Best Way to Start? Baby Steps

Money is daunting to most people. There a few who are gifted to be able to understand — and be interested in — the mechanics of personal finance without trying. For the rest of us, it takes some effort to get our finances in order and to constantly work on keeping them that way. I’ve read so many personal finance books over the years that I lost track of just how many a long time ago.

Sometimes I feel like I cheated by starting a blog after all my debt was paid off. It paints an incomplete picture of my journey, and sometimes I worry that people with think that I never made mistakes or haven’t had to try very hard to get to this point. I won’t go into detail about all my debt, but will tell you that at one point I had credit card debt, a car loan, and a mortgage all at the same time. Of course I had very little, if anything, saved. After all, how can you save any money when it’s going towards debt and interest?

This post is to offer some hope if you’re in the same place I was. I’m proof that you can dig yourself out and turn things around without much effort. The key to doing so is baby steps so you don’t become overwhelmed. I’ve found that it’s much easier to focus on one goal at a time and then move on to the next one, rather than try to do everything at once. It’s all about the small victories to keep you motivated. Don’t compare yourself to anyone else. Just do the best you can.

Dave Ramsey talks about baby steps in his book, Total Money Makeover. If you haven’t read it, this is a great place to start. It’s readily available at the library and there are plenty of used copies being sold online. If you want to cut to the chase, the steps are listed on his website (free!) and you can see them here. I know some bloggers would disagree with some of the steps, but this is very similar to the route I took (minus the step about funding your kids’ college funds).

There is light at the end of the tunnel. Never give up. Today is the day that you start turning things around. Know that there’s an entire community of personal finance bloggers who are cheering you on 🙂

Finance · Lifestyle

Do Your Principles Get In The Way?

Today’s post isn’t so much about money as it is about how we tend to live our lives. I’ll tie in a financial reference but really wanted to write about this as a way to improve your life in another way.

Listen, I’m all for principles. And in an ideal world, everyone would live and interact with people in a respectful way and live each day with integrity. But it seems like we let principles get in the way of our happiness. Not sure what I mean? Here’s an example:

My commute is rather long, and with it being road construction season, it’s almost twice as long as it normally would be. This gives me a lot of time to reflect on various things, as well as observe human behavior. There’s something about Minnesota drivers that most people out-of-state don’t realize: we’re horrible at merging. The general nature of Minnesotans is to plan ahead. While this is a great quality to have, it creates confusion in construction zones, where one lane ends and the drivers need to merge into another lane.

If you live outside of Minnesota, the answer to this is obvious: zipper merge! However, it’s asking a lot of Minnesotans to do this. Most drivers know where they’re going and have already anticipated the lane ending so they’ve changed lanes at least a half mile before the lane actually ends. This causes some passive-aggressive driving, where those drivers will either start to drive in both lanes (!) or they refuse to let drivers in when the lane ends, which would be a proper zipper merge.

This behavior is fascinating to me for one simple reason: If these drivers would simply slow down to allow enough space for drivers to zipper merge, traffic would keep flowing. Instead, it causes more delays and close calls with near accidents. Better yet, all lanes should be used to reduce the slowdown in traffic even more.

Yes, ideally, drivers would all act in the way that you see fit. But this principle is getting in the way of traffic flowing in a normal manner, preventing people to get to their destination faster. This doesn’t just apply to merging, but also to any instance where someone needs to change lanes. I’ll never understand the people who don’t simply let them in. Even if you don’t agree in the way they’re going about it, keep traffic flowing by slowing down a little and just let them in.

While this may seem like a rant about driving, it’s just an illustration. Whenever we disagree with the way someone is doing something, and react in a way that is counterproductive to the best result, we’re letting our principles get in the way.

How can this relate to finances?

  • Do you resent the 1%? You should be trying to become of them instead. Or at least read this.
  • Think corporations are corrupt, preventing you from investing any money? Keep your investments basic and only invest in index funds, across the entire stock market.
  • Disagree with the tax code? Do some research to make it benefit you instead.

It’s important to have principles but don’t let them interfere with your happiness. Anytime you see yourself getting upset in your reaction to another person or event, ask yourself if your principles are getting in the way and find a more productive way to respond instead.

Remember: You can’t control another person’s behavior but you can control your reaction to it.

Finance · Lifestyle

Happy Now, Sad Later

I have a confession: I’m a hoarder. Are you like me? Does this sound familiar?

Here’s just one example of my hoarding tendencies:

Rather than accrue vacation and sick time, my employer doles out paid time off (PTO) once a year to each employee on his/her anniversary date. So every year, I look at my calendar and start by marking the days I definitely want to take off — my birthday, the day after Thanksgiving, time in December between Christmas and New Year’s, etc.

