In today’s Q&A, we’ll address two great questions from readers about shopping for a home in today’s environment. We’ll also talk through how to know if you have enough Parachute Money.
As always, please continue to reach out with your questions on our socials or by replying directly to our weekly newsletter emails. I personally read and reply to every email.
Should I wait for mortgage rates to drop before buying a home?
This question has been on people’s minds for a few years now. Ever since rates started climbing from the all-time lows during the pandemic, people have been hoping they might significantly drop again.
In my humble opinion, that ain’t happening. At least not anytime soon.
Google “Are interest rates going to drop” and you’ll find that nearly every major news outlet and mortgage lender has a prediction. Most predictions right now are about the same. US News summed it up just about perfectly:
Analysts expect the 30-year fixed mortgage rate to stay elevated between 6% and 7% for the next two years. Just two months ago, economists thought it would fall into the 5% range by the second half of 2025. With such wild fluctuations in the forecast, you’d be just as likely to get a satisfactory mortgage rate outlook from a Magic 8 Ball: Cannot predict now. Ask again later.
Nobody knows what’s going to happen with rates. Just two months ago, US News thought rates would drop. Now, they’re expected to stay elevated. What are you supposed to do with that information?
I recommend you ignore it.
My advice is to buy a home when you’ve decided it’s the right moment in your life to do so. Make that decision regardless of what current interest rates are.
Why do I recommend you ignore mortgage rates?
There are really only three things that can happen to mortgage rates over time:
Stay the same.
Go up.
Go down.
In any of those three scenarios, there’s no point in basing your decision to buy a home only on the current rates. Let me explain.
Let’s say you have a crystal ball and can look three years into the future. Looking into your crystal ball, let’s play out each of the three scenarios mentioned above.
1. Your crystal ball shows you that mortgage rates stayed relatively consistent.
Since rates stayed the same, there would be no point in waiting to buy a home because of rates. The rates three years from now are the same as they are today.
By waiting, you’re likely going to experience that homes have gotten more expensive. The longer you wait, the more expensive they are going to be.
So, even if rates stay the same, prices are likely to go up and you shouldn’t sit around waiting for them to drop.
2. Your crystal ball shows you that mortgage rates went up.
If rates go up, it’s easy to conclude that it’s a mistake to delay your home buying decision. Higher rates, combined with higher prices, is… not good.
3. Your crystal ball shows you that mortgage rates went down.
This is the scenario that many people are waiting for. When rates go down, you can afford a more expensive home. That’s a good thing, right?
Not so fast.
Do you think you’re the only person sitting around waiting for rates to drop? For the same reasons that you’re waiting, many other people are also waiting.
So, what happens when lots of people are waiting to buy the same thing? Demand goes up. When demand goes up, you have more competition to buy that same house. That means prices go up. You’ll end up paying more money for the house, even with a lower interest rate.
Take it from me, bidding wars are not fun. I would much prefer to get the house I want without the added competition.
If mortgage rates end up dropping later on, I’ll refinance my loan into the lower rate. I may pay more on a monthly basis in the short term, but long term, I have the house I want at the best available current rate.
So, there you have it. No matter what happens to rates, in my opinion, you’re best off shopping for a home when the time is right in your life.
Forget about the rates. If rates do end up going down in the future, you can still benefit by refinancing.
My wife and I are considering buying a home that would be the most expensive home ever sold in the neighborhood. Is that a bad idea?
This is another great question. Opinions will certainly vary, so I encourage you to talk to your inner circle to get a variety of perspectives.
Personally, I have no problem buying the most expensive property in a neighborhood, under one condition: I plan on holding that property for at least 10 years.
Like the data above shows, home prices tend to go up historically. Since 1990, home prices nationally have appreciated on average at a rate of 4.4%.
If you’ve done your homework and are shopping for real estate in good neighborhoods, it’s only a matter of time before another home sells for a higher price.
The longer you hold the real estate, the more home appreciation works in your favor.
When we bought our first rental property in Chicago in 2018, we paid the highest price for any 4-flat in our neighborhood. At the time, we were a bit concerned that we were overpaying. Those worries were short lived. With seven years of appreciation working in our favor, numerous properties have sold since then for significantly more money.
Yes, there are always going to be dips in the market. Do not expect your home to steadily appreciate every year. This is why my one condition is to hold the property for at least 10 years. When you hold property (or any investment) for the long run, time is on your side. You can wait out any dips in the market.
As long as you’ve done your homework and are willing to hold a property for the long run, I would have no hesitations in buying the most expensive property in a neighborhood.
I’m fascinated by the concept of Parachute Money. My question is: how will I know if I have enough Parachute Money?
The idea of Parachute Money is one of my favorite concepts in personal finance. Check out our post here to learn more about how empowering Parachute Money can be.
To know how much Parachute Money you need, look back at your Budget After Thinking. All you need to do is add up your monthly Now Money and Life Money to figure out how much Parachute Money you’ll need to maintain your current life.
For example, let’s say your budgeting process taught you that you need $6,000 of Now Money and $4,000 of Life Money each month. Your Parachute Money target is $10,000.
If your goal is to walk away from your primary job, you’ll need to create $10,000 of income streams not counting that primary job. That could be from any combination of investments and side hustles. Once you hit $10,000 in parachute strings, you should be able to safely walk away from that job.
Note that for calculating your Parachute Money, you can ignore your Later Money goals. The reason why relates back to the purpose of Parachute Money.
The purpose of Parachute Money is to be able to choose to walk away on your own terms while continuing to support yourself.
Presumably, choosing to walk away from a bad situation accomplishes one of your primary goals for saving and investing money in the first place.
At this phase of your life, it’s OK to temporarily set aside your Later Money goals. If and when you choose to seek new sources of income, you can start fueling your Later Money goals again.
The exception to this rule is if you have debt obligations that are not accounted for in your Now Money. If that’s the case, be sure to include your debt obligations in your Parachute Money target.
One last thing about Parachute Money: achieving true Parachute Money is hard. Just remember, the payoff could be extremely valuable to you: not having to work your primary job if you choose not to. That’s the definition of financial independence.
Thanks again for all the great questions!
If we didn’t get to your question this week, we’ll do our best to get to it in an upcoming post.
We’ve all heard these common money phrases. If you were to ask someone older than you for one piece of personal finance advice, I’m betting you’ll hear one of these lessons. Let me know if I’m right about that in the comments below.
There’s a reason these phrases are so common. They’re simple and easily reflect some of our core personal finance principles. In fact, we’ve covered these concepts in detail in earlier posts:
It’s not that we want to have high debt and low savings. So why is this the reality for so many of us?
I have 3 main theories why we fall into debt.
There are countless theories on why people end up in debt. I have three primary theories. Looking at each of these explanations can help us understand and avoid common pitfalls that lead us into debt.
1. We fall into debt because we are simply careless.
Like many people, I failed to create a budget and assumed that my W-2 income was plenty. I ignored emergency savings and never even thought about creating Parachute Money.
The saddest part is that I didn’t even realize that I was slipping backwards. I had no idea because I didn’t track my net worth or savings rate. I worked hard all year long and just hoped things would work out.
By the way, if this sounds familiar, you should know by now I’m not judging anyone. I’ve been very open about my money mistakes. We all deserve a chance to learn about and talk about strong personal finance habits.
So, being careless with money is one common reason people fall into debt. Another common reason is that bad things happen in life.
This might include medical emergencies, home repairs or car troubles. It’s not our fault that these things happen. But, it is our fault if we’re not prepared in advance.
While these events are unfortunate, and maybe even tragic, they are not unexpected. We all need to expect that bad things will happen.
Preparing for the unexpected is part of every solid organization’s planning. In government, planning ahead means having a “rainy day fund.”
When managing properties, planning ahead for big repairs means having a “Capital Expenditures” or “Cap Ex” fund. For our personal finances, planning ahead means having an emergency fund.
Whether it’s government, business, or personal finance, the goal is to have options other than taking on debt to get through challenging circumstances.
3. Blame the Kardashians.
Besides carelessness and emergencies, there’s another powerful force that contributes to rising debt levels across the world. This force is nearly impossible to ignore. It’s become a part of our daily lives, whether we want to admit it or not.
What is this powerful force that contributes to our rising debt levels?
The era of social media and on-demand entertainment has made it harder than ever to avoid temptation. It’s everywhere we look.
Blaming the Kardashians realtes to another timeless, common money phrase: “Keeping up with the Joneses.”
The Kardashians are the modern day Joneses.
Once upon a time, “the Joneses” represented your neighbors, people you could observe from a distance on a regular basis. The idea behind the phrase is that you can see what your neighbors are spending money on and are either consciously or subconsciously tempted to do the same.
If your neighbors buy a new car, you buy a new car to keep pace. If your neighbors vacation in Australia, you research diving tours at The Great Barrier Reef. When you notice your neighbors hosting a backyard BBQ party with lots of happy looking people, you decide to host a party the next weekend.
As humans, it can be difficult to ignore the temptation to keep up with our neighbors. Whether we like it or not, we are concerned with our social status. Part of our self-worth gets tied to comparing ourselves to others.
Who better to measure up against than the people in our neighborhood who we probably have a lot in common with?
This same idea is oftentimes compounded in the professional setting. It is not uncommon to compare ourselves in the same way to our colleagues at the office.
Some professions heighten the pressure to keep up. Have you ever noticed that real estate agents seem to always drive nice cars? Or, big city lawyers wear fancy suits? It’s easy to get caught up in expensive tastes when you’re expected to fit in.
One of my favorite personal finance books, The Millionaire Next Door, discusses this concept in detail. I highly recommend you read this book if you are struggling with comparing yourself to others.
What does this all have to do with the Kardashians?
In today’s world dominated by social media and the internet, we’re no longer influenced just by our neighbors or colleagues. We’re now influenced by people throughout the world. That could mean friends or complete strangers.
Instead of just learning your neighbors went on vacation, now you know when anyone in your circle is on a trip. At any moment, you may be on the train in 12 degree weather heading to work. One look at your phone and you’ll see plenty of wonderful pictures of people doing cool things. It’s hard to not want that for yourself.
The byproduct of social media and the internet is the never ending temptation to spend money. Even if that means spending money we don’t have. That’s a powerful force pushing us deeper into debt.
I am fighting this temptation in my life right now. Having moved to a new home not long ago, there are so many things we want to buy and projects we want to do. I need to constantly remind myself to slow down so I don’t again fall victim to consumer debt.
Instead, the first part of the solution is to recognize when you’re making careless money decisions based on what you think other people are doing.
Making money decisions based off of your neighbors, let alone the Kardashians, is the fast road to debt. You have no idea why or how another person is spending money. For all you know, it’s all for show and that person is barely getting by.
Do you really want to blindly follow this person’s choices? Wouldn’t it be better to confer with people you trust to help you think through money decisions?
The second part of the solution is to recognize that everywhere you look, companies are clamoring for your dollars.
If you let that reality sink in, you’ll hopefully pause the next time you’re about to spend money on something you don’t actually care about.
This is where we circle back to money mindset.
To counteract social media and mass marketing, you need to have a competing force in your life that’s strong enough to overcome all the noise.
I’m referring to your ultimate goals in life. I mean the reasons you wake up every morning to go to a job or stay up late to finish a project.
Why are you working so hard?
When you can answer that question, you’ll know what your ultimate goals are in life. With those goals in the forefront of your mind, it’s much easier to make consistent, intentional money decisions.
Most importantly, you’ll stay on budget and avoid sinking into debt.
You’ll also be much happier when you stop worrying about what random strangers are spending money on.
Yup, 8 out of 10 of us have some form of debt. Put another way, just about everyone reading this post has debt. That’s why learning to effectively deal with debt is a core personal finance concept.
For the next couple of weeks in the blog, we’re going to focus on debt so we can continue our progress towards financial independence.
Those of us who don’t want to learn will remain debt’s financial prisoner.
As we begin our discussion on debt, let’s start with some scary statistics.
According to the Federal Reserve Bank of New York, total household debt in the United States grew to $18.04 trillion by the end of 2024. That’s such a big number, it’s hard to know what to do with that information.
Let’s break it down by the type of debt:
Credit card balances increased by $45 billion from the previous quarter and reached $1.21 trillion at the end of December 2024.
Auto loan balances increased by $11 billion to $1.66 trillion.
Mortgage balances also increased by $11 billion and reached $12.61 trillion.
HELOC balances increased by $9 billion to $396 billion.
Other balances, reflecting retail cards and other consumer loans, increased by $8 billion.
Student loan balances increased by $9 billion to reach $1.62 trillion.
While these numbers are still too big to comprehend, one powerful conclusion is hard to miss:
In every category, the amount of debt increased from the previous quarter.
48% of credit card holders carry a debt balance, an increase of 9% since 2021.
53% of the people have been in credit card debt for more than a year.
The main causes of credit card debt are unexpected medical bills (15%), car repairs (9%) and home repairs (7%).
According to another Bankrate.com survey, 33% of Americans report they have more credit card debt than emergency savings.
These last couple stats helps us begin to understand why so many people fall into debt in the first place. It goes back to our previous conversation about the importance of emergency savings. When we don’t have savings, the first place we turn is to our credit cards.
What can we learn from these scary debt statistics?
Whether we look at the national figures or per household numbers, the picture is clear.
Worldwide, we have a consumer debt problem. And, it’s getting worse.
For most of our conversation on debt, we’ll focus on credit card debt. Most everyone agrees this is the worst kind of debt to have. It’s also the type of debt that’s the most relatable to many of us, regardless of where we are in our careers.
Before we go any further, it’s important to understand the two main reasons why I share studies like these about debt.
1. If you are currently in debt, please know that you are not alone.
If your money mindset is not in the right place, it won’t matter. You’ll stay in debt, or worse, your debt will continue to increase.
2. If you think you are immune from falling into debt, think again.
When we are presented with statistics like this, it’s not uncommon for us to be in denial. We might say to ourselves:
“No, I understand that other people are in debt. But, that won’t happen to me.”
Or, “No, I make good money. I can pay off my credit card debt if I really wanted to.”
If it were really that easy, then why do half of Americans carry credit card debt? Why is our credit card debt growing instead of shrinking?
You may not currently be in credit card debt, and that’s a very good thing. But, what if one of those emergencies mentioned above surfaces in your life?
If you were hit with a large, unexpected medical bill, could you cover it without credit cards?
What if your roof needs to be replaced? Or, your furnace breaks during the middle of winter? Do you have tens of thousands of dollars saved to cover these necessary expenses?
Do you own a car? How awful is that annoying “Check Engine” light? A simple trip to the mechanic could be another few thousand dollars out of your pocket.
These types of financial emergencies do not discriminate.
Ending up in debt might come as an unpleasant shock to you. Knowing these statistics will hopefully put your mind at ease that you’re not alone.
So, even if you’re comfortable in your job and make good money, you may still end up in debt. If you do end up in debt, the lessons we’ll soon learn will ensure that your stay in the financial penalty box is as short as possible.
In our series on debt, we’ll soon learn:
How in today’s world of social media, “Keeping up with the Joneses” is really more like “Keeping up with the Kardashians.”
There is a difference between “good debt” and “bad debt.” When used responsibly, good debt can help you reach your financial goals faster.
Paying off debt is hard. It’s heavy. It’s stressful. There’s no shame in admitting that. Just because it’s hard, doesn’t mean we can ignore it any longer.
Whether you currently have debt or smartly want to be prepared just in case, our series on debt is crucial for anyone seeking financial independence. There is no faster way to undue all your hard work than to fall into debt.
You don’t need me to tell you that debt is a major barrier to reaching financial freedom. In fact, debt is oftentimes the exact opposite of financial freedom.
When you have debt, your choices are limited. It’s like you’re in financial prison. When you are free of debt, you are in control.
