Tag: financial literacy

  • Furloughs Show Why You Need Savings and Parachute Money

    Furloughs Show Why You Need Savings and Parachute Money

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

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

    Why?

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

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

    The mortgage still needs to be paid.

    The kids still need to eat.

    The credit card balances are still due.

    As reported by CBS News:

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

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

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

    We can protect ourselves in two ways.

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

    Second, we can protect ourselves with parachute money.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    I refer to this additional protection as Parachute Money.

    What is Parachute Money?

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

    The analogy goes like this:

    Pretend your life is like flying on an airplane.

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

    Either way, you’re ready to jump. 

    All you need is a parachute.

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

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

    Then, you look at the second parachute. 

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

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

    OK, cool.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    Admittedly, this was a risky strategy.

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

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

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

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

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

    Let me explain.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    Do you have an emergency savings account?

    How strong is your parachute?

    Let us know in the comments below.

  • Financial Independence is Not About a Life of Deprivation

    Financial Independence is Not About a Life of Deprivation

    Stop me if you’ve heard this advice before:

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

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

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

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

    Nope.

    I refuse to believe that.

    Financial independence about so much more than that.

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

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

    How did financial independence become synonymous with deprivation?

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

    Yes, son, there’s a problem.

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

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

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

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

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

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

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

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

    Of course not.

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

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

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

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

    FIRE has taken on an unintended meaning.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    Yes, you have to keep your spending within reason.

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

    Focus on earning more, not just spending less.

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

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

    What would you rather do?

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

    Do you really have to think that long about it?

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

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

    I am a big fan of side hustle.

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

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

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

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

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

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

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

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

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

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

    How can you find these clients?

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

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

    Either one of these pursuits could be your side hustle.

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

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

    OK, but I don’t even like coffee.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

  • Capital One Settlement: A Reminder to Evaluate Your Bank

    Capital One Settlement: A Reminder to Evaluate Your Bank

    How long have you been with your current bank?

    Do you even remember why you opened an account with that bank in the first place?

    For many of us, we opened our first “adult” bank accounts in our 20s. We probably just picked the closest bank to our apartment. I doubt many of us (myself included) put much thought into who we banked with.

    Because it’s human nature to resist change, I’m guessing many of us have never thought about whether that bank is still a good fit at the current stage of our lives.

    In light of Capital One’s massive class action settlement based on allegations that it deceived its customers, now seems like as good a time as ever to revaluate who we bank with.

    More on the settlement below.

    First, a little personal context about why I’m thrilled that Capital One is not getting away with its deceptive scheme.

    I banked with Capital One for many years.

    For a long time, I used Capital One for all my savings accounts. When I started law school in 2006, there was a Capital One cafe right next to my school.

    You could get a cup of coffee for $.75 and talk to a banker at the same time. It was a cool concept and convinced me to bank with Capital One.

    I told everyone about how great Capital One was. I had Capital One savings accounts and a Capital One credit card. You could say I was a huge Capital One fan.

    Key word: was.

    In November 2023, I had been a loyal Capital one customer for 17 years. This was during the time period when interest rates on savings accounts were rising dramatically. 

    Many banks were advertising rates as high as 4% or 5%, which were higher than most of us had ever seen.

    One day that November, for whatever reason, I logged into my Capital One account to see what rate I was earning.

    I was sure it would be in the 4% range, and probably closer to 5%, since Capital One was a leader in online banking.

    When my statement loaded, I was shocked.

    0.30%!

    Shocked probably isn’t the right word. I was disgusted. 

    0.30% in 2023 might as well have been 0.0%.

    I refused to believe that a bank that I had banked with for 17 years could do this to a loyal customer.

    What the heck happened?

    Well, Capital One, unbeknownst to me, switched my savings from its high interest platform into an account with the much lower interest rate.

    At the same time, Capital One was still advertising and offering top rates to new customers.

    When I discovered the sneaky switch, I immediately closed all of my accounts and transferred my money to a new bank. I no longer have a Capital One credit card, either.

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

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

    So, my anger wasn’t just about the interest.

    For me, it was about the principle. I don’t want to have any relationship with a bank that would do that to its customers, especially long-term customers like me.

    I did a quick search in my inbox and found a Capital One statement from December 2022 showing a 0.30% interest rate. That means Capital One had deceived me for at least a year before I caught on. 

    I have to admit that writing this post is reopening old wounds. Although, learning about the settlement definitely helps.

    a bank sign lit up in the dark as a reminder to always evaluate your banking relationships.
    Photo by POURIA 🦋 on Unsplash

    I am happy to report that Capital One did not get away with it.

    It wasn’t just me who was getting ripped off by Capital One.

    I am one of the many people that Capital One switched out of high interest rate savings accounts into inferior products.

    These deceptive practices were subject of a federal lawsuit brought by the Consumer Federal Protection Bureau.

    Additionally, disgruntled customers filed a class action lawsuit to recoup the interest that people like me missed out on.

    All is well that ends well, right?

    I am pleased to share that Capital One agreed to a $425 million class action settlement for its deceptive practices.

    A court hearing for final approval of the settlement has been scheduled for November 6, 2025.

    If you are, or were, a Capital One 360 Savings account holder at any time from September 18, 2019, through June 16, 2025, you are automatically eligible for benefits. You do not need to fill out a claim form.

    Note: if you’d like to update your mailing address or receive an electronic payment, you can do so here.

    What are the terms of the settlement?

    According to the Notice of Settlement:

    Capital One shall pay $300 million, to be used to make pro rata payments to settlement class members relative to the approximate amount of interest each settlement class member would have earned if their 360 Savings account(s) had paid the interest rate then applicable to the 360 Performance Savings account.

    Translation: if you had a Capital One 360 account, you are going to be paid “some” of the interest you were owed.

    The reason I say “some” is because of the word “relative” in the above paragraph from the notice.

    Capital One allegedly cheated customers out of $2 billion in interest. The settlement is for $425 million. Based on that discrepancy, it does not appear we will get all of the interest we are owed.

    Hopefully, I’m wrong about that and we all receive the full interest we are owed.

    Disclaimer: I am not involved in the settlement negotiations and this is not legal advice.

    If you remained a customer, you will receive an additional settlement amount:

    The second component consists of $125 million, which will be paid by Capital One as additional interest payments to settlement class members who continue to maintain 360 Savings accounts (presently approximately 3/4 of the settlement class). In order to accomplish such additional interest payments, Capital One shall maintain an interest rate on the 360 Savings account of at least two times the national average rate for savings deposit accounts as calculated by the FDIC.

    Translation: If you continue to bank with Capital One, you will receive some additional money. How much you’ll get is complicated.

    By the way, I am happy to learn that customers who stayed with Capital One despite its deceptive practices will earn some additional money.

    In the end, regardless of how much we receive, this news makes me very happy.

    I don’t really care about the payment at this point. I’m happy that Capital One isn’t getting away with its deceptive practices.

    And, I’m happy that news of the settlement serves as a good reminder for all of us to evaluate our current banking arrangements.

    Even with the settlement, I still won’t bank with Capital One again. I cancelled my accounts as soon as I learned that the bank was ripping me off.

    Maybe I’m being childish, but I still refuse to give my business to a company that blatantly deceives its long-time customers.

    ATM showing the importance of always evaluating your banking relationship.
    Photo by Johnyvino on Unsplash

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

    The lesson here is that we all need to regularly evaluate our banking relationships. There is no such thing as “set it and forget it” when it comes to our money.

    You could say stories like this are good reminders to regularly think and talk about money.

    The last thing any of us needs is to be tricked by our own banks. The more we talk about what’s going on, the better chance we will catch these schemes before it’s too late.

    The point is: no matter how much you trust your bank, keep an eye on your accounts.

    No, I am not so cynical that I think all banks are out there intentionally ripping us off.

    However, massive scandals like this are not the only red flags to look out for. Banks notoriously have hidden fees and confusing rules.

    If you are not paying attention to your money, you may be unknowingly paying fees or missing out on better opportunities. It’s up to each of us to regularly evaluate whether our bank is continually providing us with the services we need.

    Are you a current or former Capital One customer?

    If this is the first you’re hearing about Capital One’s deceptive practices, will you continue to bank with them?

    Let us know in the comments below.

  • Being Good with Money is About Consistent Choices

    Being Good with Money is About Consistent Choices

    Having taught personal finance to law students and young lawyers since 2021, I’ve picked up on a common theme.

    At the conclusion of class, my students tend to be motivated and excited to get good with money.

    This makes sense because we spend a lot of time thinking and talking about what our ideal lives look like. Then, we learn how to use money as a tool to build those lives.

    In the weeks following class, I usually hear from several students who want to follow-up about topics we cover in class, like side hustles or investing in real estate.

    I’ll meet each student for coffee downtown and give them some feedback on their ideas. I love these money talks over coffee.

    My students’ excitement to take control of their money and their lives is contagious.

    Their excitement rubs off on me. I leave these conversations motivated to check in on my own money strategies and goals.

    When our chat is wrapping up, I always encourage my students to keep me posted on their journeys. I invite them to check-in every few months so I can help keep them accountable and to adjust any plans we’ve put in place.

    Unfortunately, less than 10% of my students ever follow-up after these initial meetings.

    After a while, I figured out what was going on.

    See, every now and then, I’ll run into one of these former students at a lawyer event or hanging around the courthouse. I’ll ask them about work and life and eventually about the money plan we talked about.

    That’s when I usually hear something like, “I’m still thinking about that side hustle. I just put it on the back burner for now. I’m going to do it someday.”

    Do you see the problem?

    As a wise man once taught me, “someday” means “no day.”

    a sign that says today is a goo day meaning that someday is no day.
    Photo by Yuliia Martsynkevych on Unsplash

    Financial freedom is about consistent, intentional choices.

    Ask anyone who has reached true financial freedom how they did it, and you’ll pick up on something right away.

    You’ll quickly realize that people who reach financial freedom got there by making consistent, intentional choices with their money.

    They came up with a plan and they stuck with it.

    They didn’t say “some day.”

    Achieving financial freedom is not about being the highest earner or the best investor.

    It’s about consistency.

    There are endless ways to make money. The same goes for investing that money.

    You can reach financial freedom as a lawyer who invests in index funds.

    Just the same, you can be a consultant who owns rental properties.

    Or, an engineer who buys laundromats.

    The point is the avenue you choose to build wealth is less important than the consistency of your choices.

    For example, if you commit yourself to investing 20% of your salary in index funds, you will be well on your way to financial freedom.

    But, if you can’t follow through on your plan for more than a few months, you’re never going to get there.

    Of course, we’ve all experienced this tendency in various areas of life. The easiest examples to think of relate to fitness and healthy eating.

    How many of us have said we’re going to commit to working out five days a week or eating vegetables every meal, only to give up after a couple months?

    It’s not that we want to give up, just that the rest of life gets in the way. We tell ourselves that we’ll return to healthy living someday, which actually means no day.

    When it comes to your money choices, don’t let the rest of life get in the way. Money is such a powerful tool when wielded properly and consistently.

    Don’t waste this powerful tool.

    To help make consistent choices, think about why money matters.

    To help you make consistent money choices, the first step is to think about a simple and powerful question: why does money matter?

    For me and many others, money is about financial independence, which translates to the power to choose.

    When we have the power to choose, we have the power to live a life that conforms to our personal values. That means we can live on purpose, not on auto-pilot.

    What does it mean to live on purpose?

    It means that we can choose to spend our working hours doing what is meaningful to us. It means we can choose to spend more time with the people who are meaningful to us.

    My favorite part during my personal finance for lawyers class is when my students share their motivations with each other. We all learn so much from these honest conversations.

    It’s why I believe talking about money is so important. We all benefit from knowing that we’re not alone in our money worries. We can be inspired by hearing what our friends want from their money and their lives.

    The more you think and talk about why you want to be good with money, the clearer your motivations will become.

    To help you get started, here are three powerful reasons why I want to be good with money:

    1. Money can give you choices.

    This may seem obvious, but when you have money, you have choices.

    You can choose where to live. You can choose who you work for or can work for yourself. On a daily level, you can choose how you eat, exercise, relax, and travel.

    This holds true whether you make $50,000 or $250,000. Of course, your options may be different. The point is that when you’ve made good money choices, you’ll at least have options.

    2. Money can give you personal power.

    This is another way to say that money gives you control of your life situation.

    If you are in a bad relationship, a bad job, or just need a change, money gives you the personal power to do something about it. When you don’t have money, you may be stuck.

    3. Money can give you time.

    When you have enough money to be truly financially independent, you have earned the freedom to do whatever you want with your time.

    As I mentioned earlier, you can spend your working hours at a job that is meaningful to you. And, you can spend more time with people who are meaningful to you.

    It’s been said many times, “time is our most precious resource.”

    When you have money, you can buy your time back.

    woman in white long sleeve shirt reading book on beach during daytime because she is financially free and bought her time back.
    Photo by Constantin Panagopoulos on Unsplash

    What would you do with financial freedom?

    Years ago, I asked myself this important question. I wrote down my answer and called it my Tiara Goals.

    If you haven’t ever actively thought about what you would do with financial freedom, now’s the time to do so. It is extremely motivating.

    Even when you feel like financial freedom is only a distant dream for you, it’s important to actively think about what you want out of life.

    I’d even suggest that the further away you feel from financial freedom, the more important it is to think about what it would mean for you.

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

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

    Here are my 7 Tiara Goals for Financial Freedom:

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

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

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

    Being consistent means thinking just a little bit about money every week.

    My goal is to help you think even a little bit about your money choices every week. That way, your money life remains in balance with the rest of your life, and you can continually evolve and adapt your choices as your life changes.

    I want to encourage you to think, and to talk, and to choose. If all I do is help you and your loved ones think more purposefully about your money, Think and Talk Money will be a success. 

    Maybe your goal is also financial independence, or the power to choose and to live on purpose.

    Maybe it’s something else entirely. Whatever it is, discovering your motivation is the crucial first step. 

    It’s so important that I’ll encourage you to think about that motivation every week.

    I’ve learned that money is something that we all need to think about as a regular part of our lives. Not that we should only think about money. Or that we need to obsess over money. Simply that we can’t ignore money. 

    How sad is it when we realize our hard earned money has just vanished? That at the end of each month, we have less money?

    If this sounds familiar, you’re not alone. There are a lot of smart people who need somewhere to turn learn about money. Or, maybe just a reminder to actively think about their money. 

    You don’t have to struggle with making continuous money choices alone.

    Most of us could use someone to talk to or something to read to help us learn about personal finance.

    I hope Think and Talk Money can be that place for you.

    I can’t, and won’t, tell you what to do with your money. It’s your life, after all. But, I will strive to help you think and talk with purpose about your money.

    The basic money concepts are easy enough to understand. Consistently making good choices is hard. 

    Most of us could ace a quiz that asked, “Is it a good idea to spend more money than you earn every month and plummet deeper and deeper into debt?”

    Knowing what to do is not the same as actually doing it. Remember, someday is no day.

    That’s why it helps to not be afraid to talk about money. For some reason, most of us choose to deal with money on our own. I’d like to change that.

    There’s a stigma that we shouldn’t talk about money. I’d like to change that, too.

    That way, we all have a better chance of making intentional, consistent choices with our money.

    Have you been excited about money in the past only to lose that excitement not long after?

    Have you tried talking about money with your friends and family to help you stay motivated? If not, what is holding you back?

    Let us know in the comments below.

  • Fix Your Personal Finances Before Investing in Real Estate

    Fix Your Personal Finances Before Investing in Real Estate

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

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

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

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

    My students are first annoyed that I ignored their question about real estate. They didn’t come to me to talk about something boring, like budgeting. They want to know about the exciting stuff, like becoming a real estate investor.

    What I’ve noticed is that after this initial annoyance fades away, another form of annoyance sets in. My students get annoyed because they can’t actually answer the question.

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

    That’s a problem.

    @thinkandtalkmoney

    Investing in real estate means running a business. Money comes in and money goes out. To be successful, you have to make sure that more money comes in than goes out. The same logic applies to your personal budget: if you want to get ahead in life, more money needs to come in than goes out. #thinkandtalkmoney #realestateinvesting #realestateinvestor #personalfinance

    ♬ original sound – Thinkandtalkmoney

    Not having a personal budget is a problem for anyone who wants to be a successful real estate investor.

    Investing in real estate means running a business. Money comes in and money goes out. To be successful, you have to make sure that more money comes in than goes out.

    This is obvious stuff, right?

    The same logic applies to your personal budget: if you want to get ahead in life, more money needs to come in than goes out.

    The problem is most people have a hard enough time managing their personal finances. How are they going to handle managing business finances?

    That’s why I ask my students, “If you haven’t mastered this idea with your personal budget, are you sure you want to take on the stress and risk of an investment property?”

    It would be much easier to simply invest in an index fund, like VTSAX. At least in that case, you don’t have to manage a business budget. You just have to do your best to constantly add money to your investment account.

    It’s usually around this point when my students start nodding in understanding.

    Before investing in real estate, make sure your personal finances are in order.

    My goal here is not to dissuade you from investing in real estate. I am a big proponent of rental property investing.

    I’ve said it before: I think every professional or lawyer can benefit from owning rental properties.

    My only goal is to help you avoid the mistakes that crush so many beginner real estate investors. One of the biggest mistakes I see is people taking on a major financial commitment (and time commitment) without starting from a strong foundation.

    If you’ve been following along on the blog, you likely noticed the progression in topics we’ve covered.

    You’ll see links to each one of these topics featured on the top of the Think and Talk Money homepage:

    We initially covered each of those topics in order from top to bottom. First, we talked extensively about the mental side of money. Without having your money mindset in the right place, nothing else matters.

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

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

    There’s a reason we’ve covered these topics in this order.

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

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

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

    A woman holding a jar with savings written on it suggesting you need to get your personal finances in order before investing in real estate.
    Photo by Towfiqu barbhuiya on Unsplash

    Why bother with real estate if any profits are just going to disappear?

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

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

    I never want to see people take on the challenge of investing in real estate just to have any profits disappear because they don’t have a strong personal finance foundation in place.

    Imagine someone does the work to find and sustain a good rental property that generates $1,000 per month in cash flow.

    It’s not easy to earn that much. It takes time and effort, not to mention the risk involved.

    If that same person blows the $1,000 he earned on things he doesn’t care about, what was the point?

    Why take on the risk and do the work if the money will all be gone by the end of the month?

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

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

    That means sticking to a budget that consistently moves you closer to living freely on your terms.

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

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

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

    To me, this is one of the most important money mistakes that we need to fix right away. We definitely need to fix it before we take a chance on investing in real estate.

    If not, you’ll just be making the same mistakes, just with more money to lose.

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

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

    You need to have a budget.

    If you don’t currently have a budget that results in excess money at the end of each month, I encourage you to start there before thinking bout real estate.

    How to create a Budget After Thinking.

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

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

    1. Now Money

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

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

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

    2. Life Money

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

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

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

    3. Later Money

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

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

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

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

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

    black smartphone calculator showing the number 0 indicating how to budget with two simples numbers before investing in real estate.
    Photo by Kelly Sikkema on Unsplash

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

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

    Before you think about investing in real estate, make sure that your personal finances are in order.

    Owning rental properties means running a business. When the money comes in, you want to make sure it doesn’t go right out.

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

    To prevent that from happening, establish good money habits before you buy real estate.

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

    For any real estate investors out there, did you jump in before establishing strong personal money habits first?

    What advice would you have for beginners thinking about investing in real estate?

    Let us know in the comments below.

  • Is There Value in Keeping Both of Our Sapphire Reserves?

    Is There Value in Keeping Both of Our Sapphire Reserves?

    I recently posted about the major overhaul to Chase’s popular luxury credit card, the Sapphire Reserve. The change catching most people’s attention is the higher annual fee.

    I wrote that even with the increased annual fee, I am keeping the Sapphire Reserve in my wallet.

    I heard from a number of readers who also decided to keep the card despite the increased annual fee.

    Just as good, I heard from some readers who applied for the Sapphire Reserve for the first time after reading my post.

    I love hearing these types of comments from readers. Keep ’em coming!

    Today, I want to share my thoughts on another question that came from multiple readers. The question goes something like this:

    My spouse and I both have our own, separate Sapphire Reserve accounts from before we were married. With the higher annual fee, we are wondering if it makes sense to keep both accounts open.

    If we closed one account, we could then add that person as an authorized user on the other account.

    What do you think?

    This is a great question because there’s lots to think and talk about.

    Besides maximizing credit card value and minimizing fees, this question also touches on how couples manage their finances together.

    While that is an incredibly important conversation, we’ll have to leave it for another day. Today, I’ll simply highlight some of the relevant considerations.

    Finally, I love this question because it’s a good reminder that talking about money is not taboo. We all benefit when we discuss how to use money as a tool that works for us, not the other way around.

    Let’s get to it.

    What changed with the Sapphire Reserve?

    The Sapphire Reserve now comes with an annual fee of $795 (up from $550). That is the highest annual fee in the luxury credit card market.

    On top of that, the fee for authorized users increased from $75 to $195.

