Tag: personal finance

  • How to Get Better Results with a Higher Saving Rate

    How to Get Better Results with a Higher Saving Rate

    Do you remember when I asked, “What would you do with $20,000 right now?”

    Did you have a plan then?

    Do you have a plan now?

    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.

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    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.

    Spoiler alert!

    I recommend you think long and hard about Option 3.

    Make more money, spend about the same.

    The odds are that you will make more money as your career progresses. Statistics show that the average salary for Americans tends to increase as we get older, up until about our mid-50s.

    Your career trajectory may be different, and you certainly may continue to make more money well-beyond your 50s.

    The takeaway is that you are most likely going to make more money. It’s up to you to make sure you put that money to good use.

    The best way to supercharge progress towards your ultimate life goals:

    Make more money, spend about the same.

    It’s easier said than done. But, this is the key to getting ahead in life with your personal finances.

    How can you measure whether you are saving more as you earn more?

    By tracking your saving rate.

    What is my saving rate?

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

    Saving rate = Money Saved / Money Earned

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

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

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

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

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

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

    If that person was making $75,000 per year, I would say that seems 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.

    Like we discussed before, you’ve already made a terrific choice by investing it for retirement. Feel good about that. For calculating your saving rate, ignore it. We are only concerned with tracking how much we are saving each month from our take-home pay.

    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.”

    Enjoying serene moment. Successful satisfied millennial woman resting on comfy sofa at home looking aside with dreamy smile imagining pleasant things creating new plans visualizing future vacation because she tracks her savings rate with Think and Talk Money.

    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.

    What can I learn from tracking my saving rate?

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

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

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

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

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

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

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

    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.

    I know what you’re thinking.

    This guy’s no fun!

    I earn a raise and he wants me to save it all.

    This is just an example. I’m not suggesting you have to, or even should, save your entire raise. I want you to spend your money on things and experiences that are meaningful to you.

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

    If you don’t want to save the full $1,166, can you save $600 each month while enjoying the rest? That’s still an incredible improvement.

    It’s your money and the choices are yours.

    Before you spend the whole raise though, think and talk it out with your people.

    Maybe you just need to ask yourself:

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

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

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

    Only you can answer these questions.

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

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

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

  • Q&A: Look for a Valuable Side Hustle

    Q&A: Look for a Valuable Side Hustle

    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.

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    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.

    To learn more about the benefits of a daily morning ritual, check out Elrod’s miracle morning website.

    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.

    That being said, I may need to adjust the schedule to read the latest book in the Empryean series, Onyx Storm.

    How do you feel about side hustles?

    Short answer: I love side hustles.

    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:

    You Should Want to be Good with Money
    Part 1: How to Budget to Fix the Disappearing Dollar
    Why You Need to Fuel Your Savings

    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.

    There is always a way to make more money.

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

    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.

    Smiling female bartender talking with customers as her side hustle to make extra money learned on Think and Talk Money

    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.

    The people who know me best would beg to differ.

    They might just tell you that I’m striving to build a life where I spend my working hours doing what is meaningful to me.

    I spend my personal time with the people that are meaningful to me.

    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.

    I experienced these negative emotions associated with debt. I only got comfortable with taking on debt as I learned to trust myself again with the responsibility.

    HELOCs are like credit cards, just in another form of debt.

    My advice: if you have proven to yourself that you can responsibly handle debt, using a HELOC may be a worthwhile strategy for you.

    By responsible with debt, I mean:

    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.

    We also have no design or marketing background. I didn’t even have social media (other than LinkedIn) until we launched. The fact that we have 129 Instagram followers (don’t laugh) seems like a small miracle to me.

    My first post on LinkedIn had more than 12,000 impressions in the first few days. I still have no idea what that means, but it’s exciting!

    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.

    A writer engrossed in their work at a desk overlooking a tranquil lake, finding inspiration in the natural surroundings to write about personal finance at Think and Talk Money.

    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.