Maybe you feel like your airplane is a fighter jet, moving too fast to enjoy the ride. Maybe your airplane is a small regional carrier, boringly flying back and forth between the same two airports.
For whatever reason, you decide you need to get off this airplane. You decide to take control and make a change. You’re ready to jump.
All you need is a parachute.
You have a choice between the only two parachutes on the plane.
The first parachute has only one string (or line) connecting the canopy to the harness . You think to yourself, “This doesn’t seem very safe. What if that one string breaks? That would end very badly for me.”
Then, you look at the second parachute. This parachute has 10 strings. You say to yourself, “OK, this one looks much safer. If one string breaks, the parachute still has nine other strings to keep me safe. Even if something goes wrong with one or two strings, I would glide safely to the ground.”
It’s obvious which one of these parachutes to choose.
This situation illustrates what I believe is one of the most empowering concepts in personal finance.
It’s what I call “Parachute Money.”
Before we move on to our next core personal finance topic, credit and debt, let’s take a few minutes to discuss this powerful money concept.
What is Parachute Money?
The central idea of Parachute Money is to create multiple sources of income so you are not beholden to any one source.
Parachute Money includes your primary job, any side hustles, any income generating assets, and your emergency savings account. It also includes the income of your significant other, if you share finances.
With Parachute Money, if one of your sources of income dries up, you are more than covered with your other sources.
Picture each source of income as a string on your parachute. The more strings on the parachute, the stronger it is. Likewise, the more sources of income you have, the stronger your personal finances are.
Note that multiple sources of income does not have to mean multiple jobs. Even with one job, you can still pursue additional, or stronger, parachute strings.
Let’s say you earn a salary and also could earn commissions or bonuses. Each one of those income streams could be another string in your parachute.
Or, you could prioritize boosting your emergency savings even more than you normally would. You might even consider a separate savings bucket called “Parachute Money.” Besides boosting your savings, you could also focus on passive income streams, like investing in dividend stocks.
The central idea remains the same. Protect yourself with as many income sources as you can.
Think of Parachute Money as a way to visualize financial independence.
Parachute Money empowers you to confidently make big life changes. When you have Parachute Money, you are financially free to control your life, not the other way around.
Parachute Money is all about your intentional decisions. It’s for when you’ve decided, on your terms, that you’re ready to make that big change in your life. You’re excited to take matters into your own hands, but you don’t want to disrupt your entire life in the process.
To return to our airplane analogy, you could stay on the plane if you wanted. Nobody is forcing you to jump. But, you’re ready for something different. And when you do jump, you want a parachute that will help you land as safely as possible.
That’s what Parachute Money can do for your life. It allows you to make that leap while landing gracefully.
You could say it out loud like this, “I have Parachute Money. I am financially independent because I am not beholden to any single source of income. If one source of income goes away, because I’ve decided it’s time for a change, my other sources of income will protect me.”
Parachute Money is more than just emergency savings.
An emergency savings account is part of your Parachute Money, but there’s more to it.
Recall that an emergency savings account is what you turn to when life dictates your choices. If you unexpectedly lose your job or have a large bill to pay, emergency savings will keep you afloat. You didn’t choose for these things to happen, but you still need to be prepared.
So, emergency savings are for protecting yourself and your family from the unexpected. Like we talked about above, Parachute Money is about you dictating the course of events, not the other away around.
What are my current parachute strings?
My wife and I have worked hard to create multiple sources of income. We currently have the following strings in our parachute, in no particular order:
My primary job as a mesothelioma attorney
My wife’s primary job as an attorney
Rental Property 1
Rental Property 2
Rental Property 3
Rental Property 4
Law School Professor
Emergency Savings
Combined, these sources of money provide a solid parachute for us.
If you wanted to, you can break out some of these sources of income into further parachute strings.
For example, Rental Property 1 consists of 4 apartments. Each apartment could be a separate string. I teach multiple law school courses; each course could be another string. Like we talked about above, your job may include a salary, commissions, and bonuses. Each could be a separate parachute string.
What are some situations where Parachute Money can make big decisions easier?
Let’s look at three possible situations where Parachute Money can empower you to make the best choices for you and your family.
1. It’s time for a new job.
After working for the same company for 10 years, life around the office looks different.
Your direct supervisor left for a new job. You were passed up to take her place. New policies are rolling out, including a requirement to be in the office five days per week.
You feel stuck in place. You still like your job and most of the people you work with. And, you could hang around for the steady paycheck.
Or, you can take control and make a change. If you have Parachute Money, you can take your time looking for a new job that matches your priorities. Maybe you decide not to go back to full-time work at all.
2. It’s time to move.
You live with a roommate and have another 10 months on your lease. Things have gotten uncomfortable.
He doesn’t clean up after himself. He stays up late watching movies so loud you can’t sleep. He eats your favorite leftover Thai food you had saved for lunch the next day.
You could “tough it out.” He’s still a good friend of yours.
Or, you can take control and make a change. If you have Parachute Money, you can handle the costs of breaking the lease and finding a new apartment.
The problem is your parents have let it be known, in so many words, that they are to be consulted on how you spend their money.
You may think you are choosing where to live or where to send your kids to school. Deep down? You know your parents will have the final word.
You can continue letting your parents dictate your life.
Or, you can take control and make a change. If you have Parachute Money, you can tell your parents, “Thanks, but no thanks.”
Parachute Money gives you control.
These are just a few examples of how Parachute Money allows you to regain control of your life.
Notice that in each situation, you’re not dealing with a sudden emergency. Instead, you’ve reached a tipping point and decided it was time for a change. Without Parachute Money, your options would be limited.
In our example above about wanting a new job, Parachute Money allows you to make that leap. You may temporarily be without your primary source of income- that string on the parachute broke.
But, you’ll be more than fine because you have other parachute strings to land you safely, like an emergency savings account, a side hustle as a ghost writer for a blog, and a rental property.
Parachute Money is one of my favorite personal finance concepts.
The Simple Path to Wealth is a must read for anyone wanting to learn the power of investing on your own through index funds.
We’ll have plenty more to say about how Collins has influenced my own decisions in our investing series. I credit him for teaching me that investing does not have to be hard. It’s actually pretty simple if you follow his tips.
In his book and blog, Collins describes what he calls “F-You Money.” He tells the story of getting in a shouting match with his boss one day at work, shortly before walking away from that company. As Collins explains, nobody deserved an “F-You” more than that guy.
In Collins’ example, he had enough money saved up where he could say those choice words to his boss. His “F-You Money” empowered him to live on his own terms.
On your way to financial independence, don’t ignore Parachute Money.
The reason I love the idea of Parachute Money is because it encapsulates so many of the money wellness habits and goals we’re striving for with Think and Talk Money.
Think back to the image of the parachute with only one string. What happens if that one string breaks?
Likewise, what happens if your only source of money no longer fits into your best life?
As you think about these questions, picture yourself jumping out of the airplane.
What parachute are you reaching for?
Disclosure: This page contains affiliate links, meaning I receive a commission if you decide to purchase using my links, but at no additional cost to you. Please read my Disclosure for more information.
The only thing that’s taboo is avoiding your personal finances.
To help flip the script and convince you that talking money is not taboo, I plan to regularly post about the current money conversations that I’m having. Through my examples, I hope to encourage you to have similar conversations.
In our first “Great Talk” post, we’ll discuss what my wife and I decided to do with our Later Money throughout 2025. We’ll also talk about how really smart people I know have started budgeting. We’ll conclude with an empowering conversation I had with a friend about what you can do with your time if money wasn’t an obstacle.
What I’m doing with my Later Money in 2025.
Later Money is what you are saving, investing, or using to pay off debt. This bucket includes long term goals and investments, like retirement and college savings. It also includes emergency savings, paying off debt, or any other shorter term goals, like saving for a wedding or a downpayment for a house.
So, what are my wife and I doing with our Later Money in 2025?
We recently had a great talk about our options and came up with a plan that will guide us throughout the year. Before we talk about our 2025 goals, it’s important to keep in mind that your Later Money goals will change over time. That’s perfectly fine.
We purchased our first rental property in 2018, a four-flat in an up-and-coming Chicago neighborhood. Less than a year later, we bought a three-flat in the same neighborhood.
In 2021, we invested in a Colorado rental ski condo. In 2022, we purchased our fourth rental property, a three-flat, in the same (now booming) neighborhood in Chicago.
After living in our rental properties since 2018, we purchased a single-family home just outside Chicago in 2024.
During this timeframe, any spare dollar we earned went towards acquiring more real estate. We contributed towards other financial goals, like retirement and college, but our priority was investing in real estate.
Reading Small and Mighty Real Estate Investor helped my wife and I conclude that at this point in our lives, we have enough. If anything, we’re closer to having too much on our plate. We self-manage our 10 units in Chicago and work closely with a property manager in Colorado. With our full-time jobs and kids at home, we’ve bitten off as much as we can chew.
Our portfolio generates enough income to help fuel our current goals. If we were to continue expanding, the headaches could end up outweighing the financial benefits.
We want to build a life full of experiences and memories. That means we need more time, not more money. Acquiring and managing more properties right now would take up a lot of time. That tradeoff is not currently worth it to us.
So, if we’re not pursuing additional properties in 2025, what are our goals?
After talking it through together and weighing all our options, my wife and I came up with these three goals for 2025:
Our third goal is to boost our contributions to our kids’ college savings accounts. We use what’s called a “529 college savings plan.” 529 plans are state-sponsored, tax-advantaged investment accounts. We use Illinois’ 529 plan because we receive a tax break as Illinois residents. Just about every state offers a 529 plan. They are a great way to save for college.
With our plan in place ahead of time, we now know where every dollar is going before we earn it. This takes the anxiety out of trying to figure it out after the money has already hit our bank account.
At the end of each month, all we need to do is make our Later Money transfers to each account. We can rest easy knowing that we’re making progress towards our personal finance goals.
How Budgeting is Helping Very Smart People.
One of my favorite moments since launching Think and Talk Money occurred just last week. Walking down the hall in my office, one of my colleagues called me over.
She was very excited to share that she started tracking her spending so she can create a Budget After Thinking.
We chatted for ten minutes. She’s been reading the blog on her commute to work every Monday, Wednesday, and Friday. She used Think and Talk Money vocabulary, like “Now Money” and “Life Money.”
She showed me the app she’s been using to track her spending, one I wasn’t familiar with and am now looking into. The best part was that she’s been telling her friends about Think and Talk Money because she’s already learned so much.
This is exactly why talking about money is not taboo. She taught me something new and helped me think about my own budgeting process. She gave me new ideas to think about.
How could this type of conversation be bad?
We didn’t need to talk numbers. We talked strategy and habits. That’s what talking money is all about.
What would you do with your time if money was not an obstacle?
I had lunch with an old friend last week at a downtown Chicago lunch spot that’s been serving up epic burgers since the 1970’s. My friend and I are both balancing careers as lawyers in Chicago with young families at home.
In between bites of a massive BBQ-bacon-cheeseburger, I asked him a question I like asking smart people:
“What would you do with your time if money wasn’t an obstacle?”
Without hesitation, he answered that he would work with his hands. He likes working on projects around the house. He gets immediate satisfaction from completing a repair or making an improvement.
His answer was great and very relatable. My years as a landlord has taught me the same feeling of satisfaction in completing a project.
What stood out to me the most was how quickly he answered the question. He knew exactly what he would do if money was not an obstacle.
This simple question helps illustrate what I mean when we talk about financial independence. It’s not an easy goal to accomplish, but I can’t think of a better goal to strive for.
You are financially independent when money is not an obstacle.
One of the biggest misconceptions in personal finance is that people that make a lot of money don’t have money worries.
I’m not saying that we should feel sorry for people that are high earners. I’m pointing out that personal finance education is important for all of us.
It’s not your fault if you’ve made poor money choices, up to a point.
I don’t blame anyone, high earners included, for making poor money choices (up to a point). Most people never learn basic personal finance skills.
Think about an emergency room physician. He was likely one of the top students in his class his entire life. He’s proven that he can learn complex matters. He can do the hardest things imaginable, like saving someone’s life.
The problem is he was never taught to use his brain to manage his own personal finances.
If that ER doctor is living paycheck to paycheck, he likely won’t receive much sympathy. He’s probably blamed for not making better money choices.
People will say he makes plenty of money. It’s his own fault. He must be irresponsible or selfish or craves expensive things.
Personal finance education is for all stages of our lives.
Personal finance education needs to continue throughout adulthood. So many of the concepts we talk about won’t resonate with high school kids who are still provided for by their parents.
One of my priorities with Think and Talk Money is to help you learn these core principles before you feel too much pain.
If you’re in the early stages of your career, there is no better time than now to develop strong money habits. It can be very difficult to correct bad habits as time goes on. A better plan is to work on developing good money habits now.
Don’t blame yourself or feel ashamed. Like the ER doctor, personal finance education wasn’t something you knew you needed. Now you know better. Time is still on your side, if you get started today.
Talking about money is not taboo.
One of my other priorities with Think and Talk Money is to confront the negative money stereotypes that dominate society. To start with, I’m on a mission against the common refrain that it’s taboo to talk about money with our family and friends.
Are we supposed to accept that it’s better to struggle alone?
That we should isolate ourselves in a constant state of worry?
That we are forbidden from seeking out help by talking to the people we trust the most?
I refuse to accept any of that.
Who even said talking about money is taboo in the first place?
I can keep going all day. I think you get the point. Talking money is not taboo.
Keep an eye out for posts about the current money conversations I’m having.
In the spirit of convincing you that talking money is not taboo, we are introducing a new post series this week. So in this continuing series, I will highlight the current money conversations that I’m having with my friends and family.
In our first of these posts later this week, I’ll share how my wife and I recently talked through our decision to split our Later Money between emergency savings, college savings and mortgage debt.
Let’s turn this simple question into a hypothetical scenario.
It’s time to learn one final (for now) important personal finance tracking metric, known as “saving rate.”
Congratulations on your raise!
Let’s say you’ve been at your job for a few years. Your current salary is $100,000.
It’s salary review time, and you set up a meeting with your boss. You want to make sure she remembers all your major contributions from the past year.
Prior to the meeting, you send her a letter setting forth your top accomplishments. It’s a hard letter to write. It doesn’t feel like a normal thing to have to brag about yourself.
You remember seeing a quote somewhere, “If you don’t advocate for yourself, nobody else will.” You push on and send your boss the letter.
On the day of your meeting, you’re nervous walking into your boss’ office. Why did I ask for this? She’s going to be so annoyed.
Before you even sit down, she puts your mind at ease. Your boss has a welcoming smile on her face.
She immediately thanks you for your thoughtful letter. She appreciates the reminder of all your accomplishments throughout the year.
Your boss tells you that you’ve always been a valuable member of the team. She thanks you again for reminding here of some of the specific projects you worked on that year.
It’s not a long conversation. Before you go, she asks what else the company can do to enhance your work experience. You walk out of her office feeling like a valuable member of the team.
You’re happy that you initiated the meeting, even though you didn’t enjoy the process.
A couple of weeks later, you receive an email that your salary is increasing by $20,000.
You couldn’t be happier. You earned it.
Wait, a raise?
Work continues as normal the rest of the week. By the time your next paycheck hits your bank account, you sort of forgot that you’re now making more money.
After taxes and retirement contributions, your biweekly (every 2 weeks) paycheck is now for roughly $538 more. That comes out to $1,166 more money per month, which of course, is a very good thing.
But, you need to figure out what you’re going to do with that money.
Ideally, you’ll have a plan in place before you receive the money. Whether it’s a raise, a bonus, or you switch jobs and earn a higher salary, the thought process remains the same.
Thinking about what to do with this new money is what I’m getting at when I ask, “What would you do right now with $20,000?”
No, it’s not coming in one lump sump payment.
Fine, you have to pay taxes on the $20,000 so it’s more like $14,000 in new money.
