Tag: investing

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

    How Does Your Net Worth Compare to People Your Age?

    Pop quiz!

    What is your net worth?

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

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

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

    Well done!

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

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

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

    Why is it important to track your net worth?

    By tracking your net worth, you can quickly see if you are making good money decisions or need to make adjustments.

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

    By the way, tracking your net worth is not a major time commitment.

    It takes me less than 30 minutes each month to track and discuss what I consider to be one of the most important metrics in personal finance.

    That’s all the time it takes to know if I am progressing towards my most important financial goals.

    If you don’t know your net worth, now is the time to start tracking it.

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

    Why You Need to Track Your Net Worth Every Month

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

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

    Think of tracking your net worth in terms of keeping score during a basketball game.

    If you don’t know the score of the game, you don’t know if your strategy is working. You don’t know if you need to make adjustments before time runs out.

    The same applies to tracking your next worth. The point is to educate yourself on your current financial situation so you can make adjustments while there is still time.

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

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

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

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

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

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

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

    OK, let’s get to it.

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

    What is the net worth of Americans by age?

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

    Keep in mind these studies are not perfect.

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

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

    Net Worth by Age


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

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

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

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

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

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

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

    Net Worth by Age of the Top 1%

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

    Are these dollar amounts lower or higher than you expected?

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

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

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

    We also see the same effects of compound interest.

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

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

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

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

    What can you do with this information?

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

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

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

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

    Don’t panic.

    The benefit is that you can now make adjustments.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    Do you track your net worth?

    Are you happy with how you measure up?

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

  • How to Use Two Simple Metrics to Compare Investments

    How to Use Two Simple Metrics to Compare Investments

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

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

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

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

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

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

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

    You can also quickly compare two different rental properties.

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

    One note before we begin:

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

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

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

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

    The S&P 500 historically earns 10% annually.

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

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

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

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

    But, check this out:

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

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

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

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

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

    Note that predictable returns does not mean guaranteed returns.

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

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

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

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

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

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

    Calculate your Cash Flow.

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

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

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

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

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

    Asking Price: $1,000,000

    Monthly Rent: $9,000

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

    Cash Flow = Income – Expenses

    $1,700 = $9,000 – $7,300

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

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

    So, is this property a good deal?

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

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

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

    The formula looks like this:

    CoCROI = Annual Cash Flow / Total Cash Invested

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

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

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

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

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

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

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

    Let’s plug those numbers into the CoCROI equation:

    CoCROI = Annual Cash Flow / Total Cash Invested

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

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

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

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

    What does the math tell us?

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

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

    Not at all.

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

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

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

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

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

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

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

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

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

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

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

    What is Return on Investment (ROI)?

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

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

    The ROI formula looks like this:

    ROI = (Total Profit / Total Investment) / Years

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    How to Calculate ROI.

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

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

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

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

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

    ROI = (Total Profit / Total Investment) / Years

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

    ROI or Total Return: 26.1%

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

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

    Is this property a good deal?

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

    Using CoCROI and ROI can help you make that decision.

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

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

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

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

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

    There’s no right or wrong answer.

  • Coast FIRE Will Help You Realize When Enough is Enough

    Coast FIRE Will Help You Realize When Enough is Enough

    What are you chasing in life?

    Professional accolades?

    Tens of millions of dollars?

    The ability to retire someday?

    Do you even know?

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

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

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

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

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

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

    Somewhere along the way, our work becomes our identities.

    Is your job the most important thing in your life?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    This is where Coast FIRE comes in.

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

    Enough is enough.

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

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

    If it is broke, you can pivot.

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

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

    What is Coast FIRE?

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

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

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

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

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

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

    Coast FIRE does not mean complete financial independence.

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

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

    That’s OK.

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

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

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

    With retirement taken care of, you can:

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

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

    Knowing when enough is enough.

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

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

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

    His book is called Small and Mighty Real Estate Investor: How to Reach Financial Freedom with Fewer Rental Properties.

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

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

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

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

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

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

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

    That tradeoff is not currently worth it to us.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    Coast FIRE is not about giving up.

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

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

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

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

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

    Have you thought about when enough is enough?

    Does Coast FIRE help you visualize that moment?

    Let us know in the comments below.

  • How to Gain Confidence by Calculating Your Coast FIRE Number

    How to Gain Confidence by Calculating Your Coast FIRE Number

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

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

    That’s a very powerful realization.

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

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

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

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

    Let’s explore.

    What is Coast FIRE?

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

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

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

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

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

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

    Coast FIRE does not mean complete financial independence.

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

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

    That’s OK.