    In its press release announcing the revamped card, Chase advertised $2,700 in annual value for cardmembers. 

    Compared to an annual fee of $795, that sounds like a whole lot of value.

    The problem is it takes effort to receive all that value. More than effort, it takes spending. This can get complicated, even with only one card. With two cards, it can be even more challenging.

    For a complete description of all of the potential benefits, you can visit the Sapphire Reserve website.

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

    This is a good place to emphasize the first rule of responsible credit card usage: 

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

    The Sapphire Reserve is no exception to this rule, regardless of whether you have one or two cards in your household.

    Before we go further, it’s important to understand what it means to be an authorized user.

    What is an authorized user on a credit card?

    An authorized user is someone added to the primary account holder’s credit card account. Authorized users typically include spouses, partners or children of the primary cardholder.

    The authorized user gets his own physical card, but all spending is tracked on the primary account holder’s account.

    Importantly, that means that the primary account holder remains responsible for all payments.

    That also means the primary account holder receives all the points earned when the authorized user makes a purchase.

    Break time with aerial view of two people hugging and talking about whether to keep two Chase Sapphire Reserve credit cards.
    Photo by Guilherme Stecanella on Unsplash

    With cards like the Sapphire Reserve, the authorized user gets most of the same perks and benefits as the primary cardholder. Most notably, that includes lounge access and other travel perks.

    Not all credit cards offer the same perks for authorized users. Be sure to understand the rules about authorized users for any card you are considering.

    Before you add an authorized user to your account, make sure you understand that you are 100% responsible for that person’s spending.

    On the flip side, before you become an authorized user, understand that all of your points earned will go the primary account holder.

    If either of these restrictions are enough to give you pause about adding or becoming an authorized user, there’s no need read any further.

    You should continue to have separate credit card accounts.

    And, you should review my post to help you decide whether the Sapphire Reserve is right for each of you on an individual basis.

    If you have no problems with adding somebody as an authorized user, read on to find out whether it makes sense in your situation.

    What is the actual cost difference for adding an authorized user instead of keeping our accounts separate?

    Assuming you are OK with adding or becoming an authorized user, let’s look at what the actual cost is compared to keeping your accounts separate.

    Here are the options for couples that currently have two Sapphire Reserve accounts:

    • Option 1: Keep both accounts open and pay $1,590 in annual fees.
    • Option 2: Close one account, add an authorized user to the open account, and pay $990 in annual fees.

    Note: while you don’t have to add an authorized user to your account, I’m assuming you’re reading this post because you are considering it.

    If you stopped your analysis here, you’d see that there is a $600 difference if the couple keeps both Sapphire Reserve accounts open.

    That’s a lot of money and may lead you to think cancelling one of the cards is the easy decision.

    However, just like we explored in my post on why I’m keeping the Sapphire Reserve, there are ways to offset and reduce the annual fee.

    You can check out my post if you’re curious how I evaluate and use credit cards.

    For today’s purposes, remember that the Sapphire Reserve offers a $300 annual travel credit. The credit gets automatically applied whenever you make a qualifying travel purchase.

    It’s safe to assume that anyone willing to pay $795 for a luxury travel card is going to spend at least $300 per year on travel.

    The same assumption goes for couples thinking about keeping two Sapphire Reserve cards: they are going to spend at least $600 on travel between the two of them each year.

    Applying the $300 travel credit, the total cost for each scenario drops as follows:

    • Option 1: Keep both accounts open and pay $990 in total fees. (Each account holder receives a $300 travel credit, reducing the total cost by $600.)
    • Option 2: Close one account, add an authorized user, and pay $690 in annual fees.

    So, the real question becomes: is it worth an extra $300 annually to keep both Sapphire Reserve accounts open?

    When the extra cost of keeping both cards drops from $600 to $300, the decision gets a bit tougher.

    You may still be thinking that $300 is too much money to spend each year to have two of the same cards in your household.

    Personally, I agree with you.

    Below, I’ll show you what my wife and I do instead of having two Sapphire Reserve cards.

    However, there are some reasons why it may be beneficial for couples to keep both cards. Let’s look at those reasons now.

    Why it might make sense for couples to have two Sapphire Reserve credit cards.

    Here are some of the main reasons why it would make sense for a couple to keep two Sapphire Reserve cards.

    Trust issues. The bottom line is some couples just don’t trust each other when it comes to spending and paying bills. There’s no shame in that. It’s just a reality.

    Like we discussed above, if you find yourself in this situation, it doesn’t make sense to add or become an authorized user. The potential downsides, resentment, and arguments outweigh the $300 in annual savings.

    Accounting challenges. When you add an authorized user, all purchases get tracked together on the primary cardholder’s account. If it’s important for you to know who is making each purchase, this can be an accounting nightmare.

    Plus, some couples maintain separate bank accounts and pay bills separately. Having all credit card purchases appear on only one person’s account makes it more difficult to figure out who should pay for what.

    This shot was taken during a roadtrip with a couple of friends in the Dolomites. This pretty much sums up the lovely adventures we had over there – just us (and some beers) in the mountains for one week. Although it is just a snapshot, it captures a true, precious moment of togetherness and friendship, made possible by using Chase Sapphire Reserve.
    Photo by Felix Rostig on Unsplash

    Business expenses. It’s also not uncommon for lawyers and professionals to use their Sapphire Reserve cards for business purposes and then get reimbursed by their employers.

    If that’s the case, it may not make sense for you to blend personal and business expenses on one card. You could use one Sapphire Reserve strictly for business purposes and the other for personal expenses.

    Impact on your Credit History. You may not want to close your account because of the potential impact it will have on your credit history. This is particularly important if your Sapphire Reserve is the card you’ve had for the longest time.

    While this is a valid concern, there are ways to close your account without having any impact on your credit history whatsoever.

    The best thing to do before you close your account is to transfer your available credit line to one of Chase’s other credit cards, like the Freedom Unlimited.

    The Freedom Unlimited is the only other credit card I keep in my wallet.

    There is no annual fee with the Freedom Unlimited, and it’s the perfect compliment to the Sapphire Reserve.

    If you need help with this part, reach out to me on Instagram or LinkedIn, and I’ll walk you through the exact steps.

    Sign-up Bonuses and Credits. If you are thinking about getting a Sapphire Reserve, now is the time to do it. Chase is offering its biggest sign-up bonus ever: 125,000 points for new applicants.

    Using The Points Guy’s valuation, 125,000 points are currently worth $2,562.50.

    Combined with some of these other reasons, these bonus points might make this decision a no-brainer.

    Besides the sign-up bonus, the Sapphire Reserve comes with a number of other credits and benefits valued at $2,700 annually.

    For a complete description of all of the potential benefits, you can visit the Sapphire Reserve website.

    If you and your spouse or partner will independently take advantage of all these perks, then it could be worth it to keep both cards.

    In the end, if any one of the above applies to your situation, it may make sense to keep two Sapphire Reserve cards despite the extra $300 annual cost.

    My wife and I used to have two Sapphire Reserve cards.

    There was a time in my life when I had 10 different credit cards because I wanted to maximize the points I earned on every purchase.

    My wife and I each had Sapphire Reserve cards, too.

    We did earn a lot of points. But, it was so stressful.

    Keeping track of what card to use for every single purchase was complicated. Making sure we paid off each card every month was even harder. In the end, it wasn’t worth it.

    We now keep things simple, and I recommend most people do the same.

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

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

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

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

    Together, we still earn plenty of points and our finances are much simpler.

    I prefer to have two different cards that offer distinct but complimentary benefits.

    If your household is going to keep multiple cards, I suggest having different cards instead of doubling up on the same one. That’s true whether you combine accounts or keep them separate.

    That way, you can reap a more diverse set of benefits for a comparable cost.

    If you go this route, it’s helpful to keep your credit cards within the same bank (i.e. stick with Chase or stick with American Express) so you can combine points and accumulate rewards faster.

    Even if the Freedom Unlimited doesn’t appeal to you, I’d suggest looking at other credit cards within the Chase portfolio that earn Ultimate Rewards points.

    For example, my wife and I have the Chase Ink Business Unlimited and the Chase Ink Business Cash for our various rental property businesses.

    Each card earns Ultimate Rewards points that we can combine with our Sapphire Reserve.

    Let us know in the comments below how you view having two of the same cards in your household.

    As always, reach out if I can be of any assistance.

  • How to Prioritize Investment Account Types While in Debt

    How to Prioritize Investment Account Types While in Debt

    Recently, we’ve been talking about some tricky money questions related to investing.

    We first looked at whether it makes sense to invest while you’re in debt.

    We then looked at whether to prioritize investing for retirement or for your kid’s college.

    These are questions that commonly come up when I’m teaching law students and young lawyers. Of course, these questions are best answered when we consider both the emotions and the math of money.

    Today, we’ll look at a third question that comes up regularly:

    How should you prioritize certain investment account types, especially if you’re still paying off debt?

    @thinkandtalkmoney

    Airport walks ✈️💭 401k? Roth IRA? Savings? Debt? Don’t know how to prioritize where to put your money first? I break it down here: https://thinkandtalkmoney.com/how-to-prioritize-investment-account-types-while-in-debt/ #thinkandtalkmoney #401k #rothira #savings #debt #financialfreedom

    ♬ original sound – Thinkandtalkmoney

    This is another great question.

    If you’re wondering what I mean by different investment account types, you can read about my four favorite account types here.

    Below are my thoughts on how I would choose between different investment account types while paying off debt.

    Let me know if you agree or would prioritize a different order in the comments below.

    1. Invest just enough to qualify for your employer match.

    Your first goal should be to invest enough in your 401(k) plan to qualify for the employer match.

    Many employers today offer a match to incentive employees to contribute to their 401(k) plans. To qualify for the match, you must be participating in your company’s plan and make contributions yourself.

    The match is usually a percentage of your overall salary, usually between 3% and 6%. 

    For example, let’s say your salary is $100,000 and your employer offers to match your contributions up to 5% of your salary.

    That means if you contribute $5,000 (5% of your salary), your employer will contribute an additional $5,000 (5% match) to your account.

    In other words, your $5,000 automatically turns into $10,000.

    Think about that for a moment.

    That’s a guaranteed 100% return on your contribution. You put in $5,000 and you automatically get another $5,000. You won’t find a guaranteed return like that anywhere else.

    That’s why if your company offers a match, it’s a no-brainer to take advantage of that match.

    For this reason, an employer match is often described as “free money.”

    I don’t like the term “free money” because it implies that you have not earned that money as an employee for your company. I prefer to refer to the company match as a bonus you’ve rightfully earned. 

    The key is to accept that earned bonus by ensuring you are meeting the minimum requirements to qualify.

    Whether you think of it as free money or as a bonus you’ve earned, make sure you contribute enough to your 401(k) plan to qualify for the employer match.

    2. Pay off all credit card debt.

    After you hit the employer match, and before you think about further investments, you should pay off all credit card debt.

    Note that credit card debt is in a category of its own because of the extremely high interest rates that accompany credit cards.

    Currently, the average credit card interest rate is 20.12%.

    The S&P 500 has historically averaged a 10% annual return.

    That gap is so large that it’s a good idea to pay off your credit card debt before turning to further investments.

    Think about it like this: with credit card debt, you are guaranteed to pay a penalty of around 20% until you pay off that debt. When investing, you can reasonably hope to earn around 10% interest.

    Because the penalty you’re paying is twice the rate you’re hoping to earn, the smart move is to eliminate that penalty.

    For help on paying off your credit card debt, check out my top 10 tips here.

    Why not pay off your credit card debt entirely before investing in your 401(k)?

    You may be wondering why I recommend qualifying for your employer match before paying off credit card.

    Even with such high credit card interest rates, there’s a good reason to prioritize qualifying for your employer match. We touched on that reason above.

    Let’s revisit our example. With an employer match, if you contribute $5,000, your employer will also contribute $5,000.

    As we said, that’s like earning a 100% guaranteed return on your money. A 100% guaranteed return is too good to pass up.

    No other reasonable investment option offers a 100% guaranteed rate of return. You can’t even reasonably hope to match the 20% penalty that credit card companies charge.

    That’s why eliminating your credit card debt should be your next priority after receiving your employer match.

    3. Allocate 75% of available funds to other loans and 25% to investments.

    Once you have paid off your credit card debt, I recommend putting 75% of your available funds to loans and 25% to other investments.

    When I say loans, I am referring to student loans, personal loans, lines of credit, and HELOCs. Note, I am not referring to primary mortgage debt.

    It’s not uncommon for law students to have hundreds of thousands of dollars in debt. The same is true for students in medical school and business school.

    It’s not just people with student loan debt who face this question. As one example, perhaps you’ve used a HELOC to buy investment property, like I have.

    There’s a reason credit card debt is in a separate category from other loans, like student loans and HELOCs.

    Unlike credit card debt, student loan debt and HELOC debt typically come with lower interest rates.

    The current lowest federal student loan interest rate is 6.53%.

    The current average HELOC interest rate is 8.27%.

    Your loans may have even lower interest rates. Regardless, the odds are that your interest rate is below the historical 10% average annual return of the S&P 500.

    While it’s never a bad idea to eliminate debt, there are some good reasons why you should invest even though you’re in debt.

    We explored these reasons and why I recommend a 75/25 ratio in my recent post on investing while in debt:

    A Tricky Money Question: Should You Invest While in Debt?

    If you’re on board with investing while paying off debt, the question becomes: where should you invest that money?

    That brings us to my next suggestion.

    4. Max out your 401(k) plan.

    Once you reach this step, you should have no credit card debt. You should also be applying either the 75/25 ratio to invest while you’re in debt, or have no other debt to pay off.

    At this point, I suggest maxing out your 401(k) with your remaining available funds.

    The reason I suggest maxing out your 401(k) is because these contributions are made with pre-tax dollars. In other words, you get a tax break today by investing in your 401(k).

    To put it another way, you will save money on taxes every year you contribute to your 401(k) plan.

    Don’t sleep on the impact of taxes on our money decisions. Over the long term, taxes can be hard to predict, but they should not be ignored.

    changed priorities ahead illustrating the options you have as an investor with different account types.
    Photo by Ch_pski on Unsplash

    Nobody really knows what taxes are going to be like in the future. Yes, it’s a safe assumption that taxes will keep going up.

    But, taxes have always been complicated. I’m guessing they will always be complicated. Even if taxes generally go up, there’s no telling the exact impact taxes will have on your personal situation.

    That’s why I prefer to take the guaranteed tax savings now. I’m ok with the possibility of paying more in taxes decades from now. That’s especially true because I have plenty of good uses for those tax savings right now.

    That’s why I recommend maxing out your 401(k) before moving on to my final suggestion.

    5. Max out your HSA, Roth IRA and 529 plan.

    Once you reach this step, you’re in great shape. Reaching this point means you have maxed out your 401(k) plan, which means you’re receiving an employer match.

    It means you have no credit card debt. On top of that, you are paying down your other loans with a 75/25 ratio or have eliminated those loans entirely.

    Now, you have options. You’ve earned the right to choose the best investment account type for your situation.

    Besides a 401(k), my other favorite account types are a Roth IRA, a Health Savings Account (HSA), and a 529 account.

    You can read all about my favorite investment account types in this recent post:

    My 4 Favorite Investment Accounts for Long-term Wealth

    Depending on your income, a Roth IRA may be the best account type for additional retirement savings.

    If you’re healthy and can cover certain medical expenses, maybe you would benefit from an HSA.

    Have kids and worried about paying for college? Maybe a 529 plan is right for you.

    The point is you’ve earned the right to pick the best investment accounts for your present situation.

    You really can’t go wrong with any of these choices.

    What do you think of this plan to prioritize certain investment accounts while in debt?

    What do you think about this plan to prioritize certain investment account types, especially if you’re still paying off debt?

    Let us know in the comments below.

    If you’ve already made it to step 5 and are looking for help with what to do next, the truth is that you have too many options to cover in this post.

    To help you start thinking about your choices, you could:

    • Invest in a traditional brokerage account;
    • Invest in real estate; or
    • Pay down your primary mortgage.

    If you’ve already made it to step 5, reach out and I’d be happy to help you think and talk about your options.

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

  • Money on My Mind: Bears, Net Worth and Exercise

    Money on My Mind: Bears, Net Worth and Exercise

    On my journey to financial freedom, I’m consistently striving to learn as much as I can from others who have done it before me.

    This week, I read a few great blog posts from some of my favorite authors and bloggers.

    Let’s take a look and see what we can learn together.

    What to do in a bear market.

    JL Collins recently posted about the big mistake that people make during bear markets. A bear market is when the stock market drops by 20%.

    Collins is one of my favorite authors on investing. He just released the new edition to his best-selling book, The Simple Path to Wealth.

    I highly recommend you pick up a copy if you are interested in learning the easy way to invest and grow your net worth.

    You can read my full review of The Simple Path to Wealth in my post here.

    Back to the question at hand:

    As an investor, what should you do during a bear market?

    Nothing!

    Easier said than done, right?

    Human instinct is to act. Our natural instinct tells us to do something when confronted with danger. We’ve all heard the saying, “fight or flight.” It’s our body’s way of protecting us from potential harm.

    For example, if you encounter a bear in the woods, despite what survival experts may tell you, I’m betting you’re running for your life in the opposite direction.

    That’s exactly what my wife and I did when we saw a black bear in Colorado a couple summers ago.

    Even though we were at least 100 yards away when we saw the bear, and the bear was walking away from us, we ran in the opposite direction as fast as we could.

    Survival experts, we are not.

    Doing nothing in a bear market is easier said than done, like not running away from a black bear when you see one on the trail up ahead.

    If you zoom in (and squint), you can see the ferocious beast in this picture.

    When it comes to investing, the saying should be modified to include a third option: “fight or flight or do nothing.”

    And as JL points out, doing nothing is usually the best decision.

    When the market drops, you have the chance to buy stocks at a discount. Whenever the market bounces back, you will benefit from all those discounted stocks you purchased.

    Of course, nobody knows when the market will bounce back. For that matter, nobody knows when it’s going to drop, either. However, history has shown us that the market has always recovered.

    What if the market doesn’t recover?

    Then, we all have bigger problems to worry about than our money.

    It may take a long time for the market to recover. That’s OK. When you invest early and often, time is on your side.

    By combining time and the courage to do nothing, you will benefit immensely in the long run.

    The Rise of Middle Class Multi-Millionaires

    Another one of my favorite authors and bloggers, Financial Samurai, recently posted about the rise of middle class, multi-millionaires.

    If you haven’t picked up a copy of his new book, Millionaire Milestones, I highly recommend it. I recently ranked it as one of my favorite money mindset books.

    You can read my full review of Millionaire Milestones here.

    In his post on middle class multi-millionaires, Financial Samurai raises a great point:

    How come people are so enthralled by high incomes instead of high net worths?

    Like me, have you wondered why people tend to be more interested in someone’s salary rather than his net worth?

    I have one theory for why society continues to value income more than net worth: income can be more easily measured and more easily used for marketing purposes.

    To put it another way: income is sexier than net worth.

    One example I thought of: remember when you applied to college, grad school, law school, etc.?

    Did you notice how schools commonly advertise the average or median income of their graduates. Schools love to show off that if you go to their school, you’ll make a certain amount of money upon graduating. 

    However, you’ll never see data on the net worth of its graduates.

    Why is that?

    Because an impressive net worths can take decades of discipline to manifest. That type of slow progress doesn’t make for sexy marketing for schools.

    Plus, a top flight education may help you earn a high income but doesn’t guarantee a high net worth. Many high earners are also high spenders. You’d be surprised how many people are good at making money but not keeping it.

    It’s up to each of us to turn that income into a high net worth. Again, that’s harder for schools to market.

    If you are a personal finance enthusiast, you know to value net worth more than income. In fact, the most impressive feat of all is when you have a high net worth on just a standard income.

    For my kids, I’d be way more impressed to see what schools crank out students with high net worths 20-30 years after graduation instead of the median income upon graduation.

    To learn how and why to track your net worth, you can read my post here.

    Does early retirement negatively impact your life expectancy?

    I read a fascinating post on Early Retirement Now that looked at the potential consequences of someone’s life expectancy based on when that person retires.

    There has been a lot of academic research done on the topic. Somewhat surprisingly, there are studies that indicate retiring early may negatively impact your life expectancy.

    Check out the post on Early Retirement Now for a closer look at some of these studies.

    I’m not too worried about the conclusions about life expectancy based on when someone retires. At best, there are conflicting studies on that question.

    Rather, what I found most interesting about the post was that I’ve rarely thought about the potential health consequences about retiring early.

    I regularly think about the mental side of retiring early. Specifically, how does someone keep his mind sharp in early retirement?

    This is one of the main reasons I believe in FIPE not FIRE.

    However, I’ve never really thought about the physical effects of retiring early.

    Does retiring early negatively impact your physical health?

    I may have mistakenly assumed that someone’s physical health would automatically peak in early retirement. I’ve based that assumption on the idea that you’ll have so much time to exercise and eat right when you don’t have to worry about a job.

