General

Spend responsibly

How To Spend Your Stimulus Check

Money Maroon

The pandemic has lead to a bifurcation of fortunes. On one hand, a minority of individuals have increased their wealth beyond belief. On the other hand, the pandemic has eroded the wealth of a significant portion of the population. With the clear and far reaching economic effects of the pandemic, the U.S government has employed multiple rounds of stimulus. To those receiving stimulus funds, how you use the funds are as important as obtaining the stimulus funds. If you qualify to receive some stimulus funds, spend responsibly. Take care of your necessities and if possible, take steps toward building and securing your financial future. 

The Year 2020

We all know that we should save for a rainy day, yet, few of us do what we know to be beneficial to us in the long term. If 2020 has taught us anything, it is that life is unpredictable. We are on this rock (earth) for a short period of time and there are no guarantees. To ensure that your family is in a good position financially, building an emergency fund is crucial. Emergency funds make financial disasters routine events.

Financial Disaster 

Financial disaster is always around the corner. In 2020, financial disaster has occurred in somewhat of a snow ball effect that has build momentum as the pandemic has worsen. First came reduce demand for certain work, then came mandatory shut downs, loss of jobs, inability to pay bills including student loans, mortgage/rent and other necessities. Just take a look at your local news and the length of the food lines. People have exhausted the little reserves they had and some have become completely reliant on government stimulus.

Spend your stimulus responsibly
Do not set your money on fire by spending frivolously

Stimulus

If you qualify to receive government aid, whether in the form of stimulus or in another form, how you spend the funds are more important than just receiving the funds. Yes, the amount provided may not go very far, but every little helps. If you are in desperate need for the funds, use the funds to handle your necessities. This includes food, clothing and shelter.  Really think about how you will use your stimulus check. Keep in mind, based on the current political situation, it is unlikely that more stimulus will be on the way. However, If another stimulus bill is passed by congress, it will likely be less than what you have received to this point.

If you happen to be in a situation where you are not in desperate need of the stimulus but have qualified for receiving the funds, it is not time to spend. While some encourage spending to help the economy, to the contrary, it is time to save. Yes, we now have vaccines, however, it is unlikely that life will return to pre-pandemic norms any time soon. As such, the job market will continue to be in flux. Spend time to think of how you can improve your physical, mental and financial health.

Physical, Mental And Financial Health

We have no idea what the year 2021 and beyond holds, but as much as you can, be prepared. Be prepared by taking care of your physical, mental and financial health one step at a time. With the stimulus funds, if you can: (a) save, build or add to your emergency fund, (b) pay down high interest debt, (c) invest and if you are in the position to do so, (d) donate to help your neighbors. 

Generally, it is time to increase your personal safety net. As the year 2020 has shown, it is important to be ready for the unknown. The best way to be ready for the unknown is to be prepare, such that you can mitigate some disruptions that may occur in the future.

Financial stability is not achieved overnight. Financial stability and to an extent financial independence requires small consistent steps over time.

Conclusion

The pandemic has lead to a bifurcation of fortunes. On one hand, a minority of individuals have increased their wealth beyond belief. On the other hand, the pandemic has eroded the wealth of a significant portion of the population. With the clear and far reaching economic effects of the pandemic, the U.S government has employed multiple rounds of stimulus. To those receiving stimulus funds, how you use the funds are as important as obtaining the stimulus funds. If you qualify to receive some stimulus funds, spend responsibly. Take care of your necessities and if possible, take steps toward building and securing your financial future. 

Follow me on Twitter @JoToFI_com

Follow me on Instagram @JoToFI_com

529 Plan

529 Plan: Contribute Today For Your Child’s Tomorrow

Money Maroon

It is important to secure your financial future first, before turning to your children’s. However, once you turn to the financial future of your children, a 529 plan should be on the top of the list. 529 plans allows account holders to put away funds for a beneficiary, typically a child or other loved one.

529 Plan
529 plan, a plan for your child’s future

Overview: 529 Plan

529 plans are authorized by Section 529 of the Internal Revenue Code and were designed to encourage saving for future education costs. When first instituted, 529 plans were limited to covering the costs of post-secondary education. Overtime, qualified education costs covered by 529 plans were expanded to also cover K-12 education in 2017 and apprenticeship programs in 2019. In view of the rising costs of education, if you have children, a 529 plan should be apart of your financial tool kit.