The point of the question doesn’t change. What are you going to do with this money?
3 options for what to do when you earn more money.
You now have more income coming in each month. Let’s talk through some of the options on what you can choose to do with that excess money.
Option 2: You tell yourself, “Man, I’m flush!” You start looking for a nicer apartment. And, you upgrade your plane ticket on your upcoming trip. You stop taking the train to work and instead opt for Ubers. Congratulations, you’ve become the real life, really lost boy.
I also find it most useful to express your saving rate as a percentage. To see your saving rate percentage, all you need to do is multiply your saving rate by 100.
Moving forward, when I refer to saving rate, I will be talking about your saving rate percentage. It’s more informative to see what percentage of your money you are saving, rather than an amount with no context.
What I mean is this: if someone asked me if saving $10,000 per year was a good target, I wouldn’t be able to comment with more context.
If that person was making $75,000 per year, I would say that seems pretty good. That’s a saving rate of more than 13%.
If someone told me they were making $750,000 per year, and only saving $10,000, I would recommend that person revisit their Budget After Thinking. That’s a saving rate of only 1.3%.
Follow these tips for calculating your saving rate.
Just like we talked about when creating your budget, don’t overcomplicate this process. Here are some suggestions to help you easily calculate your saving rate:
When you calculate your saving rate, be sure to use your take-home pay for “Money Earned.” This means the amount of money that hits your bank account after taxes and retirement contributions.
This next part gets a little bit tricky to explain, but it’s important.
If you get paid biweekly (every other week), that means you will receive 26 paychecks every year (52 weeks / 2 = 26). If you are paid twice per month, like on the 1st and 15th of every month, you only receive 24 paychecks.
OK, so what?
To determine your monthly take-home pay so you can calculate your saving rate, you need to know the amount you earn for the whole year.
To figure out how much you earn in a full year, multiply the amount you receive in one paycheck by 26 (or 24). That’s your annual take home pay.
Then, to calculate how much you earn per month, divide your annual take home pay by 12. This is the amount you’re going to use for “Money Earned.”
For “Money Saved,” include all of the money you are putting towards your Later Money goals each month (except your retirement contributions through work).
I know it’s called “saving rate,” but for this purpose, include all your Later Money in the saving rate equation.
Of course, we know that “saving” is different from “investing.” Saving is also different than paying down debt or any other personal financial goal you’ve set.
It doesn’t matter. When calculating your saving rate, your goal is to see what percentage of your take-home pay is fueling our Later Money goals.
When it comes down to it, there are really only two ways to improve your saving rate.
You can spend less, and save more, of the money you’re currently making.
You can make more money and save most of that money, all while keeping your expenses the same.
Combining those two ideas is even better. Like we just said, make more money, spend about the same.
Use the excess money you make to fuel your Later Money goals.
If you can do that, your saving rate and your net worth will steadily climb. You’ll experience that your Later Money goals are closer to becoming reality than you think.
Let’s do the saving rate math together.
Now that we know what our saving rate is and why it’s such a useful metric, let’s revisit our $20,000 raise to do some math together.
Going back to our hypothetical, you were making $100,000 before your raise. Let’s assume that your take home pay was $70,000 per year after taxes and retirement plan contributions.
Let’s also assume you were putting $1,000 per month towards your Later Money goals.
Using our saving rate percentage formulas above, we see that:
Money Earned = $5,833 per month ($70,000 / 12)
Money Saved = $1,000 per month
Saving Rate = $1,000 / $5,833 = .17
Saving Rate Percentage = 17%
17% of your take home pay to fuel your Later Money goals is great!
Now, let’s see what happens if you add your entire raise to fuel your Later Money goals.
Earlier, we assumed that after taxes and retirement contributions, your take home pay increased by roughly $1,166 per month. With your raise, your annual take home pay has now climbed to $84,000, or $7,000 per month.
Look what happens to your saving rate percentage when you add the full $1,166 to Money Saved (instead of spending it)
Money Earned = $7,000 per month ($84,000 / 12)
Money Saved = $2,166 per month
Saving Rate = .31
Saving Rate Percentage = 31%
You more than doubled your monthly savings contributions and improved your saving rate to 31%!
Think about how much more quickly you can reach your goals by planning out this one decision.
In this week’s Q&A, we talk about how the timing was right to launch Think and Talk Money, why you should consider a side hustle, and what comes next for the website.
As always, please email your questions or leave a comment below or on socials.
You have a lot on your plate. Lawyer, teacher, landlord, young kids… why launch Think and Talk Money now?
I had been thinking about writing a book or starting a website for a couple years. Over the holidays, my dad gave me the final push I needed.
We were casually chatting while the kids played in the other room. Out of nowhere, he said, “Matt, you should do it.”
Do what?
“You should write a book.”
Oh, no biggie.
I didn’t expect him to say that. He went on to explain how you get to a certain age and you look back on life and wonder where it all went. You think about all the things that you wanted to do but never got around to doing.
No regrets, blogging then book.
He knew I had been thinking about writing a book for a while and didn’t want me to regret not doing it.
I thought about it and realized he was right. I would never forgive myself if I didn’t take this chance.
Now that I’ve thrown this out there, I have to do it, right?
There’s never a perfect time in life. If I didn’t start Think and Talk Money now, I might never have gotten around to it. Something always comes up. It’s too easy to make excuses.
It’s true we have a lot going on. Fortunately, I had a system already in place that gives me time to write thanks to Hal Elrod’s The Morning Miracle.
I hesitate to say a certain book “changed my life.” This might be one of them.
For almost 10 years now, I’ve been waking up at 5:30 a.m. to read, journal, and relax. It’s so beneficial to have that time for myself, especially now with kids, before the day gets away from me.
Since launching Think and Talk Money, I use my mornings to blog instead of reading. I like teaching and writing about personal finance, so my mornings are still enjoyable.
We’ll spend some time in a future post talking about all the advantages of having a side hustle.
The obvious advantage is you can make more money. The important thing is what you do with that money to make the side hustle worth it. A side hustle is another time commitment, after all. If you’re going to take on the responsibility, make sure it counts.
Before you consider a side hustle, have a plan in place for why you want additional money. Are you looking to pay down debt faster? Save for a wedding? Invest in your first rental property?
One of my favorite experiences teaching personal finance to law students involved a side hustle. A couple of years ago, a student approached me during a break and told me about his credit card debt. It had been weighing heavily on him.
After our discussion about side hustles, he committed himself to driving for DoorDash and using the income to pay off his credit card balance.
Six months later he sought me out to share that the plan worked. His side hustle allowed him to pay off his credit card in less than six months. All while working a full-time job and attending law school par-time. I couldn’t have been happier.
To help you think through why you might want a side hustle, check out these three posts:
BTW, you’re not too busy or important for a side hustle.
Some people reading this will automatically think, “I’m way too busy to even think about another job.”
In my personal finance class for law students, 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.
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.”
Setting that conundrum aside, the ideal side hustle is something you enjoy doing that can earn you extra money at the same time. Some examples 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.
I’m reminded of another conversation my dad and I had when I was in high school.
Growing up, my siblings and I were busy kids. Sports, clubs, performances, classes, you name it. I made a remark to my dad about it at one point.
He responded that being busy wasn’t a bad thing because you don’t have time to fool around. When you have no choice other than to stay focused, you actually perform better in all facets of life.
You’re not thrown off by distractions because you’re locked in on accomplishing your goals.
After launching Think and Talk Money, I feel a heightened sense of focus. It’s benefitting me in all of my pursuits. I take care of business as best I can, while prioritizing my family and my health.
I can see your eye rolls through your screen.
This guys is nuts. He’s a workaholic.He has no life.
Have you ever used a HELOC to invest in real estate?
Yes, I’ve used HELOCs, which stands for Home Equity Lines of Credit, to scale my real estate portfolio.
This question leads to so many concepts we need to discuss, from debt and credit to investing. We’ll come back to HELOCs more fully in a separate post.
The bottom line is using HELOCs to scale your investment portfolio is a more advanced strategy that I would not recommend for everyone. I probably wouldn’t recommend it for most people, even experienced real estate investors.
I say that for good reason. When you hear HELOC, think debt. For many of us, debt is problematic and leads to negative emotions.
If you satisfy all of the above, a HELOC may be useful to scale your real estate portfolio. If you’re thinking about using a HELOC in the near future and want to talk it out, please feel free to reach out.
What’s it like being a blogger?
It’s only been five weeks, but I’m happy I took the chance to launch Think and Talk Money.
It’s been fun.
And, it’s been hard.
First, the fun stuff. I’ve enjoyed writing and talking about personal finance concepts that are important to me. I’ve especially enjoyed all the interactions with our readers.
One unexpected element I’ve appreciated is the sense of accomplishment that comes with publishing every post. This is very different from my experience as a lawyer where we typically work on a case for years before its conclusion.
I’ve also had fun writing in a new style. I haven’t ever blogged before. I haven’t done any writing other than legal writing since college. If you’ve ever had the pleasure of reading a legal brief or court opinion, first off, I’m sorry. Second, you understand how different legal writing is from blog writing.
Even though the writing styles are different, there is certainly some overlap in the fundamentals. My aim in both styles of writing is to be clear, concise, and informative. I hope to be somewhat interesting, as well.
As a blogger, I’m still finding my voice, as they say.
It can be challenging to make core personal finance concepts- like budgeting and saving money- educational, simple, and entertaining. If I’m doing my job, then my personal finance content should also be relatable and understandable.
Please let me know you have any feedback on what’s working (or not working for you)!
So, what’s hard about blogging?
Now, for the hard stuff.
My wife and I launched Think and Talk Money with zero knowledge, skills, or experience in starting a website.
Can you tell? Be nice.
We have no tech background whatsoever. Two months ago, I had no idea what SEO, caching, or plugins were.
If you’ve ever started a website, you know exactly what I mean. Creating the content is only the first step. So much more goes into it behind the scenes. We’re still only scratching the surface.
To sum it up, the tech stuff has been challenging and time consuming. We’ve learned so much already but have so much more to learn.
Thank you to everyone who has reached out with tips and suggestions!
What’s the end game for Think and Talk Money?
I completely understand why this is an important question to think about. The truth is we’re just getting started and haven’t thought about Think and Talk Money in terms of an end game.
I’ve always liked to teach and write, and this lets me do more of both. For now, our mission is to introduce the most important concepts of personal finance through the blog.
We post three times per week on Mondays, Wednesdays, and Fridays.
Some of the posts cover core personal finance topics in depth. Other posts are more targeted and address specific strategies or lessons.
There’s an intentional order to the way we’ve been introducing concepts. The order is important and mirrors the curriculum in my personal finance class for new lawyers.
Using this template, my wife and I have been tracking and discussing our net worth for years.
It takes me about 20 minutes to update my TATM Net Worth Tracker™️ each month. The hardest part is remembering all the passwords for our accounts.
When I finish entering the new account values, I study the TATM Net Worth Tracker™️ for about two minutes.
I hope to see that our money efforts that month resulted in our assets increasing in value and our debts decreasing.
When I’m finished with the updates, my wife grabs her coffee and sits with me. She will likewise study the TATM Net Worth Tracker™️ for about two minutes.
We’ll then spend about three minutes talking about the changes from the previous month.
And, that’s it.
It takes us less than 30 minutes each month to track and discuss what I consider the most important metric in personal finance.
That’s all the time it takes to know if we are progressing towards our most important goals.
By tracking our net worth, we can quickly see if we are making good money decisions or need to make adjustments.
I recommend everybody, no matter where you are in your financial journey, track your net worth.
Think of tracking your net worth in terms of keeping score during a basketball game.
If you don’t know the score of the game, you don’t know if your strategy is working. You don’t know if you need to make adjustments before time runs out.
The same applies to tracking your next worth. The point is to educate yourself on your current financial situation so you can make adjustments while there is still time.
In this post, we’ll talk about what “net worth” means, how to track it, and why it’s so important.
Let’s start with a little story about when I first learned what net worth means.
Going into hiding straight from a London pub.
One night when I was studying abroad in London, my good friend, Kais, and I were talking in a pub.
I don’t remember what we were talking about when, out of nowhere, he said something like:
“If I was in trouble and needed to go into hiding, I could sell everything that I own, pay all my debts, put the leftover money in the bank, and be fine for a couple of years.”
Uhh, OK…
At the time, I had no idea what he was talking about.
Still, I had to admit that it seemed pretty cool that he had that kind of financial flexibility.
I knew I couldn’t survive for a couple of weeks, let alone a couple of years.
It’s up to you to decide what assets to include in your balance sheet. There is no strict science to it.
That said, there’s no point in overstating (or understating) your assets. You (and your family) are the only ones who will be reviewing your balance sheet.
I personally don’t include all of our household items, but you are certainly welcome to. For me, it’s not worth the time and effort to determine how much I could earn by selling my TV or snowboard.
It’s perfectly acceptable if you want to tally up the value of your items. I think it makes sense to do so if you have a lot of nice things. If you choose to do so, aim for estimates, rather than precise values, to make your life easier.
Why it is so important to acquire assets.
Assets can, but don’t always, appreciate (increase in value) over time.
For example, a property may appreciate over the long term, but a typical car will do the opposite and depreciate (lose value over time).
Assets can also generate income, but don’t always. A good rental property should generate monthly cashflow. A stock portfolio can generate dividends (payments from companies to investors).
On the other hand, a designer bag won’t generate income, unless you charge people to borrow it. Even so, a designer bag is still considered an asset because you could exchange it for money.
To state the obvious, owning assets is a very good idea. Especially assets that appreciate and assets that generate income.
When you own these types of assets, your net worth will increase over time without much extra effort on your part.
You don’t have to specifically trade your time for money with these types of assets.
Think of it like this: the best way to achieve financial independence is to own assets that increase in value over time and generate income.
By tracking your net worth each month, you’ll know how your assets are doing.
Does my home count as an asset?
Some people, like personal finance legend Robert Kiyosaki, don’t think you should count your home as an asset. The argument goes something like, “You can’t really sell your home because then you wouldn’t have anywhere to live. So, you shouldn’t count it as an asset.”
I couldn’t possibly disagree more.
For many of us, our homes are our most important purchase in our lives. Over the long run, most of our homes will appreciate in value, even if not as much as we hoped.
We spend years working to make money so we can pay down the mortgage. Each payment we make reduces our debt and increases our equity in the home, thereby improving our net worth.
Don’t overcomplicate it. Include your home as part of your net worth. Just don’t forget to include the mortgage as a liability (we’ll discuss below).
How do you determine the value of your home for purposes of tracking your net worth?
Make it easy on yourself. The goal is to obtain a reasonable estimate. If you’ve worked with a real estate broker, ask her for the current value of your home.
She will use recent “comps”, meaning similar comparable properties in the area, to come up with a fair value.
You can also make a decent estimate of the value of your home by studying comps yourself. Platforms like Redfin or Zillow make it easy to see what homes have sold in your neighborhood.
Look for homes as similar to yours as you can find. Focus on size, the number of bedrooms and bathrooms, and the quality of the finishes.
Remember, this is not an exact science. We’re aiming for an estimate of your home value only for the purpose of measuring your net worth.
On our family balance sheet, I only update the estimated value of our properties once per year. That’s good enough for me, and all you really need to do.
Now that we know what assets are, we need to figure out what liabilities are to calculate our net worth.
Don’t let that discourage you from tracking your net worth. Even if you’re in negative territory, each month is a chance to shrink that negative number, which means your net worth is increasing.
Whether you are paying down debt, or adding to your savings or investments, the result is the same: your net worth increases.
The reason for tracking your net worth also remains the same: individual progress, over time.
Now that we know what assets and liabilities are, we can use the TATM Net Worth Tracker™️ to determine our net worth.
On the bottom, the rows represent the liabilities or debts you owe.
Each of the 12 columns (one column for each month) in the spreadsheet indicates the value of each asset at the end of the month.