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

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

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

    With retirement taken care of, you can:

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

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

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

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

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

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

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

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

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

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

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

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

    Calculating your Coast FIRE number will drive this point home.

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

    How do I calculate my Coast FIRE number?

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

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

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

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

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

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

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

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

    Shrink Your Magic Retirement Number With One Rental Property

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

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

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

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

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

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

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

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

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

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

    Let’s dive in.

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

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

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

    He’s ready to pivot.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    This is another reminder to start investing early and often.

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

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

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

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

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

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

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

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

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

    She now plans to roll the $5,000 per month she had been using for loan payments into her retirement account.

    Because she was so far away from retirement, Dorothy thought it was best to error on the side of caution with her annual spending projections.

    So, Dorothy estimated that she would need $250,000 annually in retirement, much more than both Clarke and David figured.

    Based on the above, Dorothy’s Coast FIRE number is $435,153. She can achieve Coast FIRE by the age of 38!

    Dorothy’s Coast FIRE number is significantly lower than Clarke’s and David’s, even though she plans to spend way more in retirement.

    Of course, this is because she is getting started so early.

    Knowing that she can fund her entire retirement in just 10 years, Dorothy makes it a priority to do so.

    By the age of 38, she will be free to pursue any line of work she chooses without needing another dollar to fund her seemingly extravagant retirement.

    That makes Dorothy very happy.

    Use a Coast FIRE calculator to figure out your own number.

    The above examples show how knowing your Coast FIRE number can be so liberating.

    When you calculate how much you’ll need to retire, you may be surprised at how close you actually are.

    If you’ve been avoiding making big life decisions because of anxiety about retirement, knowing your Coast FIRE number can be a huge help.

    Clarke, David and Dorothy calculated their Coast FIRE numbers and were able to come up with manageable plans.

    Each person is on track for a desirable retirement, all while creating options for themselves earlier in life.

    Having options is a great thing.

    Have you calculated your Coast FIRE number?

    Were you surprised how close you actually are to achieving your retirement goals?

    Let us know in the comments below.

  • Shrink Your Magic Retirement Number With One Rental Property

    Shrink Your Magic Retirement Number With One Rental Property

    “Wait- how much do I need to save for retirement!?”

    Have you ever felt that way after learning how much money you think you need to retire?

    I’ve certainly felt that way in the past.

    The prospect of saving millions of dollars in order to retire can seem impossible, especially when you’re just starting out.

    You may have even wondered, “How do people even come up with these retirement numbers?”

    The most common answer to that question is the “4% Rule.”

    Using the 4% Rule, you can calculate your magic retirement number and determine how much money you need to save for retirement to maintain your current lifestyle.

    The 4% Rule suggests that you can safely withdraw 4% of your investments in year one of retirement. Then, you can safely withdraw 4% plus an adjustment for inflation in subsequent years. 

    If you do so, you can expect your money to last for 30 years.

    Today, we’ll take it one step further.

    Let’s explore how owning even a single rental property can further reduce the amount you need to save for retirement.

    The results may shock you- in a good way.

    How to use the 4% Rule to forecast your magic retirement number.

    First, let’s look at an example using the 4% Rule to forecast your magic retirement number.

    In some fun news, Bill Bengen, creator of the 4% Rule, just released a new book showing that it’s safe to increase your withdrawal rate in retirement from 4% to 4.7%.

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

    If you’re at all interested in FIPE (Financial Independence Pivot Early), Bengen’s book is a must read.

    Bengen’s research is significant because it means you can safely retire with even less money. That’s because the higher your safe withdrawal rate, the less you need squirreled away to maintain your lifestyle.

    In light of Bengen’s updated research, we’ll use 4.7% as our safe withdrawal rate.

    Let’s say that your lifestyle costs you $10,000 per month, or $120,000 per year.

    To figure out how much you would need in investments to cover your current lifestyle for 30 years, divide $120,000 by .047.

    Current Spending / 4.7% (.047) = Magic Retirement Number
    $120,000 / .047 =$2,553,191.49 

    Based on the updated 4.7% Rule, you need $2.55 million to maintain your current lifestyle in retirement.

    By the way, under the original 4% Rule, you would need $3 million in investments ($120,000 / .04 = $3,000,000.00).

    See why people are excited about the updated 4.7% Rule?

    Does saving $2.55 million for retirement seem like an impossible task?

    Saving $2.55 million for retirement may seem like an impossible task.

    If that’s your initial reaction, be sure to check out my ongoing series on investing. We cover everything you need to know to start investing with confidence.

    You may be surprised to learn that If you start investing early and often, reaching $2.55 million is actually not that hard.

