, your furnace breaks during the middle of winter? Do you have tens of thousands of dollars saved to cover these necessary expenses?
    • Do you own a car? How awful is that annoying “Check Engine” light? A simple trip to the mechanic could be another few thousand dollars out of your pocket.

    These types of financial emergencies do not discriminate. Each one of these situations could happen to any of us at any time. Let’s not forget that 90% of us are not completely satisfied with our savings. That means almost all of us would have to turn to credit cards to cover these emergencies.

    Credit cards, close up, illustrating on Think and Talk Money that too many people worldwide have some form of debt.

    Ending up in debt might come as an unpleasant shock to you. Knowing these statistics will hopefully put your mind at ease that you’re not alone.

    So, even if you’re comfortable in your job and make good money, you may still end up in debt. If you do end up in debt, the lessons we’ll soon learn will ensure that your stay in the financial penalty box is as short as possible.

    In our series on debt, we’ll soon learn:

    • How in today’s world of social media, “Keeping up with the Joneses” is really more like “Keeping up with the Kardashians.”
    • There is a difference between “good debt” and “bad debt.” When used responsibly, good debt can help you reach your financial goals faster.
    • Paying off debt is hard. It’s heavy. It’s stressful. There’s no shame in admitting that. Just because it’s hard, doesn’t mean we can ignore it any longer.
    • The top strategies to pay off debt as efficiently and painlessly as possible.

    Whether you currently have debt or smartly want to be prepared just in case, our series on debt is crucial for anyone seeking financial independence. There is no faster way to undue all your hard work than to fall into debt.

    You don’t need me to tell you that debt is a major barrier to reaching financial freedom. In fact, debt is oftentimes the exact opposite of financial freedom.

    When you have debt, your choices are limited. It’s like you’re in financial prison. When you are free of debt, you are in control.

    Learning about handling debt does not have to be depressing or scary. When we talk it out together, I think you’ll find that you’re not alone. Like with all hard things, there’s no point in struggling by yourself.

    Hands in the air. We got this.

  • Big Decisions are Easier with Parachute Money

    Big Decisions are Easier with Parachute Money

    Pretend your life is like flying on an airplane.

    Maybe you feel like your airplane is a fighter jet, moving too fast to enjoy the ride. Maybe your airplane is a small regional carrier, boringly flying back and forth between the same two airports.

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

    All you need is a parachute.

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

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

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

    It’s obvious which one of these parachutes to choose.

    This situation illustrates what I believe is one of the most empowering concepts in personal finance.

    It’s what I call “Parachute Money.”

    Before we move on to our next core personal finance topic, credit and debt, let’s take a few minutes to discuss this powerful money concept.

    What is Parachute Money?

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

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

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

    Picture each source of income as a string on your parachute. The more strings on the parachute, the stronger it is. Likewise, the more sources of income you have, the stronger your personal finances are.

    Note that multiple sources of income does not have to mean multiple jobs. Even with one job, you can still pursue additional, or stronger, parachute strings.

    Let’s say you earn a salary and also could earn commissions or bonuses. Each one of those income streams could be another string in your parachute.

    Or, you could prioritize boosting your emergency savings even more than you normally would. You might even consider a separate savings bucket called “Parachute Money.” Besides boosting your savings, you could also focus on passive income streams, like investing in dividend stocks.

    The central idea remains the same. Protect yourself with as many income sources as you can.

    Think of Parachute Money as a way to visualize financial independence.

    Think of Parachute Money as a way to visualize what financial independence really means.

    Parachute Money empowers you to confidently make big life changes. When you have Parachute Money, you are financially free to control your life, not the other way around.

    Parachute Money is all about your intentional decisions. It’s for when you’ve decided, on your terms, that you’re ready to make that big change in your life. You’re excited to take matters into your own hands, but you don’t want to disrupt your entire life in the process.

    To return to our airplane analogy, you could stay on the plane if you wanted. Nobody is forcing you to jump. But, you’re ready for something different. And when you do jump, you want a parachute that will help you land as safely as possible.

    That’s what Parachute Money can do for your life. It allows you to make that leap while landing gracefully.