    In other words, if you’re not spending 50+ hours per week sitting at a desk, there would be no excuse to skip out on exercising regularly and preparing healthy meals at home.

    This post has me thinking about other factors I’ve failed to consider.

    For one, your body may trend towards lethargy if you’re not forced to wake up, get dressed and work 50+ hours per week. Plus, as much as people may not like commuting, at least it gets you out of the house and moving around.

    My takeaway is that if you’re considering retiring early, be sure to plan ahead for physical activity as much as mental activity.

    Your body may not want to exercise every day. You may need a motivational boost from group exercise classes or clubs. Maybe you’ll need a personal trainer or coach.

    If you don’t currently have any hobbies tied to physical activity, I would suggest exploring different options before you leave full-time employment. It may take some time to find your groove with an activity or two that interests you.

    Let us know what you think about these posts.

    What do you think about these posts from popular personal finance writers?

    • Are you brave enough to do nothing in the face of a bear?
    • Have you been tricked into thinking a high income is more impressive than a high net worth?
    • What are your thoughts about the physical side of retiring early?

    Let us know in the comments below.

  • How to Think About Investing While in Debt

    How to Think About Investing While in Debt

    One of the most difficult money decisions people have to make is whether to invest while in debt. That’s because it can be challenging to plan for the future while worrying about past debts.

    It’s also a tough decision because we know two things to be true at once:

    Debt can be bad.

    Investing can be good.

    So, should we focus on eliminating the bad thing or doing more of the good thing?

    You can see why it’s a tricky question.

    The way I see it?

    You don’t have to choose only one door to walk through.

    You can invest while in debt.

    I regularly get questions like this from law students who take my personal finance class. People just starting out in their careers are rightfully thinking about whether they should invest while paying off student loan debt.

    It’s not uncommon for law students to have hundreds of thousands of dollars in debt. The same is true for students in medical school and business school. The question about investing or paying off debt makes perfect sense.

    It’s not just people with student loan debt who face this question. Perhaps you’ve used a HELOC to buy investment property like I have. Maybe you have mortgage debt, medical debt, or consumer debt.

    The choice to pay down debt or invest for the future is tricky.

    Whatever the case may be, the choice to pay down debt faster or invest for the future is tricky.

    For people feeling the heavy burden of debt, the idea of investing for some future goal can seem a little bit comical. I completely understand.

    If you’re facing monthly debt payments for the next 10 years, you may not be ready to think about retirement 50 years from now.

    Trust me, I get it.

    I know firsthand how heavy debt can feel.

    In my 20s, I had both student loan debt and credit card debt. It was not fun to carry that debt burden. I’ll never forget the incredible feeling of accomplishment when I paid off those debts. I felt so much lighter. 

    I now have HELOC debt that I’m focused on paying off. That HELOC debt stems from buying five properties in seven years. My real estate portfolio is now exactly where I want it to be, so I’ve shifted from acquisition mode to debt-reduction mode.

    Just about every day, I think about how good it’s going to feel to have that HELOC debt paid off.

    The point is: you don’t have to convince me why you may want to focus on paying off debt. I understand completely.

    However, I think it’s worth considering the advantages of investing at the same time you’re paying off debt. You don’t have to go all-in on paying off debt or all-in on investing. You can strike a balance.

    In today’s post, I’ll share my perspective to help you think about the right balance between debt reduction and investing.

    Four main reasons to invest while in debt.

    There are four main reasons to consider when thinking about whether you should invest even though you’re in debt. If you’re not investing at all because you’re focused on debt, these four reasons should give you something to think about.

    Muir Woods trails illustrating the tricky choice between investing and paying off debt.
    Photo by Caleb Jones on Unsplash

    1. Invest while in debt because of the emotions of money. 

    It feels good to see your investment accounts grow. This is especially true when you are accustomed to looking at huge debt balances on your laptop or phone screen.

    Yes, it feels good to see those debt balances shrink. It also feels really good to see your investment accounts grow.

    As a professional, you work hard for your money. You spend a lot of hours away from home so you can work and make a living. You deserve to experience the fruits of your labor.

    When your career is stressing you out, it can be very uplifting to observe a growing investment account balance month-to-month.

    2. Invest while in debt to develop the habit.

    It’s important to get in the habit of investing as early as possible in your careers. Once you start investing, even if it’s only $25 per month, you are creating a habit. This is the type of habit that will pay off immensely in the long run.

    Humans have a tendency to resist change. That’s why it’s difficult to break bad habits. This tendency also works in our favor when we have established good habits, like investing. We tend to just keep doing what we’ve always done.

    When you’ve established the good habit of investing, it’s easy to increase your contributions as you earn more money. The same is true when you’ve eliminated all your debt. You can easily use the money you had been putting towards debt for your already-established investments.

    That’s because your accounts will already be set up. All you need to do is increase your monthly investment contributions.

    This makes it easier to solidify and benefit from the good habit you’ve cultivated.

    3. Invest while in debt because of compound interest.

    Compound interest is the most powerful force in all of personal finance. The earlier you start investing, the more benefit you’ll get from compound interest.

    You can check out more about the power of compound interest in my post on investing early and often.

    Even investing a small amount of money while paying off debt will lead to massive gains over the long term because of compound interest.

    4. Invest while in debt because of the math.

    Even though money decisions are closely connected to our emotions, the math of investing can be hard to ignore. If you prefer to make money decisions primarily based on the math, here’s what you can do.

    We’ve talked before about how the S&P 500 has historically earned an average annual return of 10%. Of course, there’s no guarantee that you will earn 10% if you invest. You may earn less or you may earn more. Still, based on the historical data, it’s a reasonable estimate.

    You can then compare that 10% return to the amount you’re paying in debt interest.

    Close up of man hand using calculator to figure out whether to invest while in debt.
    Photo by Towfiqu barbhuiya on Unsplash

    For example, let’s say you have student loan debt. In this example, let’s also assume you’ve created an extra $200 in your monthly budget to allocate towards either debt or retirement.

    You’ll next want to look up your current student loan interest rates. For illustration purposes, the current interest rate for undergraduate federal loans is 6.53%. The current interest rate for graduate and professional students is 8.08%.

    Then, you can use an online calculator to help make your decision about whether to invest the $200 or put that money to debt.

    If you put the money to debt, you’ll obviously pay off that debt faster. You can read more about how to easily do these calculations in my post on Debt Snowball vs. Avalanche.

    Likewise, you can use an investment calculator to see how much that $200 will grow in an investment account over the long run. You can see how to do these calculations in my post on risk as the cost to invest.

    Armed with the math, you can then make a decision that makes the most sense to you.

    You may value getting out of debt faster. Or, you may be motivated by the larger balance in your retirement account.

    It may come down to how high the interest rate is on your student loans. The higher your interest rate is, the more sense it makes to prioritize paying off that loan.

    The point is that there are mathematical reasons to start investing even while paying off debt.

    One final note about the math: your student loan interest rate is effectively locked in (unless you have a variable rate). On the other hand, your investment return rate is only a projection. That makes a difference.

    It means that when you are in debt, you are guaranteed to be charged interest every month. In contrast, there are no guarantees you will make money when you invest. As you make your decisions, don’t ignore this key difference.

    I prefer to allocate 75% to debt and 25% to investments.

    When you consider these four main reasons, you may be convinced that it makes sense to invest even while paying off debt. 

    So, the obvious next question becomes: how much money should you put towards debt and how much should you invest?

    The ratio that works for me is 75% towards debt and 25% towards investment goals. In other words, if I had $1,000 to allocate in my budget for debt and investments, I would use $750 for debt and $250 for investments.

    I used this ratio when I had student loan debt and continue to use it to eliminate my HELOC debt.

    You can read more about my primary goal of paying off HELOC debt in 2025 in my post on money and cheeseburgers:

    Great Talk: Money and Cheeseburgers

    This 75-25 ratio gives me the dual benefit of paying off my debt faster while also seeing my investment accounts grow over time. Once my debts are paid off, I will have already established the good habit of investing. In the meantime, I’m currently benefitting from compound interest and the math of investment returns.

    The reason I lean more towards debt is because I don’t like the feeling of being weighed down by debt. It’s hard to feel completely free when you are carrying the burden of debt. That’s why I am currently prioritizing paying off HELOC debt.

    That said, I’m not willing to entirely delay investing for the future. The 75-25 ratio is a good balance for me and helps me accomplish multiple goals.

    75-25 has worked well for me. Having reached my 40s, I’m very happy that I did not neglect my investments entirely while dealing with debt.

    Don’t agonize about finding the perfect ratio between debt and investments.

    Whatever balance works for you, keep one important tip in mind:

    Don’t agonize about finding the perfect balance between debt reduction and investing for the future.

    Take a step back and think about it for a moment:

    Paying off debt is great.

    Investing for the future is also great.

    If you’re doing both of these things in some fashion, you’re already making great money choices!

    If you’re able to pay off debt and invest at the same time, you most likely have already created a successful Budget After Thinking. You have proven that you can stay disciplined enough to allocate funds to your Later Money goals each month.

    You have already done the hardest part.

    I consider this whole conversation of putting money towards debt or investments a win-win decision. There’s no reason to stress yourself out in search of the perfect balance. You’re already winning.

    Find a balance between debt and investments that works for you and stick to it. You really can’t go wrong. Either way, you are making progress on your money goals.  

    Some day in the future your debt will be paid off. 

    The bottom line is, one way or the other, you are going to pay off your debt. That’s assuming you are a reasonably responsible person on a typical career trajectory.

    If you have student loans, it might feel like you will never get out of debt. I assure you that you will.

    To put it in perspective, if you are on a standard repayment plan, you’ll be debt-free in 10 years. For most students, that equates to being debt-free sometime in your 30s.

    My guess is that by the time you retire, you won’t even remember how much debt you had or exactly when you paid it off. The only reason I remember when I paid off my debt is because I’ve been keeping a money journal since 2011.

    On the other hand, towards the end of your career, you will very much be aware of how much money you have saved for retirement. You will be counting on that money to allow you to step away from full-time employment.

    If you’ve figured out your magic retirement number, you’ll know how long you can sustain yourself on your retirement savings. 

    As hard as it is to do when you’re in debt, try and picture that older version of yourself who is nearing retirement. That older version of yourself will be very grateful that you had the discipline to start investing even while paying off debt.

    That’s why I allocate 75% of my available funds to debt and 25% to investments. When my debt is gone, I’ll put the full 100% to investments.

    • So, what do you think?
    • Are you currently investing while paying off debt?
    • What other factors went into your decision besides the four main reasons discussed above?

    Let us know in the comments below.

  • What is the Best Money Mindset Book?

    What is the Best Money Mindset Book?

    On my journey to financial independence, I’ve read close to 100 personal finance books. My favorite books motivate me to think about the relationship between life and money. I think of this type of book as a “money mindset book.”

    @thinkandtalkmoney

    What is your favorite money mindset book? If you need a summer read, I rank my top eight here: https://thinkandtalkmoney.com/best-money-mindset-book-my-8-favorite-picks/ #thinkandtalkmoney#moneymindset #summerreads #personalfinance

    ♬ original sound – Thinkandtalkmoney

    In today’s post, I’ll show you my nine favorite money mindset books. These books share a common theme: they will inspire you to use money to build a life that you’re proud of.

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

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

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

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

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

    As a personal finance teacher, I can also share these lessons with my students.

    And, that brings us to my favorite money mindset books.

    Each one of these books has helped me develop my core life philosophies. Importantly, these books have helped me acquire and use money in alignment with those core beliefs.

    Of course, when I review my Tiara Goals for Financial Freedom, I can feel the influence of each of these books on my most important values.

    I recommend that you check out each of these money mindset books. You will learn not just how to acquire money, but also how to use that money to live your best life.

    Let’s take a look at my favorites, in no particular order.

    1. Rich Dad Poor Dad by Robert Kiyosaki

    There’s a reason Rich Dad Poor Dad is the best selling personal finance book of all time. Its message is so powerful and simple that I’ve been recommending this money mindset book for years.

    If you read Rich Dad Poor Dad, your entire money mindset will be changed. Kiyosaki brilliantly shares the stories he learned about money while growing up in Hawaii.

    His Rich Dad was really his best friend’s dad, who was a very successful real estate investor and business owner. His Poor Dad was his actual dad, a highly educated and hardworking man who followed a traditional career path.

    Using these two role models in his life, he makes a very compelling case that most of us go about life and money all wrong.

    This is the money mindset book you want to start with.

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

    2. The Psychology of Money by Morgan Housel

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

    Money is emotional.

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

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

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

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

    3. Think and Grow Rich by Napoleon Hill

    Think and Grow Rich is another classic money mindset book that will shift your entire viewpoint on earning a living.

    I first read this money mindset book in college when I learned my friend’s dad offered him $50 if he read this book.

    $50 to read a book?

    I needed to see what this book was all about.

    At the time, I didn’t appreciate how much this money mindset book would change my life.

    Originally published in 1937 and later updated, Think and Grow Rich, will convince you that you can be successful.

    Initially, Hill studied innovators like Henry Ford and Thomas Edison. In the updated version, you’ll learn about modern figures like Bill Gates and Mary Kay Ash.

    Books on a brown wooden shelf, which includes a money mindset book to help learn about the balance between life and money.
    Photo by Susan Q Yin on Unsplash

    Hill’s book is so good because of what he reveals about these legendary figures.

    The secret?

    There was nothing mystical about any of them. Before they became legends, they were just like you and me.

    You can be successful in any walk of life if you just stop sleepwalking through life like everyone else and do something.

    Read Think and Grow Rich. This money mindset book will motivate you to do that thing you’ve been saying you would do, but haven’t yet.

    4. The Richest Man in Babylon by George S. Clason

    The Richest Man in Babylon is a third classic money mindset book originally published nearly 100 years ago.

    This book is a quick read. It’s ideal for anyone still not convinced that they have to pay attention to their personal finances.

    Clason wrote a simple collection of fables set in the ancient city of Babylon. Each fable illustrates the importance of a key money habit, like saving and investing.

    Through his stories, you’ll see how you can get ahead in life by practicing strong financial habits.

    It’s not enough to just be good at making money. You need to be good at keeping that money, too.

    Read The Richest Man in Babylon. This money mindset book will introduce you to the building blocks of a healthy financial life.

    5. Your Money or Your Life by Vicki Robin and Joe Dominguez

    Your Money or Your Life is the complete package when it comes to money mindset books.

    Vicki Robin and Joe Dominguez are often credited for laying the groundwork for the Financial Independence Retire Early (FIRE) movement.

    While I prefer the term Financial Independence Pivot Early (FIPE), I share their viewpoints on the relationship between money, work, and time.

    Spoiler alert: when it comes to life and money, most of us are doing it all wrong. We chase money at the cost of our precious time.

    First, you’ll learn to think of money as nothing more than a tool to build your ideal life. Next, you’ll learn how to specifically use that tool to achieve financial independence.

    Read Your Money or Your Life. This money mindset book will motivate you to start valuing your time for what it’s really worth.

    6. The Millionaire Next Door by Thomas Stanley and William Danko

    It can be difficult to ignore the temptation to keep up with our neighbors. Whether we like it or not, we are concerned with our social status. Part of our self-worth gets tied to comparing ourselves to others.

    One of my favorite money mindset books, The Millionaire Next Door, discusses this concept in detail.

    To start, you need to adjust your perception of how real life millionaires behave.

    You may be surprised to learn how most millionaires have made their fortunes. Also, you may be surprised to learn about their modest lifestyles.

    Read The Millionaire Next Door. This money mindset book will help you if you’re struggling with comparing yourself to others.

    7. Die with Zero by Bill Perkins

    No money mindset book has led to more passionate conversations with my friends and family members than Die with Zero.

    First, Perkins encourages us to think about whether we are working too many hours. In Perkins’ view, the problem is that we are sacrificing the best years of our lives. Instead, we could be creating lifelong memories.

    In that same vein, Perkins makes a strong case that many of us are saving too much for retirement.

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

    Read Die With Zero. This money mindset book will motivate you to book that vacation you’ve been putting off.

    8. Millionaire Milestones by Sam Dogen

    In Millionaire Milestones, Dogen covers his journey from finance bro in New York in his 20s to present day life as a writer, investor, and husband and father.

    What separates Millionaire Milestones from other personal finance books is that Dogen’s still on his journey.

    Girl reading a money mindset book to learn about the balance between life and money.
    Photo by Joel Muniz on Unsplash

    He’s not a newbie, and he’s not preaching from the rocking chair on his patio.

    Dogen’s presently raising kids. He’s focused on his website and his investments. Like you and me, he can relate to the present day challenges of personal finance because he’s still on his journey.

    You can read my full review of Millionaire Milestones in my separate post here.

    Read Millionaire Milestones. This money mindset book is the Goldilocks of personal finance books.

    9. The Simple Path to Wealth by JL Collins

    The Simple Path to Wealth by JL Collins is the best money mindset book on investing I’ve ever read.

    It is a must-read for anyone trying to figure out why and how to invest in the stock market.

    If you’re a new investor and don’t understand how to invest in the stock market, Collins will set you on your way.

    If you’re a seasoned investor unsure what to do in times of economic uncertainty, Collins is here to help. 

    Maybe you just need a bit of motivation or a reminder of how simple it is to build long-term wealth. There’s no one better than Collins to provide that pep talk.

    Collins is sometimes described as “the Godfather of Financial Independence” in the personal finance community. He has a popular blog where you can read more about his story.

    The short version is that he wrote a series of letters to his then teenage daughter about money, investing, and life. He wanted to impart the wisdom he had accumulated during his lifetime and help her avoid the mistakes he had made.

    Those letters eventually led to his blog, which then led to his bestselling book, The Simple Path to Wealth, first released in 2015.

    Since then, Collins has been a thought-leaders in the financial independence community. He has inspired thousands, if not millions, of people around the world to accumulate massive wealth by following a few simple rules. 

    What makes Collins so transformative is his ability to make seemingly complex topics (like investing) into easily digestible and actionable information.

    If you have any intention of becoming financially independent and haven’t read The Simple Path to Wealth, now is the time to do so.

    I’ve read his book cover-to-cover twice and constantly refer back to his lessons.

    Each time I read his book, I’m reminded how simple it is to reach financial independence if I can just follow a few simple tips.

    You can read my full review of The Simple Path to Wealth in my post here.

    Read The Simple Path to Wealth. It is quite simply the best money mindset book on investing I’ve ever read.

    What is your favorite money mindset book?

    So, these are the money mindset books that I recommend most often.

    Wherever you are on your personal finance journey, there is something for everyone in one of these books.

    If you have read some of these money mindset books in the past, I suggest you read them again. As our lives and priorities change, so does our relationship with money.

    You’ll get something new and different from reading these books again. Personally, I didn’t fully appreciate these money mindset books until I was years into my career and knew what it felt like to work for money.

    • Have you read these money mindset books?
    • What money mindset books am I missing?

    Let us know in the comments below.

  • Why Target Date Funds: The Easy Way to Invest

    Why Target Date Funds: The Easy Way to Invest

    Don’t be fooled. The easiest option can also be the best option.

    You already know I’m a big fan of making things easy, especially investing.

    And, there is no better example of making things easy than investing in target date funds.

    Maybe we’ve been brainwashed into thinking that the harder something is, the better it is. Of course, there’s that often-repeated phrase, “If it were easy, everybody would do it.”

    We’ve been programmed into thinking that “hard work” automatically means “better results.”

    I certainly agree that hard work pays off when it comes to things like career and exercise.

    As another example, baking cinnamon rolls comes to mind. With cinnamon rolls, the harder way is probably also the better way.

    My daughter and I bake pre-made cinnamon rolls every week. We have fun with it and it’s quick and easy.

    She loves how they taste, so that’s all that really matters. But, they don’t come close to tasting as good as homemade cinnamon rolls, which are certainly harder to make.

    So in the context of cinnamon rolls, I think “harder” does mean “better.”

    On the other hand, I don’t agree that investing has to be hard. I don’t believe that just because something is easy, it must not be that good.

    And, that brings us to target date funds.

    There’s nothing easier than investing in target date funds.

    My wife and I have been investing in target date funds for years. Target date funds have been both easy and effective for us.

    That’s important because we’re also at the stage in our lives where we are trying to make things easier, not harder.

    The idea behind target date funds is that your portfolio automatically rebalances as you move closer to your predetermined life event, like retirement or your kid’s college start date.

    That means over time, your target date fund will gradually become more conservative to protect all the money you had saved and earned over the years. It typically does so by reducing exposure to stocks and increasing exposure to safer assets, like bonds.

    You do not have to do a thing. 

    It simply cannot get any easier than this.

    Today, we’ll take a closer look at how target date funds work. The goal is to help you make an informed decision on whether they are the best option for your situation.

    Before we jump in, if you need a refresher on some key investment terminology, check out my post on the language of investing:

    Learn the Language to Make Investing Easier

    What are target date funds?

    Target date funds are a form of mutual fund. When you invest in target date funds, you are essentially getting a complete portfolio in a single fund.

    Target date funds are typically comprised of broad stock index funds and bond index funds.

