Tag: personal finance

  • Furloughs Show Why You Need Savings and Parachute Money

    Furloughs Show Why You Need Savings and Parachute Money

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

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

    Why?

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

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

    The mortgage still needs to be paid.

    The kids still need to eat.

    The credit card balances are still due.

    As reported by CBS News:

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

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

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

    We can protect ourselves in two ways.

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

    Second, we can protect ourselves with parachute money.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    I refer to this additional protection as Parachute Money.

    What is Parachute Money?

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

    The analogy goes like this:

    Pretend your life is like flying on an airplane.

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

    Either way, you’re ready to jump. 

    All you need is a parachute.

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

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

    Then, you look at the second parachute. 

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

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

    OK, cool.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    Admittedly, this was a risky strategy.

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

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

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

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

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

    Let me explain.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    Do you have an emergency savings account?

    How strong is your parachute?

    Let us know in the comments below.

  • A Reminder About the Intersection of Money and Life

    A Reminder About the Intersection of Money and Life

    By now, you should know that I love Chicago.

    It’s where I’m from, where I’ve chosen to raise my family, and where I primarily invest in real estate.

    Last night was a good night for Chicago sports fans.

    My favorite team, the Chicago Cubs, won a playoff series for the first time since 2017.

    While watching the game at home, I couldn’t help but think of how different my life is today than it was in 2017.

    Back then, I had season tickets and rarely missed a game. My wife and I were just about to get married. Life was good and about as easy as can be.

    From a financial perspective, we were pretty boring.

    By the way, being boring with money is not a bad thing.

    When it comes to money, boring is good.

    Back in 2017, my wife and I each made good incomes as attorneys. More importantly, we were happy saving a lot of the money we earned.

    We rented an apartment and had minimal expenses besides travel and our social lives.

    At that time, we had a good amount of savings because we were planning to buy a house after the wedding.

    Our only investments were in retirement accounts, like a Roth IRA and 401(k). We didn’t own any real estate.

    Life’s a bit different for me now.

    I don’t have season tickets anymore. We don’t travel as much.

    We have three kids and different financial priorities.

    Life is better than ever, but maybe not as easy as it was in 2017.

    OK, what does all this have to do with baseball?

    Last night at home, while watching the Cubs pull out a stressful victory, I started thinking about these things. I wasn’t in the crowd like in 2017, but I knew exactly how the fans were feeling.

    Each pitch was tense. The crowd went nuts after every Cubs hit or strikeout by a Cubs pitcher. Whenever the San Diego Padres had a rally going, every Cubs fan was nervous.

    In the end, the Cubs pulled out the victory and thousands of people now have memories they’ll never forget.

    There’s nothing better than playoff baseball. I love it and hate it at the same time.

    Watching the game, I thought of some of my favorite baseball memories. It was a good reminder of why it’s so important to think and talk about money.

    We say it a lot around here: money is only a tool. When used properly, you can use money to build lifelong memories. You can create stories that you’ll remember for the rest of your life.

    Stories like the ones I have from 2016 when the Cubs won the World Series.

    That’s when I met Phil and April.

    My nice friends, Phil and April.

    Throughout that World Series run, we sat next to the nicest couple in the world, Phil and April.

    Phil was a diehard Cubs fan. April was more reserved.

    Both were smart and very friendly. They were enjoyable people to sit with.

    We chatted baseball, mostly. Pitching changes. Send the runner. Question the manager. That sort of thing. Completely normal, unremarkable stuff. 

    Until Game 5.

    Game 5 was played on a crisp, October evening. Jackets and beanies weather in Chicago. Phil and April were sitting next to my brother and I, as usual.

    Mike Napoli was playing first base for Cleveland. Around the 3rd inning, a jerk four rows in front of us taunted Napoli with a crude, juvenile insult.

    It was apparent the jerk was doing his part to keep Old Style in business for another year.

    None of us liked what this jerk yelled.

    Phil especially didn’t like it.

    Phil was nice…and tough.

    Phil did what the rest of us were thinking but were too scared to do ourselves.

