Alright TTF family. After an extended delay, I am back to talk about me falling on my face some more. Isn’t it funny how we say we never want anybody to fall on their face, but at the same time, we don’t always look away when it happens? So here is me falling on my face for your viewing pleasure. And for the greater good of you punching your ticket to FI sooner than I. Diving into the Records To prepare for this article, I had to knock some serious dust off of the old apartment leases. I have to give a huge shout out, and thank you, to Miss TTF. I am REALLY good at keeping things, but I am a 1 out of 10 when it comes to organizing (and that’s rounding up). Miss TTF took note and emptied the entire filing cabinet. In the end, I took out three bags of shredded paper and a garbage bag full of user manuals for a whole lot of crap I no longer had. To be clear, I used to have an Amazon problem….and I will leave it at that because it is another money mistake realization in the making. In my quest for the numbers, I was also impressed with the number of statements my bank had electronically archived. AKA reminders of how completely broke I was not so long ago. My old bosses love to laugh at the low ball offer I took working with them. No joke, I am quite certain that they took the lower end of the salary they could offer, halved it, and then presented it to me. Despite the salary, I would do it again, a million times over. They taught me more than I could have ever imagined and to this day are two of my closest friends. So what does this all have to do with my money mistakes? Well not a ton, but they were some of my thoughts as I traversed the mistakes of my past. While I have talked about several of them already, I am adding a very big one to your reading list. My massive $272,025 mistake was deciding to live by myself for 5 years when I had absolutely no reason to. My 1 Step Forward The interesting part about my mistake to live on my own for five years is that I had previously made some good moves in relation to my housing choices, like really good decisions. That has kind of been the story of my life to date though. I have made a number of great decisions only to follow them up with decisions that wiped out the progress of the good ones. One step forward, two steps back has really summed it up for me. In my first couple of years of college, I lived at home. I know, not the cool choice per se, but I did it anyways. I would love to sit here and say that the reason was to stock pile money away while working and going to school, but I didn’t. Unfortunately, I didn’t save a damn penny during that time. Saving was not even on my radar. After that, I moved away to finish up my last three years of college. At all times, I lived with three other roommates bringing the cost down considerably. Again, not a saving decision to live with roommates, I just didn’t have money to consider anything else. Then I graduated and boy was I pumped to go out and find that high paying job right out of college. You know the promised equation, College Degree = High Paying Job. Ha! Not the case for my chosen degree which was Biological Sciences with a minor in Chemistry. You really aren’t making money here unless you pursue your Master’s or PHD, but that was not in the cards for me. Moving Home So I moved back home for a year, secured my first career job working in a lab (which most people can’t believe when I tell them, even Miss TTF) and continued working my part time college job to make extra cash. This was the point in time when my living situation really paid off. I was living at home with the goal of paying off my student loan AND stock piling cash. After a year of this, I moved in with a friend and we lived in an absolute dump. We were on the second floor, the floors were slanted (to the point where the refrigerator door closed on its own, and the square footage was close to that of the 50 inch TV that inhabited our living room. During these two years, I was able to save a lot of money. I paid off the $8K in student loans and saved up the $15K that got away. 2 Steps Back Unfortunately, you know how that story ended: one step forward, two steps back. After about a year, I moved out to Phoenix, AZ, where again I lived with two roommates allowing me to believe we could afford the more expensive apartment. At that time, I decided it was time for my mini-retirement. And if I could do it all over again, I would have purchased a house and rented out the rooms to cover my mortgage. That way, I could have taken that same year off (or better yet, not taken a year off), and more than likely come out better than when I began the sabbatical. But hey, if that were the case, I would be writing a very different article like, “Once Upon a Time Mr. TTF was Really Smart.” So to date, I had been smart about always carrying roommates, but then had an epiphany. I thought to myself, “I have depleted my savings, what’s next on the road to all things good decisions?” Then it came to me! Since I have no money to my name, let’s go out and find an apartment that I can live in, by myself, and pay for by myself. That is a phenomenal way to get from 0 to 0 in five years or less. Where was someone to shake me out of such insanity? So, on my way home from my entry level job, making $11-$12 an hour, I saw this b-e-a-utiful place that I knew I couldn’t afford. Until I could, or so I thought. I guess you could say they had me at hello. The place was gorgeous. It was on the top floor (no dance offs going on above me), it had a built in bookshelf at the entry, gas burning stove, in unit laundry, a walk in closet, a built in desk, granite counter tops, a beautiful pool area with built in gas grills. ALL of this could be had for the low, low price of $652 per month; which, consequently, was a little less than one of my paychecks at the time. I had never lived any place like this and it is everything we don’t currently have in Southern California. For all intents and purposes, I could “afford” the place by most people’s definition in our Consumerville of a world. One paycheck went to rent, and I had to put the rest to work for other bills and entertainment. Fortunately for me, I had a low cost lifestyle. I can’t tell you if that was out of necessity or by choice or both. To put this in perspective, my boss lived in the same complex, but literally made twice the salary I did. Opportunity Cost of Renting Alone Why couldn’t I actually afford this? Freakin’ opportunity cost is why. I now tend to see things in terms of the cost over time. While I never missed a single rent payment (in fact, I always pay early), I also didn’t save a penny to my name during that time. Had I purchased a house, I would have at least built equity in that home. Never mind the fact that I could have rented out rooms and likely lived for free. Would have, could have, should have. I did what was typical and that is why today I am only starting my journey rather than being at the end of my FI journey. Opportunity cost is expensive and to show that, we will relive the tales of the tape. Looking Back Before we begin, I would like to review the assumptions that I made in the following opportunity cost calculations: First, instead of renting alone in a one bedroom, I am comparing