Back before my cat became diabetic, I was taking only one trip with friends each year. That requires just a few days of PTO, so I’d be left with huge chunks of time off that I didn’t know what to do with. My PTO renews in May so this has been on my mind a lot lately. And with my cat requiring so much care, I won’t be taking any trips this year. I’m just not comfortable leaving him in the care of someone else.

Do I risk it and take random days off over the summer, even though I don’t have specific plans? Or should I hold on to my PTO in case I need it in the late winter/early spring, before my PTO renews?

Inevitably, I end up using a sizable amount in March and April. This year that amounted to 7 days. I try to have at least 5 days banked in case of an emergency but somehow I managed to save even more days than usual.

There are usually days where it’s tempting to use a day of PTO as a mental health day (as my mom likes to say). When I think about doing so, the phrase, “Happy now, sad later” always comes to mind. It’ll make me happy in that moment but I’ll be sad later if I want to use my time off then. Hence, my hoarding tendencies. It’s a fight between instant and delayed gratification.

There are ways for hoarding to work in our favor, though. Money hoarded and invested can lead to a comfortable retirement, or even early retirement. For anyone who is interested in retirement, we have to fight the idea of being happy now (by spending all our money) to prevent being sad later (by working the rest of our lives) We know that there’s a much bigger reward awaiting us.

It took a long time for me to understand this concept, but now I’m happy to be a hoarder, by saving around 70% of my take home pay. This will allow me to retire around age 50, rather than waiting until 65 or 67. Hoarding isn’t all bad, right?

Do you have anything that you hoard to prevent “happy now, sad later?”

In case you’re wondering, I got that phrase from the TV show King of Queens. Doug was using two frosting packets on one Toaster Strudel and he said, “Happy now, sad later,” since one strudel in the box would end up without a frosting packet.


Saving is Exponential

I recently read Jim Collin’s new book, The Simple Path to Wealth, and there’s one section of the book that I wanted to write about because it’s something that very few people understand or even realize. Jim also writes about this idea on his website, and you can read about it here.

Saving is exponential for this reason: It’s the idea that every dollar we save earns more dollars, which in turn earns more, and so on and so forth. This is known as compounding. Most people see the negative side of this, through debt, where the interest owed keeps growing the longer the balance remains. Rather than let compounding work against you, why not take action to let it work for you?

I love this concept because it illustrates how your money works for you, rather than you working for money. This is an important concept to early retirement because the expectation is that, over time, the account balances will actually grow even though you’re withdrawing money from them. The key to this is to be flexible in your withdrawals, adjusting for market performance.

The concept of compounding is the reason why you should try to save as much money as you can. For every dollar you don’t spend, you can save it. In turn, that saved dollar will compound over time and eventually turn into $2, then $4, and so on. This is calculated using the Rule of 72. To determine how quickly your money will double, divide 72 by the interest rate/rate of return and that will calculate the number of years until your money is doubled. For instance, if the rate is 9%, it’ll take 8 years for your money to double. And that’s without adding another cent!

Because interest rates on savings accounts are so low — and actually negative when you factor in inflation and income tax — your best bet for a real rate of return is in the stock market. But you need to make sure that you don’t need that money for 5-10 years since the market fluctuates often (as we saw with Brexit). For short-term savings, a bank account is still your best bet since the importance lies in liquidity and not growth. Bond funds are your other option, if you’re absolutely determined to have the money invested in some form.

Compounding is a powerful force and benefits those who are young, with time on their side. As they say, the best time to start was yesterday and the next best time is today. Don’t waste any time in letting your money work for you.


June 2016 Expenses

It’s officially been one year since I started blogging! While I originally started this blog as a one-stop-shop for my friends who ask me questions about personal finance, I also found an incredibly welcoming community of bloggers. Every day I’m impressed with how encouraging and supportive other bloggers are. A special thanks to everyone who has ever commented on any of my posts. I hope that anyone who looks at this site finds value in it. If there are any topics you’d like me to write about, add a comment below and I’ll do my best.

This month I read The Simple Path to Wealth by Jim Collins. If you read other personal finance blogs, I’m sure you’ve seen a lot of reviews posted so I won’t go into detail about it here. I will say that the information is almost identical to what he has posted on his site but laid out much better. Unlike a lot of finance books, it’s easy to read, with many personal stories to help illustrate certain points. It’s the type of book I want to buy 20 copies of and pass out to all my friends.

Ok, let’s move on and talk money….