Types Of 529 Plans

Generally speaking, there are two types of 529 plans. A prepaid tuition plan or an education savings plan. According to the SEC, most all States and the District of Columbia sponsor at least one of the two types of 529 plans. Additionally, some private colleges and university may also have similar plans. Note that Wyoming is the only State that does not offer its own 529 plan.

Prepaid Plan

The prepaid 529 plan allows account holders to purchase units or credits at participating colleges and universities (usually public and in-state) for future tuition and mandatory fees at current prices. As such, you are locking in today’s prices. This can be a significant benefit in view of costs savings when taking into consideration the consistent rise in education costs over time.

Savings Plan

529 savings plan allow an account holder to open an investment account to save for the beneficiary’s future. The saved amount can then be used to pay for qualified expenses. Such qualified expenses include tuition; room and board; mandatory fees; and, books, and computers.

With regard to the investment account, in ways similar to a brokerage account, the account holder can chose from a range of investment options (target date funds, ETFs, Mutual funds) that is offered by the respective State or vender used by the State to carry out the 529 program. As such, prior to selecting a fund to invest in, it is important to carefully review the options available and the associated fees.

Taxes

529 plans are often referred to as a tax advantage account because of the associated federal and State tax advantages.

Contributions

Many States offer tax benefits for contributions to a 529 plan. These tax benefits typically include a State income tax deduction up to a certain limit contributed. Usually, these tax benefits are limited to residents of that State. For example, if you are a resident of Maryland and have a Maryland 529 plan, you would be able to deduct a certain amount of your Maryland 529 contributions from your Maryland State income tax. On the other hand, if you are not a resident of Maryland, and have a Maryland 529 plan, you would not be able to deduct your contribution from your home State’s income tax. 

Unfortunately, unlike the State tax deduction, on a federal level, the money you contribute to a 529 plan is not tax-deductible for federal income tax purposes.

Withdrawal

With regard to withdrawals for qualified expenses, 529 earnings are not subject to federal income tax and, in many cases, State income tax. However, if 529 account withdrawals are not used for qualified expenses, the funds will be subject to both State and federal income taxes and an additional 10% federal tax penalty on earnings.

Growth

Another benefit of 529 plans is the tax-free earnings that grow over a period of time. Growth of funds in your 529 account are not taxed. Therefore, the longer your money is invested in a savings plan, the more time it has to grow and the greater the tax benefit. The upshot here is a simple one. Although contributions are not deductible from your federal income tax, earnings in a 529 plan grow federal tax-free and will not be taxed when the money is taken out to pay for qualified expenses. 

Conclusion

It is important to secure your financial future first, before turning to your children. However, once you turn to the financial future of your children, a 529 plan should be on the top of the list. 529 plans allows account holders to put away funds for a beneficiary, typically a child or other loved one. A 529 plan is an easy way to get your child off on the journey to financial independence.

For your convenience, we have provided a chart below with links to the related State 529 plan. Continue on your journey to financial independence. 

States of the United States of America
and Washington, D.C. 529 Plans		Abbreviation
AlabamaAL
AlaskaAK
 ArizonaAZ
 ArkansasAR
CaliforniaCA
 ColoradoCO
 ConnecticutCT
 DelawareDE
FloridaFL
GeorgiaGA
 HawaiiHI
 IdahoID
 IllinoisIL
IndianaIN
IowaIA
 KansasKS
KentuckyKY
 LouisianaLA
MaineME
 MarylandMD
 MassachusettsMA
MichiganMI
 MinnesotaMN
Flag of Mississippi ("New Magnolia Flag").svg MississippiMS
 MissouriMO
MontanaMT
 NebraskaNE
 NevadaNV
 New HampshireNH
 New JerseyNJ
 New MexicoNM
 New YorkNY
 North CarolinaNC
 North DakotaND
 OhioOH
 OklahomaOK
 OregonOR
 PennsylvaniaPA
  Rhode IslandRI
 South CarolinaSC
 South DakotaSD
 TennesseeTN
 TexasTX
 UtahUT
 VermontVT
 VirginiaVA
WashingtonWA
 Washington, D.C. (District of Columbia)DC
 West VirginiaWV
 WisconsinWI
 WyomingWY