    That is one of the keys to remember about target date funds. They automatically provide investors with strong diversification and optimal asset allocation based on their chosen time horizon.

    Target date funds are ideal for long-term investment goals. They are designed to help you manage risk as you move closer to your pre-determined goal.

    Typically, target date funds invest more heavily in stocks in the early years in an effort to earn greater returns. As you move closer to your pre-determined goal, the fund will automatically shift to buying safer assets, like bonds.

    What types of investments are typically in target date funds?

    Most target date funds are made up of index funds. That means that when you buy a target date fund, you are getting exposure to a wide variety of stocks and bonds through index funds.

    An index fund is a type of mutual fund that seeks to track the returns of a market index, like the S&P 500 Index.

    As explained by Vanguard:

    An index mutual fund or ETF (exchange-traded fund) tracks the performance of a specific market benchmark—or “index,” like the popular S&P 500 Index—as closely as possible. That’s why you may hear people refer to indexing as a “passive” investment strategy.

    Instead of hand-selecting which stocks or bonds the fund will hold, the fund’s manager buys all (or a representative sample) of the stocks or bonds in the index it tracks.

    It’s very hard, even for professionals, to beat the returns of the S&P 500. Historically, the S&P 500 has averaged an annual return of 10%.

    Hit your Target by investing in target date funds, whether that target is saving for retirement or something else, like your child's college.
    Photo by Artur Matosyan on Unsplash

    I Invest in target date funds because they give me a great chance to match those historical average returns without any effort on my part.

    What are the advantages of investing in target date funds?

    Target date funds share the same benefits as investing in index funds. That’s because, as we just discussed, most target date funds are comprised of index funds.

    In addition to the benefits of index funds, target date funds offer one additional major benefit we’ll discuss below.

    By the way, you already know 7 things I love about index funds:

    1. Anybody can do it
    2. No wasted mental energy
    3. Low fees
    4. Automatic diversification
    5. The closest thing to predictability
    6. I don’t have stock FOMO
    7. Good enough for Buffett, good enough for me

    For a more in depth look, check out my post here:

    7 Things I Love About Index Funds

    Target date funds automatically rebalance

    In addition to sharing the 7 benefits of index funds, target date funds offer one additional, major benefit:

    automatic rebalancing

    Importantly, target date funds automatically rebalance to continuously maintain your optimal mix of stocks and bonds.

    That means as time goes on, you don’t have to worry about rebalancing on your own. That’s one less stressor on your plate.

    What do I mean by rebalancing?

    Let’s say an investor’s optimal asset allocation is 50% stocks and 50% bonds. After a year of impressive stock market growth, this investor’s portfolio now consists of 60% stocks and 40% bonds. That’s because his stocks increased in value at a greater rate than his bonds.

    As a result, he’s now weighted more heavily in stocks than his optimal asset allocation. To rebalance his portfolio, he could take a variety of steps. He could sell some stocks or purchase more bonds to get back to where he wants to be.

    With target date funds, he would not have to worry about this situation. That’s because target date funds automatically rebalance for you.

    That’s a big load off an investor’s plate. It’s the main reason why I like investing in target date funds.

    Target date fund or build your own?

    After you open an investment account, you can select a combination of index funds on your own or choose a target date fund.

    There’s nothing wrong with buying index funds on your own instead of through a target date fund.

    You will actually save money on fees if you go that route, but not very much.

    For example, the popular Vanguard Total Stock Market Index Fund (VTSAX) charges a fee of .04%.

    Vanguard’s Target Retirement 2065 Fund presently charges a fee of .08%.

    Just remember to rebalance your portfolio from time-to-time to stay within your preferred asset allocation.

    If you don’t want that added responsibility, you can invest in a target date fund that automatically chooses the index funds for you.

    Then, the target date fund will automatically rebalance your portfolio over time to maintain an optimal balance of stocks and bonds.

    As you saw above, you will pay slightly more in fees for the added convenience. To me, that extra .04% in fees is absolutely worth it.

    In the end, both options are good ones.

    Investing with target date funds is the easiest choice.

    How can you invest in a target date fund?

    Most employer-sponsored retirement plans, like 401(k) plans, now offer target date funds. In fact, target date funds are usually the default investment option for new plan participants.

    You can also invest in a target date fund outside of your employer-sponsored plan. Most major investment companies offer target date funds in a variety of account types.

    In addition to retirement accounts and traditional brokerage accounts, 529 college savings plan providers usually offer target date funds based on when your child will start college.

    If you’re curious about my favorite investment account types, you can read more here:

    My 4 Favorite Investment Accounts

    Regardless of the account type, the process for selecting the right target date fund is the same.

    Generally, you’ll see various target date fund options based on your personal time horizon.

    For example, if you are currently 25-years-old and plan to retire in 40 years, you would select the target date fund corresponding to 2065. This fund will automatically rebalance as your career progresses towards that retirement date.

    Typically, there are target date funds offered in 5-year intervals. Choose the one closest to your preferred retirement year, even if there isn’t one that matches your exact year.

    The same concept applies to a 529 college savings plan. If you have a newborn, like I do, you would select the plan that corresponds with your child starting college around 2043.

    After you make this one decision, there’s nothing more to do it.

    Your focus should be on adding as much money to that account as possible without worrying about things like rebalancing.

    I personally invest in target date funds.

    My wife and I invest in multiple target date funds. We have various target date funds for our retirement savings and for our kids’ college education.

    At this stage in our lives, we’ve placed a premium on doing things the easy way.

    We have full-time jobs as attorneys, manage our own rental properties, and have three kids at home. The last thing we need is to add more complication to our lives.

    Our personal accounts are with Vanguard, which has long been known as an investor-friendly company that prioritizes low fees.

    Why target date funds?

    Just because something is easy doesn’t make it wrong.

    Investing in target date funds is as easy as it gets. By taking the easy option, you can have exposure to a broad range of index funds that automatically rebalances over time.

    Are you doing things the easy way?

    If you’re a busy professional like I am, don’t sleep on target date funds.

    You’ll always have people that look down upon target date funds as too basic. Ignore them. Let them stress about picking the next hot stock, rebalancing, and timing the market.

    • So, are you doing things the easy way? Are you a target date fund investor?
    • Do you agree that target date funds are an easy and effective way to invest for the long term?
    • Has anyone ever looked down on you for investing in target date funds?

    Let us know in the comments below.

  • My 4 Favorite Investment Accounts for Long-term Wealth

    My 4 Favorite Investment Accounts for Long-term Wealth

    We recently talked about that to start investing, there are really only two main steps: 

    • Step 1: Open an account.
    • Step 2: Pick the investments for inside that account.

    Today, we’ll discuss my four favorite investment accounts. These accounts are all tax-advantaged and match my evolving priorities, like saving for retirement and paying for college.

    To help explain why you may want different investment accounts, I’ll show you how I went from a single account in my 20s to 14 investment accounts today.

    Even if you’re just starting out in your career or new to investing, it’s likely that you’ll eventually have multiple types of investment accounts.

    You’ll almost certainly have different goals and priorities as life moves on.

    Before you do anything else, you’ll need to decide what type of investment account matches your investment goals. As we’ll see, investing is about more than just saving for retirement.

    By understanding the type of accounts to use that match your evolving priorities, you’ll have a better chance of reaching your goals.

    Let’s begin by looking at how my investment accounts have changed from the time I started investing in my 20s to the present day.

    My investment accounts in my 20s.

    When I started working in my 20s, I had one investment account:

    1. My 401(k).

    In my 20s, I was just starting my career and was proud to be investing in a 401(k). Back then, tracking my net worth was pretty easy.

    Part of the reason I only had one investment account was because I didn’t really know there were other types of accounts.

    It wasn’t until I prioritized learning about personal finance that I realized what else was out there.

    Quick side note: during law school, I did have a traditional brokerage account with a financial advisor. But, I closed that account when I learned we had set $93,000 on fire.

    There were two other main reasons I only had one investment account back then.

    First, I had student loan debt to pay off. I didn’t exactly have the means to invest in other accounts.

    If you’re in a similar boat and have student loan debt, be sure to check out my post:

    10 Student Loan Tips for Lawyers and Professionals

    Second, in addition to student loan debt, I also had credit card debt.

    It was only after a year of working and seeing my credit card debt grow each month that I decided to do something about it. In a lot of ways, my experience with credit card debt is what led me to start Think and Talk Money.

    If you’re likewise dealing with credit card debt, check out my post:

    10 Credit Card Tips for Lawyers and Professionals

    As time went on, a few things happened that led me to opening more investment accounts.

    First, I educated myself and learned that there were other investment accounts I could take advantage of.

    Then, as my career progressed, I started making more money. Because I had paid off my student loan debt and credit card debt, I had money leftover to invest.

    Finally, I got married and had kids. That meant my investment goals evolved.

    To match my evolving goals, it was beneficial to open different types of investment accounts.

    My investment accounts at age 40.

    Fast forward about 15 years, and my family’s balance sheet looks a little bit different than it did in my 20s.

    Between my wife, our three kids, and me, we now have 14 investment accounts:

    1. My 401(k)
    2. Wife’s 457(b)
    3. Wife’s Roth IRA
    4. My Roth IRA
    5. Wife’s Traditional IRA
    6. Wife’s Pension
    7. Daughter’s UTMA
    8. Son’s UTMA
    9. Baby’s UTMA
    10. Daughter’s 529
    11. Son’s 529
    12. Baby’s 529
    13. HSA
    14. Traditional Brokerage Account
    Just like life gets more complicated, your investment account lineup also gets more complicated as you make more money and have a family, which is why these are my 4 favorite investment accounts..
    Photo by MIGUEL GASCOJ on Unsplash

    The point in sharing my various account types with you is to give you an idea of how your investment priorities will change over time.

    The most savvy investors know how to match their investment accounts to those changing priorities.

    With this context in mind, let’s now take a closer look at my four favorite investment account types that help me maximize tax benefits.

    With these tax-advantaged accounts, I have a better chance of reaching financial freedom.

    Favorite Account No. 1: 401(k)

    A 401(k) is likely the first investment account most people will have.

    401(k) plans are employer-sponsored retirement plans. Employees can elect to participate in their company’s 401(k) plan and choose from a variety of investment options, usually mutual funds and index funds.

    There are four major reasons to invest in a 401(k) plan.

    1. You can invest with pre-tax dollars.

    That means more of your money gets invested rather than going towards your taxes. When you have more money invested, you can earn more in returns.

    2. Your contributions are automatic.

    Once enrolled, your employer will automatically deduct money from your paycheck and invest it directly into your investment selections.

    Because the money never hits your checking account, you won’t be tempted to spend it on things you don’t really care about. You’ll be used to living without this money because it never hits your account.

    You also don’t have to worry about consistently making transfers into your account because it will happen automatically.

    3. Your earnings grow tax-free.

    In addition to not being taxed on your contributions, you also won’t be taxed on your earnings. That’s a double tax advantage that acts to magnify the power of compound interest. You will be taxed when you make withdrawals.

    4. Your employer may offer a match.

    Many employers today offer a match to incentive employees to contribute to their 401(k) plans. To qualify for the match, you must be participating in your company’s plan and make contributions yourself. The match is usually a percentage of your overall salary, usually between 3-6%.

    For example, if you contribute 5% of your salary, your company may match you with an additional 5% contribution.

    If your company offers a match, it’s a no-brainer to take advantage of that match. It’s often described as “free money.”

    I don’t like the term “free money” because it implies that you have not earned that money as an employee for your company. I prefer to refer to the company match as a bonus you’ve rightfully earned.

    The key is to accept that earned bonus by ensuring you are meeting the minimum requirements to qualify.

    401(k) Contribution Limits and Penalties

    Keep in mind there are annual limits to how much you can contribute to your 401(k) plan. The IRS regularly increases the contribution limits. In 2025, you may contribute up to $23,500.

    If you are between the ages of 50 and 59, or 64 or older, you may contribute an extra $7,500 per year. If you are between the ages of 60 and 63, you may be eligible to contribute up to $11,250.

    Also, remember that 401(k) plans are intended for retirement savings. To discourage early withdrawals, a 10% penalty on top of regular income taxes apply to people under the age of 59 ½.

    Because of these contribution limits, early withdrawal penalties, or other strategic reasons, you may benefit from another type of investment account.

    Let’s look at our next popular type of investment account called a Roth IRA.

    Favorite Account No. 2: Roth IRA.

    A Roth IRA is another type of retirement investment account that also provides double tax benefits.

    Unlike a 401(k), you make after-tax contributions to your Roth IRA. Your earnings then grow-tax free, and your withdrawals are tax-free.

    Another major advantage is that you can withdraw your contributions tax-free and penalty-free at any time.

    There are penalties if you make withdrawals from your earnings before the age of 59 1/2.

    Roth IRA Contribution and Income Limits.

    Because of the amazing tax advantages associated with Roth IRAs, there are income limits that apply. In 2025, individuals must have a Modified Adjusted Gross Income (MAGI) of less than $150,000, and joint filers less than $236,000.

    On top of the income limits, there are annual contribution limits, as well. In 2025, the contribution limits are $7,000 if you’re under age 50, and $8,000 if you’re over age 50.

    Why think about opening a Roth IRA?

    For many investors, it’s not a bad idea to consider opening a Roth IRA in addition to your 401(k).

    For starters, we mentioned the contribution limits to each account. You may need more money in retirement than just what your 401(k) plan will provide.

    For another reason, 401(k) plans and Roth IRAs are treated differently from a tax perspective. It may be wise to have some tax-free income in retirement from a Roth IRA to go along with your taxable income from a 401(k).

    You can open a Roth IRA with any number of investment companies, like Vanguard, Fidelity, and Charles Schwab.

    Favorite Account No. 3: Health Savings Account (HSA)

    A Health Savings Account (HSA) is another tax-advantaged account that you can use to pay for eligible medical expenses.

    HSAs are linked to employer-sponsored health insurance plans. Oftentimes, employers will make an annual contribution to help fund your HSA.

    Physical examination by a Children's Doctor. Teddy's medical check up, illustrating that years from now you can use your HSA to reimburse yourself for prior medical expenses after benefiting from triple tax benefits.
    Photo by Derek Finch on Unsplash

    One of the trade-offs to having an HSA is that you’ll need to enroll in a high deductible insurance plan. You are still covered by insurance, but you’ll pay more out-of-pocket each year for medical treatment.

    But, if you’re relatively healthy and/or have the means to pay for your present day medical care, you stand to benefit immensely down the road.

    That’s because you can choose to invest your HSA contributions just like you might invest in a 401(k) plan. 

    If you do so, your contributions, earnings, and withdrawals are all tax-free if you follow some basic rules.

    Because of these triple tax benefits, HSAs are my absolute favorite investment account.

    Remember, 401(k) plans and Roth IRAs only offer double tax benefits. HSAs are even better because they offer triple tax benefits.

    What are the key rules to follow with HSAs?

    To get the triple tax benefits, you need to follow some basic rules.

    One of the key rules is that you must use your withdrawals for eligible medical expenses. The good news is that “eligible medical expenses” is a very broadly defined term.

    You can take a look here for a comprehensive list of eligible medical expenses. Some examples include prescriptions, contact lenses, and flu shots.

    Another key rule to know is that there are no time limits for when you have to use your HSA funds. As long as you keep your receipts, you can reimburse yourself for eligible medical expenses years, or even decades, later.

    If you put these two rules together, you’ll see why HSAs are so beneficial.

    As long as you have the means to pay out-of-pocket for your current medical expenses, you can allow your pre-tax HSA investments to grow tax free for years.

    That means you can take advantage of the magic of compound interest for decades, tax-free.

    Then, years later, you can withdraw those funds to reimburse yourself for eligible medical expenses you paid for years prior.

    HSA contribution limits.

    Like 401(k) plans and Roth IRAs, there are annual contribution limits for HSAs.

    In 2025, the contribution limit for an individual with self-coverage is $4,300 and $8,550 for family coverage.

    Favorite Account No. 4: 529 College Savings Plan

    529 college savings plans are state-sponsored, tax-advantaged investment accounts.

    While there are certainly other ways to save for college, 529 plans are hard to beat because they typically offer triple tax benefits.

    To read more, check out my in-depth post on 529 Plans for Sky High College Costs:

    529 Plans for Sky High College Costs

    What do you think of my 4 favorite investment accounts?

    There are certainly others, but these are my 4 favorite investment account types. Each comes with tax advantages that will help me reach financial freedom sooner.

    As your life and priorities change, you may also benefit from opening multiple investment account types.

    So, what do you think of my four favorite investment accounts?

    Did I miss any?

    Let us know in the comments below.

  • What is Your Magic Retirement Number?

    What is Your Magic Retirement Number?

    Have you thought about your number recently?

    According to a recent study by Northwestern Mutual, Americans expect they will need $1.26 million to retire comfortably.

    When you first hear that retirement number of $1.26M, does that sound impossibly high? Does it sound way too low?

    Or, maybe your reaction was like what my five-year-old says when questioned about who made the mess:

    “No clue.”

    I think it’s safe to say that, at some point, most professionals accept that they need to save for retirement. Hopefully, you are in that group and have been investing early and often.

    However, I suspect most people have never thought about how much they’ll actually need to retire comfortably. That’s understandable since retirement can seem like such a far-off goal.

    Still, it’s a good idea to start thinking about how much you’ll need to retire comfortably. We’ll refer to that amount as your magic retirement number.

    That way, you can start taking the necessary steps today to reach that magic retirement number.

    Today, we’ll learn how to calculate your magic retirement number.

    So, how do I figure out my magic retirement number?

    To answer that question, let’s turn to the “4% Rule.”

    The 4% Rule is one of the most popular ways in the personal finance community to ballpark how much money you’ll need in retirement.

    Of course, your personal answer depends on a variety of factors, like when you want to retire and how much you expect to spend in retirement.

    You can imagine how someone hoping to achieve FIPE (Financial Independence Pivot Early) may require a different amount than some retiring in his 70s.

    Your answer may also change after reading a book like Die with Zero, where author Bill Perkins brilliantly argues that most of us are actually saving too much for retirement.

    In any event, the 4% Rule can give you a good idea of where you currently are. Then, you can decide what changes you may want to make to ensure you hit your magic number.

    Let’s dive in.

    What is the 4% Rule?

    The 4% Rule suggests that you can safely withdraw 4% of your investments each year, adjusted for inflation, and expect your money to last for 30 years.

    Without getting too technical, the 4% Rule is based off of research looking at historical investment gains, inflation, and other variables.

    For simplicity, let’s say you have $1 million in your portfolio. According to the 4% Rule, you can safely withdraw $40,000 per year (4% of your portfolio) and not run out of money for 30 years.

    Using the magic retirement number of $1.26 million, you could safely withdraw $50,400 and not run out of money for 30 years.

    These simple examples show how you can take your current retirement savings and project how much you can safely spend so your money lasts 30 years.

    The 4% Rule also works in reverse.

    By that, I mean you can use the 4% Rule to ballpark how much money you’ll need in retirement to maintain your current lifestyle. We’ll look at exactly how to do that below.

    In either case, the 4% Rule is an effective and easy way to start thinking about a magic retirement number.

    Use the 4% Rule as an easy projection tool, not an actual withdrawal rate.

    I view the 4% Rule as a tool to ballpark your magic number, as opposed to a strict withdrawal rate once you actually retire.

    I point that out because there’s some debate in the personal finance community as to whether 4% is still a safe withdrawal rate in today’s economic environment.

    For our purposes, I’m not too concerned about that debate.

    Once you get to retirement, your actual withdrawal rate may be higher or lower than 4% depending on a variety of factors.

    Regardless, the 4% Rule is a great way to start thinking about how much you’ll need in retirement.

    So, let’s practice using the 4% Rule.

    Our goal is to help you project a magic retirement number based on your current spending habits.

    How to use the 4% Rule based on your current savings.

    We mentioned above that the 4% Rule works two ways.

    First, you can take your current retirement savings and calculate how much you can safely spend so your money lasts 30 years.

    If you have $1 million invested, the 4% Rule says you can safely spend $40,000 annually and expect your money to last 30 years.

    Current Savings x 4% (.04) = Annual Retirement Spending

    $1,000,000 x .04 =$40,000.00

    That’s a useful calculation, especially if you’re nearing retirement age and just want to know how much you can spend each year.

    The 4% Rule works two ways, meaning you can calculate how much you can spend in retirement based off of your current savings or you can reverse it and calculate how much you need to maintain your current spending levels.
    Photo by Hugo Delauney on Unsplash

    But, what if you don’t exactly know when you want to retire?

    Your main priority may not be to retire by a certain age. Instead, your aim may be to retire with enough money to maintain your current lifestyle. You’re determined to continue working for as long as it takes.

    To calculate that magic retirement number, you can once again use the 4% Rule.

    How to use the 4% Rule based on your current spending habits.

    The second way to use the 4% Rule is to start with your current spending habits to project how much money you’ll need to maintain that level of spending in retirement.

    This may seem obvious, but to do so, you’ll first need to know your current spending habits.

