Tag: personal finance

  • Stop Feeling Guilty and Annoyed About Spending Money

    Stop Feeling Guilty and Annoyed About Spending Money

    No matter how far along you are on your personal finance journey, you will always need to make choices on how to spend your money.

    I recently wrote about how I felt annoyed when I wanted to buy a new bike and new golf clubs.

    You have to make decisions like this whether you make a lot of money or very little money.

    The more money you make, the harder these choices can be. When I was in my 20s, traveling and a social life were my biggest spending challenges.

    Now that I’m in my 40s, it’s making good spending choices for not only me, but my wife and three kids.

    The other day, I confessed that I was annoyed because my goal to pay off debt was keeping me from buying a new bike or new golf clubs.

    What I’ve realized since then is that I also felt guilty about spending money on myself when I could better spend that money on my kids.

    I felt guilty because my five-year-old wants to learn how to ride a bike. I should buy her a bike and teach her to ride before I splurge on a new bike for myself, right?

    With powerful feelings like annoyance and guilt, how can we make good spending decisions even as we make more money?

    Don’t ignore key personal finance fundamentals even as you start to make more money.

    What I’ve learned as my career and family obligations evolve is that it’s easy to forget the little things I used to focus on when money was tight.

    This recent experience reminded me that I need to step back and focus on personal finance basics.

    I’m not alone in needing a reminder from time to time about personal finance fundamentals, like budgeting. I talk to plenty of people who tell me that they kept a budget in their 20s but not so much in their 30s and 40s.

    They share with me that even though they’re making more money, it seems like they have less and less money to spend.

    I totally get it because I was the same way. I tracked every penny I made in my 20s until I learned how to stay on budget with two simple numbers. Recently, I haven’t been as diligent.

    My recent dilemma with the new bike and golf clubs reminded me to go back to the fundamentals.

    The benefit is that by remembering the basics, I can help myself by taking the anxiety and guilt out of these types of spending choices.

    So, what are the fundamentals I’m referring to?

    After I wrote that post about the new bike and golf clubs, I reviewed my top 10 budgeting tips for lawyers and professionals.

    My Top 10 Budgeting Tips for Lawyers and Professionals

    1. See the ball go through the hoop.
    2. Don’t cancel your social life.
    3. Talk to your friends about your life money.
    4. Keep on traveling.
    5. Spark and cut.
    6. It’s OK if you occasionally exceed your spending.
    7. Make a game out of it, like the $500 challenge.
    8. Buy it if you want it, but not right away.
    9. You don’t have to go big or go home.
    10. Plan ahead for budget busters.
    person walking inside shopping center showing that we all have choices to make when it comes to our spending.
    Photo by Heidi Fin on Unsplash

    These budgeting strategies helped me realize that I can choose to spend money on what I want and shouldn’t feel guilty or annoyed.

    The key is understanding how a certain purchase fits into the rest of my overall spending.

    On this occasion, 3 of my top 10 budgeting tips stood out and helped me with what to do about the new bike and golf clubs.

    Let’s take a look.

    6. It’s OK if you occasionally exceed your spending.

    What should you do if you overspend one month? Don’t get discouraged and give up. Before all your hard work goes to waste, take the next month to course correct. 

    If you overspent by $300 in August, make it a priority to underspend by $300 in September.

    Is this easier said than done?

    Well, sure. It’s always easier to say you’re going to do something. The hard part is following through. It will take discipline to get back on track. What will drive that discipline? 

    Once again, it’s your ultimate life motivations that we’ve talked so much about (and will always continue to talk about). Without that clear vision of your ideal life in front of you, no budget will ever last.

    Don’t panic. Course correct. Stay on track.

    Even though I didn’t buy the new bike or golf clubs, if I chose to do so, I could course correct the next month.

    Going over budget for just one month is fixable. The key is to not blow my budget multiple months in a row.

    If I did that, I would end up digging a hole so deep that it would be a major challenge to get back to good spending levels.

    8. Buy it if you want it, but not right away.

    Just because I didn’t buy the bike or golf clubs yet doesn’t mean I can’t buy them in the future when the time is right.

    I always think of my mom when I see something that I want to buy but know I shouldn’t buy it right away.

    About 10 years ago, my mom bought me a jacket for a birthday present. It was the exact jacket I wanted. How did she know, I asked her. “You mentioned it when we were downtown four months ago.” Four months ago!

    I shouldn’t have been surprised. My mom has one of those steel trap memories.

    If you only met her for five minutes and then saw her again two years later, don’t be surprised when she asks about your consulting gig, your trip to New Orleans, and that blue dress that she really liked.

    I learned from my mom’s gift strategy and modified it to help myself resist the temptation to make impromptu purchases. I don’t have her memory, but I do have a phone with a notes function. 

    When I see something that I might want to buy, I do my best to resist the temptation of buying it immediately and make a note in my phone. After a couple weeks, if I still want that thing, I buy it. 

    More times than not, I no longer want whatever it was that tempted me in the moment.

    If I still want the bike or golf clubs a few weeks from now, I can still buy them. By waiting, I also might benefit from end-of-the-season sales and can shop around for the best offers.

    10. Plan ahead for budget busters.

    Budget busters are any inconsistent expenditures, good or bad, that can derail your planning. 

    Good budget busters might include trips, weddings, and holiday/birthday gift shopping.

    We can also add a new bike and golf clubs to the good budget busters category. These certainly count as irregular expenses but can wreck our budgets if we don’t properly plan for them.

    Bad budget busters include unexpected car repairs, home repairs, or medical expenses.

    Note, budget busters are inconsistent; they are not unexpected. These expenditures are 100% predictable every year, we just don’t always know when they will surface. 

    woman counting dollar bills indicating the choices we all have to make with our spending and budget.
    Photo by Alexander Grey on Unsplash

    Planning ahead for budget busters is crucial to staying on track.

    To do so, open up a savings account, preferably at a different bank than your checking account. This helps isolate those funds so those dollars don’t disappear. 

    As part of our really lost boy’s Budget After Thinking, you’ll recall that we had a separate line item for budget busters in both our Now Money (bad budget busters) and Life Money (good budget busters).

    I encourage you to do the same. Each month that you don’t spend your budget buster money, transfer it to your savings account so it’s there when you need it.

    One more bonus tip for dealing with budget busters.

    We talked above about how to course correct when you exceed your budget in one month. On the flip side, what should you do when you’ve had a great month and underspent? 

    I recommend you transfer the amount you underspent to your budget busters savings account. Don’t let that hard-earned money sit in your checking account. 

    Those dollars will disappear. By transferring them to savings, those dollars will be at your disposal when needed.