The reason there’s a new column for each month, instead of just updating the values in a single column, is so you can easily see how your net worth has changed over time.
Once all 12 months for the year are filled in, start a new sheet and repeat the process. This helps you track how your net worth has changed over the long run.
Since your TATM Net Worth Tracker™️ is for your eyes only (or your family’s eyes), you can edit the asset and liability rows to match your personal situation.
You’ll notice there are different categories depending on what kind of asset you own.
I like separating it this way because it helps me quickly visualize if my net worth is concentrated in a particular category.
If our net worth is decreasing, it means we need to consider making adjustments.
Sometimes our net worth decreases because the markets are heading down. If that’s the case, we don’t do anything. At this stage in our lives, we can afford to wait for the markets to tick back up.
If the issue is that our debt is increasing, or we haven’t fueled our investments that month, we make adjustments.
By studying our net worth each month, we can catch these setbacks before they become a continuous problem.
In our last post, we talked about the importance of fueling your savings and how savings differ from investments.
Here, we’ll discuss how to best optimize your savings so you are protected in times of emergency and can achieve your short-term goals.
We’ll also talk about whether you should automating your savings, and if it makes sense to start saving while you’re paying off debt.
Let’s begin with the most important savings account we all need: an emergency savings account.
The first savings account you need is an emergency savings account.
The first savings account you need is commonly referred to as an emergency savings account. This is your ultimate security blanket for whatever life throws at you.
For example, if you lose your source of income, your emergency savings will keep you afloat until you find a new source of income. The idea is to use your savings so you don’t have to pull from your long-term investments.
Your emergency savings is not just for when you lose your job. Your emergency savings will also protect you in times of emergency (brilliant, huh?), like unexpected medical bills or expensive home repairs.
The idea remains the same: instead of pulling from your investments, you will have cash available in your savings account to cover your needs.
Aim for 3-6 months of Now Money saved for emergencies.
Aim for building up 3-6 months of your Now Money saved in a dedicated emergency savings account.
Because Now Money represents the consistent, reoccurring expenses that you need to pay every month to take care of yourself and your family. Since you will only be using this money in times of emergency, you can, and should, forego some of life’s luxuries until you get back on track.
The same is true for fueling your Later Money goals. Take a pause until you sort out whatever it was that caused you to spend your emergency savings in the first place.
Come on Matt, should I save 3 or 6 months of Now Money?
It depends! Personal finance is personal.
If you have no dependents, 3 months worth of savings is a good benchmark. In most circumstances, that should give you enough time to get back on your feet.
If you have dependents, that means you are responsible for additional humans, sometimes tiny humans. These humans are counting on you for support. Targeting 6 months of savings is a good idea so you can continue to provide for them.
You should also consider your source and consistency of income when deciding how much you’ll need saved for emergencies. If you are not paid regularly throughout the year, you should target a larger amount in your emergency savings to cover those longer gaps between pay.
When you are part of a dual-income household, you may be able to get away with less emergency savings since two people are contributing to the monthly bills. If one of you suffers a sudden job loss, the other person’s income can still be used to keep the household afloat.
One last thing: Building up to 3-6 months of emergency savings will take time. Don’t pressure yourself to accomplish this goal overnight. Each month, you can add to this account until you reach your target. Any and all progress is good progress.
Do not rely on credit cards for emergencies.
Unfortunately, many of us rely on credit cards to pay our bills. When we do this, our debt grows and cancels out any gains we’re making through our savings and investments.
Just as you shouldn’t pull from your investments in times of emergency, you should not rely on credit cards to protect you.
Savings is also for more fun, short-term goals.
We just talked about the first savings account you need, an emergency savings account. I agree with you that thinking about emergency savings is not exactly fun. Job loss… medical treatment… car repairs. Yup, not fun.
Let’s talk about more fun stuff. Savings is also for short-term goals, whatever those goals are for you. This is your Later Money in action fueling your life goals.
Remember, we said emergency savings was your first account. Not your only account.
Once you’ve identified your specific Later Money goals, it’s a good idea to create separate savings accounts, or buckets, for each goal. This will help you visualize the progress you’re making towards each goal. It will also help you not use your savings that was intended for one goal on something else.
What kind of savings buckets might you have? Before I got married, I had separate savings accounts for:
Engagement ring
Wedding
Down payment on a home
Travel
Cubs Season Tickets
Emergency Savings
Budget Busters
I had a specific amount in mind for each category and would make transfers each month into those buckets. Not each account received an equal amount.
For example, I knew how much I needed for Cubs tickets, usually payable at the end of the year, and divided that amount by 12 months.
The amount needed to purchase something like an engagement ring was more… fluid.
My students in recent years have suggested other savings buckets, as well. We’ve talked in class about saving for a car, saving for holiday presents, and saving for kids’ schooling.
Whatever your savings goals are, using separate buckets will help you stay on track.
Setting up separate savings accounts online is easy.
It’s easy to set up separate savings accounts online with most major banks. Once you create your initial account, you can create sub-accounts that will appear on the same landing page as your primary account. Each account will have an individual account number, and you can label them however you like.
When you do set up your savings accounts, it’s a good idea to have a different bank for your primary checking account and your savings accounts. This will help you resist the temptation to spend your savings. Out of sight, out of mind, and all that.
I’ll soon have a post on my favorite online savings accounts. There are a number of them out there that offer good interest rates and a solid user experience.
Automating your savings is a good idea, but I don’t personally automate.
I automate a lot of my money tasks, like setting up automatic bill payment for every bill that comes to mind. This includes my mortgages. I also have automatic deductions taken from my paycheck for my 401k plan.
Automating your money is a very good idea. In The Automatic Millionaire, David Bach explains how the single step of automating your finances can help you live rich and retire richer. You can learn more about Bach’s philosophy on his website.
I don’t disagree with Bach and implement many of his strategies in my own life. The Automatic Millionaire is definitely worth a read.
Still, I don’t automate my savings transfers.
I automated my savings transfers in the past and learned that I prefer the emotional high of manually making savings transfers.
I like how it makes me feel to go into my checking account and transfer that month’s Later Money to my savings. It makes me feel good to see the pop up on my computer: “Your transfer is complete!”
I like that feeling so much that I’m not worried about skipping a savings transfer. That moment gives me a lot of joy.
If you have debt, should you still build up your emergency savings?
During my money wellness class, I usually get a question like this:
“Should I build up my savings while I’m paying off student loans or other debt?”
My recommendation is different depending on the type of debt. That’s because interest rates are generally much lower for student loans or mortgages than for credit card debt.
In a future post, we’ll talk about what is commonly referred to as “good debt” and “bad debt.” Student loans and mortgages, in my opinion, represent good debt. Credit card debt is almost universally considered bad debt.
Typically, good debt has much lower interest rates than bad debt. You might be paying 20% or more on your credit cards and closer to 8% on your student loans (and probably even lower on your mortgage).
If you have high interest credit card debt, pay that off first before you prioritize savings. It doesn’t make any sense to pay 20% interest to a credit card company just so you can earn 4% interest in a savings account.
On the other hand, if you have student loan debt or mortgage debt, I recommend you start building your emergency savings account while you’re simultaneously paying down that debt.
Yes, paying 8% interest is mathematically worse than earning 4% in savings account. If you are driven strictly by the math, you should pay off that 8% debt before you start saving in a 4% interest account.
Never forget that money is emotional.
But, money is emotional. I think it’s worth paying the interest on your good debt so you can experience your savings growing.
Plus, if you do have an emergency that requires you to tap into your savings, you won’t have to rely on credit cards and pay the much higher penalty.
Keep in mind that if you go this route, you still need to make your required debt payments. We are only talking about extra money that you have available that could go towards additional debt payments or to savings.
The temptation to ignore your savings is real, especially when you have debt.
The temptation will be there to pay off whatever debt you have as quickly as possible and forego saving altogether.
I still feel this temptation every month. Should I contribute my next dollar to building up savings or paying down mortgages?
For most of the past year, I was laser focused on paying down mortgage debt. More recently, I’ve reassessed and have been working to build up my savings.
Having talked it over with my wife, we want to make sure we’re protected should something unexpected happen, even if that means temporarily slowing down our progress on our mortgages.
This way, we won’t end up in a cycle of using credit cards to cover us in times of need.
If you’re faced with a similar decision, know that you’re already ahead of the game by even thinking about how to use your Later Money to fuel your goals.
Whether you are paying down debt or increasing your savings, you are heading in the right direction.
Please drop a comment below if you have any additional tips to share!
Do you prefer automatic savings or manual transfers?
What are some of your favorite savings buckets you’ve used?
Only 10% of households are completely satisfied with the amount of money they have saved.
Only 20% reported saving more in 2024 than in 2023.
These numbers are scary. You can read more here. The scariest part for me is that these results aren’t surprising at all. They closely mirror the stats I first showed my students back in 2021 when discussing savings.
Why are these numbers so scary?
In the abstract, I can understand why these stats may not seem too scary to you.
Let’s look at another stat that illustrates what happens when we don’t have adequate savings:
About 33% of households would not be able to pay their bills or expenses for one month, if faced with a sudden loss of income.
This number rises to 38% of Gen Z and 41% of Millennials who report they could not pay their bills for even a month.
What do these numbers mean?
1 in 3 people currently reading this post, in the comfort of their homes they have worked so hard for, would not be able to afford those homes for even one month if they suddenly lost their jobs. It’s worse for Gen Z and Millennials.
Maybe you’re on the train commuting to work while reading this. How many people are in the train car with you? 30 or so? Pick out 10 passengers, really look at their faces.
They’re just like you, typically good people, working a job to provide for themselves and their families. If these 10 people suddenly lost their jobs, they wouldn’t be able to pay their bills next month.
Count me in the group of people not completely satisfied with their savings.
If you read these stats and are honestly not worried about your savings, you are in the minority and are doing a tremendous job managing your personal finances.
Keep up the good work and please let us know in the comments below what strategies are working for you.
On the other hand, if you’re being honest with yourself, you’re most likely in the 90% of people that are not completely satisfied with their savings.
We now have work to do to build our savings back up. Instead of presently shopping for investment properties, we are now focused on paying down mortgage debt and increasing our savings.
Most people attribute their low savings to rising cost of living.
What is the most common explanation given by people that have so little saved? Rising cost of living across the nation:
Nearly 66% of Americans believe that the cost of living for the average family is not affordable in their area.
Millennials and Gen X are the most worried about the cost of living, with more than 70% of each group feeling unprepared. 64% of Gen Z and 59% of Baby Boomers likewise feel unprepared.
Cost of living includes necessary expenses like housing, food, transportation, and healthcare. In other words, Now Money.
There are any number of reasons we can point to that are combining to drive up the cost of living, like limited housing inventory, higher interest rates, and more expensive groceries.
Whatever the reason for why costs are going up, I’m more interested in adapting and thriving in the current environment rather than making excuses.
So, what exactly can we do to improve our savings?
The next part, figuring out what to do with that money you generated for savings, is much easier. Before we talk about specific savings tips, let’s make sure we’re on the same page as to what we are trying to accomplish through saving.
Savings are for short term protection and short term goals.
When we talk about savings, what exactly are we talking about anyways?
Savings (pleural) means “the excess of income over consumption expenditures.” Much better.
That’s about as simple as it gets. Savings is the money you have left over that you didn’t otherwise spend. In Think and Talk Money vocabulary, it’s your Later Money.
In The Richest Man in Babylon, George Clason described savings with one of my favorite quotes in all of personal finance:
Actively saving money to fuel your Later Money goals is a non-negotiable step towards financial independence.
You can use your savings to protect yourself and your family in times of need. You can also use your savings for short-term goals, like paying for a wedding or a downpayment on a house.
Think of it this way, your savings make it so all those hours you spend on the job- the time away from your family or your passions- was not for nothing.
What is the difference between saving and investing?
Keep in mind that savings is different from investments, although both count towards your Later Money.
Savings is for (1) short term protection and (2) short term fuel for your life goals. Your savings is your security blanket for the here and now so you don’t have to take away from your wealth-generating investments at the wrong time.
Keep this money in a dedicated savings account (or accounts) so the money is readily available when you need it.
Investments are assets that you purchase with the goal of making a profit over time. That might be through the stock market, real estate, or any number of other options. Think of investing as the best way to supercharge your wealth over the long term.
Investing is a major component of overall money wellness, but investing comes with risk. As the saying goes, “you don’t get something for nothing.”
Because you can lose your money in any investment, it’s not a good idea to expect that money will immediately be there when you need it. That’s one reason why you should have savings distinct from your investments.
One way to counteract investment risk is to invest for the long-term, so you don’t want to interrupt those investments for short-term goals. This is another reason why we need savings in the short term.
One final point about saving vs. investing. There is a point when you will have enough saved in the bank that you can solely focus on growing your investments. This is a very comfortable place to be and where I am currently focused on returning.
Saving is an essential part of overall money wellness.
To recap, saving money to fuel our Later Money goals is crucial to overall money wellness. Sometimes, we’ll use our savings for protection, like in times of emergency. Other times, we’ll save with a clear goal in mind, like paying for a wedding or a house.
Saving is not the same as investing, although both are important. The reason we save money, rather than invest it, is so that money is readily available when we need it.
In our next post, we’ll discuss what to do with the money we are saving for maximum results. We’ll cover some key strategies for what to do with the money you have generated so your savings align with your overall money goals.
Let me know in the comments below if you’re not completely satisfied with your savings, like me.
Have you taken any steps to join the 10% of Americans who are completely satisfied?
My favorite teachers share a common gift of using analogies to make a teaching point more clear. My mentor and moot court coach in law school (he preferred we call him Sensei) was an expert at analogies.
Back in law school, after working for months on a brief for a moot court competition, my team messed up and submitted a brief with a bad formatting error on the cover page.
We knew we were going to get penalized, but after months of working on it, we still felt proud of our work. And, it felt good to be done.
We called Sensei in celebration that we were finished. When we told him about the formatting error, he was… not pleased.
“You fumbled the ball on the one yard line!”
I told you he was good with analogies.
Analogies can help us internalize key money concepts.
I’ve found that analogies work well when trying to implement key money wellness habits into our lives. Like the idea of generating fuel for our ultimate life goals through our budgeting choices.
I’m always on the lookout for new analogies to help make money concepts more relatable. It probably has to do with the common misconception that being good with money means knowing the ins-and-outs of the stock market.
Relating money concepts to other familiar areas of life can help with that.
This is one of the things I like best about teaching personal finance. Money touches all aspects of our lives, whether we like it or not. So, talking about money is really just talking about life. Sometimes that means using analogies.
Which leads us to Peloton.
See you on the leaderboard.
My wife and I bought a Peloton bike during the pandemic, probably like a lot of you. I’m still a big fan, especially because of the flexibility an at-home workout provides when juggling life with kids.
It occurred to me the other day that my friends and I talk about Peloton a fair amount. I pretty much know who all their favorite instructors are and what type of music they ride to. I’ve been accused of having a hot bike that juices my score, which I continue to deny.
There’s nothing better than doing a Peloton ride at home and seeing that your friend is doing the same ride. It gives you a jolt of energy to know your friend, in that exact moment, is doing the same thing as you.
You know where I’m going with this Peloton analogy.
It’s long been normal to talk about and motivate each other to exercise. But, it’s still considered taboo to talk about money.
Why can’t we talk about money the same way we talk about exercising?
I’m guessing that you know exactly what your closest friends and family members do for exercise. Weights? Yoga? Jogging? You also know which people do nothing at all.
I’m also guessing you have no clue what motivates each of these people to work 2,000 plus hours per year to make money.
Or, what their strategies are for using that money they make to fuel their life goals.
Exercising has long been made better with a personal trainer or a friend to keep you on track. Those days when you don’t feel like working out, having someone to push you is a great advantage.