    If you don’t know how much you’re currently spending on a monthly basis, take a look at our budgeting series here.

    The good news is that once you’ve created a Budget After Thinking, this next part is easy.

    To calculate your magic retirement number based on current spending, simply follow these steps:

    1. Add up the amount your’re spending each month in Now Money and Life Money.
    2. Take that number and multiply it by 12 to see how much your lifestyle costs per year.
    3. Divide that yearly spending by .04

    That’s your magic retirement number.

    Current Spending / 4% (.04) = Magic Retirement Number

    One note related to your Budget After Thinking: for this exercise, ignore your Later Money (with one caveat). Only use your Now Money and Life Money totals.

    The reason is that since you’re retiring, you likely won’t be focused on saving for future goals anymore. Presumably, you’ve already reached your goals. If you include your Later Money in your monthly spending, you’re magic retirement number will be artificially inflated.

    The caveat is for those people pursuing FIPE. In that case, you should include your Later Money in your calculations. That way, you have a buffer in place to cover you over a longer retirement period.

    Now, let’s use some real numbers to help illustrate how to use the 4% Rule to project your magic retirement number.

    Here’s how to use the 4% Rule to forecast your magic retirement number.

    Let’s look at an example using the 4% Rule to forecast your magic retirement number.

    Let’s say that you reviewed your Budget After Thinking and learned that you spend $6,000 per month in Now Money and $4,000 per month in Life Money.

    Combined, that means your lifestyle costs you $10,000 per month, or $120,000 per year.

    To figure out how much you would need in investments to cover your current lifestyle for 30 years, divide $120,000 by .04.

    Current Spending / 4% (.04) = Magic Retirement Number

    $120,000 / .04 =$3,000,000.00.

    That means to maintain your current lifestyle of spending $120,000 per year for 30 years, you would need $3 million in investments.

    In other words, your magic retirement number is $3 million.

    If that number seems impossibly high to you, you now know to make some adjustments to your current spending.

    Let’s look at how your magic number changes with some tweaks to your spending habits.

    Assume you’re open to cutting some expenses in retirement to reduce your magic number. That might mean spending less money on transportation, meals out, your wardrobe, and whatever else.

    Let’s assume that by making those cuts, you shaved $1,000 off your Now Money expenses.

    As a result, you only need $9,000 to cover your retirement lifestyle each month. That’s $108,000 per year.

    Using the 4% Rule, your magic retirement number has now shrunk to $2.7 million.

    $108,000 / .04 =$2,700,000.00.

    That means that by reducing your spending by $1,000 per month, you have reduced your magic retirement number by $300,000.

    It also means you have just sped up your timeline to retirement by reducing your lifestyle expenses.

    A surprising note about people’s magic retirement number in 2025.

    At the beginning of this post, we learned that according to a recent study by Northwestern Mutual, Americans expect they will need $1.26 million to retire comfortably.

    What’s most interesting to me is that this year’s magic retirement number dropped from $1.46 million reported in the same study just last year.

    Think about that for a minute.

    Because of inflation (and now tariffs), things are only getting more expensive year over year. If anything, you would think that people would say they need more money to retire comfortably in today’s enviornment.

    Except, the study found the opposite happened. Instead of wanting more money to pay for all these more expensive things, people think they can retire comfortably on nearly 14% less money.

    How does that make any sense?

    For starters, I doubt many of these respondents used the 4% Rule to project their magic retirement number based on their current spending habits.

    If they had, they would have seen that their spending has likely gone up this year, unless they’ve made big cutbacks. Then, they would have seen that their magic retirement number also went up to account for those higher expenses.

    Besides ignoring the 4% Rule, my other takeaway relates to one of our major themes at Think and Talk Money:

    Money is emotional.

    If our money thoughts were strictly rational, there would be no way that someone could say he needs less money to survive when everything is more expensive.

    The reality is that our decisions don’t always make rational sense.

    And, that’s OK.

    Recognizing that our money decisions are not always rational, what can we do about it?

    We can think and talk about money.

    Talking to our people about our money decisions, like we would anything else, is the best way to find a balance between our emotional side and our rational side.

    So, what is your magic retirement number?

    Now you know how to use the 4% Rule to calculate your magic retirement number.

    Be sure to use the 4% Rule as a tool to help you think about making adjustments to your current spending or savings habits.

    Knowing how to use the 4% Rule, does a magic number of $1.26 million seem too high, too low, or maybe just right?

    Let us know in the comments.

  • 2 Easy Steps to Start Investing for Long-Term Wealth

    2 Easy Steps to Start Investing for Long-Term Wealth

    By now, I hope I’ve begun to convince you that investing is actually the easy part. The more challenging part is consistently coming up with money for your investments.

    If you’ve been worried about the risks associated with investing, we covered that, too. At the end of the day, reasonable risk is the cost to invest.

    Because of inflation, the reality is that it’s more risky to not invest than it is to invest. Take a look at what happened to our pretend friend Terry who chose to play it safe.

    At a bare minimum, investing is a way to play offense and defense. Investing to do fun things later on is playing offense. Investing to counteract inflation is playing defense.

    We’ve also previously covered three great ways to minimize investment risk:

    1. Invest early and often. Take advantage of the power of compound interest by starting early and being consistent. Over time, compound interest will lead to wealth.
    2. Minimize fees. One of the few things we can control when we invest is what we choose to pay in fees. Keep fees to a minimum to maximize your long term gains. Even a fee of only 1% can do significant damage to your future prosperity.
    3. Learn the language. Investing can seem intimidating when you hear phrases like “asset allocation” and “diversification.” Once you learn the language, you’ll realize that practicing asset allocation and diversification is actually not that hard.

    With this backdrop in mind, there should be no more excuses for why you can’t start investing.

    So today, we’re going to talk about the two main steps to get started investing.

    How to start investing in 2 steps.

    If you’ve never invested before, are you nervous about how complicated the process is going to be?

    Don’t be.

    To start investing, there are really only two main steps involved.

    • Step 1: Open an account.
    • Step 2: Pick the investments for inside that account.

    There really isn’t much more to it.

    But, don’t forget to complete both steps.

    Step 1: Open an account.

    The first step to investing is simply to open an account.

    There are endless investment companies available where you can easily open an account online. Some of the more popular companies are Vanguard, Fidelity, and Charles Schwab.

    I personally use Vanguard.

    Once you’ve chosen an investment company, you’ll next select the type of investment account to open.

    There are two main types of investment accounts and some other popular accounts I’ll highlight below.

    Before you do anything else, you’ll need to decide what type of account matches your investment goals. Once you know the type of account that best suits you, you will need to open that account before moving on to step 2.

    It really is that easy to start investing.

    BIG EASY, reflective of how easy it is to actually start investing.
    Photo by Jay Clark on Unsplash

    You don’t need a financial advisor or a broker to open an account. Like most things these days, as I mentioned above, you can easily open an account on-line by yourself.

    In fact, most of us begin investing in employer-sponsored retirement accounts, like 401(k) plans. When you start a new job, your HR department will provide you detailed instructions on how to enroll.

    So, what are the main types of investment accounts to choose from?

    Tax-advantaged retirement accounts.

    The most common tax-advantaged retirement accounts include 401(k) plans, Roth IRAs, and traditional IRAs. “IRA” stands for Individual Retirement Account.

    We’ll soon take a deep dive into the advantages and disadvantages of each type of account.

    As a whole, the primary difference between tax-advantaged retirement accounts and traditional brokerage accounts relates to taxes.

    The government wants us to save for retirement. To encourage us to do so, retirement accounts come with major tax advantages. That’s why most investors begin investing in these types of retirement accounts.

    Traditional brokerage accounts do not have the same tax advantages.

    In addition, tax-advantaged retirement accounts, like a 401(k) plan, are commonly offered by employers. That makes it easy for employees to invest.

    You may be wondering: with these great tax advantages, why would someone open a traditional brokerage account?

    Let’s take a look.

    Traditional brokerage (non-retirement) accounts.

    There are two main reasons to open a traditional brokerage account.

    First, tax-advantaged retirement accounts have caps in place for how much someone can invest per year.

    While the government is happy to encourage investing for retirement, its generosity only goes so far. Uncle Sam still depends on tax revenue and can’t afford to give us an unlimited free pass.

    Once you reach those caps, and still have money that you want to invest, you’ll need to open a traditional brokerage account.

    Most investors try to max out their retirement accounts to receive the full tax advantages before moving on to investing in traditional brokerage accounts.

    The second reason is that tax-advantaged retirement accounts are intended for long-term retirement planning.

    If you withdraw from your account before reaching a certain age, typically 59 1/2, you’ll be subject to penalties and taxes.

    Of course, Think and Talk Money readers know that there are other reasons to save and invest besides retirement.

    You may be investing to buy a home in 10 years. Maybe you have reached financial independence and rely on your investment income to fund your life.

    Whatever the case, traditional brokerage accounts provide flexibility for people to withdraw their money when they want to.

    Other types of investment accounts.

    Besides tax-advantaged retirement accounts and traditional brokerage accounts, there are two other popular investment accounts to highlight.

    529 Savings Plans for College: 529 college savings plans are state-sponsored, tax-advantaged investment accounts. While there are certainly other ways to save for college, 529 plans are hard to beat because they typically offer triple tax benefits.

    To read more, check out my in-depth post on 529 Plans for Sky High College Costs.

    Health Savings Accounts (HSA): An HSA is a tax-advantaged account that you can use to pay for eligible medical expenses.

    These accounts are typically linked to employer-sponsored health insurance plans. You can choose to invest your HSA contributions, similar to how you might invest in a 401(k) plan.

    Like with 529 plans, the reason to invest in an HSA is to receive triple tax benefits that are hard to beat. Your contributions, earnings, and withdrawals are all tax-free if you follow some basic rules.

    We’ll explore this further in a future post.

    You are not limited to just one type of account.

    To recap, the first step to investing is simply to open an account.

    There are two main types of investment accounts to consider: tax-advantaged retirement accounts and traditional brokerage accounts.

    There are also other investment accounts intended to help with specific goals, like saving for college or medical expenses.

    For almost all investors, it makes sense to first open a tax-advantaged retirement account before considering the other types of accounts. For many of us, that means participating in our employer-sponsored 401(k) plan.

    Keep in mind, you are not limited to just one investment account. Many investors have various accounts for different goals. My wife and I have multiple retirement accounts, 529 plans for each of our kids, an HSA, and others.

    Once you’ve opened an account, you’re ready to move onto step 2. The next step is choose what investments you want inside that account.

    Step 2: Pick the investments for inside that account.

    Now that you have an account opened up, the next step is to pick what investments you want inside that account. By that, I mean selecting what mutual funds, index funds, individual stocks, or bonds you want to buy.

    Each major investment company offers a variety of investments to choose from, including target retirement date funds that are as easy as it gets.

    Picture the account you just opened as a bucket. Now, you need to fill that bucket with something.

    What you fill that bucket with are your investments.

    This second step is crucial. It’s also easily overlooked.

    More often than you might think, when people new to investing complete step 1 by opening an account, they mistakenly believe that their job is done. That’s not the case.

    When you first open an account (other than employer-sponsored plans), you will need to fund that account with a minimum required deposit.

    The key to remember is that once you make that transfer, your money will sit in your new investment account, not earning much or any interest, until you choose how to invest it.

    Until you complete this second step, your money sits in your account and you don’t reap the benefits of investing.

    As a side note, you’ll likely need to complete this second step every time you make a transfer into your investment account. You can link your checking account to your new investment account to make transfers easier.

    One other side note, I mentioned that employer-sponsored plans, like 401(k) plans, operate a little differently. That’s because when you first enroll in your 401(k) plan, you will make your investment selections right then and there.

    Because your contributions are automatically deducted from your paycheck, they will automatically be invested in your preselected investment choices.

    Don’t laugh about people forgetting to choose their investments.

    When I first taught my financial wellness course to law students, I thoughtlessly made a joke about people who forget to complete this second step. At the time, it seemed obvious to me that once an account was opened, the next step was to select the investments.

    Boy, was I wrong.

    In that first class, a student raised her hand and said she had made that mistake before. Her money sat in her investment account, without earning any interest, for more than a year before she realized her mistake.

    She was not laughing at my joke.

    Nor was she the only person in my class who had made that mistake. It turned out nobody was really laughing.

    Since that first class, I’ve realized that it’s actually a common mistake.

    That’s why I now emphasize there are two steps to start investing. The first step is to open an account. The second step is to pick investments for that account.

    listen up yall illustrating professor Adair teaching personal finance to law students.
    Photo by Kenny Eliason on Unsplash

    And, guess what?

    I recently made the exact same mistake.

    My HSA had been with one provider for years before that provider changed. My money was automatically transferred over to the new provider.

    However, somehow I missed the announcement that my money would not be invested until I chose the investments for that new account.

    It took me about six months of earning no interest to realize what was going on.

    That’s what I get for making a joke about step 2!

    How do I pick the right investments to fill my account?

    We recently discussed the importance of learning the language of investing. In that post, we talked about stocks, bonds, mutual funds, and index funds. When you’re selecting investments, you’re choosing between these types of options.

    We also talked about the importance of asset allocation and diversification. These terms make investing seem more complicated than it really is.

    Ultimately, you’ll need to do your homework or pay an advisor to do it for you. Before you make your decision, be sure to check out my previous posts on investing so you have a good understanding of your options.

    Personally, I invest in index funds to keep my costs down and to ensure a certain level of diversification. If I don’t have the option to invest in a total stock market index fund, I invest in an S&P 500 index fund.

    I also invest in target date retirement funds since these funds automatically rebalance for me as time goes on. It doesn’t get any easier than this.

    Now you know how easy it is to start investing.

    If you were ever hesitant to start investing in the past, now you should be feeling more confident in how to get the process started.

    There are really only two steps:

    1. Open an account.
    2. Pick investments for that account.

    It doesn’t have to be any more complicated than that.

    As always, leave a comment below if I can answer any questions as you get started.

  • Money on My Mind: Read Millionaire Milestones

    Money on My Mind: Read Millionaire Milestones

    On my journey to financial independence, I’ve read close to 100 personal finance books.

    This week, Sam Dogen of Financial Samurai fame, released Millionaire Milestones: Simple Steps to Seven Figures.

    I pre-ordered my copy of Millionaire Milestones and read it cover-to-cover in three days. You may have noticed my posts this week have been slightly delayed. Now, you know why.

    You can find a breakdown of my favorite money mindset books here. I recently added Millionaire Milestones to my list. It was that good.

    If you’re serious about becoming financially independent, I highly recommend you read Millionaire Milestones.

    Who is Sam Dogen aka The Financial Samurai?

    Dogen has been a leader in the personal finance space since he launched Financial Samurai in 2009. Since then, he’s shared his experience and knowledge for free with three posts per week. I do my best to read every post.

    Millionaire Milestones is his third book. Dogen’s also written the Wall Street Journal Bestseller Buy This, Not That and the bestselling e-book How to Engineer Your Layoff.

    What separates Millionaire Milestones from other books?

    As many of you know, I’ve been on my journey to financial independence since 2010 when I was drowning in credit card debt. Since then, I’ve read every personal finance book I can get my hands on.

    Allow me to over-generalize and separate the books I’ve read into two broad categories.

    The first category of books are written by authors who are at a very early stage in their personal finance journeys. These authors tend to be in their 20s and early 30s. They are intelligent people, good writers, and have a lot of valuable advice to share. I certainly gained a lot of insight from these books.

    The second category of books are written by authors who had not only achieved, but also sustained, financial independence. Contrary to the first category, these authors are typically in their 60s and 70s. They have decades and decades of experiences and knowledge to draw upon. They are absolute legends in the financial wellness space.

    person holding book sitting on brown surface illustrating the need to read Millionaire Milestones by Sam Dogen
    Photo by Blaz Photo on Unsplash

    With those overly broad categories in mind, do you see where I’m going with this?

    Category 1: Too young.

    Category 2: Too old.

    Enter Dogen AKA The Financial Samurai.

    AKA… Goldilocks?

    Millionaire Milestones is the Goldilocks of Personal Finance books.

    Yup, Dogen is part samurai and part golden-haired girl.

    Let me explain.

    Dogen is in his mid-40s. He’s not too young. He’s not too old. His book hits just right.

    In Millionaire Milestones, Dogen covers his journey from finance bro in New York in his 20s to present day life as a writer, investor, and husband and father.

    What separates Millionaire Milestones from other personal finance books is that Dogen’s still on his journey. Don’t get me wrong, he’s been financially independent for more than a decade. He certainly has accumulated decades of knowledge since his time working on Wall Street.

    But, Dogen’s still in the thick of things. He’s not preaching from the rocking chair on his patio overlooking his immaculate yard.

    Dogen’s presently raising kids. He’s focused on his website and his investments. Like you and me, he can relate to the present day challenges of personal finance because he’s still on his journey.

    To recap, Dogen’s not wet behind the ears. You don’t have to question his credentials.

    At the same time, he’s not so far removed from his peak earning years that his advice is outdated.

    That’s why I think Millionaire Milestones is the Goldilocks of personal finance books.

    In Millionaire Milestones, Dogen doesn’t pull any punches.

    Now, Dogen might be part Goldilocks.

    But, make no mistake. He’s still all samurai.

    If you read Millionaire Milestones, Dogen will tell it to you straight. He’s not going to sugarcoat anything for you. The journey to financial independence is hard. Most people don’t have it in them to make the sacrifices that Dogen recommends.

    The fact that Dogen doesn’t run away from that reality is what separates his book from others I’ve read.

    If you want the truth about what it takes to become a millionaire, Dogen will give it to you.

    Throughout his multiple decades studying and teaching personal finance, Dogen has seen many ups and downs. He’s not shy about sharing his mistakes in hopes that we can learn from those mistakes.

    He opens up about his relationship with his wife and his young kids. This is key because it helps understand why money even matters to him in the first place.

    Dogen has felt the pain.

    Importantly, Dogen has felt the pain. I’ve previously expressed my opinion that personal finance education is best suited for people that have already begun their careers or are just about to start.

    This is why I teach personal finance to law students and launched Think and Talk Money for lawyers and professionals.

    I know that personal finance education didn’t matter to me until I felt the pain. By feeling the pain, I’m talking about that struggle that comes with balancing rent, debt, and a social life for the first time with your own money.

    I don’t know Dogen, and I wouldn’t presume to put words in his mouth. But, my impression after reading Millionaire Milestones is that he would agree that personal finance education is best suited for people that have felt the pain.

    Dogen is not shy about sharing how he’s felt the pain at various stages of his life.

    In fact, he will tell you that if you want to be truly independent, you’re going to have to feel the pain, too. And, it won’t come easy.

    But, he’ll also convince you that it’s well worth it.

    Read Millionaire Milestones to the very end to see why it’s all worth it.

    Reaching financial independence is hard. If you make excuses, Dogen will be the first to tell you that you aren’t going to get there.

    But, if you take responsibility for educating yourself about money, Dogen will also be the first to tell you that it’s all worth it.

    Read Millionaire Milestones to the very end. If you think you might not be cut out for the journey, seeing what it looks like at the finish line may persuade you otherwise.

    Dogen does an excellent job of not only showing you how to amass wealth, but also what you can do with that wealth you’ve worked so hard for.

    That was my favorite part of the book.

    At this point in my personal finance journey, I know the steps I need to take to become financially independent.

    What I’m still sorting out is what to do with myself once I’m there.

    Reading Dogen’s perspective on what is possible once you’ve amassed enough wealth was fascinating.

    I found his conversation about how much to spend each year once you’ve left full-time employment especially valuable. As he puts it, there’s a sweet spot between spending too much and spending too little. He gives you the tools to find that sweet spot.

    Dogen also talks about spending money in ways that boost your happiness. That could mean something as small as leaving a generous tip or as large as a once-in-a-lifetime trip for your friends.

    Most of all, his conversation about helping others through the knowledge he’s acquired really resonated with me.

    I started teaching personal finance and launched Think and Talk Money because of all the knowledge I have acquired from people like Dogen. My life has been greatly enhanced through this education.

    I’ll be nothing short of thrilled if I can carry the torch and share my personal finance journey in order to help others like Dogen has helped me.

    I highly recommend you read Millionaire Milestones.

    Wherever you are on your journey to financial independence, I highly recommend you read Millionaire Milestones.

    Dogen has not only done it all, he’s still doing it.

    Dogen won’t pull any punches. The journey to financial independence is not an easy one.

    But, as he makes clear, it’s well worth the sacrifice in the end.

  • Great Talk: Money, Baby Blue, and Friends

    Great Talk: Money, Baby Blue, and Friends

    What’s the best money you’ve spent recently?

    I thought of this question the other day as I sat in the yard. It’s such a simple but important question.

    You should be able to easily feel money well spent. If nothing comes to mind, that might be an indication that the money you are spending has not been well spent.

    The best money I’ve spent recently was on a beautiful Colorado Baby Blue Spruce for my backyard.

    Man, saying that out loud makes me feel old.

    This one purchase gave me an extended, triple happiness boost.

    Buying this tree for my backyard gave me a triple happiness boost.