    Even so, there’s another way to massively shrink your magic retirement number: owning rental properties.

    Why would anyone want to own rental properties?

    There are four main reasons why I invest in rental properties: 

    1. Monthly cash flow
    2. Appreciation
    3. Debt pay-down
    4. Massive tax benefits

    When these benefits combine, real estate investors can generate significant wealth over the long run.

    decorative lights under a tree at night showing how one rental property can shrink your magic retirement number.
    Photo by Jay on Unsplash

    Before we look at an example of how owning rental properties shrinks your magic retirement number, here’s a quick breakdown of each of the four main benefits. 

    For a more detailed description of each benefit, you can read my series on investing in real estate here.

    1. Rental property cash flow is king.

    With cash flow, you can cover your immediate life expenses. For anybody hoping to reach financial freedom, it is essential to have income to pay for your present day life expenses. 

    For my money, cash flow from rental properties is the best way to pay for those immediate expenses.

    If your present day expenses are already covered, you can use your cash flow to fund additional investments. 

    That might mean buying another rental property or investing in another asset class, like stocks.

    2. Long-term wealth through appreciation.

    Appreciation simply refers to the gradual increase in a property’s value over time. 

    While cash flow can provide for my immediate expenses, appreciation is all about the long-term benefits.

    Like investing in stocks over the long run, real estate tends to go up in value. The key is to hold a property long enough to benefit from that appreciation.

    To benefit from appreciation, all I really need to do is make my monthly mortgage payments, keep my property in decent condition, and let the market do the rest.

    3. With rental properties, other people pay off my debt.

    When I buy a rental property, I take out a mortgage and agree to pay the bank each month until that mortgage is paid off. At all times, I remain responsible for paying back that debt.

    However, I do not pay that debt back with my own money. 

    Instead, I rent out the property to tenants. I do my best to provide my tenants with a nice place to live in exchange for monthly rent payments.

    I then use those rent payments to pay back the loan.

    As my loan balance shrinks, my equity in the property increases. Equity is just another way of saying ownership interest.

    When my equity in a property increases, my net worth increases. 

    4. Real estate investors earn massive taxes benefits.

    When you earn rental income, you must report this income on your tax return. Rental income is treated the same as ordinary income.

    However, the major difference between rental income and W-2 income is that there are a number of completely legal ways to deduct certain expenses from your rental income.

    Common rental property expenses may include mortgage interest, property tax, operating expenses, depreciation, and repairs. We’ll touch on a few of these deductions below.

    With all of these available deductions, the end result is that most savvy real estate investors pay little, or nothing, in taxes on their rental income each year.

    Yes, you read that right.

    I’ll say it again, just to be clear:

    Most savvy real estate investors legally pay nothing in taxes on their rental income each year.

    With these benefits in mind, let’s see what happens when we add a single rental property to your portfolio.

    How owning a single rental property lowers your magic retirement number.

    Let’s continue our example from above where your current lifestyle costs $120,000 per year. We learned that means your magic retirement number is $2.55 million based on the 4.7% Rule.

    Now, let’s add a single rental property into the mix.

    Let’s assume that you own a rental property that cash flows $2,000 per month. That’s a total of $24,000 per year.

    Remember, your cash flow is the profit remaining after paying your mortgage, taxes, insurance, and any other costs.

    To learn how to properly run the numbers on a potential rental property, click here.

    With $24,000 per year generated by your rental property, you don’t need your investment portfolio to fund your entire $120,000 lifestyle.

    Instead, your investments only need to generate $96,000 per year ($120,000 – $24,000 =$96,000).

    So, let’s plug $96,000 into our magic retirement number formula:

    Current Spending / 4.7% (.047) = Magic Retirement Number
    $96,000 / (.047)=$2,042,553.19

    By adding a single rental property to your portfolio, you’ve lowered your magic retirement number by half a million dollars!

    You now only need $2.04 million to maintain your current lifestyle in retirement.

    Macro X-ray of some mushrooms with false coloring showing how to shrink your magic retirement number with one rental property.
    Photo by Mathew Schwartz on Unsplash

    What happens to your magic retirement number if you pay off your mortgage?

    This example shows how your magic retirement number drastically shrinks with the addition of just a single rental property.

    Keep in mind that in this example, we assumed that you have a mortgage on your rental property. That mortgage obviously reduces your cash flow.

    But, what if you paid off that mortgage before you retired?

    Let’s finish our example by assuming that you have a 30-year fixed rate mortgage and your payment is $3,500 per month. And, you make it a goal to pay off that mortgage before you retire.

    Once the mortgage is paid off, you can add that $3,500 to your monthly cash flow.