Follow me on Twitter @JoToFI_com

Follow me on Instagram @JoToFI_com

401K Match

401K Match: Free Money For You

Money Maroon

Prior to accepting a job offer,  you should evaluate not only the salary offer but also the total compensation package. In some cases, a job’s salary may be lower, however, total compensation may be higher in comparison to another job. The reason for this may be the employer’s health care plan, bonus structure, stock option and retirement plan. With regard to a company’s retirement plan, it is important to pay particular attention to whether or not your future employer provides a 401K match.

An employer 401K match means that your employer contributes a certain amount, typically a percentage of your annual salary to your retirement plan. This is in effect, free money. If you contribute to your 401K, your employer does also.

Your Employer’s 401K Contribution

Employer 401K match can come in a variety of shapes and sizes. In one instance, the employer will match a portion of your contribution up to a limit. Typically, this limit is represented as a percentage of your salary. Further, an employer may match your contribution if you contribute or irrespective of if you contribute.

If your employer provides a 401K match only if you contribute to your 401K, ensure that you are contributing at least up to that threshold. An employer 401K match is free money. Take advantage.

Calculating Your Employer’s 401K Match

If we assume that your employer offers a 100% 401K match on all your contributions each year, up to a maximum of 5% of your annual income. If you earn $100,000, the maximum amount that your employer would contribute to your 401K each year is $5,000. 

This $5,000 is typically spread out over the entire year. As such, if you are paid bimonthly, that is approximately 26 pay checks. This means that each paycheck, your employer is willing to match you up to $5,000/26 paychecks, which equals $192. As such, to obtain your full 401K match, you will need to contribute at least $192 to your 401K per pay check.

In the above scenario, if you set up your 401K contribution to contribute at least 5% of your pay to a 401k account, you will ensure that you will get at least the match. However, note that as your salary increases, it is important to ensure that you are contributing enough, but also not too much, such that you are able to obtain your full 401K match.

Ensuring That You Get Your Entire 401K Match

It is important that you monitor how much you contribute to your 401K on a yearly basis. This is important because if you place a high percentage of your salary into a 401K account, you can potentially max out your 401K before your employer hits their 401K match.

In the year 2020, your contribution limits for a 401K is $19,500 (catch-up contribution limit for employees aged 50 and over is $6,500). If your employer’s 401K match is contingent on your contribution, they will only contribute to your 401K if you do. As such, if you hit the 401K contribution limit before the end of the year and can no longer contribute to your 401K for that year, your employer will also not contribute.

To ensure that you will not hit your contribution limit before the end of the year, divide the contribution limit by your salary and multiple by 100. This will provide the maximum percentage of your salary that you can contribute to your 401K without exceeding the contribution limit. In the example above, $19,500/$100,000 = 0.195. 0.195 x 100 = 19.5. As such, with a $100,000 salary and a contribution limit of $19,500, if you keep your yearly contribution at or below 19.5% of your salary, you will not hit your contribution limits before the end of the year. This will ensure that your employer will pay the full match.

Conclusion

Prior to accepting a job offer,  you should evaluate not only the salary offer but also the total compensation package. In some cases, a job’s salary may be lower, however, total compensation may be higher in comparison to another job. The reason for this may be the employer’s health care plan, bonus structure, stock option and retirement plan. With regard to a company’s retirement plan, it is important to pay particular attention to whether or not your future employer provides a 401K match. The 401K match provides free money from your employer and is a sure-fire way to achieve financial independence early. Journey to financial independence by ensuring that you receive your employer’s full 401K match.

Follow me on Twitter @JoToFI_com

Follow me on Instagram @JoToFI_com

Video Summary

Top Secret

Secret To Building Wealth

Money Maroon

Every one wants the secret to building wealth. Many pay for courses or are drawn into get rich quick schemes. But the secret to building wealth is simple. It is the same it has been from the beginning of time. The secret to building wealth is money (assets) and time. That is it. If you do not believe me, continue reading the below.