    First, I enjoyed the process of learning about and choosing the right tree.

    I liked talking trees with the experts at the nursery and my family members. My kids and I would walk around the neighborhood and take pictures of any trees that we liked. It was infectious how excited they were to hunt for beautiful trees.

    Even though my daughter’s first choice was this Easter egg tree, she eventually relented and agreed the Baby Blue was the way to go .

    My daughter's favorite easter egg tree she wanted for the backyard.

    My second happiness boost came from buying and then planting the tree.

    The day I bought the tree, I walked around the nursery in the rain with my father-in-law and picked the actual tree we wanted. I’ve never picked out a tree before, but it was fun. I learned from the experts and enjoyed pretending I knew what I was doing.

    The next day, the landscaping crew came over to plant the tree. It was fun to strategize exactly where to put it and then watch the experts execute the plan.

    My third happiness boost came the next day with the tree in the ground and my kids running around the back yard.

    My son played with his toys at the base of the tree. He and his sister played hide-and-seek and took advantage of the new hiding spot.

    The whole time I watched them, I sat with a smile on my face. I expect that feeling will continue every time I look at Baby Blue in my yard.

    So, yeah, Baby Blue was money well spent.

    And yeah, I know. I’m old.

    Baby Blue brought me joy before, during, and after the purchase.

    Baby Blue is an example of the trifecta of happiness. It brought me joy before, during and after.

    The same happiness effect has been well-documented when it comes to traveling. People get a happiness boost in planning the trip, then taking the trip, and finally remembering all the fun things they did on the trip.

    That’s why so many people “love to travel.” It brings them happiness before, during, and after.

    Baby Blue taught me that I can spend money to get that same triple happiness boost even when not traveling.

    I recently met up with an old friend for a great talk about money.

    I experienced the same trifecta recently when I met up with an old friend for a great talk about money.

    Funny enough, we reconnected after he learned from a mutual friend that I had launched Think and Talk Money. I had no idea that he’s as fascinated about personal finance as I am.

    I had been looking forward to our “date” since we planned it a couple weeks ago.

    The conversation was great. We talked about money, careers, kids, and shared friends. We hadn’t seen each other for years, but you would never know it. That’s the sign of a good friendship.

    When the check came, I was delighted to spend my money. That conversation brought me a lot of happiness.

    Since we met up, I’ve been revisiting in my mind so many of the topics we covered. I’m already looking forward to the next time we get together.

    That’s money well spent.

    Personal finance is not just about the numbers.

    In the personal finance world, we spend a lot of time talking about numbers. That’s not a bad thing. Numbers help us turn our ultimate life goals into quantifiable action steps.

    However, saying you want to “buy a house” is nice, but it’s not that helpful for planning purposes.

    Saying you want to “save $100,000 for a down payment on a house in the next 3 years” is an improvement.

    Running the numbers and committing to saving $2,800/month to achieve that goal is even better.

    So, while numbers are certainly important in personal finance, it’s equally important to continuously recognize the emotions behind those numbers.

    Those emotions turn into our motivation to stay on track and hit our numbers.

    Personal finance is tied to our emotions.

    I spent money on Baby Blue. In exchange, I received a triple happiness boost. The same is true about catching up with an old friend. These experiences reminded me of why I care about money.

    Money is nothing but a tool. I care about money because I want to wield that tool to bring me and my family happiness.

    Happiness is hard to define. Spending money in exchange for happiness can be hard to accomplish. What has helped me in that regard is thinking about how I can use money to get what I want.

    Sunshine bath illustrating the triple happiness boost spending money the right way can give you.
    Photo by Zac Durant on Unsplash

    Sometimes, that means taking a deep look at my Money Why. Or, it could mean sitting on a beach with a notepad (and maybe a beer or two) and writing down my Tiara Goals for Financial Freedom.

    But, thinking about money is not just about long term goals.

    It also means how we spend our money in the present.

    Humans are emotional creatures. We can rationally look at examples and charts and won’t dispute the long term magic of compound interest.

    At the same time, we have emotions and feelings that need to be tended to now.

    It’s not realistic to expect people to put off all happiness until some unknown time in the future.

    It is realistic to make reasonable sacrifices now to ensure a better future.

    That’s the essence of investing. We invest money that we could spend today and hope it turns into more money later on.

    What might be a reasonable sacrifice for one person may be totally unreasonable for someone else. That’s perfectly fine. Still, it’s one thing to make sacrifices. It’s another thing to deprive ourselves entirely.

    I don’t think it’s reasonable to expect people to entirely deprive themselves of the things that make them happy. The key is understanding what those things are, and then spending our money in the pursuit of those things.

    This is one of the things my friend and I talked about the other day. It’s not that hard to understand the numbers on the spreadsheet. It’s much more difficult to stay motivated to keep making good money choices.

    This intersection of money and life is what makes personal finance so fascinating.

    Personal finance is fascinating, not because of the numbers, but because of the emotional impact of money.

    It’s why I encourage people to talk about money with their loved ones. Talking money is not about talking numbers and spreadsheets. It’s about motivating each other to intentionally use money in a way that aligns with our values. And, to do so both in the present and in the future.

    When we create a Budget After Thinking, this is exactly what we’re doing. Not only are we generating fuel for our Later Money bucket, we are giving ourselves permission to spend our Life Money on things we truly care about.

    So, what’s the best money you’ve spent recently?

    I bought a tree.

    I had a beer with a friend.

    Sure, I could have saved that money and invested it. But, I’m glad I didn’t.

    Both experiences continue to bring me joy.

    That’s money well spent.

  • How Much Money a 1% Advisor Fee Really Costs

    How Much Money a 1% Advisor Fee Really Costs

    I recently attended a “financial empowerment” workshop hosted by a financial advisor.

    The financial adviser was smart and very passionate about helping people plan for retirement. She shared a lot of valuable information, such as investing early and often.

    She also shared good examples on how compound interest works and how inflation eats away at our purchasing power.

    I liked just about everything she was sharing with the audience. It was solid advice, and her presentation included many informative charts and examples.

    I was not even bothered that she was frequently pitching her services in hopes that audience members would hire her to manage their money. It was her presentation and she earned the right to promote herself.

    The thing is, and I was not surprised by this in the least, the topic of fees hardly came up at all.

    In fact, the first mention of fees did not come up until the very last slide. In total, fees were addressed for maybe 30 seconds in an hour-long presentation.

    I don’t necessarily blame the advisor for not discussing fees until the very end. She’s trying to make a living and doesn’t want to scare people off before hearing what she had to say.

    I think most people in her situation would have structured the presentation the same way.

    That said, in my opinion, fees should be one of the first things discussed when it comes to investing. It should not be a throw-in at the end of a presentation.

    The amount we pay in fees is one of the main things we as in investors can control.

    There is not much we can control as stock investors. Markets are unpredictable. One of the only things we can control is the amount we pay in fees.

    There are two primary types of fees: transaction fees and ongoing fees.

    • Transaction fees are charged each time you make a transaction, like buying a stock.
    • Ongoing fees are charged regularly, like account maintenance fees.

    Whenever you are choosing how to invest your money, pay close attention to the fees associated with that investment option.

    You cannot avoid fees completely, but you can minimize the amount you pay depending on the investments you choose.

    Below, we will take a look at how even a seemingly small fee of 1% can have a huge negative impact on your account balance over time.

    As a general rule, passively managed investments like index funds, charge lower fees. Actively managed investments charge higher fees.

    If you choose to work with an investment advisor, be sure to understand all of the fees charged for those services. Pay particular attention to the ongoing fees, which can have a big impact on your investment portfolio.

    I am not on a crusade against financial advisors.

    Before all the financial advisors out there bite my head off, let it be known that I am not on a crusade against you.

    Believe it or not, I’m not here to tell anybody whether he should work with a financial advisor or not. That’s not for me to decide.

    I believe that advisors can offer significant benefits to a lot of people, including benefits that are difficult to quantify. For example, an advisor may help someone stay calm during market dips so that person stays invested for the long term.

    I view my role in the personal finance food chain as that of an educator. I am not a financial advisor, and I won’t be giving personal investment advice.

    My purpose in writing this post is to help you decide whether the cost of hiring an advisor is worth it to you.

    Dapper Professional wearing a blue plaid suit, a custom shirt and a silk knit red tie, illustrating a financial advisor ready to charge you "only 1%" in fees.
    Photo by Benjamin R. on Unsplash

    I do the same thing when I teach personal finance to law students. I try my best to present options and information so they can make the best decisions.

    When it comes to investment fees, it’s hard to know exactly what we’re paying. What does a 1% fee even mean?

    By looking at the examples below, you should get a better idea of what a 1% fee looks like over the long term. Then, you can be better equipped to make a thoughtful decision on whether to work with an advisor.

    In the end, I’ve done my job if I’ve helped you acquire enough personal finance knowledge to make educated choices with your money.

    So today, we’re going to talk about fees.

    Remember, none of us can control the market, and that includes financial advisors. The best any of us can do is project what may happen in the future based on what has happened in the past.

    Since we can’t control the market, let’s focus on what we can control, like fees.

    To help us understand how fees can be a drain on our investment returns, let’s revisit our friend Sally.

    Sally earns 10% a year and pays no advisor fees.

    Remember our friend, Sally?

    While in her 20s, Sally funded her retirement account with an initial contribution of $2,500. She then made contributions of $250 every month for 40 years.

    She was comfortable with reasonable risk and invested in the S&P 500, which has historically earned an average annual rate of return of 10%.

    After 40 years, Sally had contributed a total of $122,500.00. Her retirement account grew to  $1,440,925.81.

    After 40 years, a $2,500 initial contribution and $250 subsequent monthly contributions earning 10% average annual interest will be worth $1,440,925.81

    Sally set herself up to have a lot of choices come retirement.

    Now, let’s make one slight adjustment to our hypothetical to account for a fee of “only 1%.”

    Sally earns 10% a year and pays a 1% advisor fee.

    Let’s assume that Sally decided to work with a financial advisor that charges a 1% fee. That means every year, Sally pays her advisor 1% of her account balance.

    We’ll assume that her advisor also averaged a 10% annual rate of return for Sally. However, because Sally pays her advisor a 1% fee, Sally’s actual earnings rate drops from 10% to 9%.

    Let’s see how that 1% fee changes Sally’s performance over 40 years.

    After 40 years of earning 9% after paying a 1% fee to her advisor, Sally will have $1,092,170.89.

    The 1% fee resulted in Sally’s account dropping by $348,754.92.

    That’s 24% less money than she had in our example when she earned 10%.

    The impact of even a 1% fee is monumental.

    Through this example, you should be able to see that even a seemingly small fee can have major consequences on your long term gains.

    When people start investing, the 1% fee does not seem like a bad deal. In my experience, whenever a financial advisor has explained fees to me, he uses words like “just 1%” or “only 1%”.

    I think that language is misleading and deceiving. Sally would probably agree that words like “only 1%” do not accurately express a cost of $350,000.

    If you look at the very beginning of Sally’s investment profile, it’s true that the 1% fee seems to have little impact.

    In Sally’s case, the difference in her account in the two scenarios after 1 year is only $25.

    • Sally’s account after 1 year at 10% interest: $5,750.
    • Sally’s account after 1 year at 9% interest:$5,725.

    That’s a pretty marginal difference. However, it takes time for the impact of fees to materialize.

    The reason is because it takes time for the magic of compound interest to set in. That’s why we need to invest early and often.

    Let’s look at the difference in Sally’s account over time:


    10% Return
    9% Return
    After 1 year$5,750$5,725
    After 10 years$54,296.63$51,497.20
    After 20 years$188,643.75$167,491.39
    After 30 years$537,105.57$442,091.81
    After 40 years$1,440,925.81$1,092,170.89

    Looking at these numbers, it becomes clear how much a 1% fee can impact your overall investments.

    One other consideration: the fee also typically gets taken straight out of your account. That can make it feel like the fee is relatively small or doesn’t exist at all.

    It would feel much different if each month you had to go through the process of writing a check to your advisor. Maybe feeling that pain would impact your decision to pay the fee.

    Decide for yourself if the real cost of an advisor is worth it to you.

    You can play with these numbers to match your personal situation. Maybe you have an advisor charing less. Maybe yours charges more.

    If you want to tweak the annual rate of return you expect to earn by working with an advisor, please do.

    Or, maybe you just want to ask your advisor or potential advisor about fees and how they may impact your portfolio over the long term.

    Hopefully, looking at these numbers gives you something to think and talk about.

    I personally do not work with a financial advisor.

    Let’s circle back to the financial empowerment workshop I attended the other day.

    At its conclusion, the advisor’s husband came by to collect the sign-up sheet. I happened to be the last person to receive the clipboard.

    Seeing that I had not signed up for a free consultation, he looked at me and said, “Oh, you forgot to sign up!”

    I chuckled.

    Uhh, no I didn’t “forget”.

    I respectfully declined to be added to the list. I’ve chosen not to work with an advisor.

    I shared my story about how I set $93,000 on fire when my former advisor pulled me out of the markets in 2008.

    In that post, I also shared that it wasn’t her fault. It was my fault for not being educated.

    Since then, I’ve been convinced by endless reports, such as this from Yahoo! Finance, that I’m better off without an advisor when considering the cost:

    Making matters worse is that the professionals, who the average investor might turn to for guidance, have poor track records. In the past decade, an alarming 85% of U.S.-based active fund managers underperformed the broader S&P 500. Those who invest in these funds are essentially paying for unsatisfactory results.

    How much does 1% matter to you?

    I recently calculated how much I would have paid an advisor by this point in my life. I determined that If I had been working with an advisor, I would have paid more than $100,000 in fees so far.

    When I think about all the things I could do with more than $100,000, I’m very happy that I chose to educate myself and keep that money instead of paying it to an advisor.

    Maybe I would have earned more if I worked with an advisor. Maybe that $100,000 would have been a worthwhile price to pay. Then again, maybe not.

    If you choose to work with an advisor, I won’t blame you. Hopefully your advisor consistently beats the returns of the S&P 500 or provides value to you in other ways.

    Whatever the case may be, you now should have a better understanding of what you’re paying when you hear the phrase “only 1%.”

    • Do you work with an advisor?
    • What fee does your advisor charge?
    • What are the top benefits you receive in exchange for the cost?

    Let us know in the comments below.

  • Why Successful Investing is Playing Offense and Defense

    Why Successful Investing is Playing Offense and Defense

    When you hear the word “inflation,” what’s the first thing that jumps to mind?

    Is it the price of eggs?

    Eggs really have it bad right now. If it’s not being the poster child for inflation, it’s the bird flu causing eggs problems.

    Eggs are even getting blamed for ruining Easter! Just look at this headline from AP News:

    “US egg prices increase to record high, dashing hopes of cheap eggs by Easter”

    Yeesh. I feel bad for eggs.

    I’ve certainly noticed the elevated price of eggs at the grocery store.

    But, eggs are not the first thing that comes to mind when I think of inflation.

    When I think of rising prices, my mind immediately goes to lunch downtown during the work day.

    Now, please indulge me for a minute. I know I’m about to sound like the old man who yells at clouds.

    I try to bring my lunch most days. It’s partly trying to eat healthier. The other part is that I have a hard time justifying the cost and have decided that lunch is really not something I care about.

    Ever since I was a really lost boy in my 20s and started budgeting to create fuel for my investments, lunch was an easy thing to cut.

    Even so, there are days when I run out of time in the morning to get a lunch packed before I’m out the door. On those days, I’m usually looking for something relatively quick and healthy.

    I’ve noticed that no matter where I go near my office, it seems like the cost of a fast-casual lunch is between $15-$20. That’s true whether it’s a sandwich or a salad or a burrito.

    $20 for a lunch that is not even the least bit exciting! That’s hard for me to swallow (sorry, couldn’t help myself…)

    Am I yelling at the clouds alone here?

    Why does it matter that everything is getting more expensive?

    There’s no single explanation for why things are getting more expensive. For example, restaurants are facing higher costs for ingredients, labor, and even online reservation sites.

    Setting aside isolated explanations, the reality is that all things tend to get more expensive over time.

    The word for that reality is “inflation.”

    Specifically, inflation is defined as “ongoing increases in the overall level of prices.”

    If you were accustomed to paying $10 for lunch, and now that same lunch costs $20, that’s what inflation looks like.

    Evening clouds over the sea representing things we can't control, like inflation.
    Photo by Nick Scheerbart on Unsplash

    Why do we care about inflation?

    We care about inflation because inflation reduces the buying power of our hard-earned money. We can’t control or stop inflation. It’s going to happen.

    Ask your parents how much they paid for their first car.

    Or, you can ask my high school basketball coach. When we would complain, he would respond “That and $1.25 will get you a ride on the bus!”

    Don’t worry, none of us knew what it meant either. Although, I wonder if he’s updated his quip to “That and $5.50…”

    The point is, In order to counteract the drain of inflation, we need to invest our money.

    Investing to do fun things later on is playing offense.

    We’ve spent a lot of time in the blog talking about all the amazing things you can do with your money if you develop strong personal finance habits.

    Strong personal finance habits include budgeting, paying off debt, and saving. We do these things so we have fuel to invest.

    When you invest, your money grows without much effort on your part. You can then do those amazing things in the future.

    That’s playing offense.

    Look back at our friends Terry and Sally.

    Terry took no risk and kept his money in a savings account. Terry did not play offense.

    Sally took on reasonable risk and invested in the S&P 500. Sally played offense.

    What happened after 40 years in our hypothetical scenario?

    Terry, at a 3% interest rate from his savings account, had a total of $234,358.87.

    Sally, at 10% annual returns from the S&P 500, had a total of $1,440,925.81.

    As a result, Sally will have $1,200,000 more than Terry to do fun things with in retirement.

    Sally clearly played offense. Terry clearly did not.

    Investing to counteract inflation is playing defense.

    You may be thinking that at least Terry’s “safe” approach meant that he played good defense.

    Nope.

    Terry’s approach was bad defense just like it was bad offense.

    All because of inflation.

    Investing to counteract inflation is playing defense. It’s protecting your hard-earned purchasing power.

    Over the long term, it’s critical to invest your money and earn a return that exceeds the rate of inflation.

    Otherwise, you risk not being able to afford the same items you’re accustomed to buying today because those items will be more expensive.

    In our earlier examples of eggs and workday lunches, we’ve seen how things feel like they’re getting more expensive over time.

    It’s not just eggs and lunches that get more expensive. Everything does.

    Let’s plug some numbers into US Inflation Calculator to illustrate how things really are getting more expensive.

    Let’s say you bought something in 2000 for $100. Based on the actual inflation rates between 2000 and 2025, that same $100 item would could $185.71 today.

    That’s an increase of 85.7%!

    Inflation calculator showing how buying power decreases over time.

    So, by keeping his money in a savings account earning 3% interest, Terry may have thought he was doing the right thing because his balance was getting bigger.

    The problem is that while his bank balance was increasing, so was the cost of everything he might want to buy. So, he had more money, but he could buy less things with that money.

    That’s what inflation does.

    The only way to get ahead of inflation is by investing and earning a higher rate of return.

    So to return to our question: was Terry really playing good defense by keeping his money in savings?

    No, because his actual purchasing power diminished even though his balance grew.

    Investing is about playing offense and playing defense.

    By now, you should hopefully be motivated to invest as a way to play offense and play defense.

    It’s fun to think about what you can do with your money when it grows with very little effort on your part.

    It’s just as important to think about investing as a way to protect your ability to buy the very same things in the future that you buy today.

    Instead of being the man who yells at the clouds, you can be the one buying as many eggs and lunches as you want.

  • Money on My Mind: Financial Literacy Month

    Money on My Mind: Financial Literacy Month

    April is known as National Financial Literacy Month.

    That’s cool. It’s never a bad idea to pay a little extra attention to your finances.

    Of course, Think and Talk Money readers don’t wait until April to be reminded of all the things we should be doing with our money.

    With more than 50 posts already at our disposal, Think and Talk Money readers pay attention to our money year round.

    We know how important money is to reaching our ultimate goals in life. That’s why we like to think and talk money just a little bit every week.

    Think and Talk Money readers know that personal finance starts with getting our money mindset in the right place. That’s why we create our personal version of Tiara Goals for Financial Freedom.

    With the right mindset, we can stay on budget and consistently generate fuel for our investments.

    When other people get worked up over the stock market, we talk to our people and stay calm.

    We know that time is on our side.

    Plus, investing is actually the easy part.

    We control what we a control. That’s why we invest early and often to get the maximum benefit of compound interest.

    So, Think and Talk Money readers don’t need a national personal finance month.

    And, we’re happy that personal finance gets a little extra attention each year in April.

    aerial photography of flowers at daytime in April, personal finance month, which Think and Talk Money readers don't need.
    Photo by Joel Holland on Unsplash

    These credit card fees are getting out of hand.

    Is it just me, or are you also noticing more and more businesses charging fees to use credit cards?

    I wrote about my disdain for credit card fees recently. 