    Instead of buying the bike or golf clubs now, I can transfer some funds in my savings account and wait to go shopping until I have enough saved up.

    Don’t ignore your budget even if you’re far along on your personal finance journey.

    My experience with the new bike and golf clubs served as a great reminder to revisit personal finance fundamentals, like budgeting.

    If you haven’t thought about your spending choices in a while, now is a good time to do it.

    The 10 budgeting strategies mentioned above have worked for me in the past and continue to work for me today. 

    If you review those top 10 strategies, I hope you see that making good spending choices does not have to make us feel annoyed or guilty.

    It just takes a little mental energy, exerted ahead of time.

    When making good spending choices becomes part of your everyday life, you can eliminate the guilt and anxiety that comes with tough choices, like buying a new bike or golf clubs.

    Have you been in a similar situation where you wanted to buy something but were worried about how it fit into your overall budget?

    What did you decide to do?

    Let us know in the comments below.

  • Dreaming About Rental Properties but Ignoring Money Mindset?

    Dreaming About Rental Properties but Ignoring Money Mindset?

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

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

    Travel?

    Exercise?

    Read?

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

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

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

    Let me explain.

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

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

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

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

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

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

    Great question.

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

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

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

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

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

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

    So, how can you come up with a downpayment?

    For a downpayment, you need to have available money.

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

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

    Does this sound familiar?

    It all comes back to money mindset.

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

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

    Each one of these categories builds upon the previous categories.

    It all starts with money mindset.

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

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

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

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

    Don’t believe me?

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

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

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

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

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

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

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

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

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

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

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

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

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

    Well, what can we do about it?

    How can we address these struggles?

    Where can we find money for a downpayment?

    I have some thoughts.

    How motivated are you to truly get ahead in life?

    Are you truly motivated to get ahead in life?

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

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

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

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

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

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

    For most of us, it’s an excuse.

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

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

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

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

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

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

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

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

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

    She jumped on board without hesitation.

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

    There is always a way to make more money.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    How often do you think about your money mindset?

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

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

  • How to Analyze a Property When the Initial Math Looks Bad

    How to Analyze a Property When the Initial Math Looks Bad

    Most rental properties that you evaluate are not going to immediately look like great investments.

    Does that mean you should just give up?

    No way.

    It’s up to us as real estate investors to research, negotiate and buy properties only at the right prices. Or, to buy properties that have untapped potential.

    Ideally, we can do both.

    The other day, we ran the numbers on an example property in Chicago that had caught my eye in.

    Through that example, we learned what costs to include in our initial analysis to quickly determine if a property was worth pursuing further.

    Today, we’ll look at the next step of the evaluation process.

    Specifically, we’ll focus on what we can do when the initial math on a potential property doesn’t look very attractive.

    Now, let’s get to it.

    Our example property is a small multifamily building in Chicago.

    Our example property is a five-unit apartment building listed for $1,800,000 and located directly in my target zone in Chicago.

    Remember, this analysis is for educational purposes only. You are responsible for running your own numbers on any potential deal.

    Here’s the listing description from my preferred listing site, Redfin:

    Fully Gut Renovated 5-unit building, a prime turnkey investment opportunity in the best Logan Square Location Possible. Double Vanities, Fully built out walk in closets, in unit W/D, tankless hot water heaters, thin shaker kitchens and full height quartz backsplashes are just a few of the features that make this building feel more like condo living. Perfectly situated just steps from the Logan Square Farmers’ Market, residents can enjoy an eclectic mix of trendy bars, restaurants, cafes, and shops right at their doorstep. Renovation done with full plans and permits, include a new roof, windows, insulation, drain tile system with sump pump, back deck, and still warrantied appliances!

    This property passed my initial screening, so we ran the numbers to see if it would be a good investment.

    Here’s what the initial numbers looked like:

    Asking Price: $1,800,000

    Monthly Rent: $13,840

    Mortgage Payment (Principal and Interest)$8,982
    Taxes$1,429
    Insurance$400
    Utility Bills$350
    Property Upkeep$200
    Preventative Maintenance$200
    Vacancy Rate (5%)$692
    Unexpected Repairs (5%)$692
    Property Improvements (5%)$692
    Total Monthly Cost$13,637

    Monthly Cash Flow (Rent – Costs): $203

    It took me less than five minutes to do this initial evaluation. 

    A few notes on the above numbers:

    • For the mortgage payment, I estimated a 25% downpayment, which is common for investment property loans, and a 7% interest rate.
    • Taxes are a major cost that can make or break any deal. Make sure you are familiar with how taxes are assessed in your market. For example, in Chicago, property taxes are reassessed every three years. That means taxes go up every three years. 
    • Many property listings will indicate the prior year’s taxes because they are lower. This particular listing has the prior year’s taxes, which I know are soon going to change for the worse. For now, I’ll run the numbers with the current taxes but would definitely account for higher taxes before moving forward with this deal.
    • Property insurance is a real wildcard these days. Insurance costs are going up everywhere. You’ll need to talk to a good insurance broker for an accurate estimate. I used my experience in the neighborhood with similar properties to make a reasonable estimate.

    The initial math on this property did not look great.

    In the end, I concluded that this is a beautiful property in a great location but would not be a good investment for me.

    The reason is simple: I invest for cash flow. For me, this property is way too expensive for only a couple hundred dollars of monthly cash flow.

    More specifically, I am not interested in shelling out a down payment of $450,000 (not to mention more for closing costs) to earn $2,400/year in cash flow.

    At a price point of $1.8 million, I would only be interested if this property had a monthly cash flow of at least $4,000 per month.

    For another investor, it’s possible that this would still be a good investment based on appreciation and debt pay-down. For me, that’s a big risk I’m not willing to take with that kind of money.

    So, what now?

    Is that the end of the analysis?

    Cross this property off the list and move on?

    Not even close.

    This is when the fun starts.

    person using laptop to evaluate a rental property using real numbers.
    Photo by Kaitlyn Baker on Unsplash

    What to do if you don’t like the results of your initial evaluation.

    Most of the time that you evaluate properties you won’t love the initial results.

    You should expect that to be the case.

    Think about it from the seller’s perspective. Ask yourself: why is the seller putting this property on the market?

    Obviously, the seller is trying to make a profit. Maybe the seller is a developer or flipper who just completed an expensive rehab. He might even have investors who paid for the project that now expect to be paid back, at a profit.

    The seller wouldn’t be doing is job if he didn’t try to find a buyer at a high asking price. He can always lower the price later on.

    Also, you can think of it another way.

    If a seller owns a wonderful property that is making tons of money every month, how motivated is he to actually sell?

    He may list the property at a high price just to see if anyone will bite.