    You could say it out loud like this, “I have Parachute Money. I am financially independent because I am not beholden to any single source of income. If one source of income goes away, because I’ve decided it’s time for a change, my other sources of income will protect me.”

    Parachute Money is more than just emergency savings.

    Parachute Money is more than just a bank account. We’ve talked about how an emergency savings account is the first savings account that everyone needs.

    An emergency savings account is part of your Parachute Money, but there’s more to it.

    Recall that an emergency savings account is what you turn to when life dictates your choices. If you unexpectedly lose your job or have a large bill to pay, emergency savings will keep you afloat. You didn’t choose for these things to happen, but you still need to be prepared.

    So, emergency savings are for protecting yourself and your family from the unexpected. Like we talked about above, Parachute Money is about you dictating the course of events, not the other away around.

    What are my current parachute strings?

    My wife and I have worked hard to create multiple sources of income. We currently have the following strings in our parachute, in no particular order:

    • My primary job as a mesothelioma attorney
    • My wife’s primary job as an attorney
    • Rental Property 1
    • Rental Property 2
    • Rental Property 3
    • Rental Property 4
    • Law School Professor
    • Emergency Savings

    Combined, these sources of money provide a solid parachute for us.

    If you wanted to, you can break out some of these sources of income into further parachute strings.

    For example, Rental Property 1 consists of 4 apartments. Each apartment could be a separate string. I teach multiple law school courses; each course could be another string. Like we talked about above, your job may include a salary, commissions, and bonuses. Each could be a separate parachute string.

    What are some situations where Parachute Money can make big decisions easier?

    Let’s look at three possible situations where Parachute Money can empower you to make the best choices for you and your family.

    1. It’s time for a new job.

    After working for the same company for 10 years, life around the office looks different.

    Your direct supervisor left for a new job. You were passed up to take her place. New policies are rolling out, including a requirement to be in the office five days per week.

    You feel stuck in place. You still like your job and most of the people you work with. And, you could hang around for the steady paycheck.

    Or, you can take control and make a change. If you have Parachute Money, you can take your time looking for a new job that matches your priorities. Maybe you decide not to go back to full-time work at all.

    2. It’s time to move.

    You live with a roommate and have another 10 months on your lease. Things have gotten uncomfortable.

    He doesn’t clean up after himself. He stays up late watching movies so loud you can’t sleep. He eats your favorite leftover Thai food you had saved for lunch the next day.

    You could “tough it out.” He’s still a good friend of yours.

    Or, you can take control and make a change. If you have Parachute Money, you can handle the costs of breaking the lease and finding a new apartment.

    3. It’s time to stop depending on your parents.

    You’re a full-grown adult and are still financially dependent on your parents.

    Sure, the money is nice to have.

    The problem is your parents have let it be known, in so many words, that they are to be consulted on how you spend their money.

    You may think you are choosing where to live or where to send your kids to school. Deep down? You know your parents will have the final word.

    Elderly father lends money to his adult son. He helps his child deal with financial problems. His son is hoping to not be dependent on his father anymore thanks to Parachute Money learned on Think and Talk Money.

    You can continue letting your parents dictate your life.

    Or, you can take control and make a change. If you have Parachute Money, you can tell your parents, “Thanks, but no thanks.”

    Parachute Money gives you control.

    These are just a few examples of how Parachute Money allows you to regain control of your life.

    Notice that in each situation, you’re not dealing with a sudden emergency. Instead, you’ve reached a tipping point and decided it was time for a change. Without Parachute Money, your options would be limited.

    In our example above about wanting a new job, Parachute Money allows you to make that leap. You may temporarily be without your primary source of income- that string on the parachute broke.

    But, you’ll be more than fine because you have other parachute strings to land you safely, like an emergency savings account, a side hustle as a ghost writer for a blog, and a rental property.

    Parachute Money is one of my favorite personal finance concepts.

    Parachute Money is one of my favorite concepts in personal finance. I first learned about the general idea from J L Collins in his renowned book on investing, The Simple Path to Wealth: Your road map to financial independence and a rich, free life.