    That increases your monthly cash flow on this property from $2,000 to $5,500. Annually, that’s $66,000 in cash flow.

    Continuing our example, you now only need your investment portfolio to generate $54,000 per year ($120,000 – $66,000 =$54,000).

    Look what happens when we plug $54,000 into our magic retirement number formula:

    Current Spending / 4.7% (.047) = Magic Retirement Number
    $54,000 / .047 =$1,148,936.17

    By paying off the mortgage on this single property, you’ve now reduced your magic retirement number by $1.4 million dollars!

    You now only need $1.15 million to fund your current lifestyle in retirement.

    Have you considered adding a rental property to your overall investment portfolio?

    The point of this post is to show you how owning even a single rental property can reduce your magic retirement number.

    Think about what would happen if you owned two rental properties. Or, what about three rental properties?

    If you can handle the job of being a landlord- which I’m betting is easier than your job as a lawyer or consultant or doctor- owning rental properties is a great way to accelerate your journey to financial freedom.

    After seeing the math, you may want to consider adding a rental property (or two) to your overall investment portfolio.

    Are you intimidated by the thought of saving enough for retirement?

    Have you done the math with the 4.7% Rule to see how much you really need?

    Have you considered adding a rental property to your portfolio to shrink you magic retirement number?

    Let us know in the comments below.

  • Dreaming About Rental Properties but Ignoring Money Mindset?

    Dreaming About Rental Properties but Ignoring Money Mindset?

    Do you dream about owning rental properties so you can generate semi-passive income while spending more time with your family?

    I want to hear about those dreams. What would you do with that time?

    Travel?

    Exercise?

    Read?

    It’s so motivating for me to learn what you would do with that kind of freedom.

    At the same time, it’s my job to remind you to not ignore key personal finance fundamentals while you’re dreaming about the future.

    When it comes to buying rental properties, this is especially true.

    Let me explain.

    If you’ve been keeping up with the blog, we’ve now learned how to run the numbers on potential real estate deals.

    In fact, I showed you that the analysis is not actually that hard. Your job is simply to account for the fixed costs and make informed predictions for the speculative costs.

    Then, we did the math together on an actual property in my target zone. By using a real example in Chicago, my goal was to further convince you that running the numbers should be easy.

    Finally, we talked about how to evaluate a rental property when the initial math looks bad. The truth is most rental properties are not going to immediately look like great investments. It’s our job as investors to negotiate and look for potential.

    By this point, you may be thinking that buying a rental property sounds great, except for one big problem:

    How are you supposed to come up with the money for a downpayment?

    Great question.

    It’s such a great question that it requires us to take a step back.

    Before evaluating rental properties, you need to evaluate your personal finances.

    It’s no secret that in order to buy a rental property, you first need available money for the downpayment.

    Unless you plan on taking on partners or getting the money from family, coming up with a sufficient downpayment is a major challenge.

    Yes, there are loan options available that require a smaller downpayment. We’ll soon talk about some of those options. I’ve used loans like this in the past.

    Still, a “smaller downpayment” does not mean “no downpayment.”

    So, how can you come up with a downpayment?

    For a downpayment, you need to have available money.

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

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

    Does this sound familiar?

    It all comes back to money mindset.

    When was the last time you checked in on your money mindset?

    If you take a look at the Think and Talk Money homepage, you’ll see six main category tabs across the top of the page:

    Each one of these categories builds upon the previous categories.

    It all starts with money mindset.

    A strong money mindset is the foundation of the personal finance journey. Maintaining a strong money mindset requires constant and intentional thought.

    wooden boat on blue lake during daytime indicating what you can do with financial freedom.
    Photo by Pietro De Grandi on Unsplash

    I revisit my money mindset every week by taking a quick look at my Tiara Goals for Financial Freedom.

    It may seem overly simplistic, but money mindset is what separates people who reach financial freedom from those who struggle to get ahead in life.

    Don’t believe me?

    Budgeting is really not that hard. We all understand the basic concept: spend less money than you earn. Still, most of us can’t do it.

    The same applies to debt and credit. We all know to avoid debt. We know to use credit responsibly. So, why don’t we do it?

    Investing can seem complicated at first. Is it really that hard? Entire books and websites have been created to show you how to create massive wealth through simple index funds.

    What about buying rental properties? We did the math together. Analyzing deals is not that hard. The impediment for most people is coming up with the money for a downpayment.

    You may be in a similar boat right now. You want to buy a rental property but you’re discouraged because you don’t have the downpayment saved up.

    It’s not just about how much money you make.