    In our example, if the seller was cash flowing $4,000/mo, he’d probably just keep it.

    And, if he had that kind of cash flow coming in, he may just list it at an astronomical price because he doesn’t really need to sell it.

    Sure, there are exceptions. Some sellers don’t want to be landlords and others might just want to cash out. But, I don’t see very many of these situations.

    When these situations do pop up, you need to act fast because other investors will take notice.

    The point is these are just a few reasons why you will rarely find great investment properties based on your initial evaluation.

    Don’t give up.

    Your job is to figure out if a property has untapped potential that would make it a good investment.

    Now, let’s return to our example to see what I mean.

    Is the property overpriced?

    The listing price is only the start of the negotiation.

    The listing price may just be too high. In recent years, the listing price has oftentimes been too low, leading to bidding wars because of high demand and limited supply.

    Your job is to find a price that works for your cash flow needs. The seller may not accept your price, and that’s OK. You may need to move on.

    Let’s explore putting a price on our example property where it would be attractive for me.

    Keep in mind that I would want a monthly cash flow of $4,000 to move forward on this property.

    With that target in mind, I can return to the online calculator on Redfin to see at what price this property might make sense for me.

    Playing around with the calculator, I learned that I would need the price to drop to $1,100,000 to get around $4,000 in monthly cash flow (holding all other costs constant).

    That’s about a 40% price reduction.

    Do you think the seller would go for that?

    Not a chance.

    Depending on your market, sellers may be willing to negotiate the price. But, if you come in too low, they won’t take you seriously.

    If I were to move forward with this property, I would need to find ways to improve the math besides just the price. Still, I might be able to get it for below the asking price.

    For our example, let’s assume the seller would agree to knock 10% off the purchase price.

    Here’s what the numbers look like at 10% reduced purchase price.

    Offer Price: $1,620,000

    Mortgage Payment (Principal and Interest)$8,083
    Taxes$1,429
    Insurance$400
    Utility Bills$350
    Property Upkeep$200
    Preventative Maintenance$200
    Vacancy Rate (5%)$692
    Unexpected Repairs (5%)$692
    Property Improvements (5%)$692
    Total Monthly Cost$12,738

    With monthly rents of $13,840, that means this property is now cash flowing $1,002/mo.

    We’re heading in the right direction, but I think we can do better.

    Besides negotiating the purchase price, what if we can shop around and improve our mortgage?

    Start with the purchase price but see if you can further to reduce the overall cost.

    For example, can you shop around for a better mortgage?

    Let’s assume you can find a loan with a 6.75% interest rate instead of 7%.

    With a 6.75% interest rate, your mortgage payment drops from $8,083 to $7,880.

    Now, your cash flow increases to $1,211/mo.

    You can start to see how this part of the analysis works.

    The point is to reduce the costs of owning this property to improve your cash flow.

    What other ways can you reduce the costs?

    You should go through this process with each cost associated with the property.

    Maybe you can find insurance for less than $400/mo.

    Or, maybe you are willing and able to handle more of the maintenance responsibilities yourself.

    The idea is that each time you reduce your monthly costs, your cash flow goes up.

    If you can reduce the costs enough, a property may start looking appealing to you.

    two people meeting with laptops as they run the numbers together for a potential deal.
    Photo by charlesdeluvio on Unsplash

    On top of reducing the costs, can you can earn more income from this property?

    At the same time you look to reduce the costs, you should look to see if you can earn more income from a property.

    In other words, can you earn more rent per month than the current rate?

    This is where you’ll need to study the neighborhood to see what similar apartments are renting for. Your broker should be able to help you with this.

    In our example, let’s assume that you do your research and determine that the apartments are under-rented.

    In fact, you learn that each of the 5 apartments could earn $200 more per month.

    Adding that additional $1,000 per month brings our total cash flow to $2,211/mo.

    Now, this property is starting to look more enticing.

    You might be surprised how many sellers under-rent their properties.

    Over the years, my wife and I have been successful in finding properties that have been severely under-rented by the previous owners.

    We don’t renovate properties ourselves because we are busy professionals with full-time jobs and a family. We try to find properties that have bee nicely rehabbed but are currently under-rented.

    You may be surprised to learn that a property flipper doesn’t always know the local market as well as you. It could be that he is just in a hurry to get a property rented out so he can sell it and move on to the next job.

    If you become an expert on market rents in your local area, you can be the one who benefits.

    A few years ago, my wife and I purchased a three-flat in our local area. It was about a half-mile from where we lived at the time and was on our regular walking route. We took an interest in the rehab and followed its progression closely.

    When the property was completed, I saw the rental listings online. It was a beautiful property in a great location. I was shocked when I saw the units were listed for only $1,700/mo.

    This was my local area and I knew these units could easily go for $2,500/mo, if not more.

    When the property hit the market a few months later, we pounced and had it under contract the next day.

    When the original tenants chose to move out at the end of their leases, we quickly found new tenants happy to pay $3,100/mo.

    Sometimes sellers just don’t know what they have.

    Don’t fool yourself into thinking a property is a great investment by unrealistically changing the numbers.

    After reading this post, you can hopefully start to see how to run the numbers to make a potential property more attractive.

    In our example, we tweaked the purchase price, mortgage rate, and rental income to improve the cash flow enough to make this deal potentially attractive.

    After going through an analysis like this, you may be ready to make an offer. Just don’t get your hopes up too high.

    Sellers won’t always negotiate.

    Properties won’t always be under-rented.

    Many of your offers will end up getting rejected.

    Don’t quit.

    There will always be another property out there.

    If you can’t get a property with numbers that work for you, it’s time to move on to the next one.

    No matter how much you love a property, don’t fool yourself into thinking it’s a great investment if it’s not.

    Readers, have you made offers on properties that you knew were undervalued? Did you successfully cash flow on a deal that did not look great on paper at first?

    Let us know in the comments below.

  • How to Easily Evaluate a Rental Property with Real Numbers

    How to Easily Evaluate a Rental Property with Real Numbers

    For beginners, running the numbers on a potential real estate deal can seem complicated. 

    It doesn’t have to be.

    If you’ve been practicing good budgeting habits with your personal finances, this part should actually be easy. 

    The key is simple: more needs to come in than goes out.

    When you have more coming in than going out, that means you have positive cash flow.

    For lawyers and professionals acquiring rental properties to accelerate our journeys to financial freedom, we don’t need to overcomplicate things.

    What we need to know is whether a property is going to put more money in our pockets than it takes out.

    Today, we’ll look at a real example of how I quickly and easily evaluate potential deals in my primary market.

    If you haven’t already, check out my previous post on evaluating real estate deals for a detailed explanation on why I focus on the below elements.