    We started with money mindset, then moved to budgeting, then moved to savings.

    These are core personal finance concepts that we will always revisit in the blog. If your mind is not in the right place, it doesn’t matter if you know the particulars of how to budget or save.

    We’ll soon move on to topics like debt and credit, investing, and real estate.

    So, what comes next for Think and Talk Money?

    My wife and I are thinking about all the options: podcast, online courses, personal coaching, speaking events, and a book.

    Of all these options, the book might be the surest thing. I’ve wanted to write a book for a long time.

    Whatever happens, we’ll do our best to continue creating valuable content and listen to what our audience wants.

    Let us know if you have any thoughts or ideas on what should come next!

  • Why You Need to Track Your Net Worth Every Month

    Why You Need to Track Your Net Worth Every Month

    On the first of every month, I wake up at 5:15 a.m., brush my teeth, and put on my robe.

    I walk downstairs, pour a cup of coffee, and head to my favorite chair in the living room.

    I then power on my laptop and open an Excel file called “Adair Family Balance Sheet.” Using this basic spreadsheet, my wife and I have been tracking and discussing our net worth for years.

    It takes me about 20 minutes to update our family balance sheet each month. The hardest part is remembering all the passwords for our accounts.

    When I finish entering the new account values, I study the spreadsheet 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 family balance sheet 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.

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

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

    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 what net worth means.

    Going into hiding straight from a London pub.

    One night when I was studying abroad in London years ago, my good friend, Kais, and I were talking in a pub. I don’t remember what we were talking about when he offered:

    “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.

    People in an english pub talking about their net worth as learned on Think and Talk Money.
    Photo by Luca Bravo on Unsplash

    Looking back years later, I now realize that he was talking about his net worth.

    Kais, if you’re reading this, drop me a line to let me know you’re not hiding.

    So, what is net worth?

    Your net worth is simply all of your assets less all of your liabilities.

    Net Worth = Assets – Liabilities

    Yup, you only need those two numbers to calculate your net worth, the most important number in personal finance.

    There’s no complicated math involved. Just addition and subtraction, which couldn’t be easier in a basic balance sheet (or spreadsheet).

    Let’s start with understanding what counts as an asset.

    What are assets?

    An asset is anything that has economic value and can be owned or controlled.

    In even simpler terms, an asset is just about anything you can think of that could be exchanged for money.

    My family’s current assets include:

    • Retirement accounts for both me and my wife
    • College savings accounts for each kid
    • Health savings account (my favorite account… we’ll revisit)
    • Checking accounts
    • Savings accounts
    • Cars
    • Jewelry
    • Properties
    • Cash on hand

    Other common examples of assets include:

    • Collectibles (artwork, coins, designer bags)
    • Furniture
    • Household goods (TVs, appliances, rugs, etc.)
    • Clothes
    • Tools
    • Recreational gear (bicycles, golf clubs, boats)
    • Toys

    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.

    a closet that is organized and neatly arranged with clothes, shoes, and accessories, illustrating items that could count as assets learned on Think and Talk Money.

    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.

    What are liabilities?

    A liability is any debt or obligation that you owe to someone else. Liabilities are most commonly found in the form of loans.

    Unlike assets, liabilities diminish your overall net worth.

    To speed up your path to financial independence, focus on reducing or eliminating liabilities.

    Closeup image of a woman holding and choosing credit card to use, which she knows counts as liabilities from Think and Talk Money.

    My family’s current liabilities include:

    • Lines of credit
    • Mortgages

    Other common examples of liabilities include:

    • Credit card debt
    • Student loan debt
    • Auto loans
    • Personal Loans
    • Consumer loans

    When you are beginning your career, it’s common for your liabilities to be greater than your assets. This is usually because of student loan balances.

    Remember our real life, really lost boy? He had a negative net worth for years.

    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 create our balance sheet and determine our net worth.

    Creating your own net worth balance sheet is very easy.