Financial independence is really important to me and it’s currently my main financial goal. With that in mind, I aim to spend an average of $1,500 or less each month so I’m able to invest and save the remainder. This equates to $18,000/year in total spending.

I’m sharing my monthly expenses to illustrate that it’s not difficult to have a great life while spending far less than the household average. I’m fully aware that I’m able to do this because my mortgage is paid off and I don’t have a car loan or credit card debt. It was a long journey to get here and now I’m reaping the benefits.

Although I use Mint and Personal Capital to keep an eye on all my accounts, I use Excel to track my expenses. I’ve found that this works best for me, since I can easily compare months and see a running total for the year for each category.

After an expensive first 5 months of the year, things are finally returning to normal. Here are the details:

I spent $421 on fixed costs (e.g. association fee, utilities, insurance, etc.). No surprises here. It was exactly what I was expecting and finally returned to a normal level.

I spent $851 on variable costs (e.g. food, gas, house supplies, gifts/donations, etc.). I bought more supplies for my diabetic cat and had my dryer vent cleaned by a professional. The vent goes up through the roof so it’s well worth the money to have someone climb onto my second story roof since I won’t do it myself. No other large expenses — it was a very quiet month.

The purchase that I’m most excited about? It was a fundraising campaign for one of my favorite indie bands so they can record their newest album. The hardest part is waiting a few more months to receive it. They’re super talented so be sure to check them out if you’re a music fan.

Total spending for the month was $1,297. So far this year I’ve spent $9,780, with an average of $1,630/month, which has exceeded my goal of monthly spending of $1,500 or less. This was expected, due to some annual costs being due during the first few months of the year, and my monthly expenses should remain below the $1,500 threshold for the rest of the year, with the average slowly coming back down as the year progresses.

For my long-term goals, I’m currently 43.8% of the way towards financial independence, but 38.7% of the way towards my more conservative early retirement goal. These are both up over last month, mainly due to my high savings rate. Overall, my rate of return for the month was about 2-3% across all my accounts.

Brexit had a lot of people worried, but the US markets bounced back within a week. It’s a good lesson in staying the course and paying little attention to events like this. I did take advantange of the markets being down over two business days to rebalance my accounts by reducing my bond holdings and increasing my equities. I wanted to buy more shares before the market went back up and I just squeaked by. The market rebounded much faster than I expected!

Keep in mind that you likely aren’t tapping into your investments anytime soon, and the number of shares you own remains the same. These are unrealized losses — they aren’t real unless you sell your shares while the market is down.

How did your June go? Any challenges?

Health · Lifestyle

Practicing Gratitude

Along the lines of a recent post about how an autoimmune disease changed my perspective, this week’s post is also very personal. There isn’t a financial aspect to this post but I hope you can still get something out of it. After all, life is a journey and it’s not all about money.

Although I don’t wear contacts or glasses on a regular basis, all my family members do. So every year, I have my eyes checked and I made my annual appointment for this past April. Not anticipating or being aware of any issues, I only had the eye pressure test done and opted out of the field vision exam.

When I saw the doctor, there were no issues regarding my vision — for the most part it hadn’t changed since last year. However, he told me that my eye pressure has been increasing each year and it’s now above the normal range. Since there’s a family history of glaucoma, I need to go back in 6 months to ensure it’s not getting worse.

I’ll admit that I tend to live life with a somewhat pessimistic attitude, viewing life as a sequence of inconveniences. So of course my first thought is how I’m going to have to deal with something so serious and I’m not even 40 years old yet.

Having recently read The Little Book of Contentment by Leo Babauta, I tried to look at this with a different perspective. Rather than being inconvenienced by this, I should be grateful that I have the means to get annual eye exams and the health of my eyes is being closely monitored. Because of that, I shouldn’t lose any vision if glaucoma should develop.

It’s still too early to determine if this will eventually become an issue and when that might be so I try to remind myself how fortunate I am that any problem will be caught early. I’m definitely one of the lucky ones. Not everyone can say that. The experience has a been a great reminder to live a life of gratitude.

How do you practice gratitude? Have you faced any challenges that changed your perspective?

As a side note, if you haven’t read The Little Book of Contentment, I highly recommend it. It’s a short read and definitely worth your time. It’s a book I’ll likely read over and over again.

Finance · Lifestyle

Road Less Traveled Challenge

Earlier this month, Our Next Life wrote a great post regarding the commonly cited “commandments” of financial independence and early retirement. While I consider myself to be following some of these rules, it got me thinking more about what I’m doing differently from other personal finance bloggers.