    Phil stood up. In so many words, Phil sternly recommended that the jerk knock it off and show some class.

    The jerk turned around, aggressively scanning the crowd for the man who had publicly shamed him. The jerk had that unmistakable look in his eye that meant, “Let’s dance.”

    My brother and I were a bit worried for our nice… and all of a sudden tough…friend, Phil. 

    Phil’s wife, April, did not look worried. She sat there like nothing strange was happening. Almost like she had seen this movie before.

    When the jerk locked eyes with Phil, he immediately saw that Phil was not backing down. If anything, Phil looked a little too eager.

    Well, the jerk was sloppy, but he had enough sense to recognize that he wanted no piece of Phil. He wisely turned back around and sat down quietly. 

    That was the last we heard from the jerk that night.

    Our nice (and tough) friend, Phil had restored order.

    chicago cubs sing lit up reminding me of why we spend money.
    Photo by Dastan Eraliev on Unsplash

    Phil’s on TV!

    On the day of the Cubs’ championship parade, my brother called me excitedly, “Phil’s on TV! Phil’s on TV!”

    It didn’t register right away who he was talking about.

    When I turned on the TV, sure enough, there was Phil, our World Series friend. I was so confused. Phil was giving an interview on set with the Cubs announcers.

    Our nice (and tough) friend, Phil? On TV? 

    I turned up the volume and listened to Phil talk about his experience watching the Cubs win the World Series. Maybe I was hoping he’d mention his nice friend, Matt. (He didn’t.)

    I still couldn’t figure out why Phil was on TV. 

    Why won’t they just put his name on the screen already!? 

    It wasn’t until the end of the interview that I learned who Phil was.

    All I could do was laugh. 

    Our nice, and confirmed tough, friend Phil is better known as World Wresting Entertainment (WWE) champion and icon, CM Punk.

    Oh, and his wife?

    WWE champion and bestselling author, AJ Mendez.

    Unknowing watching the Cubs win the World Series with two celebrities with a combined 3.5 million Instagram followers?

    Yup, that’s a story I’ll be telling for a while.

    A memory I wouldn’t trade for anything. 

    As much fun as the World Series was, my favorite Cubs memory actually took place during the 2015 season, the year before they won the World Series.

    It was during the 7th inning of Game 4 of the NLDS. This was the game where the Cubs knocked the rival St. Louis Cardinals out of the playoffs.

    In the 7th inning, with the Cubs up 5-4, Kyle Schwarber hit one of the most epic home runs in Cubs history, landing his moonshot on top of the new right field video board.

    It was such a feat, the ball is now enshrined where it landed.

    The entire stadium was rocking so loud, you could feel the ground shaking beneath your feet. Every fan was jumping up and down, hugging anyone close enough to touch.

    We were all dancing like nobody was watching. That moment was pure happiness. 

    I was there with my mom.

    A lifelong Chicagoan, she too was jumping up and down and high-fiving all the other diehard fans in our section.

    After the game, we met up with my wife at a restaurant and relived the victory over Champagne.

    That day with my mom and my future wife is one of the best memories I have.

    clear wine glass holding champagne, one of the best memories I have with my mom and spent money on.
    Photo by Oliver Sherwin on Unsplash

    What does this have to do with money?

    What does any of this have to do with money?

    When I say money is a tool to create stories and memories, this is what I mean.

    My brother and I still joke about our nice friends, Phil and April. I wouldn’t trade that memory with my mom for anything.

    These are the types of experiences that I want more of.

    These memories, and the desire for more like them, continue to motivate me today.

    I want to be good with money, not so I can stash it in the bank, but so I can use that money to create joy for me and my family.

    Beyond that, watching the crowd at Wrigley Field last night reminded me of why I started a personal finance blog.

    It excites me to try and help people make intentional money decisions for meaningful experiences with meaningful people.

    Talking money is really just talking life.

    You may not be a baseball fan, but this conversation illustrates a foundational concept of Think and Talk Money.

    Yes, we discuss money.