Building Wealth – Money

Money and as a broader concept, having assets or things of value is the basis of wealth generation. This is no surprise. The old adage of you need money to make money is true. It comes down to simple math. If you begin with a basis of $100 and gain a return of 10%, your return plus your basis is $110. On the other hand, if you have a basis of $1,000,000 and gain a return of 10%, your return plus your basis is $1,100,000. Money matters. Having assets to trade matters.

If you were born wealthy, you have obtained a head start. If you were born poor, you will need to obtain money or valuable assets that are tradable. In some cases, this means having or developing valuable skills that one may trade to obtain money. In other words, employment. 

The above does not mean that those born wealthy will remain wealthy. Having money simply gives you a head start, but what you do with the money you have is important. If you place your money under a bed or receive a low return on your money, inflation will erode the value of your money. On the other hand, if you make smart moves with your money, its value will increase. Rich or poor, if you do not know how to grow and build wealth, you will lose what you have. The more money/assets you have, the faster it could grow over time.

Building Wealth – Time

The secret to building wealth not only includes a need for money, you also need time. Simply put, to build any thing takes time. Wherever you begin on the scale between poverty and wealthy, to build wealth or more wealth will take time. To build wealth, you must invest, you must put your money to work over time. As noted above, if you park your money into a savings account or under your bed, the value of your money is likely to be eroded by inflation.

Once you put your money to work, there will be a time period before you are able to obtain a return on your investment. This time period could range from as little as a few seconds to multiple decades. Whether you put your money to work by investing in yourself in a specific field for example obtaining an education or learning new skills to obtain gainful employment, investing in the stock market, investing in a startup business or investing in real estate, the payout or return on investment takes time. The more time you have, the more your investments may potentially pay off. Consider over the life of your career, the more time you have the more money you will earn, the more you can invest to grow wealth. The more time you have, the more homes you can flip if you are in real estate investing, the more return  you can gain from the stock market, the more startups you can invest in. As such, the earlier you are able to obtain money or tradable assets and begin putting your money to work, the more wealth you can generate.

Examples

As an example of the above, take a look at your favorite wealthy person. Is it a doctor, lawyer, investor or entrepreneur. What do they all have in common? They had money or tradable assets that they  exchanged for things of value that grew over time. In some instances, skills are being traded for a high salary. From the salary, money is saved and invested over time to generate wealth. For others, they had innovative ideas that they initially funded and overtime those ideas grew into ultra profitable companies.

Caution 

As noted before, having money does not mean wealth. Because you now know the secret to building wealth, this does not mean that you will automatically become wealthy. Once you obtain money, how you use this money over time is very important. You may invest in your education in a field that does not pay well or that is no longer needed, which would leave you in debt and struggling. It is possible that you may invest in companies that are not innovative and may later go bankrupt. You may also invest in the wrong stocks or industries. Building wealth takes time and money, but building wealth is not automatic. You must do your due diligence and in some cases be lucky.

Conclusion

Every one wants the secret to building wealth. Many pay for courses or are drawn into get rich quick schemes. But the secret to building wealth is simple. It is the same it has been from the begining of time. The secret to building wealth is money (assets) and time. That is it. Now that you know the secret to building wealth, take steps today to journey to financial independence.

Follow me on Twitter @JoToFI_com

Follow me on Instagram @JoToFI_com

Video Summary

The first $50,000

Saving The First $50,000 Now

Money Maroon

On the journey to financial independence, each milestone is fuel for the next. One of the greatest initial milestone is that of accumulating your first dollar milestone over time. For many, saving the first $50,000 is at the top of the list. Of all the incremental $50,000 gains that  you will achieve, saving the first $50,000 is the most difficult. Saving the first $50,000 is the most difficult because it  includes taking the biggest step on your journey to financial independence — taking the first step.

Begin Now – Saving The First $50,000

If you are like most, once you decide to begin the journey to financial independence, you likely do not yet have an emergency fund or an active retirement account. If you do have such accounts, it is likely that they are underfunded. As such, the path to accumulating your first $50,000 will be the most difficult because it represents the beginning of a new journey. 