There are a few things that have worked well for other people, so I’ve decided to adopt them as well:

  1. The 4% rule. I’m using this as a guideline to ensure that I have enough saved before officially retiring, although I’m hoping to have enough that I’ll use a safe withdrawal rate of 3% or 3.5%, to help increase the odds that my money will last the duration of my retirement.
  2. I have my Roth IRA and Rollover IRA (money from all my 401k accounts from previous employers) with Vanguard. Vanguard seems to be the favorite among bloggers, but I had experience with them because a previous employer used them for our 401k and pension accounts. Holding these accounts with them makes sense to me, especially because of their super low fees and ease of use.
  3. I’m a believer in index funds. Low expense ratios make these a no-brainer.
  4. I’m maxing out my HSA. Wish I’d known about the benefits sooner, as this will only be my second year contributing the maximum amount. There’s more to this account than meets the eye.

Now for the things that I’m doing a little differently from other bloggers:

  1. I’m single, whereas it seems like the majority of bloggers are either married or in long-term relationships. While my status may change, I’m planning my future as if it won’t. I’ll admit that it makes the journey towards FIRE (financial independence/retire early) a little longer. But it also makes things slightly easier, since I can change directions on a dime and don’t need to worry about another person’s spending habits. Only person I need to worry about is myself.
  2. I bought my house at 24 and paid it off in less than 15 years. Many bloggers insist that the money would be better off in investments where it can compound (especially while interest rates are so low), but it was killing me to pay interest when I didn’t need to. It also makes it easier to focus on my larger goal of FIRE now that I’m debt free. While renting is tempting, as often advocated in PF blogs, my townhouse is easy enough to care for that I’m planning to stay for the foreseeable future. Not to mention that it now only costs about $3k/year for me to live there!
  3. I use a robo-advisor, rather than manage my investments myself. I’ve been using Betterment for a year now, as my taxable brokerage account. I’m really happy with the service and plan to stick with them. The less I have to think about rebalancing and tax-loss harvesting, the better. I’m all for easy.
  4. I’ll never be someone who obtains passive income through real estate or high yield dividend stocks. It’s way too time consuming to manage either of these so, to me, the term “passive” doesn’t really apply to these methods. I’ll stick to my index funds.
  5. I question the idea of maxing out a 401k. It’s important to keep in mind that you’re not avoiding taxes but deferring them. Who knows what the tax brackets and rates will look like 20-30 years down the road.
  6. I’m not frugal but I do abide by mindful spending. I’m not trying to spend as little as I can, but instead ensure that my spending aligns with my values and goals. I have no problem with hiring reputable people/companies to take care of maintenance and repairs at my house, since I know my limits. Do I go out to eat with friends often? Yes, yes I do. And I don’t regret it one bit.
  7. I’m not against buying new cars instead of used. Cost is the important factor, not the age of the car. I’d rather have a basic new car than a fully loaded used car, given the same price. As a side note, my most recent car purchase in December of 2008 was for a brand new 2008 Nissan Sentra that cost $16k, including all taxes and fees. I’m still driving it and plan to for some time. I had it paid off a year after I bought it and now have enough saved to buy my next reasonably priced vehicle with cash. It’s all about staying within your means. The Happy Philosopher wrote a great post about new vs. used so be sure to check it out.
  8. Unlike a lot of bloggers, I don’t have any set plans for my retirement. I’ll admit that this has me a little worried because I’ve read articles about how people can slide into depression in retirement if they don’t have something meaningful to fill their time. I have 10 years to think about it, so I’m sure I’ll come up with something by then. For now, I’m looking forward to being able to travel, spend more time with friends and family, and enjoy not living by an employer’s schedule.

I love that the personal finance community has a diverse range of ideologies and goals. Because of this, I try to read as many blogs as I can because each one brings something unique to the discussion. It’s incredible how much I’ve learned thanks to all the people who have been willing to let us into their lives through their blogs. Even if someone writes about something I may not agree with, it always gets me thinking and questioning my own approach and biases.

What “commandments” do you follow and how have you decided to pave your own path to FIRE?


How to Handle the Development Conversation?

I try to make it a policy not to discuss my job or employer on this blog, but I could use some advice so I’m going to break that rule. My post today is a question that I’m posing for other bloggers who are planning to retire early: How are you handling development conversations with your boss?

Every few months, I have to meet with my manager to discuss development and talk about where I see my career headed. Although I’m 10 years out from my planned retirement, it could be closer to 7-8 years if there are no major financial surprises and I decide that the time is right. I realize that this is still a decent amount of time to be working and my career is nowhere near over just yet. But as time goes by, I’m wondering how people who are closer to their early retirement dates have handled these development discussions themselves.