    As a quick refresher, let’s first look at the fixed costs and speculative costs involved in evaluating rental properties.

    There are fixed costs and speculative costs involved in evaluating a rental property.

    Whenever you evaluate a rental property, there are some fixed costs and some speculative costs involved. This holds true whether you are a beginner or an experienced investor.

    It’s helpful to differentiate between the fixed costs and the speculative costs. In a lot of ways, we can control the fixed costs, but we cannot control the speculative costs.

    Fixed costs generally include reoccurring monthly bills that are relatively constant.

    The main fixed costs you’ll want to know when evaluating a rental property include:

    • Mortgage payment (Principal and Interest)
    • Taxes
    • Insurance
    • Utility Bills
    • Property Upkeep
    • Preventive Maintenance

    Speculative costs include those unpredictable, irregular costs that do not occur every month and maybe don’t even occur every year. 

    I separate the speculative costs into three main categories:

    • Vacancy Rate
    • Unexpected Repairs
    • Property Improvements

    Vacancy rate refers to the percentage of available units that are unoccupied at a particular time. When running the numbers on a prospective rental property, I recommend adding in the cost of 5% vacancy.

    When you own rental properties, things are going to break and require money to fix. If you target properties in decent condition, I recommend saving 5% of the monthly rent for unexpected maintenance. 

    If you don’t improve your property over time, you risk your unit becoming unattractive. Again, if you target decent properties to begin with, I recommend saving another 5% per month for property improvements. 

    With these costs in mind, we can now quickly and effectively run the numbers on any available property.

    Let’s take a look at a property that recently became available in my target market of Chicago.

    I regularly check available properties in my target area in Chicago.

    I have a searched saved on the Redfin app for multifamily properties within a certain price range in my target areas of Chicago.

    That makes it easy to scroll through the listings a few times every week to keep myself educated on my local market.

    I do this for a few reasons, regardless of whether I’m actively shopping for a property.

    white ceramic sink near brown wooden table indicating a nice rental property but do the numbers check out.
    Photo by Huy Nguyen on Unsplash

    First, I want to know what new properties come on the market. I’m interested to see if developers and rehabbers are still drawn to my area.

    I also check to see how much properties have sold for recently so I can stay on top of market conditions. For example, I’m curious if sellers are accepting below-asking-price offers and how long properties are staying on the market.

    I’m also looking to see if there have been any price reductions on properties that previously caught my eye.

    All of this simple research helps me move quickly when an attractive property becomes available.

    This research has also helped me develop a list of basic requirements I look for in a rental property.

    Before running the numbers, a property has to match my initial requirements.

    Before I run the numbers on any property, it has to satisfy some basic requirements. This is not an exhaustive list, but here are some of the most important factors my wife and I evaluate when considering rental properties in Chicago:

    1. Location, location, location. In Chicago, proximity to the L and social life (coffee shops, restaurants, bars, etc.) are crucial. Most of the young professionals we rent to are still in the “going out” phase of life. They want to live in fun neighborhoods so they can enjoy themselves when they’re not working. They typically stay in our apartments for 2-3 years, oftentimes before buying a place of their own and “settling down.”
    2. Taxes. Property taxes can eat away your cash flow. We have high property taxes in Chicago across the board, but taxes vary widely from neighborhood to neighborhood. I look for properties in areas that have more attractive taxes.
    3. Big bedrooms. One of the most common questions I get when I do apartment showings is, “Can I fit a king size bed in here?” People love big beds these days. This can be a challenge considering Chicago’s standard 25-foot wide lot. I look for properties with a minimum bedroom size of 10 x 10.
    4. Outdoor space. Young professionals want to have outdoor space, even if they never use it. When I was a renter, I always wanted an apartment with a balcony for my grill. It didn’t matter to me that I only used it a handful of times each year. Maybe having outdoor space made me feel more grown up?
    5. Parking. Even though Chicago is a very public transit-friendly city, people still like having cars. Because most young professionals aren’t using their cars every day, they want to keep it safe in a dedicated parking space.

    If a property becomes available that meets these requirements, I’ll then run the numbers.

    Only after confirming that a potential property meets these requirements do I actually run the numbers.

    There’s no reason to waste time on a property that may project well in a spreadsheet but will cause me nothing but headaches as a landlord.

    The other day, a new property popped up that caught my eye: 2501 N. Sacramento Ave.

    It’s a five-unit apartment building listed for $1,800,000 and located directly in my target zone.

    Here’s the listing description from Redfin:

    Fully Gut Renovated 5-unit building, a prime turnkey investment opportunity in the best Logan Square Location Possible. Double Vanities, Fully built out walk in closets, in unit W/D, tankless hot water heaters, thin shaker kitchens and full height quartz backsplashes are just a few of the features that make this building feel more like condo living. Perfectly situated just steps from the Logan Square Farmers’ Market, residents can enjoy an eclectic mix of trendy bars, restaurants, cafes, and shops right at their doorstep. Renovation done with full plans and permits, include a new roof, windows, insulation, drain tile system with sump pump, back deck, and still warrantied appliances!

    It’s not always the case, but in this instance, the pictures seemingly match the description of a beautifully renovated property. Of course, we can confirm the quality of the work when we tour the property.

    So, this property passed my initial screening. Now, I can run the numbers to see if it would be a good investment.

    By the way, I target gut-renovated properties because I have a full-time job as a lawyer and don’t have the time to dedicate to a major renovation project.

    Let’s plug in the numbers to see if this would potentially be a good investment property.

    Just because a property looks nice and is in a great location does not mean it’s a great investment. As investors, it’s our job to make sure the numbers work out so more money comes in than goes out.

    Using the cost categories above, we can pull most of the information we need directly from the listing.

    For example, Redfin (like most sites) provides a useful payment calculator where you can adjust the downpayment, interest rate, taxes, etc. for any property based on your personal situation.

    Home office vibes perfect for running the numbers on a rental property.
    Photo by Paul Calescu on Unsplash

    Here are some tips before you get started:

    • It’s a good idea to talk to your mortgage broker ahead of time to learn what mortgage rate you will likely qualify for and what downpayment you’ll need.
    • Remember, this is an initial evaluation. Before you make your final decision on a property, you’ll need to confirm these numbers with your real estate team during the due diligence period.
    • Try to be conservative with your projections. When you otherwise like a property, the temptation is real to modify the numbers so it looks better on paper.
    • You’ll notice listing agents may try to enhance a property’s value by suggesting “potential rent” or “market rent” instead of the actual rent. Don’t fall into this trap and end up with a nice-looking property that makes no money.

    OK, let’s look at the numbers on this property for educational purposes only. You are responsible for running your own numbers on any potential deal.