    Buying rental properties is not just about how much money you make. Plenty of lawyers and professionals make a lot of money and struggle to come up with any excess money to invest.

    Sadly, the struggles don’t just relate to coming up with money for investments.

    Lawyers as a profession have long struggled with mental health issues. I first learned about these challenges during law school orientation. Today, I see it in practice.

    Being a lawyer is a hard way to make a living. When you work as a lawyer, the hours are intense and stress levels are consistently high.

    In 2023, the Washington Post analyzed data from the U.S. Bureau of Labor to determine what the most stressful jobs are. The study confirmed that lawyers are the most stressed.

    Of course, lawyers are not alone in struggling in this regard due to long, stressful hours.

    The same study showed that people working in the finance and insurance industries were right up there with lawyers as being highly stressed.

    Well, what can we do about it?

    How can we address these struggles?

    Where can we find money for a downpayment?

    I have some thoughts.

    How motivated are you to truly get ahead in life?

    Are you truly motivated to get ahead in life?

    Have you worked on your money mindset and found the motivation to actually create a budget that generates savings?

    If you’ve successfully created a budget and still need to generate more fuel, have you thought about a side hustle?

    When I mention side hustle, is your initial reaction that you’re too busy or important?

    Some lawyers and professionals reading this won’t even allow themselves to consider a side hustle. They automatically think, “I’m way too skilled or busy to even think about another job.” 

    In my personal finance class, we spend a lot of time challenging that notion.

    Very few people- and I mean very few- are too important or too busy to take on a side hustle.

    For most of us, it’s an excuse.

    You may think you’re one of those “too important” people.

    I would challenge you to assess whether you’re confusing “too important” with “too stressed” or “too tired” or “too cool.”

    Is continuing to worry about money really better than spending a few hours a week earning extra money doing something you love?

    Setting that conversation aside, the ideal side hustle is something you enjoy doing that can earn you extra money at the same time.

    Some examples of side hustles my students have come up with in class include:

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

    How about this idea for aspiring real estate investors: part-time property manager?

    My wife and I recently needed some help with apartment showings. We reached out to one of our favorite young people in the world to see if she’d be interested.

    A chance to make some money on the side and learn a new skill?

    She jumped on board without hesitation.

    We’ve known her for years and were not the least bit surprised. She’s exactly the type of person who will no doubt be successful in whatever she chooses to do.

    There is always a way to make more money.

    The point is there are always ways to make more money by doing things you like to do anyways. Even if you’re busy. You just have to exert some mental energy to figure out how.

    Then, when you make that extra money, put it to work for you. Make all your hustle worth it.

    At that point, we can talk about investing or buying real estate.

    Unfortunately, most people don’t want to go through this process.

    woman walking on street surrounded by buildings and thinking about own rental properties.
    Photo by Timo Stern on Unsplash

    Too many lawyers and professionals come to me and primarily want to talk about investing or buying real estate.

    They want to skip the foundation and jump right to the more exciting stuff.

    Most of the time, these are people who have never kept a budget. Or, they have massive student loan debt with no real plan to pay it off. Maybe they have a good W-2 job but no other sources of income.

    When I start exploring their situations with them, it’s clear they haven’t thought much about the personal finance building blocks.

    When they mention how hard it is to save for a downpayment, they haven’t considered looking for a new job that pays more or starting a side hustle.

    Before jumping right to owning rental properties, these are the personal finance obstacles that need to be addressed.

    If this sounds like the situation you are in, your ongoing mission is to generate more cash to fuel investments.

    The fun part is once you’ve discovered your motivations and established strong habits, you will consistently have money available so you can invest month after month for the rest of your life.

    My wife and I would not own five properties today if we didn’t first learn personal money wellness. 

    My wife and I would not own five properties (11 rental units) today if we had not first learned money wellness fundamentals.

    I don’t just mean we wouldn’t have had money available to invest, although that is certainly true. 

    I also mean we wouldn’t have the skills and knowledge to successfully run our real estate business.

    If you’ve ever wanted to be a business owner or investor, working on personal finance skills now is critical.

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

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

    What if you knew someone who made $100,000 per year and invested $20,000? Did your reaction change?

    How often do you think about your money mindset?

    Do you tend to think more about the “fun stuff” (investing, real estate) than the fundamentals (money mindset, budgeting, debt, etc.)?

    Let us know about your money mindset in the comments below.

  • Money on My Mind: Read The Simple Path to Wealth

    Money on My Mind: Read The Simple Path to Wealth

    The Simple Path to Wealth by JL Collins is the best 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.

    Who is JL Collins?

    JL 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.

    purple flower filed during daytime illustrating how beautiful the simple path to wealth should be.
    Photo by Jack Skinner on Unsplash

    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.