    But, we’re really talking about our lives and our experiences.

    Money is just a tool to help us. 

    And before you get cynical on me, of course money is not required for good experiences. That’s not the point.

    What I’m suggesting is that if we’re all spending so much of our time each week at work, shouldn’t we spend some time thinking about the money we earn so we can maximize experiences like I had with my mom? 

    Think and Talk Money is all about awakening that thought process so we can use the tool of money to fuel meaningful lives.

    You might not use that tool to get Cubs tickets.

    But, what if you started thinking about money as just a currency that you trade to get your time back so you can do more of what you want with who you want?

    Whatever it is that you’re after in life, thinking and talking about money will help get you there.

    Have you used money as a tool recently to create stories and memories?

    Let us know in the comments below.

  • 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 Much Money Did You Actually Keep This Week?

    How Much Money Did You Actually Keep This Week?

    The alarm clock goes off at 6:30 a.m.

    You groggily brush your teeth and hop in the shower.

    The hot water feels nice. Should I skip work today?

    Then, reality sets in. What time is my first meeting today?

    Shower done. Now, what to wear? The blue shirt? Again?

    Let’s go, let’s go! Pick up the pace! The kids need to get dressed and eat breakfast.

    Why are we always so rushed before school? Tomorrow, I’ll wake up earlier.

    The train will be here in 10 minutes. “Bye kids! Bye Honey!”

    I gotta get across the tracks! Speed walk!

    Phew. Made it.

    30 minutes to catch your breath before work starts.

    What day is it today? Tuesday?? It’s only Tuesday?!?!

    I’m tired.

    Do you ever notice the people on the train?

    Does this routine sound familiar to anyone?

    At least you’ll have something to show for it come pay day.

    Wait, you go through all that effort every day and you’re not saving a good portion of your paycheck?

    Let’s talk about that.

    When I take the train downtown, I can’t help but notice my fellow passengers.

    Some people are already cranking away on their laptops. Some are even on conference calls, which always surprises me.

    Why don’t they care that everyone is annoyed with them? Do the other people on the call know that they’re talking to someone on a train?

    But, I digress.

    Some passengers are reading books. A good portion of passengers are doomscrolling. Just about everyone has headphones in.

    It’s not that people look unhappy. They just seem to want to be somewhere else.

    Do you have similar observations?

    Most people don’t have a plan.

    It’s at times like these when I start to wonder how many of these people have a plan.

    I’m not talking about a plan for lunch or for getting to the gym after work.

    I mean a plan for how to spend their time and their money.

    Ideally, this plan would be based upon spending time on meaningful pursuits with meaningful people.

    My guess is most people have never really thought about this kind of plan.

    Instead, it’s go to work. Get a paycheck. Pay the bills.

    Same thing tomorrow. That’s as far as the plan goes.

    This routine may be enough for some, or even most, people. If that’s enough for you, there’s no shame in it. Holding down a steady job and providing for your family are accomplishments to be proud of you.

    But, let’s be real.

    You’re reading a personal finance blog.

    We spend a lot of time talking about financial freedom and creating options.

    You wouldn’t still be reading if you didn’t feel there was more to life than the daily train ride, right?

    You may not know how or when to get off the train, but you’re interested in finding out if it’s possible.

    Well, it’s definitely possible. But, you need to break the cycle and commit to a plan.

    Here’s a question to help you get started.

    How many hours do you work to make money?

    Wide view image of blank black spiral note pad and white marker with calligraphic inscription plan on yellow background meaning we all need a plan to keep our money.
    Photo by Volodymyr Hryshchenko on Unsplash

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

    We won’t even count all the hours you spend getting dressed and riding the train.

    Also, we will pretend you’re not looking at your emails in the evening, on weekends, and on family vacations. 

    We definitely won’t count the hours you’re staring at the ceiling fan worried about tomorrow’s challenges at work.

    OK, so you’re working 2,000 hours (plus) per year to make money.

    My question is:

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

    Let that sink in for a moment.

    You work a lot of hours. I’m guessing many of those hours are stressful.