    2501 N Sacramento Asking Price: $1,800,000

    Monthly Rent: $13,840

    Mortgage Payment (Principal and Interest)$8,982
    Taxes$1,429
    Insurance$400
    Utility Bills$350
    Property Upkeep$200
    Preventative Maintenance$200
    Vacancy Rate (5%)$692
    Unexpected Repairs (5%)$692
    Property Improvements (5%)$692
    Total Monthly Cost$13,637

    Monthly Cash Flow (Rent – Costs): $203

    It took me less than five minutes to do this initial evaluation.

    I can see that based on these numbers, the monthly cash flow is $203. We’ll talk about what that means in a moment.

    A few notes on the above numbers:

    • For the mortgage payment, I estimated a 25% downpayment, which is common for investment property loans, and a 7% interest rate.
    • Taxes are a major cost that can make or break any deal. Make sure you are familiar with how taxes are assessed in your market. For example, in Chicago, property taxes are reassessed every three years. That means taxes go up every three years.
    • Many property listings will indicate the prior year’s taxes because they are lower. This particular listing has the prior year’s taxes, which I know are soon going to change for the worse. For now, I’ll run the numbers with the current taxes but would definitely account for higher taxes before moving forward with this deal.
    • Property insurance is a real wildcard these days. Insurance costs are going up everywhere. You’ll need to talk to a good insurance broker for an accurate estimate. I used my experience in the neighborhood with similar properties to make a reasonable estimate.

    So, what have I learned from running the numbers on this property?

    First, this is a beautiful property in a great location. If I made my decision based only on the pictures and the location, this would be a winner.

    Unfortunately, the numbers tell a different story.

    This property would not be a good investment for me. I invest for cash flow. For me, this property is way too expensive for only a couple hundred dollars of monthly cash flow.

    At a price point of $1.8 million, I would only be interested if this property had a monthly cash flow of at least $4,000 per month.

    Now, your preferences and goals may be different. Maybe you’re more focused on the other benefits of investing in real estate, like appreciation and debt pay-down. In that case, you may view this deal differently.

    So, is that it?

    Cross this property off the list and move on for good?

    Not necessarily.

    In our next post, we’ll explore ways to make this property a more attractive investment.

    We’ll take a look at how the numbers change if we can successfully negotiate the purchase price, find a better loan option, and improve the monthly rent.

    Real estate investors: let us know what you think of this property as a potential investment.

    Would you be interested in moving forward at these numbers?

  • Does Being Good with Money Make You a Greedy Dragon?

    Does Being Good with Money Make You a Greedy Dragon?

    Have you ever been called a “greedy dragon” before?

    I hadn’t either before this week.

    I recently posted a video on socials talking about how lawyers and professionals should not let leaky toilets prevent them from investing in rental properties.

    Apparently, this video struck a nerve with the trolls.

    I was called a “bottom dweller”, a “demon”, and my personal favorite, a “greedy dragon.”

    I like dragons. So, that last one actually felt like a compliment.

    Why does being good with money wake up the trolls?

    There’s no shortage of internet trolls out there. And, there’s nothing special about me that caught the attention of the trolls this week.

    Haters are going to hate. Trolls are going to troll.

    But, there’s an important money lesson to be learned here thanks to the trolls.

    You see, these are the types of comments you get from people with limiting money beliefs. They’ve never thought about how money can be used as a tool to build a life of purpose.

    Instead, they only think of money as a dangerous weapon to be wielded for evil purposes. They automatically think that people with money are greedy.

    The saddest part is that these people would rather exert their energy attacking people than improving their own situations. These are the type of people who are likely to always be controlled by money, instead of the other way around.

    Now, I’ll give credit to the internet trolls where credit is due. At least these trolls are not hiding their limiting money beliefs.

    That’s a good first step that many of us can benefit from.

    You don’t need to stoop to the level of internet troll to have limiting money beliefs. These kinds of attitudes towards money are way more common than you think.

    One of my main goals in starting Think and Talk Money is for all of us to confront our limiting money beliefs so we can take control of our lives.

    If your relationship with money up to this point has held you back, you’re in the right place by reading this blog.

    Another good idea is to read a good money mindset book.

    A good money mindset book with help you think of your Money Why.

    Money mindset books can help you because they explore the emotional side of money. They will force you to think about money in a way you never have before.

    The best money mindset books don’t just talk about the numbers and math of personal finance. That not only makes the books more interesting to read, it also makes them so much more practical in the real world.

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

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

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

    Here are my favorite money mindset books, in no particular order:

    Being on vacation with family gives you plenty of chances to think about your Money Why.

    I highly doubt the average internet troll spends much time thinking about his Money Why.

    I’ve been on vacation recently and have had a lot of reminders of my Money Why. Of course, I’ve known my Money Why since I wrote down my Tiara Goals for Financial Freedom on a beach in 2017.

    Mission Bay Resort pool representing why I want to be good with money to build experiences with my family.
    Photo by Cory Bjork on Unsplash

    My number one goal is to be with my wife and kids as much as I want. The weird part is I wrote down that goal before I was even married or had kids.

    Yes, I want to provide for my family financially. But my Money Why is more than that. I don’t want to just provide money, I want to provide time. I want to be present and share experiences.

    To accomplish that goal, I need to be good with money. 

    If I’m good with my money, I can achieve financial freedom.

    With financial freedom, I can choose how to spend my time. That means I can choose who to spend my time with.

    To the Internet trolls, these goals make you a greedy dragon.

    What do you think?

    Is traveling with three young kids a vacation or just “parenting in a new location?”

    Anyone who’s vacationed with young kids knows that it comes with all sorts of challenges. I’ve heard vacationing with young kids described before as “just parenting in a new location.”

    There’s some truth to that. Figuring out sleeping arrangements, meals, and activities to keep the kids entertained can be a headache. It’s hard not to think that it would have been easier to just stay at home.

    Between the occasional meltdown and the tears, it’s fair to wonder why go through the hassle?

    I’ve had these thoughts creep into my head recently while on vacation with my family.

    Then, I realized why us parents do it.

    It’s to see your five-year-old try over and over again before finally reaching the Little Mermaid diving toy on the bottom of the pool for the first time.

    The pure joy on her face when she popped out of the water with the toy in hand is an image I hope I never forget.

    It’s to watch your three-year-old play with grandma and grandpa and hearing, “Grandpa, close your eyes!” as he completes his next prank to earn an eruption of laughter.

    It’s observing your wife at the playground as she manages a baby in a stroller while simultaneously encouraging her daughter on the swings and helping her son as he climbs too high.

    How she does it, and keeps a smile on her face, I’ll never know.

    It’s the little moments like this that make it all worth it.