Accumulating your first $50,000 will require a change in mindset and the implementation of new and at times, foreign concepts. To take your net worth from zero or negative to $50,000 will take time and effort. Time and effort makes any task difficult.

Below is a basic review of the difficulties that will be faced.

Your Financial Situation

Begin saving the first $50,000 by taking stock of your financial situation. What is your revenue and expenses over a period of time, for example a month? Are you saving? Can you increase revenue and decrease expenses? What is your debt load and how will you reduce it?  

Based on the answer to these questions, devise a plan to journey to financial independence. Devising an appropriate plan that gives you a high likelihood of success will take time. The more time that goes into your planning, the higher the likelihood that you will succeed on your journey. 

After designing your plan, you will need to implement the plan over the long term to achieve your goals.

The Plan – Saving The First $50,000

Just like enacting any plan that requires a change in habits or direct action, implementation of your plan to financial independence can be difficult. If you choose to save by cutting back on eating out, this will no doubt affect your social life. If you decide to work a side hustle, this will take time from other activities. To journey to financial independence, you will make sacrifices.

Think of a diet and how difficult it is to stick to such a plan over time. At times, it may take multiple attempts before breaking through and having success. To achieve success, you must start.

Your Emergency Fund

Now that you have a plan, how will you begin to bulk up your emergency fund. To obtain additional funds to support your journey to financial independence, will you be increasing your revenue, reducing your expenses or both? 

Saving more is always more difficult than it sounds. This task is never straight forward. When contributing to your emergency fund, you will also need to consider your retirement fund and also paying down debt. 

First, how will you increase income (Revenue minus expenses)? Will you increase revenues, decrease expenses or both? Will you first build your emergency fund or will you do all three (fund your emergency fund, pay down debt and contribute to retirement) together? This decision is situationally dependent, but very important to consider. For example, if you are receiving a 401k match from your employer, there is no reason to loose this free money. As such, you should contribute to your retirement account at least to the amount matched. Further, to ensure that your credit is not destroyed, it is best to keep your debts current by paying at least the minimum.

With regard to your emergency fund, how many months of expenses will you keep in your emergency fund. Will you contribute 3 months, 6 months or a year or more? This is dependent on your situation. Do you have a family or are you single? For your emergency fund, it is important to place your money where it is easily accessible, however, you must also consider where you will be able to obtain a reasonable interest rate. In effect, stay away from brick and mortar banks if possible, as online banks provide high yield saving accounts that will provide, while low, a significantly higher interest rate as compared to brick and mortar banks.

Contributing To Retirement

As noted above, once you begin to save, you should attend to your retirement fund, especially if your employer is providing a match. No matter how little you may contribute, contribute to your retirement. 

Paying Down Debt

Once you begin to save, you will  also need to attend to debts. You will definitely want to keep your accounts current by paying at least the minimum. Once your emergency fund is fully funded, it will be time to pay more than your minimum. 

It is advisable to pay down debts having the highest interest rate. This will infact lower your interest payments as you pay down the debt. Another approach is to pay down the smallest debt first, such that you have a snow ball effect of, least balance to highest balance. 

Essentially, by beginning this journey, you are increasing your net worth by incrementally reducing your debts while increasing your assets.

As you can see, because you are not only accumulating funds, but you are also paying off debt, accumulating your first $50,000 will take some time. Even if we simplify and include all savings and investments (including retirement) apart of your first $50,000, saving the first $50,000 will take some time and be the most difficult. Nonetheless, by consistency implementing your financial plan over time, you will achieve your goal.

Congratulations – Saving The First $50,000

While the journey will be long, you will achieve your goal of $50,000. But keep in mind that this is only the begining of the journey. Because of the plans, strategy and patterns that you now have in place, of the series of $50,000 that you will save, this will be the most difficult. As you move to save $100,000, you will arrive at that point a lot faster.

Consider that less of your funds will go toward debt payments and debt interest payments, you will potentially have a higher revenue (raises as you become more experience), your investments will grow over time and you will be comfortable and more knowledgeable about money generally. This all adds up to a snow ball effect with regard to your financial growth and accumulation over time.