what my situation was, to what it would have been to live in a two bedroom with a roommate. To account for this, I took my monthly rent from that time and multiplied it by a factor of 1.5 which I think is a conservative estimate; I think rents for two bedrooms were actually less than what I display here, but felt I should ere on the side of caution. Additionally, I am assuming a $40 per month bill for internet, and $40 bill for utilities each month, totaling $80 a month for the apartment. And split in half as a shared expense at $40 for each roommate. Sure, these bills could vary widely based on internet speed, where you live, and the season you are in for utilities. With that said, I think it is a conservative estimate (especially the assumption that these didn’t increase over time), but I think it demonstrates the point sufficiently nonetheless. As is always the case, I assume money saved is 100% invested in an index fund tracking the S&P 500 producing an average annual return of 7%, which already accounts for 3% inflation per year. Year 1 As mentioned, I depleted what is now known as the $15K that got away so my savings started at $0. My rent for this completely and ridiculously awesome place was $653/month for my first year. After 12 months, I paid a total of $7,836.00 to someone else’s mortgage (making them wealthier with each passing month). Had I simply purchased a home, I would at least have had the forced savings of equity in the home. I would have 3.9% equity in a $200,000 home, the current median price of a home in the United States. Had I lived in a two bedroom with a roommate, the approximate rent per month would have been $979.50. When you divide this by two, my portion of the rent would come out to $489.75 per month. Plus the split cost of internet and utilities, an extra $40/month to invest. My total savings per month would have been $203.25. After a year’s time, my would have, could have, should have brokerage account balance would likely sit at $2,609. Of that $2,609, $2,439 would be my own contributions (93%) and $170 would stem from growth (7%). Year 2 Now that we are warmed up, let’s dive into year two of this disastrous five-year run. There is a great book I read called The Compound Effect. One of the lessons that has stuck with me is that the compound effect can work in either direction. It is either working with you or working against you depending upon your choices. This effect is already air apparent in year one, but it will really start to take its toll as we discuss years two through five. In year two, rent stayed flat at $653 per month. Again, we are assuming utilities and internet stayed the same at $80 combined per month (Uncommon? Yes. But simple math? Yes, please.). At the end of the year, I paid a yearly total of $7,836.00 in rent and $960 in utilities. After two years, I had spent $15,672.00 in rent (equal to 7.8% equity on a $200,000 home). And $1,920 in utilities and internet. If I would have bunked up, I could have siphoned off that same $203.25 per month to invest in index funds. Don’t forget, I have the
Set for Life by Scott Trench This is the book that fully changed my perspective of FI. I sincerely wish that everyone and their Mommas will read it to change their perspective too. And honestly hope to one day teach a personal finance course and have this book be a base to that curriculum. As Jered Sturm said in his review: this book could change the world. Mr. TTF was the one to get me on the FI movement and pushed me to read many articles about this newfound matter. (You can read all about it in Our Story.) I read many of MMM’s articles in the process. However, I was unable to fully realize how early retirement could actually happen for me. I wasn’t making much above minimum wage at the time ($13.33/hour to be clear… and that’s not even my real wage) and I certainly wasn’t saving every dime of that either. Retirement just didn’t seem to be in my cards. That was until Scott Trench took away any sense of doubt and made me kick my butt into serious gear. I would read one chapter and go plan how I was going to do everything he says because I was so darn excited. The first thing that hangs people up on early retirement is “Why?” No one can seem to grasp what you could possibly do with your day if you don’t have a job. Our society is so hung up on the idea that work defines you and without work you essentially lose your identity. A common example you will see of this is when meeting someone, one of the first questions they will ask you is “What do you do?” It happened to me just today, actually. Trench details why you should want to spend every day doing what YOU want and what is best for you and your family. Money may not buy happiness but it sure does buy you the freedom to do what makes you happy. He understands you aren’t making a million dollars a year. In fact, he explicitly states who this book is for: “It is designed for the full-time median (around $50,000 per year) wage earner who has little to no initial savings but wants early financial freedom.” Now, tell me that that is NOT you. Because it sure as hell described me when I first started on this journey. I was working a supervisory position with far less pay than $50K a year and had maybe 100 bucks to my name. But he outlines what seems like such a simple plan that I almost feel embarrassed that I didn’t come up with it first. There are only three stages of wealth creation: The First $25,000 is the Hardest From $25,000 to $100,000 through Housing and Income Generation Moving from $100,000 to Financial Freedom As you all know, Mr. TTF and I are in the beginning phases of our FI journey and you are all here for the ride. So, we wanted to outline how we (currently) are planning to implement the Set For Life strategy to reach early retirement. Don’t be surprised if we come back in a year or two and change everything, though. Step 1: Save a 1 Year Runway – $25,000 Scott starts out by discussing that in order to build up a more realistic runway, you need to first focus on your current expenses. He’s right in saying that saving 1 year of expenses when you spend $60,000 per year will take a lot longer than saving up $25,000, which is his magic number. This is the step we are on right now, analyzing our expenses and starting the baby fund of savings. Cutting Expenses Scott Trench essentially swears by the $25,000 / year rule. To us, that is a crazy, tiny number that I flat out told Mr. TTF we were never going to do hit. But there is no room for excuses in the path to FI. Our largest hesitation is that this number is for only 1 single person. Since Mr. TTF and I live together and are planning to reach FI together, we calculate our expenses together. This is probably true about some of you and for others maybe not. Initially, you may think the expenses for 2 people would just be double, however, once you live with someone your expenses change quite significantly, in more ways than one. First and foremost, you housing expenses, whether that is a mortgage payment or rent (like us). You are going to be splitting that expense now as well as all utilities, internet, furniture, and appliances. While bills based on usage may change with 2 people using them compared to one, the changes will