    Is being good with money a requirement for these types of memories?

    Nah. But, if being good with money gets me more of these memories, I’m all in.

    It’s important to think about your Money Why regularly.

    Saying that I want to be good with money is not the same thing as saying that I want to be rich.

    Funny enough, people who are good with money oftentimes feel rich regardless of what their net worth is.

    A nice quote I saw at an ice cream shop saying you can't buy me love but you can buy me ice cream meaning you can buy experiences with money.
    Photo by Zoshua Colah on Unsplash

    On the flip side, people who make a lot of money but are not good with money often feel like they’re struggling to get by. As CNBC explained after talking with financial psychologists:

    Whether you’re aiming to save more cash or boost your overall earnings, it’s important to ask yourself what you hope to achieve by obtaining more money, Chaffin says. Otherwise, if you don’t change your internal money beliefs, you may still feel anxious about money even if you hit millionaire status.

    The takeaway is that it is pointless to make money without stopping to think why you want that money and what you’re going to do with it. 

    If you’ve never thought about money that way before, here are three powerful reasons to get you started: 

    1. Money can give you choices.
    2. Money can give you personal power.
    3. Most importantly, money can give you time.

    Money is nothing but a tool that you can manipulate to get what you truly want out of life. The thing is, you have to actually think about what you want if you are going to use that tool effectively.

    Being good with money does not make you greedy.

    Being good with money does not make you a greedy dragon.

    Money is nothing but a tool. You can use that tool to build a life on your terms for you and your family.

    For my money, there’s no better pursuit than that.

    Do you want to be good with money?

    What kind of life are you hoping to build?

    Let us know in the comments below.

  • Being Good with Money is About Consistent Choices

    Being Good with Money is About Consistent Choices

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

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

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

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

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

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

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

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

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

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

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

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

    Do you see the problem?

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

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

    Financial freedom is about consistent, intentional choices.

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

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

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

    They didn’t say “some day.”

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

    It’s about consistency.

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

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

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

    Or, an engineer who buys laundromats.

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

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

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

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

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

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

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

    Don’t waste this powerful tool.

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

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

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

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

    What does it mean to live on purpose?

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

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

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

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

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

    1. Money can give you choices.

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

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

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

    2. Money can give you personal power.

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

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

    3. Money can give you time.

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

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

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

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

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

    What would you do with financial freedom?

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

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

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

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

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

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

    Here are my 7 Tiara Goals for Financial Freedom:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    Let us know in the comments below.

  • Fix Your Personal Finances Before Investing in Real Estate

    Fix Your Personal Finances Before Investing in Real Estate

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

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

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

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

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

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

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

    That’s a problem.

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

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

    This is obvious stuff, right?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    You need to have a budget.

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

    How to create a Budget After Thinking.

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

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

    1. Now Money

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

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

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

    2. Life Money

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

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

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

    3. Later Money

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    Let us know in the comments below.

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

    Is There Value in Keeping Both of Our Sapphire Reserves?

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

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

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

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

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

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

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

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

    What do you think?

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

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

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

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

    Let’s get to it.

    What changed with the Sapphire Reserve?

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

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

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

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

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

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

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

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

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

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

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

    What is an authorized user on a credit card?

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

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

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

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

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

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

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

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

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

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

    You should continue to have separate credit card accounts.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    Personally, I agree with you.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

  • Is the New Chase Sapphire Reserve Worth the Annual Fee?

    Is the New Chase Sapphire Reserve Worth the Annual Fee?

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

    Making big waves in the credit card world, Chase just announced a major overhaul to its popular luxury credit card, the Sapphire Reserve.

    Think and Talk Money readers know that I only have two credit cards in my wallet: the Sapphire Reserve and the Chase Freedom Unlimited.

    Since the announcement of the changes to the Sapphire Reserve, I’ve received a number of questions about whether I’m keeping my card.

    To be fair, all the changes are a bit complicated to sort through.

    Along with a revamped points structure, the card offers new travel perks and a variety of spending credits.

    However, it’s not the changes to the earning potential or redemption options that’s prompting all the questions.

    What is the change to the Sapphire Reserve that’s driving most of the questions?

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

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

    Ouch.

    Offsetting some of that pain for new cardmembers , Chase is currently offering a sign-up bonus of 125,000 points, the largest bonus ever offered.

    That translates to $2,562.50 in value, according to The Points Guy.

    Even with these increased fees, I am keeping the Sapphire Reserve in my wallet.

    Today, I’ll walk you through my thought process as to why I’m keeping the card.

    I’ll show you how I value certain benefits and ignore other potential benefits, mostly because they’re just too complicated or don’t apply to my personal situation.

    Whether you are thinking about applying or are a current cardmember, this post will give you the tools to decide for yourself if the Sapphire Reserve is right for you.

    Before diving in, let’s start with a little bit of context.

    I used to have 10 different credit cards to maximize points.

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

    I had airline branded cards, hotel branded cards, and general travel rewards cards. I had credit cards with Chase, American Express, and CitiBank.

    My wallet was thicker than my Chicago accent.

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

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

    Stock photo of the Business Man with a credit card by rupixen illustrating why I'm keeping the Chase Sapphire Reserve in my wallet despite the higher annual fee.
    Photo by rupixen on Unsplash

    I now keep things simple and recommend people do the same. The exception would be if you enjoy the challenge of maximizing every credit card purchase and perk.

    How do I keep my credit card life simple?

    I use the Sapphire Reserve for travel and dining and the Freedom Unlimited for everything else.

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

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

    Before we go any further, to read more about the responsible use of credit cards, check out my series on credit here. A good place to start is my post with 10 credit card tips for lawyers and professionals.

    The Sapphire Reserve’s benefits are geared towards high spenders and frequent travelers.

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

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

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

    The problem is it takes effort to receive all that value.

    More than effort, it takes spending!

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

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

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

    The Sapphire Reserve is no exception to this rule.

    In general, if you are a high spender and/or frequent traveler, the card likely offers more than enough benefits to make it valuable to you.

    If you aren’t a high spender and/or frequent traveler, you may end up paying more than the card is worth.

    Here are the Sapphire Reserve benefits that actually matter to me.

    Today, I want to highlight the benefits of the Sapphire Reserve that matter most to me. The reality is that so many of the offered benefits don’t apply to my situation or are too complicated to use.

    You may find value in some of the benefits that don’t matter to me. Regardless, you can go through the same thought process to determine if the Sapphire Reserve is right for you.

    To begin, the Sapphire Reserve will cost my wife and I $990 per year in annual fees. To justify that cost, I’m looking for benefits that equal at least that much. 

    There are 3 annual credits that matter for my personal situation.