Conclusion

On the journey to financial independence, each milestone is fuel for the next. One of the greatest initial milestone is that of accumulating your first dollar milestone over time. For many, saving the first $50,000 is at the top of the list. Of all the incremental $50,000 gains that  you will achieve, the first is the most difficult. Saving the first $50,000 is the most difficult because it includes taking the biggest step on your journey to financial independence — taking the first step. Take your first step today.

Follow me on Twitter @JoToFI_com

Follow me on Instagram @JoToFI_com

Chasing

Chase Solutions Not Money

Money Maroon

Who wants to be poor? I have never heard a single person seriously state that they want to be poor. At some level, we all want to achieve a standard of living where we and our families have our needs covered without financial stress. Another portion of us wants more. Achieving financial stability such that wants and needs are easily achieved is a dream most of us  have. To achieve financial dreams, especially if you are entrepreneurial, chase solutions not money.

Chasing Money

With regard to your current profession, is your work your passion? Does your job make you happy? Do you continue to work at your current job for financial reasons only? If money was not a concern, would you continue on your current professional path?

Many of us choose careers not because of the difference that we will make, but for the traditional high standard of living and potential wealth associated. Many of us stay in positions for this same reason, even when we hate our jobs. We are not here to judge why anyone is on the professional path that they are on, but if wealth is your objective, it is best to stop chasing money. 

Chasing money will keep you in a 9-5, salaried position. Chasing money will keep you working until your late 60s or longer. In some instances, chasing money will generate wealth, but you will be miserable. Think of the lawyers and doctors who are wealthy but absolutely hate their jobs, are alienated from their families and are struggling to cope. Chasing money will keep you from your potential of being both happy and wealthy.

Chasing Solutions Not Money – Profession

By chasing solutions, we mean finding a problem and driving towards a solution. In a professional scope, the underlying purpose of solving a problem is the fire that will burn to get you through the difficult times. The difficult times may be years of schooling, personal issues or unexpected disasters that occur in life. With a purpose, your drive will be maintained irrespective of the financial reward. Whether your drive is servicing a specific community or a specific cause, finding a problem and presenting a solution will greatly increase your rewards, financial and otherwise.

Chasing Solutions Not Money – Entrepreneurial

If you are an entrepreneur and you are aiming to build wealth, it will all fall into place once you identify a problem that is worth solving. There are many issues that we all collectively encounter on a daily basis. Identify these problems and present your solution. Once you identify the problem and a possible solution, ask yourself if the identified problem is worth solving. If it is worth solving, this is a business idea.

Is The problem Worth solving

In determining if a problem is worth solving, from a business standpoint, you need to determine if you can earn from solving the problem. Does the problem rise to such a level of needing to be solved? Will someone pay you to solve this problem? If someone will pay you to solve the problem, how much and is it worth your time? If you have identified a solution to a problem, but someone will only pay you a dollar to solve the problem, this venture may not be worth it. Whether or not the venture is worth your time will depend on scalability.

Is Your Solution Scalable

Is the venture of solving the identified problem scalable? Let’s face it, if I solve a problem that is of low value to others and non-scalable, then I will either loose money or get stuck in a job that will not grow over time.  None of these options are good.

Now, if the venture is scalable, you have a business. For example, our example above where we are paid a dollar by each customer to solve a problem. If this business is scalable, if you are able to build your business to reach one million customers, that is one million dollars. If the problem being solved is one that is reoccurring, you have the potential for a million repeat customers. When you chase solutions, not money, your wealth will seamlessly grow.

Conclusion

No one wants to be poor. At some level, we all want to achieve a standard of living where we and our families have our needs covered without financial stress. To achieve financial dreams, chase solutions not money. On the journey to financial independence, stop chasing money, chase solutions to problems and watch your wealth grow.

Follow me on Twitter @JoToFI_com

Follow me on Instagram @JoToFI_com

Video Summary

Build wealth by chasing solutions

Accounting

You Do Not Need To Make A Budget

Money Maroon

When we hear the word “budget,” most immediately think of a rigid system of not only an itemized estimate of income and expenses, but also writing down and tracking each transaction as they are made. As you can imagine, implementation of these ideas could be very burdensome for many. The thought of itemization and keeping track of every expenditure contributes to why so many individuals do not take the first step to know their financial position. I am here to tell you that while having a detailed budget is recommended, it is not needed. Yes, you do not need to make a budget. Your first step to financial independence is getting a general understanding of your revenue and expenses.