    Yes, you get paid money in exchange for those hours.

    But, do you still have any of that money?

    Do you care more about making money or keeping money?

    Think back on how much time, energy, and sacrifice you dedicated to making that money.

    Hopefully, you saved and invested a good portion of that money.

    The problem is that most lawyers and professionals work incredibly hard, make good money, and don’t keep enough of it.

    They somehow find 2,000 or 3,000 hours per year to work.

    But, they won’t set aside even a few hours per month to think about what to do with all that money.

    This is why I am passionate about money wellness.

    Most people spend the vast majority of their lives worried about making money and practically no time at all thinking about what to do with that money.

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

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

    That’s how you break the cycle of mindlessly riding the train to work and start progressing towards financial freedom.

    It’s not how much money you make. What matters is how much you keep.

    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 who made $1,000,000 per year, and at the end of the year, had only saved $20,000, what would your reaction be?

    Sadly, this is how most people behave with their money.

    They inherently know that they should be saving more, but they come up with excuses. They assure themselves that they’ll start saving more next year.

    On the other hand, what if you knew someone who made $100,000 per year and saved $40,000?

    Did your reaction change?

    This is the kind of person who will actually achieve financial freedom and have choices in life.

    It all comes down to how much you keep, not how much you make.

    It’s why your personal saving rate is so important.

    Don’t forget, your saving rate is the one thing you can truly control.

    Bambu eco toothbrush in a glass bottle symbolizing the morning rush to get out of the house.
    Photo by Superkitina on Unsplash

    What is a saving rate?

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

    Saving rate = Money Saved / Money Earned

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

    I find it helpful to measure your saving rate based on your monthly income and savings. This way it matches up with your Budget After Thinking. 

    Tracking your saving rate will help you understand if you are making progress over time. 

    It’s not about comparing yourself to someone else. Whatever your current saving rate is, the goal is to seek personal improvement. 

    Just like with tracking your net worth, the purpose is to see if you are making personal progress over time.

    How can you make progress with your saving rate over time?

    When it comes down to it, there are really only two ways to improve your saving rate.

    1. You can spend less, and save more, of the money you’re currently making.
    2. You can make more money and save most of that money, all while keeping your expenses the same.

    Combining those two ideas is even better: make more money, spend about the same. 

    Use the excess money you make to fuel your Later Money goals.

    If you can do that, your saving rate and your net worth will steadily climb.

    You’ll realize that you’re closer to getting off the train than you think.

    How much money did you keep this week?

    When you get your next paycheck, pay attention to how much of that money you actually keep.

    Once you pay the mortgage/rent, car payment, and credit card bills, is there anything left for you?

    If your saving rate is low, this exercise should make you mad.

    Seeing 95% of your hard-earned money disappear as soon as it comes in should inspire you to make some adjustments.

    Those adjustments may be small at first. Over time, you’ll experience that it feels better to keep money than to spend money.

    Keeping money leads to options.

    Spending money leads back to the train.

    Have you ever observed your fellow commuters in the morning? What are your takeaways?

    Do you have a plan to get off the train, should that be your choice?

    Let us know in the comments below.

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

    Your Saving Rate is the One Thing You Can Truly Control

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

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

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

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

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

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

    So, am I wrong about any of that?

    Gee, thanks for the doom and gloom, Matt.

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

    Don’t be discouraged. All is not lost.

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

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

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

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

    What is the secret?

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

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

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

    Let’s examine why.

    What is a saving rate?

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

    Saving rate = Money Saved / Money Earned

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

    I find it helpful to measure your saving rate based on your monthly income and savings. This way it matches up with your Budget After Thinking. 

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

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

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

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

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

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

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

    That’s… bad.

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

    What can I learn from tracking my saving rate?

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

    Whatever your current saving rate is, the goal is to seek personal improvement. Just like with tracking your net worth, the purpose is to see if you are making personal progress over time.

    When it comes down to it, there are really only two ways to improve your saving rate.