be minor (e.g. 2 showers running but still 1 fridge, etc.). Yet, there are still double of many things to consider like food, cars and transportation costs, and entertainment. We haven’t found as solid a number as Scott has because we have a whole other contention with this number: We live in Southern California. Southern California Housing Debacle According to Investopedia, California has the second highest cost of living in the US and trust us… we are feeling the difference. One of the biggest costs is obviously housing, as it is usually the biggest piece of anyone’s expense pie. Commute We would love to move closer to work to cut down on commute time as Trench avidly promotes doing. Mr. TTF is currently driving a hour each way to and from work, sometimes up to an hour and a half if traffic is really bad; that’s 2-3 hours PER DAY just sitting in a car. I am a bit “luckier” with an average day around 30 minutes each way. However, we are living in the cheapest place we can possibly find. We are paying $1,250 a month for a 1 bedroom apartment and live nowhere near work. With Trench’s advice, we could try to move closer to work, but rent skyrockets in those neighborhoods. We can’t find a studio apartment for less than $1,500 a month, let alone a 1 bedroom apartment. Buying a Home And buying? Yeesh. We definitely have tried. We would LOVE to househack and are constantly looking for something that could work for us. However, 1 bedroom condos in not-so-nice areas that are not-so-close to work are starting at $450,000. A ONE BEDROOM CONDO! People… that is for the same size place that we are living in now. And they want us to pay a mortgage near $2,500 all in, that’s DOUBLE what we are paying now. Even if we did buy the condo and fixed it up to refinance and rent it out (the BRRRR strategy), we’d be losing at least $600/month not accounting for maintenance, vacancies, etc. as you should. We aren’t making excuses for the target $25K not working for us. We know we aren’t there yet, but we will get our expenses down some way, somehow! For now, we are focusing on saving our 1 year runway for the expenses we currently have and giving a much more realistic goal of $40,000 for the two of us ($20K each, so not too far off). Granted, I would like this to be cutdown even more because it just seems like so much to spend in one year, but we are saving up our first $40K to be our 1 year runway. Why we need a runway With a $40K cash runway in our back pockets, we will have the freedom to take risks. Those risks may be taking a lower paying job for a short time in order to have a higher and quicker potential of making more in 2 – 3 years time. This also can afford us the freedom for one of us to quit our jobs should we feel the need (trust us, some days that need is much stronger than others). This is only a tiny piece of the pie and it is going to afford us a tiny piece of the freedom we aim to get with financial freedom. Saving $40,000 One of the biggest questions about saving that 1 year runway that I had was: where should that money sit? I know under my mattress or a piggy bank were definitely not the smartest answers. But in real institutions with FDIC backing, there are just so many options. Trench recommends (and we agree) to keep it in easily accessible cash. That way if you need it, you have it. There are of course many different options to have accessible cash on hand, the mattress being one of them. So the best option? We found that holding your money in the best online savings accounts with the highest interest rate is our best option. I am currently holding my money in an online account with a Synchrony Bank High Yield Savings Account with 2.25% interest. Mr. TTF has his portion of the runway fund in an American Express High Yield account with 2.1% interest. This allows our money to grow some while still being extremely accessible and not having to worry about any additional taxes as you do with selling shares of stock. We aim to complete our $40K by the end of this July. With this time, we are looking to earn an extra $42.31 in my account and $232.60 in Mr. TTF’s in just interest by that same time. Not crazy returns, but at least it’s more than the $1.29 we would have gotten in a traditional savings account. (Check out this easy to use Compound Interest Calculator to see what your returns can look like!) Step 2: Growing $25K to $100K Since we are currently on Step 1, we definitely have a lot more to talk about regarding our current strategies and status. However, Scott outlines a few of the ways to grow that savings rate to reach the $100K mark and have 3-5 years of savings under your belt. For even more freedom, he recommends increasing income by: Using Housing as an asset Having a Scalable Income Housing! Like we mentioned before, housing is our biggest focus for this next step. We are hoping once we can grow our 1 year runway, we will be able to use a portion of that for a downpayment on a rental home. And we are most likely going to be focusing on long distance real estate. This will be a great way for us to start at a lower price point and still reap the benefits of real estate investing. Since Mr. TTF is originally from the Mid West and housing is much less expensive there, we are planning to work with some connections with friends and family out there to see what the possibilities are for us. Scalable Income Having a scalable income would be absolutely ideal for growing our income as you are usually in a position to earn large amounts of commission. Since I am currently in a Sales Role, that move definitely makes sense for me and would be easily accessible in my industry. However, we are looking to push our side hustles a lot in the coming years. Moving into a new role when we are looking to quit within the next year or two, seems like a lot of additional work that (hopefully) won’t be necessary. We figure all the time used looking, applying, interviewing, training, and working for the new job could be better put to use working on our side hustles. In the long run, this should have a far higher ROI than any commission based position. And it will be something that I actually enjoy doing. Step 3: Moving from $100,000 to Financial Freedom This is definitely the end goal, and we have quite a while to get there. Trench does such a great job keeping you motivated throughout the book. There are so many things that need to change in your life for you to embark on