    The Simple Path to Wealth is a must read for anyone wanting to learn the power of investing on your own through index funds.

    We’ll have plenty more to say about how Collins has influenced my own decisions in our investing series. I credit him for teaching me that investing does not have to be hard. It’s actually pretty simple if you follow his tips.

    To learn more from J L Collins, check out his website here.

    In his book and blog, Collins describes what he calls “F-You Money.” He tells the story of getting in a shouting match with his boss one day at work, shortly before walking away from that company. As Collins explains, nobody deserved an “F-You” more than that guy.

    In Collins’ example, he had enough money saved up where he could say those choice words to his boss. His “F-You Money” empowered him to live on his own terms.

    On your way to financial independence, don’t ignore Parachute Money.

    The reason I love the idea of Parachute Money is because it encapsulates so many of the money wellness habits and goals we’re striving for with Think and Talk Money.

    Parachute Money gives you flexibility and control. When you have multiple sources of money, you are not beholden to any one source.

    Think back to the image of the parachute with only one string. What happens if that one string breaks?

    Likewise, what happens if your only source of money no longer fits into your best life?

    As you think about these questions, picture yourself jumping out of the airplane.

    What parachute are you reaching for?

    Disclosure: This page contains affiliate links, meaning I receive a commission if you decide to purchase using my links, but at no additional cost to you. Please read my Disclosure for more information.

    © 2025 Matthew Adair

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  • Great Talk: Money and Cheeseburgers

    Great Talk: Money and Cheeseburgers

    Talking money is not taboo.

    The only thing that’s taboo is avoiding your personal finances.

    To help flip the script and convince you that talking money is not taboo, I plan to regularly post about the current money conversations that I’m having. Through my examples, I hope to encourage you to have similar conversations.

    In our first “Great Talk” post, we’ll discuss what my wife and I decided to do with our Later Money throughout 2025. We’ll also talk about how really smart people I know have started budgeting. We’ll conclude with an empowering conversation I had with a friend about what you can do with your time if money wasn’t an obstacle.

    What I’m doing with my Later Money in 2025.

    Later Money is what you are saving, investing, or using to pay off debt. This bucket includes long term goals and investments, like retirement and college savings. It also includes emergency savings, paying off debt, or any other shorter term goals, like saving for a wedding or a downpayment for a house.

    Later Money is the key category that fuels your ultimate life goals, like financial independence.

    The more you fuel this category, the faster you can reach your goals.

    So, what are my wife and I doing with our Later Money in 2025?

    We recently had a great talk about our options and came up with a plan that will guide us throughout the year. Before we talk about our 2025 goals, it’s important to keep in mind that your Later Money goals will change over time. That’s perfectly fine.

    Our goals in 2025 are not the same as they were between 2016 and 2024. Prior to 2025, my wife and I were focused on expanding our real estate portfolio.

    We purchased our first rental property in 2018, a four-flat in an up-and-coming Chicago neighborhood. Less than a year later, we bought a three-flat in the same neighborhood.

    In 2021, we invested in a Colorado rental ski condo. In 2022, we purchased our fourth rental property, a three-flat, in the same (now booming) neighborhood in Chicago.

    After living in our rental properties since 2018, we purchased a single-family home just outside Chicago in 2024.

    During this timeframe, any spare dollar we earned went towards acquiring more real estate. We contributed towards other financial goals, like retirement and college, but our priority was investing in real estate.

    Knowing when enough is enough.

    Our goals have changed in 2025. We started talking about revamping our goals towards the end of 2024. I owe a lot of credit for our new goals to Chad “Coach” Carson and his excellent book, Small and Mighty Real Estate Investor: How to Reach Financial Freedom with Fewer Rental Properties.

    In his book, Coach Carson makes a compelling argument to think about when enough is enough. His message was about acquiring more and more real estate, to no end, but also applies to any pursuit in life. You can learn more about Coach Carson and his incredible journey on his website.

    Reading Small and Mighty Real Estate Investor helped my wife and I conclude that at this point in our lives, we have enough. If anything, we’re closer to having too much on our plate. We self-manage our 10 units in Chicago and work closely with a property manager in Colorado. With our full-time jobs and kids at home, we’ve bitten off as much as we can chew.