Why shouldn’t we seek out that same great advantage when it comes to our money, something that touches every aspect of our lives?
This idea extends well beyond exercise habits. I’m sure you know your friends’ current favorite travel destinations, books, and food?
For me, it’s paying down mortgage debt on our rental properties.
What are you waiting for?
When we moved to our new neighborhood, the first people we met at the playground were a lovely couple that own a local fitness center. They’re also real estate investors and have young kids, like us.
We’ve become friends and have had some amazing talks about life and money. In one such talk, I mentioned that I was thinking about starting Think and Talk Money.
My friend heard me out and didn’t say a word until I finished. He then looked me square in the eyes, like only a coach could do, and said, “What are you waiting for?”
He was absolutely right. A few months later, I launched Think and Talk Money and sent him a message thanking him. I was grateful for our talk about life. He was happy to have motivated me.
Our friends can help with money just like they can help with exercise.
Lately, I’ve thought about how much my friends and I can help each other if we talked about money concepts just like we talk about Peloton.
One thing to mention, I don’t want to give you the idea that we’re constantly talking about exercise. It comes up from time to time, every once in a while. That’s enough of a reminder to pay attention to our fitness. Talking money is the same thing.
You don’t have to bring up money with your friends every week or even every month. How about just every once in a while when it’s on your mind? I think you’ll find your friends are the best people to help you stop worrying about money.
I think you’ll also find that you can be the one helping and motivating your friends. You don’t have to be an expert. Sharing any ideas can help jumpstart the thought process for your friends. That’s a really good feeling.
Always remember, the amount of money we have doesn’t matter anymore than our scores on the bike. There’s no reason to talk about numbers unless the people in your life are comfortable with that.
One caveat, I encourage you to talk specifics with certain people who are impacted by your money choices, like a spouse or partner.
The point of talking money is not to compare yourself to others.
Fitness instructors know that it’s not helpful to tell people to compare themselves to each other. We’re all built physically different and emotionally different. Instead, they encourage us to seek personal improvement, consistently over time.
That’s how we should be talking money with our friends.
We all basically agree with this concept, right? That it’s not helpful to compare ourselves to others. That’s a lesson that’s been drilled into our brains since we were kids.
Let’s remember that lesson when we start approaching our friends to talk money. It’s not how much money any of us have, it’s what we’re doing with that money to fuel our goals that matters.
Do you talk to your friends about paying for college?
Many of my friends have young kids like me and saving for college is a common goal we share.
Wouldn’t it be beneficial for us to talk about how we’re planning to pay for it?
By talking about paying for kids’ college educations with your friends, you may learn about education-specific investment accounts, like 529 plans, which is a common strategy we’ll soon discuss.
You may also learn less common, but potentially more appealing, strategies for your situation. An example is buying an investment property when your kids are young with the intention of selling it years later to pay for college. This is what Brandon Turner did, and he’s a very smart guy.
The idea is you may learn something that makes it more likely to achieve your goals, whether that’s paying for college or anything else, like saving up for a wedding or paying off student loans.
Is there a stronger motivation than helping your friends and loved ones?
You don’t have to talk numbers. Talk about the strategy and help each other stay consistent. You both will benefit.
Is there any stronger motivation in life than helping our friends and loved ones? On the same note, what better people to learn from than your friends, people you know and trust.
That’s what talking money is all about.
Leave a comment below if you’ve talked money with any of your friends lately.
How did it go?
Did you learn anything that you’d recommend when approaching the topic of money?
When people learn that I’ve been teaching money wellness to law students, I usually get a reaction like, “I need that class! I know nothing about investments and the stock market.”
It’s a fair reaction. Investing in the stock market can be complicated. Most of us never learn basic stock market principles, let alone how to manage an investment portfolio.
It’s also a reaction that has always fascinated me. Yes, wanting to learn about investing is important. But, it’s not where money wellness begins.
I often wonder, why do people automatically assume that money wellness means investing? There are so many things that we need to get right before we can focus on investing.
Learning about the stock market wasn’t going to help me when I was struggling with debt. I needed to first figure out how to make better spending choices and get out of debt. I needed to play defense before I could go on offense.
Yes, investing is important.
No, it shouldn’t be the first thing we think of when we hear money wellness.
We’ve hardly mentioned investing so far in this blog.
Have you noticed that so far in the Think and Talk Money blog we have hardly even mentioned the word “invest”?
That’s because in order to invest, we first need available money.
We will talk about investing once we have a plan to continuously generate money to invest.
We will soon talk about investing. A lot. Don’t worry. In my money wellness class, we discuss in depth the importance of investing to create wealth.
Here at Think and Talk Money, we will also talk extensively about investing, including in the stock market and in my preferred asset class, real estate.
Investing is not as hard as generating money to invest.
For now, our goal is to establish sound habits so we have real money to consistently invest over time. It doesn’t make sense to learn how to invest until we have a strong foundation in place.
I think you’ll also find that investing is really not that hard. If learning how to do it on your own doesn’t sound like something you want to do, there are professionals that can do it for you. Whether it’s a good idea to go that route is something we’ll discuss so you can make an informed decision.
If you do hire a professional to invest your money, you still need to know enough so you can talk to this person.
Plus, this person will likely tell you that your ongoing mission is to generate more cash to fuel investments. That’s what we’re focusing on now.
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.
You could be a terrific investor. If you only have $1,000 to invest a single time, your upside will be limited. If you continuously generate $1,000/month of Later Money to invest, your options (and your wealth) will grow exponentially.
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.
Maybe that’s not your path. Still, these skills are critical whether you are a consultant, a writer, or a teacher. Would you agree that having money issues and stress at home can distract you from performing your job at the highest level?
How many hours per year do you work to make money?
Lately, when people ask me why I’m so passionate about money wellness, I respond with a question of my own that goes something like this:
“Let’s say we work 2,000 hours per year to make money (40 hours per week, 50 weeks per year).
We won’t even count all the hours we spend getting dressed and commuting to our jobs.
We also will pretend we’re not looking at our emails in the evening and on weekends.
We definitely won’t count the hours we’re staring at the ceiling fan because we can’t sleep.
OK, so that’s 2,000 hours (plus) per year, to make money.
How many hours per year do we think about what to do with that money?”
Let that sink in for a moment.
How many hours do you work every year to make money? 2,000? 3,000? I’m guessing a lot of those hours are stressful.
Now, how many hours do you think about what to do with that money?
Do you spend any hours at all talking about what to do with that money?
This is why I am passionate about money wellness. Most people spend the vast majority of their lives worried about making money and practically no time at all thinking about what to do with that money.
No, I’m not suggesting that you need to think about money for 2,000 hours per year.
What I am suggesting is that even that little bit of time each week spent thinking and talking about money is just as important as the time you spent earning it.
Think and Talk Money is about encouraging each other to make purposeful money choices.
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?
Think and Talk Money is all about actively thinking and talking about money so we can help each other make informed choices with our hard earned money.
Whether you make a lot of money or a little money, it doesn’t matter. What you choose to do with that money is up to. It’s your life.
All I want is for you to make those choices from a position of informed confidence.
One response to “Better at Making or Keeping Money?”
Most of us humans are pretty good at avoiding things we don’t like. The things I’ve done to avoid mayonnaise…
Budgeting falls into this category of avoidance. Even though most of us can appreciate that budgeting is a crucial step in money wellness, we still avoid it.
Some of us give it a shot, and usually quit before we notice meaningful improvements. Just as problematic, some of us obsess over our budgets in an unhealthy and unsustainable way. This was me for a while. My obsession was mint.com.
I didn’t have a healthy relationship with budgeting apps.
If you used mint.com like I did before it ended, do you also have nightmares about those red tracking bars? Mint.com users know exactly what I mean. Overspend $11 on groceries? Red bar. One too many lunches downtown? Red bar! A last minute Saturday morning yoga class? RED! BAR!
It still pains me to think about how many hours of my life I wasted trying to recategorize expenditures so those red bars would turn green. If I just move this box of cereal from Groceries to Social Life, that Groceries bar will turn green. Oh wait, now Social Life is red. OK, move those movie tickets to Car Repairs.
When my wife was still courting me, I introduced her to mint.com. You might be thinking, “Matt, why on earth would you introduce her to something that drove you crazy!?” Valid question.
She was a good sport and gave it a shot for a little while. Thankfully, she was smart enough to realize tracking every penny wasn’t for her. The whole thing gave her more anxiety about money. Think about that. The idea was to create a plan for her next dollar so she didn’t have to worry about money. All I did was make it worse by introducing her to a budgeting app.
There’s an alternative to tracking every penny for the rest of your life.
That experience paved the way for my preferred budgeting method that my wife and I still use today. We discussed this method briefly in our recent Q&A post.
Please keep in mind this method is for people who have already created a Budget After Thinking and are honestly dedicated to creating fuel for their Later Money. Only when you get to that point will you no longer need to track every penny. At that point, your money motivations will be so strong that you’ll stay on track without needing to track every expenditure.
If you’re not there yet, don’t worry. You will be soon. Follow my top ten budgeting strategies until good habits become second nature. Then, move on to this simple plan.
My preferred tracking method is a version of zero-based budgeting.
Zero-based budgeting was first introduced in the 1970s by Peter Pyhrr. (I don’t love the name, either.) The main idea is that every dollar has a job, something we already talked about in our conversation about eliminating disappearing dollars.
In my version of zero-based budgeting, you don’t need to track every penny. You don’t need budgeting apps or complicated spreadsheets.
You’ll only need to focus on two numbers each month to know whether you are on track or falling behind. I’ll show you those two numbers below.
Before you get too excited, I need to reiterate this key point: if you want to succeed with zero-based budgeting, you still need to first create a Budget After Thinking. Otherwise, you won’t be able to figure out the key two numbers that you need to focus on.
This step is for those people who have already tracked their spending for at least three months, made thoughtful adjustments so their spending is in line with their values, and now know exactly how much fuel they can generate for their Later Money every month.
OK, so how does this all work?
I mentioned there are only two key numbers you’ll need to focus on each month:
Your checking account cushion.
Your Later Money transfer amount.
Let’s explore each number.
1. Your checking account cushion is your safety net.
A checking account cushion is the amount of money in your checking account that you don’t plan to spend. The purpose of the cushion is to give you a little breathing room so you can pay your bills, even if you overspend in one month.
Without the cushion, if you have a tough spending month, you either need to skip paying certain bills or skip making your Later Money transfer. Neither option is acceptable. The first option leads you into debt. The second option halts progress on your most important life goals.
The checking account cushion gives you protection.
How much of a checking account cushion do you need?
How much of a cushion do you need? It depends on whether you have consistent income (regular paychecks), or are paid inconsistently (commissions, freelance, contract, etc.)
If you are paid with consistent paychecks, I recommend your checking account cushion equal the amount you’ve planned to spend in your Now Money category from your Budget After Thinking (don’t worry, example below). This amount should give you a comfortable safety net without leaving too much money in your checking account that could be better used elsewhere.
If your pay is inconsistent, you’ll need a larger cushion to cover the larger gaps between pay days. I recommend you have double the amount of your Now Money. Note, you may have to tweak this amount based on your unique situation.
In our really lost boy example, he received paychecks biweekly. A good checking account cushion was $3,600 (equal to his Now Money).
This means that there should be $3,600 in his checking account to start each month. At the end of the month, after paying all of his bills and making his Later Money transfers, he should still have $3,600 left in his checking account. That’s his checking account cushion.
It’s OK if your checking account cushion temporarily dips below the amount you started the month with. This could happen during the time of the month when you pay certain bills, like your rent or mortgage. Don’t worry. The amount in your account will climb back up once you receive your next paycheck.
A final point: don’t spend this cushion. Fight the temptation to use your checking account cushion to pay off bills or debt. Without that safety net, zero-based budgeting does not work.
2. Your Later Money transfer is the main reason you’re budgeting in the first place.
This number reflects the whole purpose of budgeting in the first place: to create fuel for your ultimate goals in life. If you don’t know what your goals are, revisit our conversation on why you should want to be good with money. It all starts with what you truly want from your life and how you can use your money to get it.
When you’ve created your Budget After Thinking, you’ll know exactly what this amount is. In our really lost boy example, the total Later Money transfers added up to $2,050. In future posts, we will discuss where to transfer and what to do with this Later Money. No matter what, the goal is to put this money to work for you to progress towards your goals.
By focusing on just these two numbers, (1) your checking account cushion and (2) your Later Money transfer amount, you don’t have to track every penny. You’ll know if you are hitting your goals or falling behind just by looking at these numbers.
Now that we know the two key numbers to focus on, let’s see how this all works.
How to ensure you are on track with your money goals with just two numbers.
Sticking with our really lost boy, he predetermined that his checking account cushion is $3,600 and his Later Money transfer amount is $2,050.
At the start of the month, that means he had $3,600 in his checking account. Throughout the month, his checking account balance increased when he got paid (our really lost boy earned $7,500 per month). His checking account balance decreased whenever he paid for things like rent ($2,200) and any other bills.
The checking account cushion ensured that he had enough to cover all of his expenditures throughout the month. For example, if his rent was due on Wednesday, and he wasn’t getting paid until Friday, his checking account cushion ensured that he had enough in his account to pay the rent on time. His cushion might fall temporarily below $3,600, but his next paycheck would soon replenish his account.
As the month went on, various bills came due. Utilities may be due on the 7th of the month. Credit card bills on the 15th. These payments can all be automated so he didn’t have to actively worry about them. Again, his checking account cushion guaranteed he had enough in his checking account to pay them.
Towards the end of the month, in a perfect world, our really lost boy would have exactly $5,650 left after paying all of his bills. He could then transfer the predetermined $2,050 of Later Money to his various Later Money accounts. He’s then left with a checking account cushion of $3,600 and is ready to begin the next month.
This is not a “set it and forget it” budgeting method.
This is not a “set it and forget it” budgeting method. Think and Talk Money is all about exerting a little bit of mental energy on your money every week. This budgeting method is a good illustration of what that means. You don’t need to track every penny, but you still need to pay attention to your money choices.
To help you with that, I suggest that you glance at your banking or credit cards apps once a week to monitor your spending. If you use credit cards or electronic payments for most expenditures, it is quick and simple.
The reason it’s a good idea to glance at your banking apps is to make sure you are relatively close to your spending targets. If you notice that you’re overspending in the first half of the month, you can make the appropriate adjustments before the month ends.
This small amount of effort throughout the month is worth it. Every time you make that Later Money transfer at the end of the month, you’ll feel exactly what I mean.
Don’t strive for perfection.
I said above “in a perfect world” to highlight that we’re not striving for perfection. That’s an impossible standard. One month, our really lost boy might have only had $3,300 left after making his Later Money transfer. That’s fine. It’s a temporary blip that he could easily fix, if he’s honestly dedicated to his life goals. He had a couple of options.
His first option was to course correct the next month by spending $300 less. That could mean temporary adjustments in his Now Money or Life Money, such as skipping a couple dinners out, doing yoga at home, and buying chicken instead of steak at the grocery store.
His second option was to replenish his checking account cushion from his specific budget busters savings account. What is that, you ask? It’s a separate savings account to cover you if you have one of these higher-spending months so you can keep your money plan progressing.
In some months, you will actually underspend.
Where do you get the funds for such an account? Believe it or not, in some months, your spending will come in under budget. Let’s say our really lost boy had one of these good spending months in January. Maybe he did Dry January and ate all his meals at home for health reasons to compensate for all the holiday celebrations.
In this example, the result was he spent $500 less in January than he had budgeted for. Instead of leaving that $500 in his checking account (bringing his cushion up to $4,100) where it turns into disappearing dollars, he transferred it to his budget busters savings account.
Then, when he had a high spending month, he could make a transfer back into his checking account to keep his cushion at $3,600. All while continuing to make his Later Money transfers every month.