Welcome to yet another New Year! There’s so much on the horizon for you and I know you have so many goals and aspirations. You’re going to get fit, you’re going to travel more, you’re going to see your friends more, you’re even going to learn to cook and actually make some responsible financial goals. Yeah, we’ve all heard it before. Everyone is hopeful and ambitious at the start of a new year. It’s just something about the year finally changing, that makes us hopeful that we can change too. But not to fret, because I am here to help turn those goals into reality for you. Because 2019 really is going to be a kickass year (if anyone even says kickass anymore). Now, I’d love to talk fitness (not really) and relationship advice (also not really), but this is a money blog and we’re here to talk money. But this year is going to be different, because we want to help you set and achieve your 2019 goals. We know how it goes, we always have the dream but rarely take all the right steps to get there. And that’s okay! Everyone loves the big picture, the end goal. But the planning and the tracking rarely seems like a good time. So, we’ll take it from the top and walk you through how to set financial goals and how to make them truly happen. Whether you’re the super-organized-planner-for-everything kind, the disorganized-combobble-of-things-and-can’t-be-exactly-sure-where-you-left-your-wallet-last kind, or the-loving-couple-with-all-of-the-above-kind (like us), we’re here to help. 1. Find Your Areas of Need Planning for financial goals may seem scary and like something your parents didn’t start doing until they were well into their 40’s. That’s okay, because they probably worked until they were 65, too. Since that’s not going to be you, you probably shouldn’t have the same habits as them. Right now, you need to take a look at your financial situation and where you want to be in one year. This doesn’t have to be just financially, but just an overall view of your life. Check out our FREE 2019 Financial Goals Planning Workbook and start by answering the questions for how you want the start of your 2020 to look. Now that you have a vision, it’s time to get into the nitty-gritty and find what overall steps you need to get to that end goal. 2. Connect the Dots You may first ask what the heck kind of goals are financial goals? And how do you set financial goals? And truthfully, they can be anything, really. We just need to find you the right ones that will help you get to your goals that you outlined in step one. How are you going to live in that house that you want? Or have a full on side business up and running? Here are some examples: Have a 6 month emergency fund Fill my Roth IRA ($6,000 max/year) Save up for a down payment on a house (SFR or rental) Cut our expenses to $24,000 for the year Start a side hustle that covers my mortgage every month Increase monthly income by $1,000 / month Pay off all debt Increase credit score to 720 Partake in a No-Spend Year 3. Make it a SMART goal Now that you have a general idea of what needs to happen for your 2019, you can hone in on the details of those goals so you can not only ensure you have goals, but that you hit those goals! Yes, we learned about SMART goals in school and yes they seemed so lame and just took up more of our precious time, but turns out school was right. Who’da thunk… They actually are better. Specific – This is the hardest one, Save $100,000 sounds great. But what is it for? Where are you saving it? Where is it coming from? Measurable – Dollar amounts usually help in this department Attainable – Okay, you probably won’t save a million dollars this year. But maybe you can work towards 25% of your salary. Relevant – Don’t save up for a down payment on a house, if you need to pay down your $100,000 in debt first, silly. Time Bound – should be easy. By the end of 2019 If you take a look at our FREE 2019 Financial Goals Planning Workbook, there are worksheets for you to ensure each and every goal is a SMART goal. 4. Discuss your Goals with those Closest to You Talking about these goals out loud is going to help you refine them and make them work with your family and friends. You need to know that they are they going to be able to support you on your path to FI. For us, this is most key with our friends. Our friends loooooove to spend money, like most Americans. And we, obviously, don’t. Most of the time when they want to hang out, we are going out to eat and racking up the bar tab. ((Check out this great article from Reach Financial Independence. about the consumerism lifestyle we live in.)) Having this discussion with your friends about your goals for the year will help the process of reaching FI without feeling guilty about not being able to attend all their events. 5. Write them Down Once you have your goals, whether they are small or large, whether there are 2 or 17, and you’ve discussed them with loved ones, it’s time to write them out. Writing them out will make them more concrete in your head. Did you write it down and just start laughing? Well maybe you should revisit the A in the SMART goal. Now post that somewhere! Cheesy? Yes. And trust me when I say, I am not a fan of the cheesy (Mr. TTF tries to pull it out of me sometimes and I just can’t). But this isn’t romantic cheesy, so I think we can do it. Put on your fridge or on your calendar, make it your phone background. Whatever you need to see it, day in and day out because that excitement you feel right now about having 10 no spend days a month, shouldn’t go away 2 months down the road. 6. Build your Mini Goals to Reach them So, we have our goals and we have them some place we can see them. Now, we need to get from point A to point B. This is honestly the hardest part.. but breaking down the big idea goal into actionable, bite-size pieces is the only reasonable way your end goal is going to become a reality. You hear about this with fitness goals all the time: you want to run a marathon, so you start small. First, you run a mile, then two, so on and so forth. The same mentality can be applied to your financial health too. Let’s say you have a goal to save a 6 month emergency fund. Find out how much you need to make that fund up. What are your monthly expenses? Now for 6 months? Break that down into manageable pieces because saving $12,000 seems pretty damn hard when you only have $200 in your checking account right now. However, saving $1000 a month seems like a good goal. Or broken down even further to $231 a week? Maybe start small and do $5 the first week and increase that by $5 each week. You may even get motivated and get there earlier than planned. This same exercise can be done for any of your goals: To Increase your Credit score Check your credit score Check your credit report Make all your payments on time Reduce your credit usage to 10% (find the dollar amount) Don’t take out any new credit Pay down your debt To cut spending Analyze expenses Make a budget Have weekly/monthly meetings Cut out unnecessary spending Coupon Shop at thrift stores / yard sales Your Turn! If you haven’t already, download the FREE 2019 Financial Goals Planning Workbook so you can customize your goals to ensure the start of 2020 is just how you imagined. Let us know what YOUR financial goals are for 2019 and we would love to hear your creative Mini-Goals as well! Feel free to reach out to us if you need help or have questions on the process and we will be more than happy to help you out, yes one-on-one… Save on, TTF Family!