    I’ll share those simple rules with you at the bottom of the post. Before I do, here is a bit of context about each time I read his book, first in 2019, then again in 2025.

    Seeing those dates, you may already be wondering if world events between 2019 and 2025 changed his philosophies.

    Let’s find out.

    I first read The Simple Path to Wealth in 2019 as a DINK.

    I first read The Simple Path to Wealth in 2019 and just finished the updated version. Even if you’ve read the original version, I highly recommend you read new edition released in 2025.

    Here’s why.

    When I read the original version in 2019, market conditions and the world economy were in very different places than they are in 2025.

    Back in 2019, the stock market had been closing out one of the best decades in history. As reported by US News:

    From a market’s perspective, the 2010s will forever be remembered as an era of slow but steady gains on Wall Street, and a period of sustained growth for investors and their retirement accounts.

    By the end of the 2010s, the market had been on the longest bull run in history. It was such an epic run that it was fairly common for most people to see big gains in their portfolios without much effort or knowledge.

    On a personal level, my life was also very different in 2019. My wife and I were enjoying married life before having kids. We had just purchased our first rental property in a trendy Chicago neighborhood.

    On top of that, we were DINKs (“Dual Income No Kids) and able to save aggressively for our next investment.

    We were considering another rental property, but I first wanted to learn more about the power of investing in the stock market.

    This is what led me to read The Simple Path to Wealth the first time.

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

    Don’t waste this powerful opportunity to supercharge your investments.

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

    This is what my wife and I were able to do, even if we didn’t know what a DINK was. We each had good incomes coming in and our monthly expenses were low.

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

    This allowed us to fuel our Later Money goals. We had money in the bank and seemingly endless choices.

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

    Reading The Simple Path to Wealth was a way to educate myself in hopes of not screwing it up.

    I read the new version of The Simple Path to Wealth in 2025.

    Fast forward to 2025. I read the new version o The Simple Path to Wealth because I was curious if Collins’ viewpoint had changed due to major world events, like the Covid-19 pandemic.

    I was also curious to see whether his advice would still resonate with me now that I’m a seasoned real-estate investor and have a personal finance blog.

    Well, I’m happy to report that Collins’ message hit me stronger today than it did in 2019.

    If anything, Collins’ lessons are even more applicable today than they were in the 2010s when markets were soaring.

    In the new edition, Collins discusses how recent world-changing events, like the Covid-19 pandemic and international wars, actually strengthen his long-time recommendations.

    This was very refreshing to learn because I have been following his advice and recommending his book for years.

    In times of economic uncertainty, Collins explains, it’s even more important to have a plan for your money.

    Once you have that plan, you need to stick to it, no matter what.

    Collins provides the motivation and tools to stick to the plan.

    Why is The Simple Path to Wealth such an important book?

    When I teach my personal finance class to law students, I ask at the beginning of class what my students hope to learn.

    One of the most common responses I hear every year is, “I want to learn how to invest in the stock market.”

    OK, fair enough.

    The truth is I’ve yet to find any resource better than The Simple Path to Wealth to teach us how and why to invest in the stock market.

    What makes Collins such a good teacher?

    In The Simple Path to Wealth, Collins uses basic, every day, language that we can all understand. This is his greatest gift.

    Too many books on investing are so dense that they are useless to the average person.

    Collins is different. He successfully blends his life experiences with the historical data, in easy to understand terms, to show us that investing is not hard.

    For many people, especially people at the beginning of their careers, investing can seem intimidating.

    As Collins explains, that’s because it’s big business for investment companies and banks to make investing seem hard and scary.

    These companies spend billions of dollars marketing every year to convince us that investing is complicated. Their goal is to convince us to pay them lots of money to manage our money.

    You don’t have to believe them. You certainly don’t have to pay them tons of money to invest in the stock market.

    Collins will not only show you how invest on your own, he’ll also give you the tools to outperform the financial professionals.

    What are Collins’ simple rules to live by?

    Collins’ main message is that investing should not be complicated. When done the right way, it’s simple and effective. Hence, the title of his book.

    Collins explains that each of us can achieve long-term wealth by following a few simple rules:

    1. Spend less than you earn.
    2. Invest the surplus.
    3. Avoid debt.

    Sound advice, indeed.

    If you can live by these simple rules, the next question is what to do with your surplus money earmarked for investments.

    Collins has a simple and effective plan for you that he details in his book.

    What is Collins’ simple and effective plan for investing?

    Collins’ plan is both simple and effective. He doesn’t expect you to just take his word for it, either. He has the research and historical data to back it up.