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

    We want to build a life full of experiences and memories. That means we need more time, not more money. Acquiring and managing more properties right now would take up a lot of time. That tradeoff is not currently worth it to us.

    So, if we’re not pursuing additional properties in 2025, what are our goals?

    After talking it through together and weighing all our options, my wife and I came up with these three goals for 2025:

    1. Our first goal is to continuing paying down our mortgage debt. We used HELOCs (Home Equity Line of Credit) to help us acquire some of our properties. Now that we’ve determined that “enough is enough,” we’re focused on paying back these loans.
    2. Our second goal is to build up our emergency savings. We mostly ignored our emergency savings between 2017 and 2024. It was risky and led to some touch-and-go moments that we’d like to avoid moving forward.
    3. Our third goal is to boost our contributions to our kids’ college savings accounts. We use what’s called a “529 college savings plan.” 529 plans are state-sponsored, tax-advantaged investment accounts. We use Illinois’ 529 plan because we receive a tax break as Illinois residents. Just about every state offers a 529 plan. They are a great way to save for college.

    With our plan in place ahead of time, we now know where every dollar is going before we earn it. This takes the anxiety out of trying to figure it out after the money has already hit our bank account.

    At the end of each month, all we need to do is make our Later Money transfers to each account. We can rest easy knowing that we’re making progress towards our personal finance goals.

    How Budgeting is Helping Very Smart People.

    One of my favorite moments since launching Think and Talk Money occurred just last week. Walking down the hall in my office, one of my colleagues called me over. She was very excited to share that she started tracking her spending so she can create a Budget After Thinking.

    We chatted for ten minutes. She’s been reading the blog on her commute to work every Monday, Wednesday, and Friday. She used Think and Talk Money vocabulary, like “Now Money” and “Life Money.”

    She showed me the app she’s been using to track her spending, one I wasn’t familiar with and am now looking into. She shared that she’s been telling her friends about Think and Talk Money because she’s already learned so much.

    This is exactly why talking about money is not taboo. She taught me something new and helped me think about my own budgeting process. She gave me new ideas to think about.

    How could this type of conversation be bad?

    We didn’t need to talk numbers. We talked strategy and habits. That’s what talking money is all about.

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

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

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

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

    Without hesitation, he answered that he would work with his hands. He likes working on projects around the house. He gets immediate satisfaction from completing a repair or making an improvement.

    Two men eating out in cafe or restaurant talking about financial independence as learned on Think and Talk Money.

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

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

    This simple question helps illustrate what I mean when we talk about financial independence. It’s not an easy goal to accomplish, but I can’t think of a better goal to strive for.

    You are financially independent when money is not an obstacle.

    When you are financially independent, you can spend more time doing what is meaningful to you. You can spend more time with people that are meaningful to you.

    Whether you want to work with your hands or represent clients or teach kids, the choice is yours when you’re financial independent.

    That seems like a goal worth striving for.

    What could ever be better than that?

    So, let me ask you:

    What would you do with your time if money was no obstacle?

    Please share below!

    And always remember, talking money is not taboo.

  • Why it’s Not Taboo to Talk Money

    Why it’s Not Taboo to Talk Money

    Why do so many smart people feel like they’re barely getting by?

    Even with salaries of more than $100,000, too many people across the United States are living paycheck to paycheck.

    Whether you are a high earner or not, we all need to exert mental energy on our personal finances. Don’t make the mistake that just because you make a lot of money, you are immune.

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    One of the biggest misconceptions in personal finance is that people that make a lot of money don’t have money worries.

    I’m not saying that we should feel sorry for people that are high earners. I’m pointing out that personal finance education is important for all of us.

    It’s not your fault if you’ve made poor money choices, up to a point.

    I don’t blame anyone, high earners included, for making poor money choices (up to a point). Most people never learn basic personal finance skills.

    Think about an emergency room physician. He was likely one of the top students in his class his entire life. He’s proven that he can learn complex matters. He can do the hardest things imaginable, like saving someone’s life.