Admittedly, this is a tough one to write about. I wish the title was simply “Money Mistake.” If you didn’t catch the difference, the current title is plural and not so singular (I wish). The current title also indicates “early” money mistakes which will means there were also more current mistakes. The truth is, to get to this point, which as we consistently remind you, we’re a long way from FI and I have made many mistakes along the way. The harsh reality too, is that I am probably not done making them. With that in mind, it is my Silver Lining that in writing about them, I can hopefully help others avoid them. If I help only one person with this article, I would consider it a MASSIVE success. So without further adieu, here is part one of how I have tripped, stumbled, and fell flat on my face, BUT also where I have learned…. The $15K that got away This one is probably the toughest pill to swallow. Once upon a time, I lived at home following college. I had a little bit of student loan debt which I was determined to pay off. I had secured my first “adult” job making what was, at the time, a good wage. Better yet, this company was cranking out business and if you were willing to put in the overtime, it was all yours. So that is what I did. I put in all the hours I could. On top of that, I was still working my part time college job for a few extra bucks. I had more money than I had ever had and very low expenses. For the first time in my life, not every dollar I made needed to go toward a bill. So what the heck was I supposed to do with it? Fortunately for me, one of my best friends to this day was there to help me. This friend is my version of the man, the myth, the legend: Mr. Money Mustache. This friend of mine was, and still is, brilliant far beyond his years in life. He has made so many intelligent decisions to put himself in a place of success. I have always made the joke that his first words must have been “entrepreneur” and/or “stock market.” He worked from a very young age, putting money away in a savings account from the get go. I think he might have even had a brokerage account before many of us had our first jobs or drivers licenses. He has been steadfast in his message to: Keep your expenses low (live below your means) and get your money to work for you. So here was his advice: Open a Roth IRA and fund that So that is what I did, and that is pretty much all I did. You see, when you fund a Roth IRA, that is all you are doing. Unless you use a robo advisor (a topic for another day) such as Betterment, Wealthfront, or Acorns, you have to actually choose your investments. In essence, if you fund a Roth IRA, but do not invest the funds, it is like hitting a base hit, but failing to run to first base. I forgot to run to first base and just let my money sit in my Roth IRA earning nothing. Nada, zilch… If I had simply taken JL Collins advice and invested that money in the VTSAX – Vanguard Total Stock Market Index Fund, my money would have likely doubled. Instead of $0 to show for it, I would now have $29,507. That is a $30,000 swing!! But it gets better… and much worse for me. Had I let that money sit for another 40 years, I would have had $224,616!! Wowowowowow! But the story gets worse…. Not only did I not invest that money, but I squandered it because I broke my (now) cardinal rule: Never Pull Money Out of your Buy and Hold Accounts When I took my friend’s advice to fund my IRA, I had not yet accepted the mindset that there are accounts that can be drawn from and accounts that I DO NOT TOUCH. At that time, none of my accounts were off limits. This is a BIG, MASSIVE, nooooooooooo!! It is a Micheal-Scott-realizes-Toby-works-for-him-again kind of “NO!” (Please watch the video if you haven’t already.) Retirement accounts are just that, retirement accounts. You buy them and you hold them. By their very nature, they should not be looked at more than once a year. Why tempt yourself to say, “Well, that account looks good. I can take a little here, and a little there, and I will still be fine.” Withdrawing on retirement accounts has massive ripple effects that you cannot see, so please do not tempt that fate. When you view your retirement accounts the allotted ONE time per year, you should get everything done. Gather any information you need for your taxes Evaluate whether or not your account needs rebalancing (my personal belief is that you should set this up to occur automatically; the less time you are in your accounts playing Warren Buffet the better). Rebalancing is a topic all to itself for another day. In effect, however, it forces you to “sell high” and “buy low,” a ticket critical to punching on your way to FI. As humans, our emotions tend to cause us to “buy high” and “sell low;” you don’t want to do this. Blah, blah, blah, where is the money mistake Mr. TTF? The money mistake is that I didn’t recognize the difference… Remember how I told you that I took my best friends advice, funded the heck out of my Roth IRA, and then never invested it in anything? So yeah… I ended up pulling out every frickin’ penny of that Roth IRA within the span of a year’s time. Why you ask? Because I took a mini retirement when I had absolutely no business doing so. Mini Retirement At a time when I should have been crushing it and growing… What? What? Whaaaaaaa? Why the heck did I take this mini retirement? Don’t get me wrong, I have heard of people using mini retirements effectively throughout their careers (a subject I am not well versed in), but I was certainly not at that point. Heck, I was just starting out in my career and still figuring out what I wanted to do when I grow up. I was fresh off of two years of hustling, working a ton of hours every week, plenty of overtime, and socking money away like it was my job. And to that end, it really was. I was saving up to relocate to the beautiful state of Arizona. When I had finally reached that goal, I took some time off for the move out to AZ. When I arrived in AZ, I had convinced myself that I had been working really hard for two years and deserved a break. That break was supposed to be a couple of weeks, a month max. And, needless to say, I was enjoying the breather. I found unproductive ways (which I convinced myself were productive… did I mention I was certified as a personal trainer?) to fill my days, and a couple of weeks quickly turned into a year. A YEAR!! While I thoroughly enjoyed that year, it set me back in a number of ways. I was back to square one financially as my bank account was as good as $0. I certainly didn’t make any money as I was too busy spending my Roth IRA funds. Since I didn’t make any money, I didn’t save any money. I figure I could have safely allocated $5,000 to my Roth IRA that year had I been working. Not only is this a positive addition to my savings, but over 40 years that $5,000 would have turned into $74,872. If you are keeping track at home, the opportunity cost of my mini retirement (spending all my Roth and not saving an additional $5,000 that year) with 40 years of compounding was $299,488 (assuming a 7% average annual return). OMG? Yeah, I would say so. So there you have it, two of my earliest and clearly biggest money mistakes, $300,000 worth for just two decisions. And sure, it is easy to look back and be the Monday Morning Quarterback. But the fact of the matter is this, I LEARNED so much from these mistakes and our wealth building journey will be forever indebted to these early money mistakes as we punch our Ticket to FI. The lessons are invaluable. Learn from My Mistakes In the beginning, keep it SIMPLE. Open a Roth IRA with a brokerage account such as Vanguard and contribute to the max in VTSAX – Vanguard Total Stock Market Index Fund or set it and forget it with Betterment. These may or may not be the best options for you, it is totally and completely a personal decision; one size