    1. You can spend less, and save more, of the money you’re currently making.
    2. You can make more money and save most of that money, all while keeping your expenses the same.

    Combining those two ideas is even better. Like we just said, make more money, spend about the same. 

    Use the excess money you make to fuel your Later Money goals.

    If you can do that, your saving rate and your net worth will steadily climb. You’ll experience that your Later Money goals are closer to becoming reality than you think.

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

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

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

    Sometimes, we all need to ask ourselves:

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

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

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

    Only you can answer these questions. 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    Not bad, huh?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    Only one year.

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

    Now, that’s cool.

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

    So, what’s the takeaway here?

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

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

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

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

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

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

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

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

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

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

    Does this example motivate you to save even more?

    Let us know in the comments below.

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

    Did You Win the $1.787 Billion Powerball Jackpot!?

    No!?

    Me neither.

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

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

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

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

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

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

    Specifically, I asked myself:

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

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

    Yes, I said realistic.

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

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

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

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

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

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

    Here’s exactly what I would do.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    I recently used an online calculator to figure out how much money I would need to invest right now in my son’s 529 savings account to fully fund his college.

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

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

    The key is to let that money grow for the next 15 years to take advantage of compound interest.

    What an accomplishment that would be to not have to worry about his future college. I could cross that item off the “to-do” list once and for all.

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

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

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

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

    Why did I target in-state tuition?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    How would you use $178,000 today?

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

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

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

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

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

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

    Enjoy some. Save and invest the bulk of it.

    What would you do with a windfall like this?

    Let us know in the comments below.

  • Financial Independence is Not About a Life of Deprivation

    Financial Independence is Not About a Life of Deprivation

    Stop me if you’ve heard this advice before:

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

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

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

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

    Nope.

    I refuse to believe that.

    Financial independence about so much more than that.

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

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

    How did financial independence become synonymous with deprivation?

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

    Yes, son, there’s a problem.

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

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

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

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

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

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

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

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

    Of course not.

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

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

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

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

    FIRE has taken on an unintended meaning.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    Yes, you have to keep your spending within reason.

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

    Focus on earning more, not just spending less.

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

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

    What would you rather do?

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

    Do you really have to think that long about it?

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

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

    I am a big fan of side hustle.

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

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

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

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

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

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

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

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

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

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

    How can you find these clients?

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

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

    Either one of these pursuits could be your side hustle.

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

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

    OK, but I don’t even like coffee.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    When Money is Tight, Think Even More About The Future

    “Money is tight.”

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

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

    Have you ever heard money excuses like this before?

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

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

    The pattern goes something like this:

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

    Wake up and do it all over again tomorrow.

    Dream about life-enriching experiences and retirement later.

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

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

    My challenge to you?

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

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

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

    Same Job. Same bills. The cycle continues.

    Do you like what you see?

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

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

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

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

    How do we break the cycle?

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

    Budgeting is about having a plan ahead of time.

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

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

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

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

    That’s all there is to it.

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

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

    Now Money

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

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

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

    Life Money

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

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

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

    Later Money

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

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

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

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

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

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

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

    Money is just a tool.

    Ask yourself:

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

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

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

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

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

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

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

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

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

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

    These adjustments will give you options in the future.

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

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

    What do you really want out of life?

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

    What do you really want out of life?

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

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

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

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

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

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

    I never allowed myself to dream about financial freedom.

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

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

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

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

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

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

    When money is tight, think about the future.

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

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

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

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

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

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

  • 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.

  • Capital One Settlement: A Reminder to Evaluate Your Bank

    Capital One Settlement: A Reminder to Evaluate Your Bank

    How long have you been with your current bank?

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

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

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

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

    More on the settlement below.

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

    I banked with Capital One for many years.

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

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

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

    Key word: was.

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

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

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

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

    When my statement loaded, I was shocked.

    0.30%!

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

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

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

    What the heck happened?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    All is well that ends well, right?

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

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

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

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

    What are the terms of the settlement?

    According to the Notice of Settlement:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    Are you a current or former Capital One customer?

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

    Let us know in the comments below.