    In just the past couple of weeks, I’ve chosen to pay with cash instead of credit card on multiple occasions:

    • At the butcher shop, which charges a 3% fee, and is kind of smug about it.
    • At the local ice cream shop, which charges a 4% fee and misleadingly labels it a 4% discount for customers paying in cash.
    • For the garage door repair guy, who creatively indicates the fee in terms of cash instead of a percentage. In this instance, $11 instead of 3% of the total bill.
    • At the tree nursery, which also charges a 3% fee for credit cards. This one hurt the most. Trees are expensive! I really would have liked those points.

    By paying cash, I avoided hundreds of dollars in fees. Don’t get me wrong, I love credit cards points as much as anyone. But, I just can’t stomach paying these fees to earn the points.

    I even ran the numbers recently and determined that the points don’t make up for the added penalty of using a card.

    I know many business owners disagree, but in my opinion, these fees are bad for business.

    Fees act as a deterrent for me to spend money. I imagine they are a deterrent for others, as well. If I do shop at one of these establishments, I end up being more selective and spending less money than I otherwise would have.

    • At the butcher shop, I didn’t buy the side items to go with my skirt steaks. 
    • At the ice cream shop, I bought ice cream for my kids but not for myself. Luckily (or unluckily?), my son gave me his leftover, melty Superman ice cream with rainbow sprinkles.
    • I had no choice with the garage door guy- the garage was broken and needed fixing. You win, garage door guy!
    • At the tree nursery, I bought half as many trees and plants as I intended. 

    The way I see it, both the customer and the business lose out because of these fees. 

    For example, at the nursery, I didn’t get all the plants I wanted. That made me kind of sad.

    At the same time, the nursery lost out on more than $1,000 in plant sales. I don’t know how that made the business feel. Obviously, it’s not that sad since it continues to charge the fee.

    Taking a broader viewpoint, maybe these credit card fees are actually good for us consumers.

    In our consumer-driven society, we all spend too much money when we go out to eat or go shopping. Studies have consistently proven that we spend less money when forced to use cash.

    In that sense, a deterrent to spending, which is exactly what these fees are, is probably a good thing for us consumers. 

    I can’t imagine it’s good for business, though.

    What do you think?

    It’s OK that tracking your net worth is less fun during a market dip.

    I track my net worth once per month using a simple spreadsheet. Today was the first day I updated the spreadsheet since “Liberation Day” and markets dipped.

    Like so many others, my net worth took a hit this past month.

    That’s not fun.

    But, I’m not losing my mind over it.

    I’m not saying it feels good. I would much rather see my net worth steadily improving.

    A Yellow Warbler sits in a flowering tree on a sunny spring morning during financial literacy month, which Think and Talk Money readers don't need.
    Photo by Mark Olsen on Unsplash

    I’m just saying I’m not freaking out about it. Time is on my side. 

    I expect dips like this will occur multiple times throughout my investing timeline.

    One thing I’ve found is that it helps to talk about money when things aren’t going well. You realize that you’re not alone. Your friends and family are probably having the same feelings that you’re having.

    You don’t have to share how much money you have or how much you lost. You can still benefit emotionally by acknowledging to your loved ones that you’re thinking about the markets a little bit more these days.

    People are going bananas for The Bananas.

    A reader sent in a great story about a couple who went $1.8 million into debt to start The Savannah Bananas.

    If you haven’t heard of The Bananas, they might just be the best story in sports right now.

    Despite countless opportunities to cash in by taking on investors, the owners still own 100% of the team. They continue to do things their way, even if that means foregoing massive profits.

    I love stories like this. These owners bet on themselves and found success. Instead of cashing in at the first chance, they’re staying true to themselves.

    At the end of the day, they’re making money and seem to enjoy what they’re doing. 

    Is there anything better than that?

  • Risk is the Cost to Invest

    Risk is the Cost to Invest

    Two young coworkers, Terry and Sally, start the same job at the same time making the same amount of money.

    While still many years away, Terry and Sally both know that they should invest early and often for retirement.

    They each decide to fund a retirement account with an initial contribution of $2,500. They are also dedicated to making contributions of $250 every month until they retire.

    Both plan to retire in 40 years while they’re in their 60s.

    There’s one major difference between Terry and Sally.

    They view risk differently.

    silhouette of man and woman under yellow sky illustrating the different investment paths of Terry and Sally.
    Photo by Eric Ward on Unsplash

    Terry doesn’t like risk.

    Terry doesn’t like risk. He wants to be able to sleep at night knowing that his hard-earned money is safe and sound in the bank. He can’t stand the idea of potentially losing money from one month to the next.

    When Terry wakes up in the morning, he likes to check his bank accounts while he drinks his coffee. He gets a jolt out of opening up his mobile banking app and seeing exactly how much money he has.

    In fact, at any given moment, Terry can tell you within a few hundred dollars what his net worth is.

    Because Terry doesn’t want to take any chances, he decides to stash all of his retirement savings in a savings account that earns an average annual return of 3%.

    Terry is lucky because this is a pretty generous return for a savings account based on historical savings account interest rates.

    Sally is more comfortable with reasonable risk.

    Sally is more comfortable with reasonable risk. Upon starting her career, Sally was aware that she had never learned basic personal finance skills. She was determined to put in a little bit of effort early on to set herself up for a prosperous future.

    She was a frequent reader of popular personal finance websites like Financial Samurai and Think and Talk Money.

    Sally even read JL Collins’ book on investing, The Simple Path to Wealth.

    Through the process of educating herself about personal finance, Sally started thinking about what she really wanted out of life. Since she was young and had just started her career, it wasn’t easy to come up with a good answer.

    Still, Sally knew that whatever she wanted to do in life, investing was an important part of her financial journey. If she wanted to create more time for herself down the road, she would need passive income from investments to sustain her.

    So, after doing her homework, Sally decided to invest her money in a low cost S&P 500 index fund.

    While she appreciated that there are no guarantees when it comes to investing, Sally knew that the S&P 500 has historically earned an average annual return of 10%.

    Unlike Terry, Sally only checked her accounts once per month when she tracked her net worth and savings rate. Sally slept fine at night because she knew time was on her side.

    Let’s see how Terry and Sally turned out 40 years later.

    Using a simple online calculator like the one at investor.gov, let’s see how much money Terry and Sally will have in their retirement accounts after 40 years.

    time steps on illustrating that the cost to invest is risk.
    Photo by Immo Wegmann on Unsplash

    Terry’s retirement savings total $234,358.87.

    After 40 years, Terry will have contributed a total of $122,500.00 to his retirement savings account.

    At a 3% interest rate, Terry will have a total of $234,358.87 after 40 years.

    In other words, Terry has just about doubled the value of his total contributions in his account.

    Not bad, Terry.

    Now, let’s check out Sally’s account.

    Sally’s retirement savings total $1,440,925.81.

    Sally likewise contributed $122,500.00. After 40 years, at a 10% interest rate, Sally’s retirement account will have a total of $1,440,925.81.

    Wow, Sally!

    Sally’s retirement account is worth 10 times more than what she personally contributed. Terry failed to even double his account.

    Recall in our little hypothetical, Sally did the exact same things as Terry, with one key difference. Sally was more comfortable taking on reasonable risk.

    Because Sally was comfortable taking on some risk, her retirement savings were worth more than six times as much as Terry’s savings. She has over a million dollars more than what Terry has!

    Look at compound interest in action.

    One last thing: take a look at the pictures of Terry and Sally’s investments over time. Notice the gaps between each of their red and blue lines.

    While they each benefited from compound interest, Sally benefited exponentially more.

    Look at how Terry’s red line stayed much closer to his blue line. Because he wasn’t earning as much overall interest, he didn’t have as much money to multiply from compound interest.

    Sally’s red line mirrored her blue line closely for the first 12-15 years. Then, the gap widened before the red line skyrocketed over the final decade or so.

    That’s the power of compound interest kicking in.

    So, what can we learn from Terry and Sally?

    The point of this hypothetical is to introduce the concept of risk when it comes to investing.

    We’ve all heard the saying, “You don’t get something for nothing.”

    That motto applies to investing as much as anything else. There is always risk involved in investing.

    The question is how do you react to that risk.

    Some people are so fearful of that risk that they don’t invest at all, like our friend, Terry.

    Other people are so desperate to get rich quickly that they take wild risks.

    The people that tend to reach and sustain financial independence are the ones who educate themselves and become comfortable with taking on reasonable risk. This is what Sally did.

    In future posts, we’ll dive into the various ways you can reduce investment risk.

    At this point, knowing why you’re investing and taking on risk is a powerful first step. I was recently reminded of my Money Why when my baby girl was born.

    Think of risk as the cost to invest.

    If you want to reach true financial independence or any other financial goal, it’s going to cost you something.

    Think of risk as the cost to invest.

    Sure, there may be some people out there who are able to reach financial independence on a massive salary.

    For the rest of us, we’re going to have to get comfortable with investing.

    There’s a reason we spend so much time talking about our ultimate life goals. It’s important to embrace the reasons why you’re investing and why you’re opening yourself up to risk.

    It never hurts to remind yourself what you are hoping to achieve in the future.

    When you know what that thing is, it’s much easier to pay the cost of risk.

    When you look at Sally and Terry’s future outlook, who would you rather be?

    It’s not really a hard question, right?

    It’s not that Sally has a bigger bank account. What matters is that she has created options for herself.

    Sally should be in position to do whatever she wants.

    Terry probably can’t.

    • Are you naturally more inclined to act like Terry or Sally?
    • If you’re more like Terry, have you thought about what outcome in life would be worth taking on some reasonable risk?

    Let us know in the comments below.

  • How to Set $93,000 on Fire

    How to Set $93,000 on Fire

    My first experience investing did not go well.

    You could say I set $93,000 on fire.

    Here’s what happened.

    Matthew Adair thinking about the valuable lesson he learned about investing in 2008 that was like setting $93,000 on fire.
    Matthew Adair, founder of Think and Talk Money

    Back in 2008, I was a third-year law student. My entire life savings at that point was about $10,000. A lot of this money came from savings bonds gifted to me by my grandma for my birthday since the year I was born.

    I mentioned the year was 2008, otherwise known as the beginning of The Great Recession. As detailed in Forbes Advisor:

    The Great Recession of 2008 to 2009 was the worst economic downturn in the U.S. since the Great Depression. Domestic product declined 4.3%, the unemployment rate doubled to more than 10%, home prices fell roughly 30% and at its worst point, the S&P 500 was down 57% from its highs.

    Suffice it to say, 2008 was not a great time to be graduating or looking for jobs.

    Those of my friends fortunate enough to have secured a job offer soon learned that their offers were being rescinded. Such were the times.

    But, I digress.

    Back to how I set $93,000 on fire.

    As I mentioned, my life savings at the time totaled about $10,000. I had previously decided to use a financial advisor to invest my money for me.

    I had been working with this financial advisor for a few years prior to The Great Recession.

    All these years later, I couldn’t tell you what she had me invested in prior to the markets imploding. I’m assuming that she took into account my age and risk tolerance and designed a suitable portfolio for me.

    What I can tell you is that my portfolio suffered the same fate as just about everyone else towards the end of 2008. My $10,000 balance was shrinking.

    At that point, my advisor took me out of the markets and stashed the remainder of my money in a savings account earning close to 0% interest.

    I didn’t notice this maneuver right away. In fact, it wasn’t until 2010 that I noticed that my money was sitting in a savings account.

    When I finally caught on that my account balance had not changed for a couple years, I called my advisor. She explained that she had pulled me out of my investments when things weren’t looking too good.

    She didn’t have a good explanation for why I was still in the savings account in 2010. To be honest, it seemed like maybe she forgot about me. 

    By that point, the markets were improving. I had already missed all of the upswing from 2009. Since I had felt neglected, I withdrew my money and closed my account.

    I wish I could tell you that I started investing on my own at that point.

    Nope, that’s not how you set $93,000 on fire.

    Instead of investing, I let the money sit in my checking account until it just kind of disappeared. I had no plan for the money. All these years later, I have no clue what I spent it on. I just know that it disappeared.

    First Job during the Great Recession was not easy to come by.
    Photo by frank mckenna on Unsplash

    But Matt, you said you only invested $10,000. How did you end up setting $93,000 on fire?

    I’m glad you asked.

    If I had known then what I know now, I would have invested that $10,000 in a low-cost S&P 500 index fund.

    I also would not have taken my money out of that S&P 500 index fund when the markets dropped.

    Time was on my side. The smart thing would have been to do nothing at all.

    Between the start of 2009 and the end of 2024, the S&P 500 earned an average annual return of 14.98%.

    That means my $10,000 invested in a low-cost S&P 500 index fund at the start of 2009 would have been worth $93,265.90 by the end of 2024.

    That, my friends, is how I set $93,000 on fire. 

    And, I have nobody to blame but myself. 

    Let me make one point perfectly clear:

    It’s nobody’s fault but my own that I missed out on those earnings.

    It was my fault for not taking a more interested, and educated, approach to my personal finances.

    In a way, I’m glad I learned that lesson with only $10,000 at stake instead of later in life when I had more to lose.

    It’s not my financial adviser’s fault. She did what she thought was best. For some people, her strategy was probably successful.

    My problem was I blindly trusted my adviser without educating myself first. I didn’t know the right questions to ask. I didn’t understand the plan.Worst of all, I didn’t pay attention when my account statements arrived in the mail each month.

    In my mind, once I transferred my money over to my advisor, I was excused from taking any responsibility for my future.

    That was a mistake I’ll never make it again. When things didn’t go well, I had no one to blame but myself. 

    We all need to understand the basics of investing.

    Whether you choose to work with an advisor or not, it’s up to each of us take accountability for our own future.

    We need to educate ourselves enough to be part of the planning process. We need to know why we’re taking certain steps and be savvy enough to ask the right questions.

    You may be more comfortable working with a financial advisor. That’s perfectly fine. You still need to understand the basics of investing.

    My problem in 2008 and 2009 was that I hadn’t educated myself. I like to share this little story to illustrate how important it is to pay attention to our finances.

    These days, I manage my own investments. I’ve determined that paying fees for someone else to manage my money is not worth it to me. 

    By the way, we’re going to spend a lot of time talking about fees so you can decide for yourself if you want to pay them.

    Whether you manage your own investments or you use an adviser, it’s critical to understand the basics about investing in the stock market. The good news is the basic principles of investing are relatively straightforward. 

    Always remember: there are some things we can control and a lot of things we can’t control.

    We’re going to focus on what we can control.

    That means focusing on how much fuel you’re generating each month to invest in the first place.

    Then, it means minimizing fees and maximizing your time in the market. 

    If you can successfully implement just those ideas, you will wake up years from now with major gains to your net worth due to the power of compound interest.

    There are other strategies we’ll cover, as well. You’ve likely heard fancy terms like “diversification” and “asset allocation.” We’ll talk about what those phrases mean with the goal of convincing you that investing does not have to be complicated. 

    That’s right. Investing does not have to be complicated.

    You don’t have to read the Wall Street Journal. You don’t have to study financial statements. Even people who do that for a living struggle to predict what’s going to happen next. 

    So, let’s not waste our time. We’ve got better things to do on our way to financial independence than studying corporate balance sheets. 

    With even just a little bit of knowledge, you can feel comfortable and confident investing in the stock market. Then, all you’ll need to stay on track is the occasional reminder to think and talk about money with your loved ones.

    You won’t even have to set $93,000 on fire first. 

  • My Journey to Financial Freedom

    My Journey to Financial Freedom

    Financial freedom doesn’t happen overnight. I’ve been on my journey to financial freedom for more than a decade.

    I’m not there yet.

    Here’s a look at how my journey to financial freedom has progressed since I graduated law school in 2009.

    My journey to financial freedom began in my late-20s and was focused on eliminating debt.

    In my 20s, I needed to pay off credit card debt and student loan debt. All I knew about the journey to financial freedom back then was that it seemed very far away.

    I started budgeting, which meant reigning in my spending on things I didn’t really care about.

    I began to establish good money habits. It wasn’t easy, and I was far from perfect. That’s OK. The 80/20 rule reminds us that we don’t need to aim for perfection.

    By the way, my life didn’t all of a sudden become boring and miserable when I became more money conscious. Quite the opposite, actually.

    I became more confident in myself because I had a plan. I no longer felt like I was sliding backwards. With each paycheck, I moved one step closer to erasing my debt. That was a powerful feeling.

    In my early-30s, my journey to financial freedom was about fueling my savings.

    By the time I turned 30, I had paid off my credit card debt and my student loan debt. I’ll never forget the day I made my last student loan payment as my family and I were heading out to Colorado. A huge weight had been lifted from my shoulders.

    I felt free. My journey to financial freedom was still in the early stages, but I was on my way. Most importantly, I still had good habits and a plan.

    The byproduct of eliminating my debt was that I had more fuel to accomplish my other goals.

    Financial Freedom wooden sign with a beach on background, illustrating that my journey to financial freedom and the journey to financial freedom for lawyers and professionals does not happen over night.

    What other goals?

    The money I had been allocating to student loan and credit card debt could now be put towards more fun goals and experiences.

    Instead of aimlessly spending the thousands of dollars each month that had been going towards debt, I rolled that money directly into savings. Highest on my list was saving for an engagement ring.

    Within a year, I had enough saved to purchase the ring. I thought being free from debt was strong motivation. Turns out that motivation was nothing compared to the desire to buy a ring for the woman you love.

    As your career progresses and you earn more money, you will benefit from strong personal finance habits.

    As my career progressed, like many of you, I started earning more money. When I earned more, I did my best to use that additional income as fuel for my goals.

    I’m grateful I had previously learned strong personal finance habits on my journey to financial freedom when I earned relatively little.

    For most of us, our usual career progression is the exact opposite of the typical lottery winner. Who hasn’t heard the stories about the lottery winners that hit it big and then quickly go broke?

    These stories are unfortunately all too common. What starts out with so much elation usually ends in tragedy.

    The normal downfall involves unrestrained spending on things like houses, cars, and extravagant nights out. It also involves the pressure to give money away to family, friends, and charities.

    The same pattern has been well-documented for professional athletes who earn millions before quickly going broke.

    The challenge is the same for lottery winners and professional athletes. They come into a lot of money suddenly without any prior personal finance education. When this happens, that money disappears quickly.

    What can we learn from lottery winners and professional athletes?

    I think it’s safe to say that none of us are going to win the lottery or earn millions as a professional athlete. I hope I’m wrong about that!

    But, we can still fall victim to the same set of challenges on the journey to financial freedom. It may not be a sudden rise and then an equally sudden drop-off. Our financial growth presents itself more slowly.

    Over time, we may earn referrals/commissions, raises, and bonuses. These earnings certainly add up and can make a huge difference in our lives, if we have a plan. That’s a big “if” for most of us.

    I didn’t have the full plan figured out in my 20s. Our goals change as life changes. There’s nothing wrong with that.

    That said, because of the steps I took in my 20s to learn about personal finance, I was better prepared for the opportunities and challenges that arose in my 30s. I learned that when you create a solid foundation for yourself, you have options.

    To me, life is all about giving yourself options. Nobody likes feeling stuck, including me.

    In my mid-30s, my journey to financial freedom was about building wealth through real estate.

    Besides saving for an engagement ring and a wedding, I was able to save up for a downpayment on a home. At the time I started saving up for a home, I had no idea that I could use my savings to invest in real estate.

    It wasn’t until I went to a Cubs game with a good friend of mine, The Professor, that I learned about real estate investing.

    This is when my journey to financial freedom really accelerated.

    See, The Professor had a beautiful condo with an incredible rooftop deck near Wrigley Field. During the game, he told me he was selling the condo and moving into a 4-flat with his fiancee in an up-and-coming part of town.

    Huh?

    Why on earth would you give up your amazing condo? And move to a random neighborhood I’d maybe been to one time in my life?

    I thought The Professor had lost his mind. Back then, I had no idea what a 4-flat even was. I couldn’t even point to his new neighborhood on a map of Chicago.

    The Ivy at Wrigley Field illustrating when Matthew Adair accelerated his journey to financial freedom through real estate investing.

    The Professor set me straight.

    He walked me through the numbers. He explained that he was going from paying $3,000 per month for his condo to receiving $700 per month on top of living for free in the 4-flat. That’s a $3,700 difference per month!

    The Professor also introduced me to BiggerPockets. That was huge for me because I believe in the motto, “Trust but verify.”

    Over the next week, I read everything I could and listened to podcasts every day. It didn’t take long before I was convinced that I wanted a 4-flat of my own.

    Eight years later, I own three buildings and 10 apartments in that same Chicago neighborhood. I have a ski rental condo in Colorado.

    Without that great talk with The Professor, I don’t think I would be where I am today on my journey to financial freedom.

    Man I’m glad The Professor wasn’t afraid to talk money with me!

    He knew that taking about money is not taboo.

    We all need to position ourselves to benefit when luck comes our way.

    I was fortunate to have learned from The Professor’s experience. We all need some luck on the journey to financial freedom. I’m convinced that we’ll all catch a break here or there. The question is what we do with that luck when it comes our way.