does not fit all. But don’t delay starting. Keep it simple, START, and continue to educate yourself so you feel more confident in your decisions as time goes on. Make sure you clearly earmark accounts for which you NEVER, EVER, EVER, EVER (did I mention EVER?) touch until retirement. I am talking working a second, or third job, before you ever even think about drawing from these accounts kind of NEVER, EVER. Then earmark accounts to which you can draw from should you need to whether it be for a car repair, vacation, or your gift fund. It is the mind set that is important and the second you withdrawal from a retirement account, it becomes that much more acceptable in your mind to do so. You don’t realize that by doing so you could be making a $300,000 mistake like I did. Trust me when I say, it is not worth it. Alright, that is take one for The Chronicles of Mr. TTF’s Early Money Mistakes. Boy, do I wish that was all, but I will be back for more because I want you to know that the journey is imperfect, it is never to late, and we are in this together. Until next time, TTF friends. Check out Part 2 of Mr. TTF’s Early Money Mistakes after this and for even more face palming, check out Mr. TTF’s Car Buying Mistakes.
Learn how to take your dream of retiring early with FI from just a dream to a reality by applying these 3 simple steps. And the best part is, you can start them all today! Newton’s first law of motion, often referred to as the law of inertia, states that, “An object at rest stays at rest and an object in motion stays in motion with the same speed and in the same direction unless acted upon by an unbalanced force.” “Excuse me?” you say, “I thought this was a blog about FI?” It absolutely is, but bear with me for just a minute while I unpack this law of inertia and how it relates to our wealth building journey. First and foremost, we are the object at rest and trust me when I say we absolutely stay at rest unless acted on by an unbalanced force. Allow me to be the first example of this said “object at rest.” When I finished the first blog post, I immediately started the second blog post. If I recall correctly, I think I wrote a single sentence to kick things off. Why bother with a sentence? For me personally, getting started is always the hardest part. I knew that if I put at least one sentence down, I had already won the battle and would be far more likely to continue the next day and the day after that. Now, fast forward to the completion of the second blog post, instead of writing the first sentence of this post you are reading, I convinced myself that I would do it the next morning. I think you can see where this is heading. The next day I woke up late, didn’t start the post and yet again convinced myself that I would then do it when I got home from work. You guessed it, I didn’t do it. The following morning, I called my bluff and did it. And now that I have started, it is easy to keep moving it forward each day. The point is, you just need to get started. There will always be reasons not to such as “now is not the right time.” You will tell yourself “I don’t have enough money to start.” Perhaps you don’t have a lot of money. You might be tempted to think, “there is no point to saving or investing because I don’t have that much to save or invest.” But I have a HUGE secret for you….your wealth building journey has very little to do with the amount you start with and everything to do with when you start. So let’s talk about that. How in the heck do you get started? 1. Track, Track, Track Your Spending I want you to ask you a few questions, first: How much is your mortgage or rent payment? Do you know how much your monthly cell phone or internet bills are? What about your cable bill? How much do you spend on services such as Netflix or Spotify? And your monthly car insurance payment? More than likely, these are all very easy questions for you to answer. You are probably feeling pretty good right now, because you are already tracking your money… Not so fast. Let me hit you with the next round of questions: How much do you spend on fast food in a month? What is your monthly bar tab? Do you know how much you spend on clothing? What does your monthly Starbucks balance look like? How much do you spend on groceries every month? What does an average month of driving equal in gas? Alright, how are you feeling now? My guess is you’re not as confident as you were in round one. Full disclosure here, most people can’t spout these off with any level of certainty or confidence. I know that Ms. TTF and I certainly could not. Truth be told, we are in the beginning stages of learning these numbers ourselves. If you could answer these without pause, what are you doing reading our blog? You should be starting your own 🙂 My point is this: If you don’t know these answers to the penny, how can you possibly say you can’t afford to start saving? The round two expenditures are s-n-e-a-k-y. If you track these, I am sure there will be at least one expense that utterly shocks you. Once you realize which one that is, I guarantee you it will move you to action. So, for the love of FI, get a pen and pad of paper out and get tracking. If you are a bit of a techy, there are great tracking apps/websites such as Mint and Personal Capital. 2. Find your Why-FI We discussed this our first blog post, but it bears repeating. You have to find your “Why-FI.” Your Why-FI is your reason for even getting to FI. You may feel tempted to skip this step, but I am telling you, it might be the most important step of all. We need something so important to us that it will push us through anything that stands in our way. Those setbacks may be low energy days or unexpected expenses. It has to be so every present in your life that you focus on it every single day. Some examples may be: You may want to retire early and spend more quality time with your loved ones (your parents, kids, friends); Maybe it is your dream to travel the world; Perhaps you have a passion project and you want to position yourself to make that your life’s work. To be clear, this is our passion project. We want to document our journey and it is our greatest hope to help many others along the way; You may want to ensure that you can both retire comfortably and PAY for your children’s education. Please, just as you would with the oxygen mask on a plane, take care of your retirement first and your children’s education second. I know we always want more for our children, but if you can’t help yourself, you will not be able to help them. This list could go on and on and on, but the important thing is that it means something to you. Now take a moment to write down some of your own Why-FI goals. Put them in the comments, maybe you can help spur someone else’s creativity, too! Now Use you Why-FI to Your Advantage Once you have one (or 7) that mean something to you, I want you to do two things: Write down your Why-FI’s daily. Do this every morning when you wake up and every night before you go to bed. Keep this TOP OF MIND at all times. Have a note card with your Why-FI’s and carry it with you everywhere. Every time you contemplate making a purchase, pull out your Why-FI card and read it to yourself. Ask yourself if this purchase is worth delaying your Why-FI goal? This will be especially important with those Round Two expenses we discussed earlier. Is it worth it? Only you can decide, but this will help put each purchase into perspective. 