If you constantly run out of money before making your Later Money transfers, this method is not for you, yet.
Always remember the goal of your Budget After Thinking is to generate fuel for your life goals. If you’re not making these Later Money transfers, you’ve defeated the purpose of having a budget in the first place.
Don’t feel embarrassed or sad if that happens to you. Take it as a sign that you need to explore your Now Money and Life Money spending to see what adjustments you can make. Once you’ve found those adjustments, you can come right back to my version of zero-based budgeting.
If you want this plan to work, where you only need to focus on two numbers instead of tracking every penny, you need to be honest with yourself that you’re ready for this.
Decide for yourself what budgeting method works best for you.
If you’ve been successful tracking your spending in a spreadsheet or a budgeting app, and enjoy the process, you should continue to do so. If it ain’t broke, don’t fix it, right?
On the other hand, if you’ve created a Budget After Thinking and consistently hit your Later Money goals, you’re probably ready to stop tracking every penny, if you’d like.
To recap, my version of zero-based budgeting is for those people who want to continue to fuel their Later Money goals without the anxiety of the spreadsheet. Instead, focus on those two numbers: (1) your checking account cushion and (2) your Later Money transfers. This is what I’ve been doing for years and it has worked.
If your cushion falls short one month, that’s OK. We are not striving for perfection. Make up for it the next month or use your budget buster savings account to replenish your checking account. And, keep making your Later Money transfers.
Has anyone else experienced mint.com anxiety? Are you currently using a budgeting app? How do you like it? Has any tried zero-based budgeting?
In Part 1 of our series on budgeting, we learned how to eliminate disappearing dollars by creating a plan for Now Money, Life Money, and Later Money.
In Part 2, we used a real life example to work through the budgeting process together. We learned that even seemingly minor adjustments can add major fuel to your Later Money bucket.
Here in Part 3, we’ll take a deep dive into my top 10 strategies for making thoughtful adjustments so we can consistently win the budget game.
1. See the ball go through the hoop.
When I was playing basketball growing up, I learned the concept of “seeing the ball go through the hoop.” When I was struggling to make a shot, my coach encouraged me to drive to the basket and make an easy shot.
Once I saw that I could make an easy shot, I had my confidence back.
By seeing the ball go through the hoop, I subconsciously reminded myself that I could do it. There was nothing wrong with me. I was ready for more challenging shots.
Anyone who has been around young kids has witnessed this same phenomenon. My son is learning to swim. When he proudly drifted (with a life vest on) two feet from me on his own, he proudly exclaimed, “I’m swimming! I’m swimming!”
It didn’t matter that neither his arms nor his legs were moving.
Once he saw that he could enjoy the pool without holding onto dad for dear life, he wanted nothing to do with me. He knew for himself that he could do it.
This concept works in a lot of different money situations, especially when making thoughtful adjustments to your budget. In our really lost boy example, we made small adjustments to our grocery budget, phone and internet bills, and social life spending.
These adjustments were easy to implement and added major fuel to our Later Money. Just as importantly, there was an additional psychological benefit in proving to ourselves that we could make improvements.
Start small. See the ball go through the hoop.
2. Don’t cancel your social life.
The point of starting small is to identify beneficial adjustments that are relatively painless. Focus on the “relatively painless” part. Canceling your social life will not be relatively painless.
Your social life consists of ongoing experiences that bring you happiness. We always should strive for more of those experiences, not less. So, don’t cancel your social life.
Looking again to our really lost boy, you probably noticed that I made small adjustments to my Life Money. However, even those small adjustments did not result in less time with my friends.
This is a key point: I didn’t spend any less time with my friends than I did before. Instead, I thought and talked about alternatives so I could still see them without spending a lot of money.
In recent years, my students have thought and talked about some great examples of this concept in action. For example, say your friends are going out to dinner on Friday night. You know it’s going to be more expensive than what your Life Money permits.
Instead of going to the dinner (and wrecking your budget), or not going to the dinner (and being sad at home), what alternatives can you think of?
One student suggested you can meet your friends beforehand for happy hour. Another student suggested you take a pass on dinner and invite your friends over to your place later that weekend for coffee and bagels.
If you don’t want to spend your Life Money to go see Taylor Swift in concert, invite your friends over to watch the documentary on Netflix.
The common theme is that you still get to spend time with your friends, while keeping more money in your pocket.
3. Talk to your friends about Life Money.
Surprise, surprise! More talking! I recommend you talk to your friends about the thoughtful adjustments you’re implementing with your Life Money. Like in most life situations, communication is key.
Once your friends know that you are working on thoughtful choices in your Budget After Thinking, they will happily support you. They’ll know that you aren’t blowing them off.
In the rare instance that they don’t support you in striving for your dreams? You may need to question if these are the right friends for you.
The art of budgeting is not about cutting, especially when it comes to things you love. Budgeting is about thinking and talking to find solutions or alternatives.
You can keep doing the things that bring you happiness at the same time you’re making progress on your life goals. It just takes a little bit of mental effort.
4. Keep on traveling.
Making small adjustments works in all areas of your budget, not just your social life. Let’s look at travel, a major expense, but also one of the best sources of life experiences for a lot of people.
For our really lost boy, cutting out travel completely was a nonstarter. My sister lived in Los Angeles, one brother lived in Washington D.C., and the other brother studied abroad in Spain. Plus, my best friends from college lived in New York and Virginia. My grandma was in South Carolina.
If I wanted to see my people, traveling was part of the deal.
Traveling was also a huge expense, and paying for all that travel brought me a lot of stress. I needed to think and talk about a solution so I could travel for less money. You know where this is going, don’t you?
I researched the best credit cards for travel points and how to best use those points for free flights and hotels.
I learned the most affordable days of the week to fly and the best times of the year to visit certain places. Yes, this took mental effort. But, this was more preferable mental effort than worrying about money.
Even if you don’t want to take these steps, you can still make thoughtful decisions about cutting back on even one or two trips a year, which I also did. I spent less money, but the added benefit was that I appreciated each trip even more.
I had more time to look forward to that trip and more time to remember it before another trip distracted me.
Do not use credit cards just to earn points.
This is not a recommendation. It’s a requirement. Stay tuned for a future post on responsibly using credit cards to earn free vacations.
For now, the only rule that matters is to not overly spend on your credit cards just to earn points. That is a recipe for disaster.
Using credit cards to travel only works to your advantage if you can pay your bills, in full and on time, each month.
“Triple points!!!”
Years ago, my friend and I were out to dinner with our wives at a nice neighborhood spot in Chicago. When the check came, I pulled out my credit card. He pulled out a debit card. I nearly fell out of my chair.
It’s not that using a debit card is a bad choice. It’s a great choice for a lot of people. In this instance, however, I was shocked because I knew this guy very well.
We had travelled all over Europe together. We had just spent most of dinner talking about trips we had taken and trips we wanted to take. This friend is also one of the smartest guys I know, a statement that I will forever deny and insist that I was hacked, if he ever reads this.
I was shocked he wasn’t using a credit card to earn points so he could travel for free.
I couldn’t help myself and had to ask my friend about the debit card. (What do you want from me, I like to talk about money.) Turns out he just never really thought about using a credit card.
He wasn’t actively avoiding credit cards, he just didn’t know there were advantages to go along with the potential negatives (if you don’t pay your bills).
My friend was an instant convert. He was thrilled (maybe an understatement) to learn about how he could travel for free with credit card points. He began responsibly using credit cards and never looked back.
To this day, he won’t leave me alone any time he earns “TRIPLE POINTS!!!” or books a free vacation for his family. I love it.
5. Spark and cut.
Another one of my favorite tricks was inspired by Marie Kondo, famous for helping people de-clutter their houses by asking a simple question, “Does this item spark joy?” If it does, keep it. If it doesn’t, get rid of it. So simple, and so powerful.
Marie Kondo is an inspiration. In my opinion, there is no clearer display of brilliance than taking a complex matter (like organizing your house) and distilling into a simple, understandable idea.
We can apply the same strategy to any area of our spending. Does this subscription bring me joy? If yes, keep it. If not, cut it.
Does this health club membership bring me joy? This expensive clothing store? What about attending concerts? Sporting events?
If these things don’t honestly bring you joy, cut them from your life and your budget. Italian beef or unagi? Either one is fine, if you’ve determined for yourself that it brings you joy.
When you spark and cut, you’ll create more money to fuel your Later Money goals. Just as important, you’ll likely find that you don’t miss those things or activities.
You’ll value your newfound time and freedom to pursue those remaining parts of your life with more dedication.
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 your Life Money in December, make it a priority to underspend by $300 in January.
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.
7. Make a game out of it, like the $500 Challenge.
When I veer off track and have a bad spending month, I try to not get down on myself. I’m human. It happens. So, lemons to lemonade. I make a game out of it called “The $500 Challenge.”
My wife and I started playing The $500 Challenge years ago. The game was simple. Each of us had to limit our Life Money for the month to just $500. Whoever spent the least that month, won the game.
I’ve never won the game. My wife is… competitive. I cope by lying to myself that she wins because I enjoy paying on date nights.
We’ve played this game several times to course correct after a high spending month. January is the perfect time of year for this game since the holidays in December often result in overspending.
The $500 Challenge has many benefits. When we succeeded, we’d be right back on track for our goals. Even if we couldn’t quite stay under $500 (never an issue for my wife), this game still reminded us to to prioritize the experiences and things in life that truly mattered to us.
Get creative with nights out.
My favorite part of the game was it forced us to get creative with our nights out. One of my favorite date nights was a product of the $500 challenge.
We had just moved to our new neighborhood. It was a Friday night. People were out and the city was bumping, per usual in summertime Chicago. We set out for a walk to explore with only one rule: we had $20 to spend or less on dinner for two.
We weren’t going to waste that money on an Uber, so we just started walking. A couple miles later, having learned all about our new surroundings, we ended up at a casual restaurant we had never been to.
We ordered a plate of nachos to share off the happy hour menu. We even had enough money left for one of us to wash it down with a cold beer. The nachos were great and the vibe was perfect. The check, with tip? 19 bucks.
We walked home, which helped digest our dinner, and went to bed feeling light in the belly and heavy in the wallet.
8. Buy it if you want it, but not 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.
9. You don’t have to go big or go home.
We’ve been focusing on smaller adjustments, but of course, bigger adjustments can have a bigger impact on your overall budget.
Making bigger adjustments means examining your biggest expenditures, which for most people is housing and transportation.
If your life situation allows for big changes in these areas, you should by all means consider them. After all, reducing your housing costs by $500 by switching to a less expensive apartment opens up a lot of dollars to deploy as fuel elsewhere. That one decision can make a big impact.
The challenge that I have personally experienced with big adjustments and continue to observe in my students today? Making big adjustments is not realistic for everyone.
Let’s talk about switching up your housing situation. By going big in this scenario, you are giving up your home.
This may be a realistic and intelligent decision for someone in their 20s, with no dependents, and living somewhere with ample housing units available.
On the other hand, moving to a new home may not be realistic for someone with children in school and strong roots in a particular community.
To advise that family to pack up their home and move away could be counterproductive. While they’ll save money, they’re giving up a part of their lives that may be very important to their overall happiness. That tradeoff might not be worth it.
The same rationale applies to transportation costs. Like our really lost boy, if you live in a city with public transportation, you probably don’t need a car (or an expensive parking spot).
If you have kids and regularly drive them to dance class, swimming, soccer, gymnastics, piano, music class, ski lessons, and grandma’s house (yes, this is my life right now), giving up your car is not realistic.
How can I adjust my rising housing costs without giving up my home?
It’s because of these complicated tradeoffs that I encourage everyone to start with small adjustments while you’re thinking about bigger adjustments.
As you think and talk about the bigger adjustments, you may unlock other solutions that don’t require you to move.
For example, if you’re renting an apartment, you could negotiate with your landlord about locking in a longer term lease at a fixed rent. That way, you keep your largest Now Money expense consistent and avoid paying more each year as your lease renews.
I employed this strategy with great success when I rented an apartment in Chicago, generating a lot of fuel for my Later Money by staying in the same apartment for seven years.
This strategy works for families, too. A buddy recently moved to a new state with his wife and two kids. Instead of buying a house right away, he signed a four-year lease on the perfect home for his family. He has a wonderful place to live and his costs are fixed for the near future.
What can I do if I’m a homeowner?
If you’re a homeowner, what can you do to reduce your expenses without giving up your home? You may not want to re-finance your mortgage in today’s environment, but could you address other rising home ownership costs?
As an example, I recently re-caulked and re-grouted my shower. I had never done that before, but I watched a lot of YouTube videos like this one. The project took me a while, in small bursts, but doing so saved me close to $1,000.00.
I also felt satisfaction for learning something new and getting a job done despite my many frustrations along the way.
In the long run, is $1,000 saved going to pay off my mortgage? Of course not. This is just one example to illustrate that we can all use our mental energy to think about solutions, without giving up our homes.
This thought process can be repeated endless times, and does not only apply to DIY projects. From your couch, you can work on lowering costs related to home insurance, maintenance, and utilities by making phone calls or sending emails.
When you’ve trained yourself to exert mental energy to solve your rising home ownership costs, those savings will add up. You can lower your expenditures without giving up your house.
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. 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.
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.
We’ve covered a lot of ground here to help generate fuel for your Later Money. To recap:
My Top 10 Budgeting Tips for Lawyers and Professionals
See the ball go through the hoop.
Don’t cancel your social life.
Talk to your friends about your life money.
Keep on traveling.
Spark and cut.
It’s OK if you occasionally exceed your spending.
Make a game out of it, like the $500 challenge.
Buy it if you want it, but not right away.
You don’t have to go big or go home.
Plan ahead for budget busters.
These are the strategies that have worked for me in the past and continue to work for me today.
I hope you’ve see than budgeting does not have to be hard and nasty. It just takes a little mental energy, exerted ahead of time.
Whether these specific tips work for your personal situation isn’t the point. I promised you before that I won’t tell you what to do with your money.
Review my tips and focus on the thought process to identify solutions that might work for you.
Have you used any of these strategies? What about other strategies that worked for you?
Drop a comment below or on the socials to keep the conversation going.
In Part 1 of our series on budgeting, we learned that the art of budgeting is having a plan for your next dollar before you earn it. That way, you avoid having disappearing dollars. It’s not a good feeling to work hard all month and then realize you have nothing to show for it.
We also learned the three steps to get started with a realistic budget based off your current personal situation:
Step 1: Track your spending for at least 3 months.
Step 2: Separate your spending into 3 main categories.
Step 3: Make adjustments so your spending better aligns with your true motivations and desires in life.
Here, in Part 2 of our series on budgeting, we’ll use a real life example to work through the budgeting process together. Through this example, you’ll see how even seemingly minor adjustments can make a big impact to your budget.
In Part 3, we’ll take a deep dive into my top 10 strategies for making thoughtful adjustments to our budgets so we can add more fuel to our financial and life goals.
Before we get ahead of ourselves, let’s meet a real life, really lost, boy.
Learning from a real life, really lost, boy.
In today’s budgeting example, we’ll look at real numbers from a real life, really lost, boy: 26-year-old Me. Remember when I told you I started a money journal in 2010? The dollar amounts below are what my actual income and spending looked like back then, adjusted for today’s dollars and rounded for easier math.
For some context, I was 26-years-old, living by myself in Chicago (no dependents, no pets), and working as a slasher. Not a joke, that was my actual job title. I worked for a judge with the Appellate Court of Illinois, and as the junior member of the team, my responsibilities included lawyer duties and secretarial duties. I was a judicial law clerk “slash” secretary. Hence, slasher. Lawyers are funny, huh?
In today’s dollars, I earned an annual salary of $90,000.00. That means I earned $7,500.00 per month. We did not have bonuses at the courthouse, so the $90,000.00 salary was my full compensation.
How to benefit from this budgeting example.