    Not all of the offered credits are useful to me. Here are the three that matter for my personal situation:

    1. $300 Annual Travel Credit

    Each year, cardmembers earn $300 in credits for travel purchases. These credits are automatically applied when you make a qualifying travel purchase, which is broadly defined.

    Put simply, the annual travel credit is not hard to earn. If you book even one flight throughout the year, you’ll qualify.

    Applying the annual travel credit, the overall cost drops to $690 per year.

    2. $125 credit for Apple TV+

    I already subscribe to Apple TV+, so this one is a no-brainer.

    I don’t currently have Apple Music, but there’s an additional $125 credit available for this subscription. Because I’m keeping my Sapphire Reserve either way, I’ll probably subscribe to Apple Music, too.

    Important Note: if you’re not already spending money on Apple TV+ or Apple Music, I would not recommend using this benefit as a justification for offsetting the annual fee. 

    Remember the cardinal rule: never spend more money just to qualify for a benefit. Since I’m already a subscriber, this is a good benefit for me.

    Applying the Apple TV+ credit, the overall cost drops to $565 per year.

    3. $10 monthly credit for Peloton memberships

    Like Apple TV+, I already pay for a Peloton membership. This one’s another no-brainer.

    Applying the Peloton credit, the overall cost drops to $445 per year.

    In total, these three credits reduce the true cost of the Sapphire Reserve for me to $445.

    Cutting the true cost in half definitely helps me feel better about the initial sticker shock of the $990 annual fee.

    Importantly, I do not have to change my spending habits in any way to qualify for the credits. I would be paying for these things regardless of the credits, so these are true benefits for me.

    Here are some of the credits that I won’t ever use.

    In contrast to the above credits, there are some other credits offered that are either too complicated or that I won’t really use.

    Don’t overlook this distinction. You never want to justify having a credit card because of hypothetical perks. Only focus on the ones you’ll use.

    For example, Chase advertises $300 in DoorDash promos. Here’s the offer:

    DashPass members get up to $25 each month to spend on DoorDash, which includes a $5 monthly promo to spend on restaurant orders and two $10 promos each month to save on groceries, retail orders, and more.

    Uh, come again?

    I think what this means is I can save $5 once per month on a restaurant delivery. Then, I can spend more money on two other deliveries per month (but not for food), and save $10 each time.

    Did I get that right?

    This is way too complicated. I’m ignoring this credit for my analysis.

    If I regularly used DoorDash, this might be a different story. Because I don’t use DoorDash, and the credit is so complicated, this one is meaningless to me.

    white market light illustrating that some credit card benefits are so confusing they aren't worth considering in your evaluation of whether to get the Chase Sapphire Reserve.
    Photo by Jon Tyson on Unsplash

    There are other credits like this one attached to the card that don’t do anything for me.

    Other examples include credits for dining through the Sapphire Reserve Exclusive Tables and credit for stays with The Edit. In all likelihood, I won’t ever take advantage of these credits. 

    When reviewing the offered credits, you should do the same analysis and only count what you’ll actually use.

    If you won’t currently use the credit, don’t force yourself to use it to justify the cost of the card.

    I also don’t put much weight on travel benefits like lounge access and hotel status.

    The Sapphire Reserve offers access to 1,300+ airport lounges worldwide through Priority Pass, plus access to Chase Sapphire Lounges.

    The Chase Sapphire lounges admittedly look awesome. The problem is there is not a lounge at my primary airport, Chicago O’Hare.

    There also isn’t a lounge at any airports I regularly fly to. I likely will get very little benefit from these lounges, unless one opens at O’Hare.

    The same goes for the lounges offered through the Priority Pass program. I’ve found this to be a great benefit when traveling internationally but not very useful when traveling domestically. 

    If you are a frequent traveler and would take advantage of all these lounges, this is a major perk of the card. Personally, lounge access doesn’t do much for me.

    The same goes for hotel status through IHG simply because I don’t typically stay at IHG branded hotels.

    In short, these benefits may be meaningful to you but don’t provide much in terms of value for me.

    If anything, I view them as a bonus. Maybe I’ll take advantage of these travel benefits a couple of times throughout the year, and that would be great.

    But, they’re not a factor in my current decision to keep the card.

    I am keeping my Sapphire Reserve because I will earn significantly more than $445 in points value.

    By this point in my analysis, I’ve reduced the fee as much as possible for my situation. Instead of the sticker shock of $990, the real cost is $445 per year. 

    Now, I need to decide if I will earn enough points to justify the $445 cost of the card.

    It is easier than you think to calculate how much value you’re getting in points.

    I like The Points Guy for determining the value of credit card points. While it’s not an exact science, The Points Guy calculates the value of each credit card company’s points and miles every month.

    The Points Guy currently values Chase Ultimate Rewards points at 2.05 cents/point. For comparison, American Express Membership Rewards are valued at 2 cents/point.

    Meaningful to me, the new Sapphire Reserve offers 4 points per dollar spent on airfare and hotels. It also offers 3 points per dollar spent at restaurants. Finally, you’ll earn 1 point per dollar on everything else.

    In my situation, I want to know if I will earn enough points to justify the $445 annual cost. This will require some basic math.

    Here’s what the math looks like:

    1 point = 2.05 cents.

    $445 annual cost x 100 cents = 44,500 cents.

    44,500 cents / 2.05 cents per point = 21,707 points.

    So, I need to earn 21,707 points to justify keeping the card.

    Now, I need to figure out how much I spend each year.

    It’s easy to determine how much you spend each year.

    The next step is to open your Chase app and look to see how much you normally spend in each category. This is very easy to do.

    Chase, like most credit cards today, automatically categorizes your spending for you. Look for the “Spending Planner” option in your app.

    Once there, you can find out exactly how much you spent on categories like travel, food, and everything else.

    I recommend reviewing your spending for all of last year and so far this year. Then, you just need to do some quick math.

    In my case, I use my Sapphire Reserve primarily for travel and dining out, so almost every dollar I spend earns 3 or 4 points.

    I can see on the Chase app that I spend thousands of dollars in each category per year. That’s more than enough spending to earn 21,707 points.

    In other words, my current spending levels make it an easy decision for me to keep the card.

    To put it in perspective, if I spend $5,426.75 per year on flights and hotels, that alone would generate enough points to cover the cost of the card.

    5,426.75 x 4 = 21,707 points

    Or, if I spend $7,235.67 on dining, I would earn 21,707 points, enough to cover the cost of the card.

    In reality, I spend in both categories so neither one has to even reach that level of spending.

    That’s all there is to it.

    You can follow these same steps to determine if the Sapphire Reserve is worth it to you.