3. Start Small and Pay Yourself First In life, everything starts with “1.” Our first step was just that, one step. We didn’t wake up one day and decide it was time to run around the house as fast as Usain Bolt. We didn’t transition from our “studies” in Kindergarten into a Masters program at Harvard. Unfortunately for our parents, they didn’t point to the toilet one time and we all lived happily ever after. Why is it then, that we seem to think we need a $1,000,000 to start investing? Warren Buffet wasn’t born with a billion dollar bank account. He started as anybody else does, with a $1 and his Why-FI’s (though I am certain he never referred to them in this way); the rest is a very successful history. I have said it time and time again, Time is the name of the game and starting is a must. So, how do you eat an elephant? Well, you don’t, but in the spirit of the saying, you have to start small. The only way we humans can overcome barriers is to make them so small we can step over them. So what does that look like for our wealth building journey? Ms. TTF’s first investment into her brokerage account was that of $10. She was so nervous, it brought a smile to my face. But she did it, and she hasn’t looked back. She set up her bi-weekly contributions, starting small at first, but now she has bought a used car and is already half-way to our first home’s down payment, all in a year and a half. Start with what you can, even if that is 1% of your income. Even if that 1% totals $20 per month, that is 100% better than $0 per month. Once you have learned to live without $20 per month for say, 6 months, increase your savings to $40. And keep doing this until you can achieve a 15% savings rate. Hide your Money Where should this 1%-15% live? While this is a great question, an even more important question to answer is “how will that 1%-15% get from A (paycheck) to B (savings account, brokerage account, etc.)?” Have you ever heard the saying, “If you build it, they will come?” This is a great quote from the very famous movie, Field of Dreams. The wealth building version of this saying is, “If you see it, you will spend it.” Do yourself a favor and pick up a fresh copy of your employer’s direct deposit form. Once you have done that, etch the authorization to put that 1%-15% into an account of your choosing (i.e. pay yourself first). The most important part is that you place this into an account that you don’t use for regular spending nor do you look at on a regular basis. If you are looking for some help finding the right account for you, head over to MagnifyMoney.com which is a great place to find the most competitive interest rates around. Get Technology to Help Of course, you could always get started by using one, or both, of my favorite “set it and forget it” financial apps, Digit and/or Acorns. In our second blog post, we covered in detail, the benefits of Digit. While Acorns is a review for another day, it uses a round-up technology that you hardly even notice. Whichever of the options you choose, start today and I promise you that you will not regret it. So what are you waiting for? Get to steppin’. Use these three steps as your unbalanced force to get the ball rolling. Start tracking those dollar, dollar bills y’all Write down and review daily your Why-FI’s, and Set up and automate your 1% (or more) savings rate. Over and Out, FI community.
Just Dig-It! We have told you what FI is and what that looks like for us. Hopefully, you can see what that looks like for your future now, too. Now, don’t get us wrong, we are nowhere near our end goal. BUT, we definitely are closer than we were a year ago. And we want to get you that much closer, too. But, how do you even start on a path to FI? Doesn’t that require saving all your money. And aren’t we all terrible at saving? Don’t worry, so was Ms. TTF. She once ordered delivery for a glass of lemonade and room service for orange juice at a hotel down the street from her house. But she found her “why” to save and that pushed her to start. Then, she got one simple app and forgot about it. Granted, she does a lot more than just Digit now, but that was an easy place to start. And if there was ever a place to start, it is with Digit. Is Digit going to make you rich? Not alone, no… because getting rich isn’t that easy. Can Digit help you begin your wealth building journey? Hell yeah! Can Digit help you even if you are already rocking your savings goals? We appreciate your drive and so will Digit, every dollar counts. How Can I use Digit to Build Wealth? Digit can jump start your savings goals with, what I believe is the most important factor in getting started AND staying consistent… AUTOMATION. Digit is VERY easy to set up. In fact, I highly recommend setting it up and forgetting it. Download the app Enter your information Simple bank account sign in through Plaid to monitor and withdraw from Choose your goal(s) (or not, a Rainy Day fund is fine too!) and… Voila, you are rolling ((in the dough)) Digit takes some time to recognize your account patterns. It monitors bills, spending habits, pay cycles, etc.. Once it has a good idea of what to expect, it starts making small withdraws on a regular basis. They are small, tolerable withdraws. (Did I mention they are small?) And, over time, they actually add up to some impressive savings. They are often so small, it is no more than seeing a cup of coffee deducted from your checking. For example, in the month of September, Miss TTF’s withdraws were as follows: $4.51, $4.49, $4.41, $4.41, $7.94, $4.94, $2.99, $4.91, $3.42, $3.39, $3.36, $3.35, $3.32, $5.12, $3.26, and $3.26. Meaning that in just one month, Miss TTF saved a total of: $67.08 If this doesn’t seem like much, I want to challenge your thinking a bit more. Over 12 months of saving, this total jumps to $804.96. Debt Payoff Consider the fact that nearly 63% of Americans do not have enough savings to cover a $500 unexpected expense. This beautifully simple app takes the 63% and transitions them into the 47% who can afford an unexpected $500 expense with a modest savings rate. That is PROFOUND! Now get ready for some numbers and consider this next one for a beat. The average American has a credit card balance of $6,375. On that $6,375, the average interest rate is 16.71%. I called my credit card company to see how they calculate my minimum payment due. They said the minimum due is the statement balance (the big scary number you shy away from every month) multiplied by 1.5%. Thus giving that average American balance of $6,375 a minimum payment of $95.63 per month. By only making the minimum payment each month, it would take you 191 months, that is 16 YEARS, to pay off that credit card debt. And don’t get me started on any student loan debt… Over those 16 years, you would pay your balance of $6,375 (aka the principal) and $11,847 in just interest. That makes your $50 date night into a $92.92 dinner that will take you 16 years to pay off. Digit to the Rescue But with Digit helping you save an additional $67.08 a month, you can add that to your minimum payment and your story