    Make no mistake: just because something is simple does not mean it is ineffective.

    So, what is Collins’ simple and effective plan to invest for long-term wealth?

    1. Invest in low-cost, broad-based index funds. His favorite investment has always been Vanguard’s total stock market index fund, VTSAX.
    2. Ignore the noise. Be mentally tough. Stay the course.

    That’s it.

    You don’t need fancy investments. You don’t need a financial advisor. All you need to do is commit to the plan.

    If you’re thinking that this is too good to be true, you need to read The Simple Path to Wealth.

    How can it really be that simple?

    You might be thinking, how can it really be that simple? If all people had to do was invest in index funds, everyone would be rich.

    That’s exactly Collins’ point!

    Everyone could be rich if they follow these simple rules.

    The problem is most people allow their emotions to get in the way and steer them off the path.

    Collins does his best to help you deal with those emotions.

    If you don’t believe that index fund investing will make you wealthy, look at this stat about the recently announced sale of the NBA’s Los Angeles Lakers:

    That’s right. The Buss family would have an extra $3 billion today if they had invested in the S&P 500 instead of purchasing the Lakers in 1979!

    Many thanks to blog reader, DJ, for passing this one along!

    I know, I know. Owning the Lakers was probably a ton of fun. They also surely made money on the team along the way.

    The point remains: investing in an S&P 500 index fund also would have generated massive wealth. And, that wealth would have come without the effort and the headaches of running a major professional sports organization.

    I can picture Collins having a good laugh about stats like this.

    Read The Simple Path to Wealth.

    I recommend The Simple Path to Wealth to all of my students and friends who ask me about investing.

    There is not a better book out there to make the concept of investing seem approachable for all of us.

    Collins is clear and humorous. He’s also stern when he needs to be.

    If you read this book, you’ll realize that becoming wealthy through the stock market does not have to be complicated.

    It can be wonderfully simple.

    Let us know in the comments below.

  • 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?

    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.

  • How to Think About Investing for Retirement and College

    How to Think About Investing for Retirement and College

    We recently talked about the tricky question of whether you should invest while you’re in debt.

    It’s a choice many people struggle with because we know debt can be bad and investing can be good.

    The desire to tackle both goals raises the question: should we focus on eliminating the bad thing or doing more of the good thing?

    In that post, we explored the four main reasons why I think it’s a good idea to invest while in debt. You can read more here.

    Today, we’ll talk about another challenging question that many of us face:

    Should we prioritize investing for retirement or investing for our children’s college?

    Like the question of whether to invest while in debt, this question presents a difficult choice because two things are true at once:

    Investing for retirement is a good thing.

    Helping our kids is a good thing.

    So, what should we do?

    This is a question I think about a lot now that I have three young kids.

    There are powerful emotional reasons on both sides of the question. And while money decisions are certainly emotional, using simple math can help you choose the right balance between retirement and college.

    Let’s start by looking at some of the emotional reasons and then explore how simple math can help us with this difficult choice.

    As a parent, I want to help my kids as much as I can.

    On the one hand, as a parent, I want to help my kids as much as I can. College is expensive and is only getting more expensive.

    I have personally felt the heavy burden of debt. It’s not a good feeling. If I can help my children avoid that feeling by paying for college, I will.

    I want to be free to retire on my terms.

    On the other hand, I want to be free to retire on my terms. To do so, I know that I need to start investing early and often. Just like college is expensive, retirement can also be very expensive.

    I don’t want to be in a position where I’m forced to work longer than I otherwise would because I don’t have enough saved up.

    If I skip out on investing for retirement to pay for college, I may end up in that situation.

    With powerful emotions on both sides of the question, is it possible to come up with a plan that helps accomplish both goals?

    Yes, I think we can. In this instance, it helps to remember that money decisions are both emotional and mathematical.

    Let’s revisit some of the math we’ve previously looked at to help us get closer to a decision.

    What does the math say about paying for college?

    We took a deep dive into saving for college in my post on using 529 plans for sky high college costs.

    While nobody can say for certain how much college will cost or how your investments will perform, you can make reasonable estimates and use an online calculator to help form your strategy.

    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, like an investment return rate.

    The S&P 500 has historically provided a 10% average annual return. So, 10% seems like a reasonable return rate to me for your estimations.

    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.

    Graduation with woman with purple gown on because her parents saved for retirement and college.
    Photo by MD Duran on Unsplash

    With these assumptions in mind, let’s look at an example using a current kindergarten student.

    Since I live in the Chicago-area, we’ll assume in this example that the kindergarten student is going to the largest in-state college, the University of Illinois Urbana-Champaign (U of I).