    If you aren’t getting enough value, consider the Chase Sapphire Preferred.

    The Chase Sapphire Preferred is a less expensive version of the Sapphire Reserve with less overall benefits.

    I had the Sapphire Preferred for years before my spending justified switching to the Sapphire Reserve.

    You can do the same analysis that we just went through to determine if the Sapphire Preferred is a better card for your personal situation.

    Now you can decide if it’s worth applying for or keeping the Sapphire Reserve.

    Now you know the exact process I went through when I learned the Sapphire Reserve was undergoing some major changes.

    I don’t put much weight on the harder-to-quantify benefits, like lounge access and hotel status, because I don’t have the chance to use those perks very often. If I do get the chance, that’s a nice bonus.

    For me, I earn enough points each year to justify the true cost of keeping the Sapphire Reserve in my wallet.

    Do you currently have the Sapphire Reserve?

    Are you keeping yours or replacing it with something else?

    Let us know in the comments below.

  • Invest in Real Estate for Wealth Through Appreciation

    Invest in Real Estate for Wealth Through Appreciation

    We previously looked at the main reason I invest in real estate:

    Rental property cash flow is king.

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

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

    What if you don’t need your cash flow to cover your immediate life expenses? Maybe you have a full-time job that provides more than enough.

    That’s even better. There’s no rule that says you have to spend your cash flow.

    If your present day expenses are already covered, you can use your cash flow to fund additional investments. That might mean buying another rental property or investing in another asset class, like stocks.

    The point is cash flow gives you options. Having options is never a bad thing, right?

    That’s why cash flow is the number one reason I invest in real estate.

    However, cash flow is not the only reason.

    I also invest in real estate to generate long-term wealth for me and my family.

    I am a buy-and-hold real estate investor.

    That means when I buy a property, I intend on keeping it for many years. Circumstances may change, of course, but my intention is to hold property for a minimum of ten years.

    The reason I buy-and-hold for the long term leads us to the next major reason I invest in real estate:

    Appreciation.

    While cash flow can provide for my immediate expenses, appreciation is all about the long-term benefits. Appreciation is how I will generate long-term wealth for my family through real estate.

    Today, I want to talk about what appreciation is and how it can significantly improve your net worth over time.

    Let’s dive in.

    What is appreciation in real estate?

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

    For example, if you buy a property for $500,000, and some years later it’s valued at $750,000, your property has appreciated by $250,000.

    That means through appreciation, your net worth has increased by $250,000.

    Except for when you’ve forced appreciation (we’ll discuss below), you have earned that money through appreciation by doing very little. All you have to do is make your monthly mortgage payments, and let the market do the rest.

    This is exactly how many Americans generate significant wealth over time.

    Mini house and key illustrating how to generate long-term wealth through real estate with appreciation.
    Photo by Tierra Mallorca on Unsplash

    How to target properties with a strong likelihood of appreciating is beyond the scope of this post. I’ll soon share with you my criteria, but there’s no one way to do it. 

    Entire websites and books have explored this topic. If I were just starting out, I would spend a lot of time on BiggerPockets.com.

    For that matter, even as an experienced investor, I still spend a lot of time on BiggerPockets.

    For now, remember one main point when it comes to appreciation:

    Appreciation takes time.

    Successful real estate investors know that appreciation takes time.

    I’m not talking about speculators or gamblers. I’m talking about people who are interested in building long-term wealth for their families.

    To build long-term wealth through real estate, you need to remember this main rule about appreciation.

    It’s so important, it’s worth repeating:

    If you can hold a property for years or even decades, you have a really good chance of that asset being worth significantly more than when you paid for it.

    Your property may not appreciate at the same rate every year. Some years, your property may even lose value. That’s OK because you’re in it for the long run.

    The hard part is just holding on long enough to realize the benefit of appreciation.

    In this way, investing in real estate is like investing in stocks.

    How is investing in real estate like investing in stocks?

    Many of the same fundamentals apply to investing in real estate as to the stock market.

    We just mentioned one of the biggest keys with either asset: the longer you hold that asset, the more that asset should eventually be worth. 

    With stocks, we’ve already spent a lot of time in the blog discussing why you need to invest early and often.

    For more information on investing in stocks, you can read a variety of posts here.

    When you invest in stocks early and often, you can benefit from compound interest and safely ride out down market cycles. The stock market does not always go up every year, but given enough time, it does always go up.

    In large part, the same is true when you invest in real estate.

    If you buy good properties in good markets, given enough time, your property should appreciate in value. Like with stocks, the key is your ability to hold on and ride out down market cycles. 

    Want to know the secret to riding out down markets?

    Cash flow.

    You saw that one coming, didn’t you?

    Cash flow will help you ride out market cycles and benefit from appreciation.

    When you own strong, cash flowing rental properties, the cash flow covers all the expenses.

    That means you can stay patient in down markets because holding that property is not costing you any money.

    To take it a step further, as long as your property is cash flowing, you can hold it for decades and generate massive wealth through appreciation.

    Cash flow and appreciation working together is a powerful force. You can see why real estate investors get so excited about their investments.

    When a property is performing, the cash flow allows an investor to hold that property indefinitely. During that time, the property becomes more valuable through appreciation.

    It’s a beautiful partnership.

    What is forced appreciation?

    I mentioned earlier that there is one other form of appreciation worth talking about here: forced appreciation.

    Forced appreciation is when you improve your property in such a way that it increases in value. 

    Common examples may include remodeling the kitchen or bathrooms or adding another bedroom. When you make these enhancements to your property, your property should increase in value.

    This is what house flippers do. They buy a property in need of some work, do the improvements, and then aim to sell that property for a profit.

    It’s not a strategy that I personally use, but it has worked for many people for many years.

    The thing is, forced appreciation is not just for house flippers or investors hoping to realize a quick profit.

    When done correctly, forced appreciation is another way to make money over the long-term for buy and hold investors, like me.

    For example, in one of our rental buildings, we added in-unit washers and dryers. By doing so, our units now command a higher monthly rent, which in turn increases the value of the property.

    As a final point, forced appreciation is one way investing in real estate is different from investing in stocks.

    When you buy real estate, you are in control. You decide what improvements to make and not to make. Many real estate investors love having this type of control over their assets.  

    By contrast, when you own stock in a company, there is very little (if anything) you can do to impact how that company is run. Unless you have boatloads of stock in a particular company, you’re essentially just along for the ride until you sell your stock.

    What do you think about generating long-term wealth through appreciation?

    Now you know two of my favorite reasons for investing in real estate: cash flow and appreciation.

    Have you invested in real estate and benefited from appreciation?

    Did you force appreciation or hang tight and let the market do it’s thing?

    Let us know in the comments below!