looks a waaayyyyyy better. You are now paying a total of $162.71 per month towards your credit card. Instead of 16 years, it will take you a mere 58 months, almost 5 years. That is nearly a third of the time it would have taken you with minimum payments alone. And this is just the tip of the iceberg. Over those 5 years, you will pay down the principal of $6,375 and only $2,905 in interest. Saving you an additional $8,942 more on interest than if you made just the minimum payment. Better yet, you are paying it off 11 years earlier. So not only are you saving around $60 a month without doing anything, but now you are saving almost $9,000 on debt payments. Now think of what that extra money could make you?!?! If you paid off your debt in 5 years, rather than the 16 years, you could take that monthly payment of $162.71 and invest it in the stock market. With 11 years of a conservative return of 7%, you would have a balance of $32,975!! That would be $21,477 of just contributions and an additional $11,497 from appreciation (growth) and dividends. Which, if we’re talking layman’s terms here, that’s free money. Digit even makes this process as easy as pie with it’s Digit Pay feature. Once you set up a Credit Card Debt goal, Digit will make automatic payments to your credit card company directly from Digit, no transfers required. So now you know how credit card companies make their money. Let’s take that control back and pay our credit cards off every month. If we can’t do that, let’s let Digit help us pay down our debt and grow our money sooner than later. Debt-Free Uses If an emergency fund or debt pay down are not your areas of need, there are many other uses and goals for this app. You can save for vacations, birthdays, anniversaries, concert tickets, and anything in between. Digit allows you to have unlimited savings goals. They want to help you as much as they can. You can even prioritize your goals with a “boost” function. This essentially tells Digit that certain goals are more important than others and to save for that goal first and foremost. No Money? No Problem? Another great feature about Digit is the low barrier to entry. When we think of wealth building, we typically think we need to have a LOT of money to get started. Digit takes that intimidation factor away by not having account minimums. Meaning you can have a big fat zero in there if that’s what you need… We do recommend at least one dollar though, c’mon. It’s also better than your savings account for obvious reasons (Does your savings account text you with GIFs making it rain? No). Plus… there’s no limit to the number of withdrawals you have in Digit. Butt-Saving Features Now the no account minimum helps a lot to getting started but what if you Digit thinks it can just take what ever it wants or what if you have big purchase and can’t afford losing any money to Digit right now? Don’t worry Digit has implemented quite a few features since they started to save your butt whenever needed. Let us explain a few of their best features: Auto-Withdrawals Overdraft Reimbursement Maximum Daily Savings Low Balance Protection Pause Saving Auto-Withdrawals If you are using the extra savings from Digit to help pay down your credit card debt, you can use the Auto-Withdrawal feature to your advantage. You are able to set a day of the month to have Digit automatically withdrawal the whole balance from your Digit Savings Goal of choice back into your bank’s checking account. Keep in mind this is the date that it initiates and does take a few days to hit your checking account. And watch your balances as Digit doesn’t always save the same amount every week. Overdraft Reimbursement Anyways, Digit, being the intelligent company they are, realized we humans are imbeciles (not really of course) and would still mess it up. So what did they do? That’s right, they came to the rescue once more. Insert lightbulb here and you have “Overdraft Reimbursement.” In essence, if an “automatic withdrawal,” not to be confused with a manual withdrawal, overdrafts your funding account, Digit will reimburse you…..once you prove beyond reasonable doubt that it occurred as a result of an automatic withdrawal. Be prepared to put a little work into this one. Maximum Daily Savings I’m not going to lie, October was a good month for Miss TTF on the income front. She adjusted her regular savings goals but not enough, apparently. Luckily, Digit made up the difference for her by saving upwards of $50 on 3 consecutive days. If that scares the absolute bejesus out of you, don’t worry, Digit feels you. They added a Maximum Daily Savings feature that you can set to $5 if you want, even $20 if you’re daring. But really, set it to whatever you are comfortable with and remember you can always transfer the money back at any time if it takes a bit more than you’d like. Low Balance Protection If you are infamous for letting you checking account overdraft or get below the minimum balance, Digit has your back! You can set the minimum you want your checking account to ever hit and Digit will not only stop withdrawing but they will put money back into your checking if it gets below your set amount. Say your minimum balance on your checking account is $500 to eliminate the fees. If it gets to $495, whether you just paid rent or bought an ice-cream, Digit will initiate a $5 transfer back to the checking account to bring the balance back up to the $500 you had set it to. Pause Savings Waiting to make a large purchase or you don’t feel comfortable saving while you are on vacation? You can simply just pause Digit from saving any money. I don’t recommend doing this often, but I did do it while I was on my 3 week vacation, too. Why Would Anyone Not Want Digit? Now that we have explained all the ((freaking)) genius features of Digit, we want to talk a little bit about the arguments against it… And then dispel the s@#% out of them. 1. Overdraft Possibilities Great question… but read above, people. 2. Charging you to save Now, the biggest knock on Digit: they charge you a nominal fee ($2.99 per month) for helping you do something you are not naturally good at, don’t have time for, and may not like to do. Ggggaassspppp….how dare they? I don’t really get this one, to be perfectly honest. $2.99 per month, $36 per year. Let’s run down the list of things you have spent $3 on that added next to nothing in value to your life… coffee (but really a milkshake from a coffee shop), energy drink, chips from the gas station, pack of gum, fast food lunch, drink at the bar (which is likely twice as much), candy bar, soda, Uber/Lyft rides, parking, ice cream, bottled water, etc. ((et-freaking-cetra)). Do you see what I mean? None of these add any true value to your life, but the habit of saving can change your life exponentially over time. So why “pay to save” as people will air quote it? You should pay to save because you likely don’t save or don’t save enough. It is that simple. You pay for every other convenience in the world, why not one that has real value? Please, I beg of you, don’t trip over dollars to pick up pennies. Digit even rewards you every 3 months with its 1% annual savings bonus. The amount is based on the average daily balance over those 3 months. So, the more you save, the more you