The benefit of going through an example like this is not to compare your situation to mine. Your income might be much higher or much lower. Same with your expenses. Instead of the numbers, focus on the thought process so you can start to think about adjustments that suit your current life.
Below, you’ll see charts showing that I completed each of our three budgeting steps:
Step 1: I tracked my spending for 3 months and reflected the average monthly amount for each expenditure in the column labeled “Baseline Budget.”
Step 2: I created a separate chart for each of the three main categories: Now Money, Life Money, and Later Money.
Step 3: I made thoughtful adjustments to better align my spending with my true motivations in life. I illustrated my decisions in the third column labeled “Budget After Thinking.”
Now Money
Now Money is what you need to pay for basic life expenses. These are expenses that you can’t avoid and should be relatively fixed each month. If you have expenses for kids, pets, and other fixed life expenses, be sure to include them in your Now Money category.
Now Money
Baseline Budget
Budget After Thinking
Apartment rent
$2,200
$2,200
Renter’s Insurance
$20
$20
Parking spot
$430
$0
Gas for car
$40
$40
Car Insurance
$50
$30
Car Maintenance
$150
$150
Utilities
$120
$120
Internet
$60
$30
Cell Phone
$55
$35
Groceries
$300
$240
Personal upkeep(wardrobe, haircuts, etc.)
$100
$75
Gym Membership
$360
$360
Budget Busters
$300
$300
Now Money Total
$4,185
$3,600
What I learned tracking Now Money.
Now Money is pretty easy to track. There is not a whole lot of variance from month to month.
You’ll notice immediately that I had one major expenditure that needed immediate adjustment. That parking spot for $430? Definitely did not need that. I lived 2 miles from work in one of the best cities for public transportation in the country. It was frustrating at times to look for street parking, but I didn’t use my car enough to justify the cost of a parking spot.
The other adjustments resulted in more minor savings, but don’t ignore these. Each adjustment took relatively no effort to make, just a little bit of thought beforehand. When I say relatively no effort, I mean three phone calls and three reductions for car insurance, internet, and cell phone. That’s $70 saved per month, or $840 saved per year, for about 30 minutes of effort.
Otherwise, I decided to show a bit more restraint when grocery shopping and found a cheaper place to get my haircut.
All told, I reduced my Now Money Budget After Thinking by $585 per month with a little bit of thought and hardly any effort. That’s $7,020 per year of fuel for my Later Money.
Life Money
Life Money is what you spend every month on things and experiences in life that you love.
Life Money
Baseline Budget
Budget After Thinking
Social Life (dining out, concerts, ball games, etc.)
$800
$700
Purchases (books, fun clothes, gifts, etc.)
$200
$150
Travel
$500/mo ($6,000/yr)
$400
Cubs Season Tickets
$400/mo ($4,800/yr)
$400
Budget Busters
$200
$200
Life Money Total
$2,100
$1,850
What I learned tracking Life Money.
When you’re reviewing your Life Money expenses, don’t be overly aggressive in cutting here. These are the things and experiences that make your life enjoyable. Even modest adjustments can make a big difference in the long run.
In Part 3 of our series on budgeting, I’ll show you my favorite strategies for adjusting your Life Money without sacrificing the things and experiences you love.
As we saw with Now Money, with some thought and very little effort, I reduced my Life Money Budget After Thinking by $250 per month. That’s another $3,000 of fuel for my Later Money.
Some bonus tips for tracking Life Money
Life Money is the most annoying category to accurately track. These expenses vary month-to-month. You may buy concert tickets or have a trip planned some months, but not every month. So, how do we get an accurate picture of our Life Money?
This is why I recommend you track your spending for at least three months. You’ll get a more accurate picture because you can average your Life Money spending over those 3 months and balance out any inconsistencies. Of course, if you have the patience to track your spending for even longer, you’ll get an even more accurate picture.
Fortunately, it is easier to track our spending today with the availability of apps and online banking platforms that can automatically track your spending. We’ll review some of these tracking options in a future post.
Keep it simple when tracking your Life Money.
I highly recommend you keep it simple when tracking your Life Money. Many of my students give up on budgeting because they make this category more complicated than it needs to be. I really struggled with this at first because I was so concerned about doing it right.
What I learned was that it doesn’t matter. If you go to happy hour with friends, don’t agonize over whether that goes into your “Dining Out” category or your “Drinks” category? It doesn’t matter. Make it easy on yourself. Have one category called “Social Life” and move on.
Don’t forget that the point of budgeting is to learn your current habits so that you can make thoughtful adjustments. Don’t let yourself become so obsessed with the details that you get stressed and give up on budgeting.
Break down large, annual expenses on a monthly basis.
One last tip, when you have large expenses, like season tickets or a big vacation, it’s helpful to break down those expenses on a monthly basis. That way, you can see how much those individual purchases are impacting your overall monthly goals.
I’m not suggesting you actually pay for that trip over 12 months (like on a credit card), or that you can only spend that much on travel in a certain month. Think of it this way: you likely will not take a trip every month of the year.
Using my Budget After Thinking figures, let’s say I did not take a trip in January, February or March. That would mean that for my planned April trip, I now have $1,600 available that I can use, assuming you didn’t let those dollars disappear. In Part 3, we’ll talk about what to do with the money you didn’t spend in the first three months to make sure they don’t disappear when April rolls around.
Later Money
Later Money is what you are saving, investing, or using to pay off debt. This is the fuel for your most important goals.
Later Money
Baseline Budget
Budget After Thinking
Student Loans
$1,100
$1,100
Credit Card Debt
$150
$900
Savings
$0
$50
Pretax Retirement (401k)
$300*
$300*
Other Investments
$0
$0
Total Later Money
$1,250
$2,050
*This was pretax money to my employer’s retirement plan. For budgeting purposes, it’s easier not to count the amount here.
What I learned tracking Later Money.
This is where all your efforts in tracking your spending and making thoughtful adjustments starts to pay off, IF you have a plan for your next dollar before you earn it.
In my baseline budget, I was very good about paying my student loan debt in full every month. I knew enough not to mess with student loans. The consequence was my credit card bills were the last to get paid each month. This usually meant only paying the required minimum since I had run out of money by this point. It also meant no money for savings or investments.
In my Later Money Budget After Thinking, because of the thoughtful choices I made with my Now Money and Life Money, I created $800 of fuel.
With that fuel, I had committed myself to paying off my credit card debt as quickly as possible. I also wanted to start the habit of saving each month. So, I added $750 of fuel to my credit card bills and $50 of fuel to my savings. I stayed true to my plan and put that money to work. Otherwise, what was the point of budgeting?
Some bonus tips for tracking Later Money.
When I run through this exercise with my students, I usually get a question along the lines of, “I’m aiming to save 20% of my income each month. Should I count the pretax money I’m saving for retirement towards that 20%?”
It’s a sneaky question. Think about it: the rest of your budget relates to your take-home paycheck, meaning your after-tax money that hits your checking account. Your retirement savings are typically withdrawn from your paycheck before taxes and before you ever see the money.
How to account for your pretax retirement savings can be another one of those tricky areas when you start budgeting. In my example, you may have noticed that I contributed $300 of pretax money through my employer’s retirement plan, but I did not count that money in my budget calculations.
Should you count that money if you’re aiming to save a certain percentage each month? Setting aside that this question demonstrates how a standardized framework, like 50-30-20, can be very confusing…
Yes! Give yourself credit where credit is due! Contributing to your retirement plan is a good choice. If you are aiming to save 5% or 10% or 20% each month in Later Money, count your pretax money towards that goal.
Make budgeting as easy as possible for yourself.
That said, I want to encourage you to make budgeting as easy as possible for yourself so you stick with it. In my example, I excluded the $300 pretax retirement savings because I am creating a plan for the $7,500.00 that hit my checking account each month. These are the dollars in jeopardy of disappearing.
The entire point of your budget is to create a plan for your next dollar before you earn it. You already wisely chose to save your pretax dollars by enrolling in your employer’s retirement plan. Those dollars are already accounted for and working for you. They are not disappearing dollars. You did your job!
Like in my example above, you can exclude the amount you’re saving for retirement in pretax dollars from your budget calculations. Feel good knowing that you’re saving that money. It’s icing on the cake. No need to worry about it when budgeting.
The real life, really lost, boy was starting to figure it out.
Let’s look at the complete picture before and after I started the budgeting process:
Baseline Budget
Budget After Thinking
Now Money
$4,185
$3,600
Life Money
$2,100
$1,850
Later Money
$1,250
$2,050
Total
$7,535*
$7,500
Income of $7,500
With some thought and relatively little effort, I was able to stop the disappearing dollars and start making progress towards my ultimate life goals.
In my baseline budget, I was spending more than I earned each month. That meant I had no money to pay my credit card bills, which kept getting bigger because I kept spending. In my Budget After Thinking, I broke my habit of living above my means and generated $9,600 of fuel in one year for my Later Money goals.
Taking these first steps may seem like minor steps on the way to financial independence, but they were the most important steps I ever took on my personal financial journey.
The real life, really lost, boy was starting to figure it out. The spark was lit. There was no turning back.
Imagine it’s a $20,000.00 bonus that was unexpectedly deposited into your checking account.
No strings attached. It’s your money to do anything with.
Answering this question should be fun.
It’s a free $20,000.00!
But, my guess is that if you thought seriously about it, you didn’t have much fun at all.
Many of us likely struggled with what to do. We want to do the right thing, but we don’t know what that right thing is.
Should we pay down debt?
Should we invest?
Take a vacation?
Do nothing?
Do you have a plan for where your next dollar is going?
The reason we struggle with decisions like this is because most of us don’t have a plan for where our next dollar is going. What ends up happening is we do nothing.
Our money hits our checking account, we spend it on this or that, and pretty soon that money has disappeared. We haven’t used the money to advance any of our priorities. It’s just gone.
To me, this is one of the most important money mistakes that we need to fix right away. 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.
And, that leads us to budgeting.
Budgeting is having a plan for your next dollar before you earn it.
Here, in Part 1 of our series on budgeting, we’re going to learn that the art of budgeting is having a plan for your next dollar before you earn it. That way, you avoid having disappearing dollars.
We’ll learn how to create our baseline budget based off of our current personal situation. Wherever you currently are in life, you can then make adjustments to your spending based on what you truly want.
In Part 2 of our series on budgeting, we’ll use a real life example to work through the budgeting process together. Through this example, you’ll see how even seemingly minor adjustments can make a big impact to your budget.
In Part 3, we’ll take a deep dive into my top 10 strategies for making thoughtful adjustments to our budgets so we can add more fuel to our financial and life goals.
In the end, I’ll show you how to use the information you’ve learned about yourself to create a lasting money plan that does not require you to track every penny.
I teach my students that to create a budget, you need to first study your own personal situation to figure out where your dollars are currently going.
Then, you can figure out a plan for how to use your next dollar before you earn it. This applies not just to bonuses or other unexpected dollars, it applies to every dollar you earn.
When you put the time in to study your own habits, you can then create a realistic budget. When you have a realistic budget, you will have confidence that your dollars are working for you.
Some dollars will be used to pay your ordinary life expenses, some dollars will be used for all the things in life you love, and some dollars will go to your financial goals.
That’s all there is to it.
Let’s take a look at three steps to take when first creating a budget.
Step 1: Track your spending for at least 3 months.
I recommend everyone, regardless of where you are in life, start with this first step of tracking your spending for at least three months.
Without knowing where your money is currently going, you won’t be able to think about adjustments.
I won’t lie to you. This step can be hard and you probably won’t like it. This is the step that makes people think budgeting is a nasty word. I get it and don’t blame you for having that reaction.
Still, there’s no getting around this first step. Remember, you don’t have to budget forever, just long enough to learn your own behaviors towards money.
Please know that many of us struggle with this first step. You might not like what you learn by tracking your spending.
When I first started budgeting, I learned that I was $20,000.00 in debt and was spending way more than I earned.
That wasn’t fun, but I’m happy that I put in the effort to find my blindspots and make adjustments.
I often think to myself, “Where would I be today if I didn’t go through this process 15 years ago? How much further into debt would I have fallen?”
Talk to your people as you go through the budgeting process.
One last thing, budgeting is one of those areas where it can really help to talk with our people along the way for support and encouragement.
You don’t have to budget in secret. We’re all in this together. Put the mental energy into this step, so you can stop wasting mental energy worrying about money and start getting energized thinking about money.
In Part 2 of our budgeting series, we’ll talk about the different ways you can track your spending. I’ve used apps, spreadsheets, and even the notes function on my phone.
The good news is, tracking your spending is easier today than it’s ever been.
Regardless of how you track your spending, be honest with yourself. If you intentionally or mistakenly leave out certain expenditures, you won’t learn where your money is actually going.
A budget, which is just a plan, is only as good as the data it’s built off of. Be honest about your data.
One quick note: Budgets are usually done monthly, so you’ll want to create a separate accounting for each month you tracked.
The reason we track three months of spending is so you’ll be able to identify any patterns or inconsistencies in your spending from month-to-month.
This helps ensure you’re making decisions based off the best data possible.
Step 2: Separate your spending into three three main categories.
Great work completing the first step! That wasn’t easy, but you did it.
Now that you have tracked your spending for three months, you can assign each expense into separate categories.
Most personal finance experts agree, though we have different names for each category, that you should divide your money into three main buckets.
I refer to these buckets as:
Now Money
Life Money
Later Money
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.
You’ve probably guessed it already. 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.
Don’t worry about assigning a percentage to each category.
I have intentionally not recommended target amounts or percentages to allocate to each of your three categories.
The reason is because of what I’ve learned from my students over the years. I’ll lay out my full reasoning in a separate post.
The short version is that in my experience working with law students, assigning target percentages for each category is counterproductive.
When I used to teach my students to aim for certain percentages in each category, I could tell that they would get discouraged as soon as I put the numbers on the slideshow. I completely understand why.
Each of us is starting in a different place. If you are currently spending 80% of your monthly income on Now Money, it’s not helpful to have someone tell you to create a budget that automatically drops that level to 50%.
My students would tune me out as soon as I put those numbers on the board.
Now, I teach my students to think and talk about their current personal realities and aim for steady and lasting improvements.
I want my students to create a plan that will last, not an unrealistic plan that they give up on after a few months.
So, whatever amount you’re currently spending in each bucket, that’s what we’re going to work with as we move on to step 3.
One other thing before you move on to step 3: don’t get hung up stressing about what type of expense goes into each category.
Sometimes, it gets tricky. Do clothes you buy for work count as Now Money or Life Money?
Don’t stress. It doesn’t really matter. It’s not worth the mental energy thinking about it. Just stay consistent and move on.
If you still want a target, aim for 20% of your income added to your Later Money each month.
All that said, I know that some of us operate better if we have a specific target in mind. If that’s you, the conventional wisdom is to aim for 20% of your income added to your Later Money each month.
Targeting 20% savings each month was popularized in Elizabeth Warren’s book, All Your Worth: The Ultimate Lifetime Money Plan, first published in 2005 (before she was Senator Warren, she was a law professor and author).
Senator Warren advocated for a 50-30-20 budget framework with 50% going to fixed costs (what I call “Now Money”), 30% going to wants (“Life Money”), and 20% going to financial goals (“Later Money”).
Most personal finance experts agree that the 50-30-20 framework is a solid plan for your budget.
In theory, I agree.
In reality, I’ve become convinced through working with my law students that the 50-30-20 framework does not cut it in today’s environment. Like me, some experts have also recognized a 60-30-10 framework may be more appropriate today.
While I agree the 60-30-10 framework is more realistic, my experience has taught me that assigning rigid percentages is just not a practical framework for most people at the beginning of budgeting process.
Step 3: Make adjustments so your spending better aligns with your true motivations and desires in life.