    I’m happy to share the spreadsheet I currently use to track my net worth. Subscribe to our weekly email newsletter, and send me a reply to the next email asking for my net worth spreadsheet.

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    Name

    On the top of my family’s net worth spreadsheet, each row represents an asset, or something we own.

    On the bottom of the spreadsheet, the rows represent the debts we 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 I add a new column for each month, instead of just updating the values in a single column, is so I can easily see how our net worth has changed over time.

    Once all 12 months for the year are filled in, I start a new sheet and repeat the process. This helps us track how our net worth has changed over the long run.

    Since your balance sheet is for your eyes only (or your family’s eyes), feel free to design it however you want.

    On our family spreadsheet, I use different colors to illustrate the different types of assets we own and liabilities we owe:

    Turquoise for securities (stocks and bonds). Orange for checking accounts. Purple for savings and objects (like cars and jewelry). Green for properties.

    I like color coding because it helps me quickly visualize what we own or owe in each broad category.

    Here’s what a simple balance sheet looks like:

    If you want to create your own balance sheet, here’s what it might look like:

    AssetsJanuaryFebruaryMarch
    401(k)
    Roth IRA
    529 College
    HSA
    Checking
    Savings
    Car
    Home
    Rental Properties
    Total
    LiabilitiesJanuaryFebruaryMarch
    Credit Cards
    Mortgage
    Student Loan
    Auto Loan
    Total

    Once you input the amounts for each cell in the appropriate column, use the “sum” function to total your assets and separately total your liabilities.

    Then, all you need to do calculate your net worth is create one final row labeled “Net Worth”.

    In the “Net Worth” cell, simply use the “sum” function again to subtract the liabilities total from the assets total.

    JanuaryFebruaryMarch
    NET WORTH

    That’s all there is to it. Now, you know your net worth.

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

    By now, you should be thinking that it’s not too difficult to track your net worth.

    It takes my wife and I less than 30 minutes each month to track and talk about the most important number in personal finance.

    How can we spend so little time on the most important number in personal finance?

    Because we’re only looking for progress compared to what our net worth was previously.

    We’re not interested in anyone else’s numbers. We only care about making personal improvements for our family.

    If our net worth is increasing over time, it means we are heading in the right direction.

    It means that we are continuing to fuel our Later Money goals. We’re paying down debt. We’re letting our investments do their thing.

    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.

    That’s all there is to it.

    All before the kids wake up.

    Do you currently track your net worth?

    Have you found it useful to measure your overall financial health?

  • Protect Yourself With an Emergency Savings Account

    Protect Yourself With an Emergency Savings Account

    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.

    Why aim for saving enough Now Money instead of saving enough to cover your total Budget After Thinking?

    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.

    Man protected from the crisis because he has 3 to 6 months of emergency savings thanks to think and talk money.

    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.

    Happy wedding photography of bride and groom at wedding ceremony paid for with savings learned on Think and Talk Money

    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.

    Money is emotional. This is just one example.

    Happy young couple making savings transfer online in computer app and feeling an emotional high thanks to Think and Talk Money

    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.

    Whether you choose to automate or manually transfer into your savings account, please make sure the dollars are not disappearing and are actually going towards your most important goals.

    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?

  • Why You Need to Fuel Your Savings

    Why You Need to Fuel Your Savings

    Would it surprise anyone to learn that most Americans are not satisfied with the amount they have saved?

    Let’s take look at some of the key findings in the recently published Yahoo Finance/Marist Poll 2025 National Survey on the State of Savings:

    • 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.

    Seats of a passenger car in a European train with 1 of 3 people sitting on it not able to pay their bills for one month if they lost their jobs.

    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.

    Count me in this group.

    From 2017 to 2024, my wife and I prioritized using all of our available money to acquire real estate. The downside was limited funds available for 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.

    Father and daughter buying apples in grocery store as part of rising cost of living nationally

    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?

    We can first eat Italian beef while working on our money mindset.

    Then, we can create a Budget After Thinking that fuels our goals.

    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?