    The problem is he was never taught to use his brain to manage his own personal finances.

    If that ER doctor is living paycheck to paycheck, he likely won’t receive much sympathy. He’s probably blamed for not making better money choices.

    People will say he makes plenty of money. It’s his own fault. He must be irresponsible or selfish or craves expensive things.

    I don’t think that’s fair.

    I think that ER doctor should get a pass from undeserved judgment. I’m not saying you have to feel bad for him or offer him your sympathies. What I am saying is he should be given a chance to learn about personal finance just like the rest of us.

    Does that mean he is forever excused from taking responsibility for his money choices?

    Of course not.

    We all need to take responsibility to educate ourselves. That’s the reason a website dedicated to thinking and talking about money exists in the first place.

    Fortunately, more than half of the United States now requires some form of personal finance education for high school students.

    That’s a great start, but it’s not enough.

    Personal finance education is for all stages of our lives.

    Personal finance education needs to continue throughout adulthood. So many of the concepts we talk about won’t resonate with high school kids who are still provided for by their parents.

    Personally, I needed to feel the pain of being out on my own before the core lessons sunk in. I had no perspective prior to that.

    One of my priorities with Think and Talk Money is to help you learn these core principles before you feel too much pain.

    If you’re in the early stages of your career, there is no better time than now to develop strong money habits. It can be very difficult to correct bad habits as time goes on. A better plan is to work on developing good money habits now.

    If you’re already established in your career, maybe all you need is a reminder or a sounding board to more consistently make good choices.

    If you’ve struggled up to this point and want to work on your money habits, there’s good news. You have a major advantage.

    You’ve felt the pain.

    Elementary Classroom of Diverse Bright Children Listening Attentively to their Teacher Giving Lesson. Brilliant Young Kids in School Learning to Be Great Scientists, Doctors, Programmers, Astronauts, but not learning about personal finance, which is why they need Think and Talk Money.

    You know what it’s like to live paycheck to paycheck.

    Use that perspective to motivate yourself to make adjustments.

    Don’t blame yourself or feel ashamed. Like the ER doctor, personal finance education wasn’t something you knew you needed. Now you know better. Time is still on your side, if you get started today.

    Talking about money is not taboo.

    One of my other priorities with Think and Talk Money is to confront the negative money stereotypes that dominate society. To start with, I’m on a mission against the common refrain that it’s taboo to talk about money with our family and friends.

    Are we supposed to accept that it’s better to struggle alone?

    That we should isolate ourselves in a constant state of worry?

    That we are forbidden from seeking out help by talking to the people we trust the most?

    I refuse to accept any of that.

    Who even said talking about money is taboo in the first place?

    What does “taboo” even mean? Let’s look it up.

    Taboo: “Banned on grounds of morality or taste.”

    Morality or taste? What does that mean? Let’s look up “moral.”

    Moral: “of or relating to principles of right and wrong in behavior.”

    Ah, I see.

    With these definitions as context, let me try to define taboo in terms that actually make sense:

    Taboo means we shouldn’t do things that we know are wrong.

    OK, that I get.

    I’m flipping the script on what taboo means when it comes to money.

    And with that understanding in mind, I’m flipping the script on what taboo means when it comes to money.

    I can keep going all day. I think you get the point. Talking money is not taboo.

    Keep an eye out for posts about the current money conversations I’m having.

    In the spirit of convincing you that talking money is not taboo, we are introducing a new post series this week. In this continuing series, I will highlight the current money conversations that I’m having with my friends and family.

    In our first of these posts later this week, I’ll share how my wife and I recently talked through our decision to split our Later Money between emergency savings, college savings and mortgage debt.

    I’ll also share some of the empowering conversations I’ve had recently with Think and Talk Money readers. I learn so much from these conversations, whether they’re with my mesothelioma clients, my students, or my friends.

    Let’s flip the narrative together.

    Talking money is not taboo. The only thing that’s taboo is avoiding your personal finances.

    Have you had any beneficial money talks lately? How did it feel afterwards?

    Please continue to reach out in the comments or on socials with your responses and thoughts.

  • 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.