    If I hadn’t taken the time to learn about personal finance in my 20s, I wouldn’t have been positioned to benefit from that conversation with The Professor.

    That’s why I say the journey to financial freedom doesn’t happen over night. It’s about one building block at a time.

    For any aspiring real estate investors out there, please take that message to heart. Before you can successfully invest in real estate, you have to invest in your own financial literacy.

    I’ve learned firsthand that the same principles that apply to personal finances apply to managing a real estate portfolio. Each pursuit takes a plan that only works with discipline and patience.

    In my late-30s, my journey to financial freedom was about paying off debt.

    In my late-30s, my journey to financial freedom pivoted from acquiring properties to optimizing my portfolio. My wife and I decided we were ready to transition from growing our real estate portfolio to paying off our debt.

    In a way, I’ve come full circle on my journey to financial freedom.

    We owe a lot of credit to Chad “Coach” Carson and his excellent book, Small and Mighty Real Estate Investor: How to Reach Financial Freedom with Fewer Rental Properties.

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

    Progress is not linear, either. I’ve taken on debt in the form of mortgages and HELOCs to invest in more real estate.

    In the short term, that mortgage debt pulls me further away from financial freedom.

    If my plan works, that same debt will push me more rapidly to financial freedom.

    Financial freedom through real estate has existed for decades, if not centuries.

    By the way, I didn’t invent the plan of achieving financial freedom through real estate. That idea has existed for decades, if not centuries. I’d avoid anyone who tells you they pioneered this concept.

    Years ago, I remember sharing my newfound passion for real estate with mom. She had this smile on her face as I excitedly shared this “new” phenomenon of investing in real estate to achieve financial freedom.

    The next time I saw her, I realized her smile was actually more of a smirk.

    She handed me a book called How You Can Become Financially Independent by Investing in Real Estate.

    It was written by Albert J. Lowry, Ph. D.

    In 1977!

    Picture of a financial independence book showing that my journey to financial freedom through real estate is a concept that has existed for decades.

    Financial Freedom doesn’t happen over night.

    It’s natural to want to jump to the finish line. I’m guilty of that, too. I think about achieving financial freedom every day and need to remind myself to take it one step at a time.

    Even with all I’ve learned about personal finance, it can sometimes feel like I’m heading in the wrong direction.

    Wherever you currently are on your journey to financial freedom, remember that it doesn’t happen over night. I need to constantly remind myself to stay the course.

    Keep coming back to Think and Talk Money for daily reminders that financial freedom is within all of our grasps.

  • Money Questions: Markets in Free Fall

    Money Questions: Markets in Free Fall

    A reader reached out late last week and asked, “What do you do when the markets are in free fall?”

    It’s a question that really captures the intersection between money and emotions.

    I’m not an investment advisor, but I’m happy to share what I’m currently doing as the markets drop. Your personal situation may be different than mine so be sure to check with your investment advisor.

    Before we jump in, here’s a recap from Yahoo! Finance about how significant the drop was last week:

    US stocks cratered on Friday with the Dow Jones Industrial Average (^DJI) plunging more than 2,200 points after China stoked trade-war fears and Fed Chair Jerome Powell warned of higher inflation and slower growth stemming from tariffs.

    The Dow pulled back 5.5% to enter into correction territory. Meanwhile, the S&P 500 (^GSPC) sank nearly 6%, as the broad-based benchmark capped its worst week since 2020. The tech-heavy Nasdaq Composite (^IXIC) dropped 5.8% to close in bear market territory.

    The major averages added to Thursday’s $2.5 trillion wipeout after China said it will impose additional tariffs of 34% on all US products from April 10 — matching the extra 34% duties imposed by Trump on Wednesday.

    My hyper-technical analysis: that’s not good.

    Read on to see how I’m handling the market drop, how The Simple Path to Wealth helped shape my personal investing strategy, and how Die with Zero changed my perspective on how much to save for retirement.

    Let’s dive in.

    So, what am I doing with my portfolio right now while markets are falling?

    Despite how bad it seems, this is not a difficult question for me to answer.

    I’m not doing anything.

    I invest in the stock market to help achieve my long-term goals. My two main long-term goals are to save for college and to save for retirement.

    Each objective is so far away that time is on my side.

    man puts fingers down in lake kayaking against backdrop of golden sunset, unity harmony nature illustrating staying calm when markets are in free fall.

    My oldest child is five-years-old. I have 13-14 years until she even begins college. We make regular contributions to a 529 college savings plan to pay for her education. We fully anticipate that the market is going to go up and down over these next 13-14 years.

    As for retirement, I’ve still got decades in front of me. Same as what we just talked about with saving for college, I fully expect the market is going to go up and down many times before I retire.

    Make no mistake, I don’t enjoy seeing my portfolio drop so suddenly.

    Like everyone else, I don’t enjoy seeing my portfolio drop suddenly.

    It’s not fun to read the headlines right now. My brain seems to jump to the worst case scenario. Maybe you do the same thing. It’s nice to have someone to talk to about it. Misery loves company, right?

    This is one of the reasons why I only look at my portfolio once per month when I track my net worth.

    To remind myself to hold steady during the down times, I think of a study that examined what would happen if an investor missed the 10 best days for the market in each decade since 1930.

    As summed up by CNBC:

    Looking at data going back to 1930, the firm found that if an investor missed the S&P 500′s 10 best days each decade, the total return would stand at 28%. If, on the other hand, the investor held steady through the ups and downs, the return would have been 17,715%.

    These results illustrate how risky it would be for me to try to time the market. The last thing I want to do is miss the upswing. I have no idea when it’s coming.

    But, time is on my side.

    I’m going to do my best to be in the market when that upswing eventually comes.

    And, I am confident that upswing will come. It may not be until years from now. That works for me and my investment horizon.

    One other mental hack that’s helping me right now:

    I’m telling myself that the market is on sale right now. How so? I can buy the exact same stocks today for less money than they would have cost even a few days ago. I do love a good sale.

    In the end, no matter how bad things seem right now, I plan to continue making regular contributions to each of my investment accounts.

    Since I’m investing for the long run, I’ll let the market do its thing while I’m off doing my own things.

    Disclaimer: Your situation may be different. I am not an investment advisor. Do your homework and make the best decisions for your personal situation.

    What is my personal investing strategy?

    My personal investing strategy is largely based off of J.L. Collins’ exceptional book The Simple Path to Wealth. If you want a complete and easy to understand guide on all things investing, check out The Simple Path to Wealth.

    You can read my full review of The Simple Path to Wealth in my post here.

    If nothing else, it’s crucial to educate yourself so you can make informed decisions, especially in times of economic uncertainty like we’re in right now.

    The Simple Path to Wealth is a great place to start when it comes to investing in the markets.

    As Collins explains, benign neglect of your finances is never the solution. ReadThe Simple Path to Wealth and check out Collins’ website for a gold mine of information when it comes to personal finances and investments.

    So, what is my personal investing strategy?

    When it comes to investing in the markets, I’m about as boring as can be.

    My wife and I invest primarily in index funds.

    What is an index fund?

    As explained by Vanguard:

    An index mutual fund or ETF (exchange-traded fund) tracks the performance of a specific market benchmark—or “index,” like the popular S&P 500 Index—as closely as possible. That’s why you may hear people refer to indexing as a “passive” investment strategy.

    Instead of hand-selecting which stocks or bonds the fund will hold, the fund’s manager buys all (or a representative sample) of the stocks or bonds in the index it tracks.

    Why index funds?

    The simplest way to answer that one is to direct you to the single greatest investor of our lifetimes, if not ever: Warren Buffett.

    In 2013, Buffett famously instructed that after he dies, his wife’s cash should be split 10% in short-term government bonds and “90% in a very low-cost S&P 500 index fund.”

    Good enough for Buffett, good enough for me.

    For more on index fund investing, check out our full series on investing or read The Simple Path to Wealth.

    To sum it all up, my wife and I are not active traders. We don’t seek out the newest, hottest stocks.

    We’re pretty boring, actually.

    We simply make regular contributions to our various investment accounts and let the markets take care of the rest.

    As an example, for my daughter’s 529 plan, we chose a passive investment option that’s a mix of stock index funds and bond index funds.

    Our portfolio automatically rebalances over time based on my daughter’s projected first year of college. Essentially, the closer we get to her first year in school, the more conservative our portfolio becomes.

    We chose a similar option for our son’s 529 plan.

    One other note for context: Keep in mind that my wife and I are real estate investors. We own five properties and 11 total rental units. Our real estate investments comprise a major part of our overall net worth.

    How much money do I put towards each of your financial goals?

    Between saving for emergencies, saving for college, and saving for retirement, there are a lot of options. In addition, you may have other short term goals, like paying for a wedding or a house. Or, you may want to invest in real estate.

    So, how do you determine how much to allocate to each goal?

    There’s no perfect answer here.

    The first thing you can do is to spend some quality time formulating your version of Tiara Goals for financial freedom.

    Then, let those goals inspire conversations with your people to help you make the best decisions. This is exactly how my wife and I came up with our financial goals for this year.

    It also helps to attach specific targets to your financial goals, like we did when we estimated how much you should be saving to pay for college.

    I went through a similar exercise with my retirement savings after reading Die with Zero by Bill Perkins.

    Woman thoughtful about work at home office desk laptop wondering whether she is saving too much for retirement.

    As crazy as it sounds, are you saving too much for retirement?

    In Die with Zero, Perkins suggests that many of us are saving too much for retirement at the expense of using that money to live our best lives now.

    It’s one of the most compelling personal finance books I’ve read in a long time, and I highly recommend it. You can also learn more about Perkins and his journey on his socials.

    Perkins is not suggesting that saving for retirement isn’t important. He’s saying that the hard data shows that most of us are over-saving.

    When I read Die with Zero, I used an online calculator to estimate my projected retirement savings. As Perkins would have expected, at our then savings rate, my wife and I risked over-saving for retirement.

    With that realization, I made some adjustments and am now paying down HELOC debt at a faster rate.

    How much should you save for retirement?

    There’s no way to fairly answer this question. Spend enough time on the internet, and you’ll get many different answers. There are just too many variables in play, like what kind of retirement you want and when you want to retire.

    Perkins points out in Die with Zero that most of the advice out there encourages people to save too much money. You might agree or you might not.

    I encourage you to read Die with Zero and make that determination for yourself.

    At the end of the day, whether it’s saving for retirement or other major life goals, the most important thing is that you are consistently generating money fuel for your life.

    Don’t stress yourself out by worrying about the perfect amount to save towards each goal.

    Are you talking about your money mindset these days?

    It’s never been more important to talk to your friends and family about your money mindset. You don’t have to talk numbers to help each other during uncertain times.

    • Are you talking to your people about your money mindset?
    • What types of conversations are you having to help get through these times of uncertainty?
    • Would you recommend any books or articles that have helped you in the past?

    Let us know in the comments below.

  • 529 Plans for Sky High College Costs

    529 Plans for Sky High College Costs

    My five-year-old has already decided that she’s not going to college.

    She doesn’t want to sleep there, she says. Instead, her plan is to move in with her aunt.

    At least that’s one kid I don’t have to worry about when it comes to paying for college.

    In case your five-year-old hasn’t already decided her future, read on to learn about 529 educational savings plans, one of the best ways to pay for college.

    My students are already worried about paying for college for their unborn children.

    Whenever I teach personal finance to law students, we take some time to at the beginning of class to discuss what each of us would do with financial freedom.

    This is always my favorite part of class.

    Over the years, I’ve had students who want to travel the world, start businesses, pursue hobbies, and take care of aging parents.

    I’ll never forget the student who wants to coach high school football after working as a lawyer. Or, the student who simply wants the time to exercise every day. As she put it, “look good, feel good.”

    Of all the goals I’ve heard, there is one that comes up more than any other: paying for their children’s education.

    A lot of times, I hear this goal from students who don’t even have kids yet. I think that shows how important education is for many people. It also shows how worrisome it is to think about paying for college.

    What’s troubling is that my students typically have their own student loans to pay back. And, before they’ve even started their careers, they’re thinking about paying for the education of their unborn children.

    That’s intense. But, understandable.

    Some students share that they want to pay for their children’s college because they benefitted from their parents paying for college. These students were grateful for the opportunities their parents gave them.

    For other students, they want to pay for their children’s college because their parents did not pay for their college. They want to help their children avoid student loan debt as they begin their careers.

    For most people, saving for college is a top priority.

    According to a recent study by Fidelity, 74% of parents say they are currently saving for college.

    77% of parents think that the value of a college education is worth the cost.

    At a time when there is a lot of uncertainty surrounding student loans, it’s never been more important to have a plan to pay for your kid’s education.

    One of the best ways to do that is with a 529 college savings plan.

    In today’s post, we’ll discuss the major advantages of 529 plans. We’ll also learn how you can estimate the cost of college for your child so you can figure out how much you should be saving today.

    Be warned, the numbers are scary.

    What is a 529 college savings plan?

    529 college savings plans are state-sponsored, tax-advantaged investment accounts. The name stems from Section 529 of the Internal Revenue Code.

    While there are certainly other ways to save for college, 529 plans are hard to beat.

    The reason 529 plans are such a great way to save for college is because you receive triple tax benefits:

    1. Most states offer tax breaks on contributions to its residents for participating in the in-state plan. For example, as Illinois residents, my wife and I can deduct up to $20,000 in contributions to the Illinois-sponsored 529 plan from our state income each year.
    2. Your investment earnings grow tax-deferred, meaning your investments will benefit from tax-free compound interest. That means your savings will grow faster without being hindered by taxes.
    3. Investment earnings are 100% free from both federal and state taxes when used for eligible education expenses. Eligible education expenses include things like tuition, room and board, books, computers and other standard costs associated with college.

    An investment opportunity with triple tax benefits like this is almost unheard of.

    How do 529 plans work?

    In basic terms, 529 plans are investment vehicles designed to grow your contributions and make paying for college easier. When you invest in a 529 plan, you are generally investing in some combination of stocks and bonds.

    That means there is risk involved, just like with any other investment.

    Once you open your 529 account, you will choose how to invest your contributions. In this sense, 529 plans are similar to a 401(k) plan offered by your employer.

    Like with your 401(k) at work, a 529 plan will typically provide you different investment choices within the plan. You can choose how aggressive or conservative you want to be with your investments.

    The investment options will vary depending on which state’s 529 plan you choose.

    Every state offers a 529 plan.

    Every state offers a 529 plan. You don’t have to be a resident of that state to use its plan. You also don’t have to use your 529 savings for a school located within that state.

    Regardless of what plan you choose, the federal tax incentive remains the same. Money invested in 529 plans grows tax free. That means no federal taxes on your 529 earnings as long as the money is used for qualified educational expenses.

    While you also won’t have to pay state tax on earnings (same as federal), there are some additional state tax implications to be aware of.

    These state tax benefits are a bit more complicated because they vary state-to-state.

    Blue USA map with borders of the states and names on grunge background illustrating that each state offers a different 529 college savings plan.

    Remember, there is no federal tax benefit when you make your original contributions. But, most states do offer its residents a tax break on their original contributions for investing in-state.

    Morningstar has a detailed breakdown of which states offer additional tax benefits to its own residents.

    If your state offers tax benefits to invest in-state, that’s usually a good reason to choose your in-state plan.

    My wife and I use Illinois’ 529 plan, called Bright Start 529, for the added tax benefits we receive as Illinois residents.

    Besides the state tax benefits, keep in mind that not all 529 plans are created equal. 529 plans may offer different investment options or charge different fees. States may also provide different level of oversight, which may be important to protect your investments.

    You should always do your homework before choosing a plan to find one that matches your goals.

    I’ve found Morningstar’s rankings and analysis of each state’s plan to be the most helpful tool. According to Morningstar’s most recent rankings, the top 529 plans are offered by:

    1. Alaska
    2. Illinois
    3. Massachusetts
    4. Pennsylvania
    5. Utah

    To recap, when choosing which 529 plan to participate in, pay attention to what investment options are available within that plan. Also, look to see if you will qualify for additional state tax benefits.

    How much can I contribute to a 529 plan?

    Besides choosing the type of investments in your 529 plan, you can also choose how and when to contribute.

    Some people prefer automatic monthly contributions. Others prefer to contribute sporadically throughout the year, like when they receive a bonus at work.

    Unlike with most retirement plans, there are no yearly contribution limits for 529 plans. Instead, each state sets lifetime contribution limits per beneficiary, typically ranging from $235,000 to $550,000.

    This is a good time to point out that you can have a separate account for each of your kids. This allows you to save more money overall sine the contribution limits apply separately to each kid.

    It’s also a good idea to have separate accounts when you have different investment horizons based on the ages of your kids.

    For a complete list of the contribution limits by state, click here.

    By the way, if those limits sound incredibly high to you, you may be in for a shock when it comes time to pay for college.

    Keep reading to see what the projected costs of attending college are for a current kindergarten student.

    What happens if my kid does not go to college or I have money left over?

    If you have money left over in your 529 plan, you have some options. You can use that money for one of your other kids, without penalty. You can save it for a grandchild.

    As of 2024, you can roll extra 529 funds into a Roth IRA for the beneficiary, with some limitations. This was a terrific development for families worried about having too much money saved for college.

    If none of the available options work for you, rest assured that your money will always still be your money. You will have to pay a penalty and some taxes. Any unused earnings are subject to a 10% federal tax penalty plus income tax.

    How much should I be saving in my 529 college savings account?

    This is the ultimate question, right?

    While nobody can say for certain how much college will cost or how your investments will perform, we can make reasonable estimates to help form your strategy using an online calculator.

    I like the calculator available on Illinois Bright Start 529 website. What’s nice about this website is you can look up the future estimated cost of attending specific schools around the country.

    I also like using calculator.net. They have a College Cost Calculator where you can see how much college costs on average today and how much it is estimated to cost when your child starts college.

    Whatever online calculator you use, you’ll have to make some assumptions when you start plugging in numbers.

    For example, nobody can predict what your exact investment return rate will be. That said, you still need to plug a number into the calculator.

    What number should you use for investment return rate?

    • Bankrate.com and NerdWallet each suggest using an investment return rate of 10% annually (before inflation) based on historical stock market performance.

    10% seems like a reasonable number to use, keeping in mind that we’re just looking for an estimate to help us decide how much to save for college. Your actual returns may be lower.

    Besides the estimated return rate, you’ll also need to account for the rising costs of college. Most of the online calculators recommend you assume the cost of college will increase by 5% each year. That also sounds reasonable to me.

    One last thing: it’s never a bad idea to run through different investment scenarios to get a more complete picture. Try playing around with what the numbers look like if your investments only return 8% per year. Or, see what happens if college costs increase by 6% per year.

    With these assumptions in mind, you can start to get an idea of how much you should be saving for college today.

    Be warned, the dollar amount will probably scare you.

    Let’s look at an example using a current kindergarten student.

    Illinois’ Bright Start 529 calculator estimates that the cost of this kindergarten student attending the University of Illinois Urbana-Champaign will be $264,735.

    Assuming you don’t have any current savings and you estimate a 10% annual rate of return, the Bright Start 529 calculator indicates you should save $10,796 per year.

    Does that sound like a lot of money?

    Want to really be scared?

    What if your kindergarten student is interested in private school for college? Maybe your child has his heart set on Northwestern University?

    Bright Start 529 estimates the cost of Northwestern University for your kindergarten student will be $691,942. That means if you have no current savings, you should be contributing $28,217 per year.

    Yikes.

    And that’s only for one kid.

    How are you supposed to save that much money for college?

    If these numbers sound scary to you, what can you do about it?

    I have some thoughts:

    1. First, you need to spend some time thinking and talking about why it’s important to you to be good with money. Maybe the reason is as simple as paying for your kids’ college. Whatever your money motivations are, write them down. This is what I did with my Tiara Goals for Financial Freedom.
    2. With the right motivation in mind, you then need to make a Budget After Thinking. The overall purpose of your budget is to generate fuel for your future goals, including paying for college.
    3. Next, you need to stick to that budget by tracking two simple numbers. Making a budget does you no good if you aren’t sticking to it.
    4. Monitor your savings rate and aim for steady improvement over time, even if you’re only able to save a small amount to begin with.
    5. While you start to build your savings for college, avoid the three big causes for why many of us fall into debt, which can cancel out all your progress.
    6. Along the way, talk to your people. Remember the cardinal rule of Think and Talk Money: talking about money is not taboo. You are not alone in trying to save for college or trying to live a financially responsible life. Talking to your people will help you stay on track when times seem tough.

    The most important thing is that you take responsibility for your own money life.

    Nobody else can do this for you.

    The good news is that embracing these tips will help you beyond just paying for college. These are the exact strategies that will lead you to a life of financial freedom, the ultimate goal for many of us.

    It’s not supposed to be easy. If it were easy, everybody we do it.

    By educating yourself on 529 plans and talking to your people about money, you are way ahead of the curve.

    Do you have a plan to save for college?

    • Have you started saving for college?
    • Are you currently using a 529 college savings plan?
    • How do you motivate yourself to make regular contributions in light of other financial goals?

    Let us know in the comments below!