I have a good relationship with my manager and we’ve had some honest conversations. She’s never held anything I’ve said against me but I’m wondering just how much I can and should tell her. After all, most people assume that I’ll still be working for another 25 years, which makes it seem like I’m still in the first half of my career, rather than approaching the end.

Any advice regarding how to handle these conversations? I would love to hear how other people have handled this without announcing their retirement plans.

Finance · Lifestyle

Those Poor Suckers

Let me begin this post by saying that I try really hard not to judge other people. After all, there’s so much going on in life that I can’t possibly know or understand what every single person is dealing with during my brief encounter with him/her. I try to give people the benefit of the doubt instead, and wonder what is going on in their lives to cause them to make certain decisions or act a certain way.

Back in high school, I had a math teacher, Mr. B., who would try to incorporate real life examples into his lessons. There was one that I’ll never forget: He was explaining how to calculate the volume of a cylinder and also how to determine how much material would be needed to make a cylinder of a certain volume. In his example, he used a soda can since it’s something we’d seen a million times and could easily visualize.

While I couldn’t tell you how to actually do these calculations anymore, the lesson I remember learning was that manufacturers could create cans with a greater volume while using the same amount of aluminum to do so. Why do I remember this? Well, Mr. B. told us that whenever he sees students drinking soda from a can, all he can think is, “Those poor suckers.” In his eyes, they were suckers for not knowing that the soda companies could fit far more soda into a can without an increased cost in materials.

While I don’t think of soda drinkers as suckers, the phrase “those poor suckers” often crosses my mind when I see something that doesn’t make sense to me, knowing that there are better options available. So while I may not judge people for their actions, I do think, “those poor suckers” instead. I’m giving them the benefit of the doubt and assuming they simply don’t know any better.

An example of this is cars. I don’t live in an affluent neighborhood by any means, so when I see a Cadillac or other high-end vehicle driving through, I think, “Those poor suckers,” because they probably don’t know what kind of financial harm they’re doing to themselves. They probably don’t realize what their other, better options even are. I don’t entirely blame them for their ignorance and I certainly don’t judge them. After all, we all have different priorities and are free to spend our money in accordance with those priorities. It’s entirely possible that they aren’t ignorant and instead have chosen a vehicle over anything else they could have done with that money.

So, the moral of the story is to educate yourself as best you can so you can avoid becoming a sucker. Know what your options are, as well as the opportunity cost, so you can choose the best one to align with your goals.

Have you ever seen something that made you think the person was a sucker?


May 2016 Expenses

Financial independence is really important to me and it’s currently my main financial goal. With that in mind, I aim to spend an average of $1,500 or less each month so I’m able to invest and save the remainder. This equates to $18,000/year in total spending.

I’m sharing my monthly expenses to illustrate that it’s not difficult to have a great life while spending far less than the household average. I’m fully aware that I’m able to do this because my mortgage is paid off and I don’t have a car loan or credit card debt. It was a long journey to get here (which I hope to write about soon) and now I’m reaping the benefits.

Although I use Mint and Personal Capital to keep an eye on all my accounts, I use Excel to track my expenses. I’ve found that this works best for me, since I can easily compare months and see a running total for the year for each category.

Just as I expected, my higher than normal expenses carried into May. Here are the details:

I spent $1,136 on fixed costs (e.g. association fee, utilities, insurance, etc.).  I paid my property taxes in their entirety this month, which was $750. I could pay half now and half in October but the cost is small enough that I’d rather pay it all at once, rather than risk the possibility that I’ll forget to pay the other half later. All other costs fell in line with what I expected. Fixed expenses will return to normal next month and should stay that way for the remainder of 2016.

I spent $888 on variable costs (e.g. food, gas, house supplies, gifts/donations, etc.). I bought more supplies for my diabetic cat, renewed my blog hosting for another year, brought my car in for maintenance, donated to my favorite charity, and bought a wedding gift for a relative. Whew.  That’s a lot of spending for one month! These expenses are great representations of my priorities, though, and I’m happy to put my money towards these costs.

Total spending for the month was $2,024. So far this year I’ve spent $8,483, with an average of $1,697/month, which has exceeded my goal of monthly spending of $1,500 or less. This was expected, due to some annual costs being due during the first few months of the year, and my monthly expenses should remain below the $1500 threshold for the rest of the year, with the average slowly coming back down as the year progresses.

For my long-term goals, I’m currently 41.3% of the way towards financial independence, but 36.5% of the way towards my more conservative early retirement goal.

How did your May go? Any challenges?