    According to Merriam-Webster, saving means “the preservation from danger or destruction: deliverance.”

    Uhh, that’s intense.

    Scrolls down…

    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:

    “A part of all you earn is yours to keep.”

    Translation: you worked hard to earn that money. You should think about keeping some of it.

    Close up of baby girl wrapped in a security blanket symbolizing an emergency savings account learned on Think and Talk Money.

    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.

    There is very little, if any risk, involved with saving money. That’s because reputable banks in most countries carry deposit insurance to protect your money. In the United States, deposits are protected up to $250,000 by The FDIC.

    So, how are savings different from investments?

    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?

  • Strong Motivation to Talk Money with Friends

    Strong Motivation to Talk Money with Friends

    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.

    Diverse students high fiving together after completing a moot court brief.

    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.

    That just isn’t true.

    I want to help people realize that being good with money has little to do with understanding the stock market and more to do with generating money to invest in the first place.

    Relating money concepts to other familiar areas of life can help with that.

    Fresh vegetables being added to soil in a garden, symbolizing healthy financial habits learned at Think and Talk Money.

    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.

    If you’re also a Peloton fan, who are your favorite instructors? For me, it’s Alex Toussaint and Matt Wilpers. And recently, Selena Samuela, because she loves Fourth Wing.

    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?

    Fit people lifting dumbbells together during a workout session symbolizing thinking and talking about money.

    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 Colorado, Fourth Wing, and Italian beef, obviously.

    Do you know your friends’ current money goals?

    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.

    In news that’s not news to anyone, college is expensive.

    Wouldn’t it be beneficial for us to talk about how we’re planning to pay for it?

    Students in university paid for by parents who learned good money habits on Think and Talk Money

    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?

  • Better at Making or Keeping Money?

    Better at Making or Keeping 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.

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

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

    Are you starting to see why we first talk about money mindset? Then we moved on to budgeting?

    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?

    Multicultural group of women stacking hands together - Female community concept with different girls support each other - Girlfriends hugging outdoors encouraging each other to visit think and talk money.

    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?”

    1. Kevin Avatar
      Kevin

      Great insight! The foundation is so important!

      Reply

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  • How to Stay on Budget with Two Simple Numbers

    How to Stay on Budget with Two Simple Numbers

    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.

    Part 3: How to Win the Budget Game

    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:

    1. Your checking account cushion.
    2. 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.

    Happy boy with a bundle of money dollars cash who has a checking account cushion and Later Money.

    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?

    Let us know in the comments below.

  • Top 10 Budgeting Tips for Lawyers and Professionals

    Top 10 Budgeting Tips for Lawyers and Professionals

    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.

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    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?

    Instead of exerting mental energy worrying about how to pay to travel, I exerted mental energy to master the game of frequent flyer miles and credit card points.

    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.

    Fun, friends, travel and tourism concept. Beautiful girls looking for direction in the city because they've followed these 10 budgeting strategies.

    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.

    Young couple with glasses of wine having romantic candlelight dinner at table, closeup because they budgeted after learning about think and talk money.

    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

    1. See the ball go through the hoop.
    2. Don’t cancel your social life.
    3. Talk to your friends about your life money.
    4. Keep on traveling.
    5. Spark and cut.
    6. It’s OK if you occasionally exceed your spending.
    7. Make a game out of it, like the $500 challenge.
    8. Buy it if you want it, but not right away.
    9. You don’t have to go big or go home.
    10. Plan ahead for budget busters.

    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.

  • How to Budget with a Real Life, Really Lost, Boy

    How to Budget with a Real Life, Really Lost, Boy

    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 MoneyBaseline BudgetBudget 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

    Two happy girlfriends looking on the shopwindow while standing with shopping bags near the mall because they created a budget with think and talk money

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

    Life MoneyBaseline BudgetBudget 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

    happy family mother father and children dancing at home in their home they bought by budgeting with think and talk 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 MoneyBaseline BudgetBudget 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 BudgetBudget 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.