    Illinois’ Bright Start 529 calculator estimates that the cost of a current kindergarten student attending U of I 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.

    That comes out to $900 per month.

    By doing the math, you now have a reasonable estimate as to how much you should be saving for college.

    You do not have to rely exclusively on long-term savings to pay for college.

    If $900 per month seems like a lot of money, keep in mind that you don’t have to depend exclusively on these savings to pay for college.

    There are two key reasons for that:

    1. Your child can take out student loans.

    While it may not be your plan right now, don’t forget that your child always has the option of using student loans to help pay for college. Your child may also earn scholarships or qualify for other financial assistance.

    On top of that, there are hundreds of good colleges at varying price points around the globe. It is not the end of the world if your child ends up going to a lower-ranked but less expensive school.

    The bottom line is that there are options when it comes to paying for college. It is not exclusively up to your savings to ensure your child gets a good college education.

    In other words, don’t convince yourself that your student will be prohibited from attending college if you don’t save enough right now.

    2. You will likely still be earning income when your child starts school.

    Besides the availability of other options to pay for college, also keep in mind that you will likely still be working when your child starts school. There is no reason that you can’t use some of that income to help pay for school.

    If you continue to make intentional, solid money decisions, you should have extra funds available in your budget when your kid starts college.

    One way make sure that happens is to keep your expenses constant as your career progresses and you make more money. As an example, let’s say you bought a home while your kids were young. Of course, this is a common path for a lot of professionals who are starting a family.

    If you stay in that home long-term, your housing costs should be relatively fixed. As you earn more money, instead of upgrading your home, you can use that excess money to help pay for college.

    Once again, the point is that there are options to help your children pay for college even when your investments fall short.

    Now, let’s look at the math to figure out how much we should be saving for retirement.

    Just like we can use an online calculator to estimate the cost of college, we can also use a calculator to estimate how much we need to save for retirement.

    We took a detailed look at how to do this in my post on figuring out your magic retirement number.

    The key is to start with the 4% Rule,

    The 4% Rule suggests that you can safely withdraw 4% of your investments each year 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.

    Current Savings x 4% (.04) = Annual Retirement Spending

    $1,000,000 x .04 =$40,000.00

    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.

    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.

    Now that you know you will need $3 million in retirement, you can figure out how much you need to be investing today to hit that number.

    I like the calculator available on investor.gov for this part.

    With this calculator, you can plug in your investment goal, initial investment, years until retirement, and interest rate to figure out how much you need to save each month.

    Let’s continue our example assuming your magic retirement number is $3 million.

    We will also assume that you currently have $100,000 saved for retirement and you plan to retire in 30 years. We’ll also use the same 10% annual rate of return we used before.

    Based on these assumptions, you would need to save $635.82 each month to hit your magic retirement number of $3 million.

    With this information, you can now plan accordingly to make sure you are saving enough for retirement each month before you start worrying about college.

    woman on hammock near river relaxing because she invested for her future retirement while saving for college.
    Photo by Zach Betten on Unsplash

    Aim to hit your monthly retirement target before saving for college.

    By using these simple online calculators, you can estimate exactly how much you need to save for college and to save for retirement.

    I recommend that you aim to hit your monthly retirement target first before funding your college savings accounts.

    As we mentioned above, you and your child will have other options to help pay for college, like loans, scholarships, and concurrent income.

    By contrast, these options are not readily available to fund your retirement. You’re more-or-less on your own to sustain yourself.

    Think about it: by definition, retirement means ceasing to work. That means no income coming in besides your retirement savings. There are not any loans (at least reasonable ones) or scholarships to bail you out in retirement.

    Sure, you could try to work part-time during retirement. But, that means you’re really only partially retired. Plus, it would be nice to have the choice to work in retirement because you want to work instead of being forced to do so.

    It’s for these reasons why you should prioritize saving for retirement over saving for college.

    In an ideal world, you can do both. If you control your expenses as your income grows, you give yourself the best chance to do both.

    How are you balancing investing for retirement with investing for college?

    While money decisions are certainly emotional, using simple math can help you choose the right balance between retirement and college.

    My recommendation is to prioritize retirement over college because of the additional options available to help pay for college. You’re essentially on your own when it comes to retirement.

    Once you’ve calculated your magic retirement number, you can then calculate exactly how much to save each month.

    When you can comfortably hit that number, you can then figure out how much to be saving for college.

    • Are you currently saving for retirement and for college?
    • How do you balance doing both?
    • Have you thought about other ways to help pay for college besides the options we discussed?

    Let us know in the comments below.

  • 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.