OK, so now that you have assigned your spending to each of the three categories, the next step is to think and talk about your current habits and whether you’re spending matches your true motivations and desires in life.
If you decide that your spending does not match your life values, then it’s time to make some adjustments. What kind of adjustments?
In essence, my budgeting philosophy is to aim for steady and lasting improvements based on your current reality and your ultimate motivations. What does that mean?
Your budget is really just about finding fuel for the best things in life.
This is where we circle back to the importance of having a clear understanding of what we want out of our money. Money is a tool. Ask yourself:
“Is your current spending aligned with how you want to use your money to fuel your goals and ambitions?”
If not, you can make incremental adjustments as you progress towards your ideal spending alignment.
The idea will be to continuously add more fuel to our Life Money and Later Money, the buckets that represent the things we love the most (Life Money) and our most important life goals (Later Money).
You can make small adjustments, which are usually easier and faster to put in place. These adjustments might include dining out a bit less, cutting out a concert, or cancelling a gym membership or subscription you don’t use.
You can also make big adjustments, like moving to a cheaper part of town or getting rid of you car.
Small or big, the key is that when you make these adjustments, you repurpose that money in a thoughtful and intentional way. You’re now starting to align your budget with your money motivations.
With each thoughtful decision, you’re progressing towards your best money life. Most importantly, you’re learning about yourself and developing lasting habits. You won’t get discouraged and give up on budgeting.
As we wrap up Part 1 in our budgeting series, keep the three initial steps in mind.
Step 1: Track your spending for at least 3 months.
Step 2: Separate your spending into 3 main categories.
Step 3: Make adjustments so your spending better aligns with your true motivations and desires in life.
As you start to implement these steps, you’ll start to have a clearer picture of how your money can work for you.
And, the next time you’re asked what you would do with $20,000.00, you’ll know the answer ahead of time because you have a plan in place.
Answering the $20,000.00 question will be fun. No more anxiety-inducing, disappearing dollars.
I hope you’ve started thinking about why you want to be good with money. This will be personal for all of us and may change with time. The more you think and talk about why you want to be good with money, the clearer your motivations will become.
Three powerful reasons why I want to be good with money:
Money can give you choices.
Money can give you personal power.
Money can give you time.
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. 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.
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. You can spend your working hours at a job that is meaningful to you. 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.
From the time we’re in diapers, we start learning by observing people older than us. As my family prepares to leave the house, my son has recently started chanting “Let’s roll! Let’s roll! Let’s roll!” Yup, that one’s on me.
The same idea applies when it comes to life and money. I’ve mentioned before how much I’ve learned about life from listening to my clients suffering with mesothelioma. I’ve learned even more by listening to my family, friends, and mentors.
When you listen to enough people with more years behind them than you, certain themes continue to surface, like the importance of family. You’ll hear about creating experiences and memories, usually involving vacations or time with friends.
One thing I’ve never heard? Someone saying “I wish I spent less money on doing the things I loved.”
You don’t have to agree with everything you hear, but the act of listening will start turning the wheels in your own mind. And when your wheels start turning, you can’t be afraid to spend money on the things that make you happy.
Why do we need to actively think about the things that make us happy?
A sneak peak of how I look at budgeting.
I said we weren’t going to discuss budgeting yet, and we won’t. “Budgeting” is kind of a nasty word. Nobody likes to say it out loud, let alone aggressively do it each month. This is why we spend so much time in the beginning talking about our money mindset.
A budget is worthless if you are not motivated to stick to it. Sure, you may stick to your budget plan for a month or two, but you’ll fall back into old habits if you haven’t prioritized what matters most to you.
We’ll save the particulars for another day. A sneak peak at how I teach my students:
Like it or not, everyone needs a budget… for a little while. Once we’ve identified what we spend money on and made some thoughtful choices, most of us don’t need a rigid budget.
If you’ve thought and talked enough about your true motivations, you won’t need a budget either. Each month, you will take care of your obligations, grow your net worth, and use the rest of your money to buy things you love and to create experiences.
Talking money should be emotional.
If you’re being honest with yourself, talking money should be emotional. Remember, most of us exert mental energy pretending we’re not worried about money. My challenge to you is to exert that same energy into figuring out why we behave in certain ways when it comes to money.
The reason it matters is because we’re soon going to be talking in detail about budgeting, which is just the process of making thoughtful choices about how we spend our money. If we don’t know why we choose to spend in certain ways, we won’t be able to make lasting adjustments to our budget.
Let’s look at an example to start prepping ourselves for the budgeting process. This is a good time to revisit one of the main principles when talking money with your people: no judgments allowed. We’re not looking to shame ourselves or each other. We are aiming for understanding so we can make thoughtful decisions.
Say you’ve looked at your monthly spending and realize that you’re spending a lot of money dining out. The key to creating a budget you will actually stick to is actively thinking about why you spend so much money dining out. You might learn that dining out is an essential part of your best life. You might learn it’s really not.
Ask yourself these questions:
Is there an emotional reason you dine out frequently, like it makes you feel successful? Or, you like spending time with friends? Do you get joy out of trying new dishes?
Maybe it’s something else entirely and unrelated to your emotions. Maybe you don’t have time to cook at home because of your work schedule? Maybe it’s just laziness?
It might have nothing to do with how often you eat out, but where you choose to eat and what you choose to order. Do you order a bottle of wine with dinner? Could you have drinks at home beforehand instead?
When you honestly think about and answer these questions for yourself, you can start to make thoughtful decisions on whether that spending matches your priorities. If it doesn’t, then it’s an area for adjustment.
And, that’s really all that budgeting is. Not so nasty, right?
Too many of us are really good at pretending not to worry about money.
“Credit card debt?” Everyone has it.
“Emergency savings?” My job is secure.
“Retirement?” I have so much time.
Accept money for the tool that it is.
Instead of honestly assessing our relationship with money, we actively ignore it. Yes, actively ignore. We don’t passively hide from our credit card bills. We all have the credit card apps on our phones and receive multiple emails about our bills. We know what the numbers are, and we bury that knowledge. We exert mental energy to not think about our money.
Let’s stop doing that and re-frame how we think about money. Instead of convincing ourselves that we’re not worried about money, let’s accept money for the tool that it is. Let’s get energized thinking about what money can do for us.
Thinking about money does not make you a bad person.
Thinking about money does not make you a bad person. Always remember what money is: a tool. You are not a bad person for wanting to use that tool to build the best life for you and your family.
Remember, the goal is not to fall in love with or obsess over the dollars in your bank account. The goal is to think about how you can use those dollars to maximize your life experiences. When you start thinking like that, money is energizing.
A higher income won’t cure your money worries.
You are not immune from worrying about money just because you have a high income. Ask people further along in their careers if earning more money magically solved all their money worries. A lot of times, the opposite is true.
The more we earn usually means the more we spend. We tell ourselves that we deserve to spend more. Or, we need to spend more to match our neighbors or colleagues. You can see this through the clothes people wear, the vacations they take, the restaurants they eat at. This habit of spending more, even as we earn more, explains why credit card debt in America continues to surge.
The other thing about earning more? It also usually means we’re working more. If you were worried about money when you had more available time to think about it, what’s going to happen now that you’re working longer, harder hours?
Vicki Robin, often credited for laying the groundwork for the FIRE movement, has a lot to say about the relationship between money, work, and time. Her book Your Money or Your Life is a must read.
Years ago, my friend came to Chicago to visit. He loves good food and treated me to one of the premier restaurants in the city. Very fancy, Japanese menu. 12 courses. Sake pairings. At one point, my friend spilled some sauce on his shirt. Having noticed his predicament, the waiter walked over and discreetly handed him a stain removal pen folded in a napkin. Classy, right?
It was one of the best dining experiences I’ve ever had, but it had nothing to do with the food. I loved being there with my friend, and he knows it wasn’t about the food.
Towards the end of the meal, I got up and went to the bathroom. I returned to my friend and the couple at the table next to us gushing about the meal. Turning to me, one of them asked, “Did you absolutely love the food, too?” He choked on his Unagi when I responded, truthfully, “I could really go for an Italian beef.”
I want you to spend your money.
OK, so what’s the point? I am in no way saying we should all stop spending money. Or, that we shouldn’t use our money to enjoy what we want in life. Quite the opposite, actually. I want you to prosper. What I really want is for you to define for yourself what a prosperous life means.
If that means you want to use your money to eat Japanese delicacies instead of Italian beef, please do! Just do it because you put some intentional thought into how spending your money that way fits into your overall life experience.
Get energized thinking about money.
If you’ve read this far, I’m assuming that you’re tired of pretending not to worry about money. You’re tired of treating money just like everyone else. You’re tired of fooling yourself that if you just made more money, everything would be fine. You want the worrying to stop.
Now, you want to feel like you’re moving forward. You’re ready to be energized about using money as a tool to reach your hand selected goals, regardless of how much you make.
To start moving forward, we need to change how we exert our mental energy when it comes to money. In the beginning, many of us exert mental energy into making excuses about our money. Or maybe worse, we actively ignore our money. We convince ourselves that we’re just like everyone else. We pretend not to worry.
Let’s flip that around. Instead of exerting mental energy to ignore our money worries, let’s get energized thinking about how we can use money as a tool to build our lives. It starts with discovering what truly motivates us. Only then can we talk about strong personal finance habits. Without the motivation, we’ll slip back into that existence of pretending not to worry.
There’s no dress rehearsal in life.
Life doesn’t come with a dress rehearsal. There’s no practice game to test out new plays. We need to think about our motivations now and continue to think about those motivations as we go.
You’ll soon hear all about my Tiara Goals, my made-up name for what truly motivates me. At this point, I’ll share the simple recognition that we each only get one life. I don’t say that to be morbid or depressing. I don’t say it to be inspirational, either. I’m saying it simply because it’s true.
Bill Perkins, author of Die with Zero, makes a very convincing argument that most of us wait too long to start using money to create life-changing experiences. You should read Die with Zero and talk about it with your people. This book has led to more money conversations with my friends and family than any other book I’ve read.
This truth is a powerful reminder for me to use money as a tool to accomplish my Tiara Goals. That truth helps explain why I work hard for my clients with mesothelioma, own rental properties, teach law students, and now write this blog.
I encourage each of you to start thinking about what truly matters to you. Not in a theoretical sense. Not what you expect other people would say should matter to you. What you, after deliberate thought, believe truly matters. You won’t have all the answers right away, but you need to start somewhere.
For now, let’s start by helping each other. Let’s stop pretending that we aren’t worried about money, so we can do something about it.
“Credit card debt?” Yup, and I’m attacking it.
“Emergency savings?” Growing each month.
“Retirement?” Not a problem.
“Unagi?” Eh, I’ll have the Italian beef. Dipped, hot peppers.
4 responses to “How to Think About Money and Italian Beef”
Kevin
This really hit home for me! I read the book Die With Zero, and loved it.
So, is the Italian beef like a ‘steak & cheese sub’ in Boston?…if so, then , hell yes… Italian beef over Unagi every time. It is great to see you tackle the topic and attempt to make money a candid discussion. I suspect your teachings, and this blog will inspire more people to do the same.
I named my financial freedom blog “Think and Talk Money” because most of us don’t do enough of either.
I believe we can make it easier on ourselves to make consistent, good money choices if we just spent a little time each week thinking and talking about money.
Wouldn’t most of us agree that doing new things, and especially doing hard things, is easier when we have a partner?
Someone to bounce ideas off. And, someone to keep us accountable. Or, someone to pick us up when we aren’t at our best.
Have you ever talked about money or read a financial freedom blog?
Who is the person that knows the most about you?
Your best friend? Significant other? Brother or sister?
This person knows your most embarrassing stories. She has seen you cry. She has been there for you through thick and thin.
But, have you ever talked to this person about money?
Have you ever shared what drives you to wake up at 6 a.m. for work?
Have you mentioned that you’re worried about how you’re going to pay off debt?
Or, have you ever talked about how you’d like to use money as a tool build your life on your terms?
You might be surprised how powerful these conversations can be. It’s likely the person you’re talking to will be relieved you started the conversation.
If you don’t know where to begin with conversations like this, a financial freedom blog is a good place to start.
I didn’t read a financial freedom blog or talk about money in 2010.
I certainly didn’t think to have conversations about money in 2010 when I fell deeper and deeper into debt.
Maybe that’s why I still remember the day so clearly when I realized I was financially heading in the wrong direction.
It was an ordinary Monday. I had grabbed my mail on the way out the door as I headed to my job at the courthouse.
When I got to my desk, I opened my credit card statement and was stunned by what I saw. $20,000 owed ($30,000 in today’s dollars) one year into my career.
I was ashamed. I was supposed to be smart. Responsible. Trustworthy.
Looking back, I wonder if I would have had these feelings for so long if I had read a financial freedom blog. Or, what if I was more willing to discuss my money choices with the people I trusted?
I likely would have saved myself a lot of worry, frustration, and time if I hadn’t struggled alone. Perhaps I would have learned that so many others were struggling with consumer debt like I was.
I made it harder on myself by not talking.
I unnecessarily did it the hard way, but I figured it out. Right then and there, I made it a priority to turn things around.
At the time, I didn’t know the solution. But, I had been trained to do research so I could find answers to hard questions. So, that’s what I did.
Along the way, I realized that the fundamental and basic personal finance principles are, well, basic. George S. Clason wrote “The Richest Man in Babylon” nearly a century ago. His collection of parables set in ancient Babylon is legendary.
Everyone should read it. His advice is simple and excellent: spend less than you earn. Save. Invest. The same fundamentals are as true today as they were then.
Easy, right?
Not exactly.
Money is about continuous choices.
Money is about continuous mindset and choices. The basic concepts are easy enough to understand. Consistently making good choices is hard.
Even as I was racking up credit card debt, I could have aced 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?”
For some reason, though, most of us choose to deal with money on our own. I’d like to change that with my financial freedom blog. There’s a stigma that we shouldn’t talk about money. I’d like to change that, too.
Get comfortable talking about money.
I want us to get comfortable with the idea of going to our friends and loved ones to talk about money, just as we would talk about anything else. There should be no embarrassment or shame in it. We’re all dealing with the same challenges.
By talking about money, we can help each other turn those challenges into opportunities. If we can alleviate our money stress, perhaps we can reverse the trend of lower happiness levels among young people today.
Talking about money is not about numbers.
We’ll have plenty more to say about how to talk money in this financial freedom blog. For now, let’s agree that talking about money is not about prying into how many dollars we each have in the bank.
We can benefit by talking about our money mindset, habits, and strategies, while still keeping certain information private.
Let’s also agree that talking money is a “no judgment” endeavor.
We have all had different experiences that have shaped our relationship with money. It’s important not to pass judgment, especially when talking to our significant others. Your conversation won’t last very long if you ignore this advice.
Each session I’m with my students, I learn from their experiences and money mindset, same as they learn from mine. I encourage them to continue the conversation outside the classroom with their loves ones.
When my students report back, they tell me how empowered they felt after starting these conversations. The more we can talk money, the less we’ll feel alone. We’ll all make better choices because of it.
What topics will we cover in this financial freedom blog?
In this financial freedom blog, we’ll talk about the importance of money mindset and why you should want to be good with money. Money mindset touches every aspect of personal finance, so it’s a theme we’ll keep returning to.
There’s no reason to embark on your journey to financial freedom alone. Share your accomplishments and struggles with your friends and loved ones. You’ll only be better off for it.
I certainly will be doing that with my financial freedom blog.
Please share in the comments below if you’ve ever benefited from talking about money with a friend or loved one.
Don’t forget to subscribe to our email list for all the latest!
2 responses to “I’m Matt Adair. This is my Financial Freedom Blog for Lawyers”
Kevin
I’ve been learning from Prof. Adair for the past decade. Not only that, I’ve followed his advice, and it is one of the reasons I am financially independent today. I could not be more excited for this website – there’s so much more left to learn!
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