What Is A Budget?

A budget is a financial plan for a defined period of time. Typically, a budget will include an itemized estimate of revenue and expenses over a period of time. For example a week, month, a year or a period of time in between in the future. The aim of any budget is to give a financial projection for a period of time in the future. It is a financial roadmap.

Following A Budget

The hard work of a budget is not only the act of sitting down and tediously making a detailed budget. The hard work of a budget comes following drafting and finalizing the budget. Hard work is the act of sticking with the budget. The hard work is tracking your spending, and ensuring that you are staying within the confines of your budget. Essentially, a budget is your guardrails and your aim is to stay within these guardrails.

The Problem

The issue that is commonly seen with budgets is the fact that many do not get started. If you are not getting started on making a budget, there is no hope of sticking to a budget. With regard to a rigid budget, many find itemizing over a period of time very cumbersome. Further, tracking spending becomes burdensome for many. Because most do not sit down and draft a budget, they do not get a true picture of their financial situation. They  remain clueless about their total revenue and expenditure. They are unable to reap the benefits of knowing what they are spending on and how to stop if necessary.

The Solution – You Do Not Need To Make A Budget

You do not need a formal rigid budget. Yes, you do not need to make a budget. Generally, what is needed is a general understanding of what you are taking in and what you are spending over a period of time. This is the first step. A deep itemized dive can come later.

Many who do not have a set salary have no idea how much money they are making per month. I am talking to those who are hourly workers, get tips, or commissions. Further, those with salaries may know what they make each year in total, but how much do you take home each pay period? Surprisingly, most do not know this total. If you do not know what you are taking home, how can you consistently save, invest and build wealth?

The Solution – Get A General Overview

Sit down and take 5 minutes to consider how much you are taking in each month. Look at one or two pay stubs and use a calculator if needed. Think of your average commission or tip per pay period. Only 5 minutes required. 

Once you have an idea of how much you are taking in on average, consider what you are spending.This will require another 5 minutes. Note your recurring expenses (mortgage/rent, car payment/maintenance, cable/internet, electricity) + what you spend each workday multiply by 20 (coffee, transportation, lunch) + weekend expenses multiply by 4. This will give you an average of your expenditure per month. That is it folks. This 10 minute calculation will give you a general understanding of what you are taking in and what you are spending monthly. Is your spending greater than your income? Do you have money left to save or invest? Can you pay yourself first?

Now, with these numbers, you are ahead of the game. It is clear on average what you spend and what you are bringing in each month. You now have the power to take control. You can decide to cut back on spending, earn more, decide if you need to sit down and make a formal detailed budget, or if you want to track spending to further optimize.  

By performing this exercise, you are able to obtain a high level view of your financial situation. From this vantage point, your next step may be to make a budget, to track your spending, and/or implement a financial plan. This exercise can serve as the basis for your next step.

The Benefit

At times, when we give general advice we introduce rigid concepts, for example, budgeting. It is important to know what to do, but it is more important to start doing. One of the first step on the journey to financial independence is getting a general overview of your financial health. A simple review of your income and spending will provide this general overview. From this jump-off point, you can take the next steps on your journey.

While You Do not Need To Make A Budget, Having One Can Be Beneficial

Budgets are great because they serve as a guide. Even if you go over, a budget gives you an idea of what you are over spending on. Budgets give you that answers to the question, why are you in debt? Further, a good budget also have the potentially to provide a roadmap out of debt. However, when you are beginning your journey to financial independence, you do not need a budget.

Conclusion

When we hear the word “budget,” most immediately think of a rigid system of not only an itemized estimate of income and expenses, but also writing down and tracking each transaction as they are made. As you can imagine, implementation of these ideas could be very burdensome for many. The thought of itemization and keeping track of every expenditure contributes to why so many individuals do not take the first steps of knowing their financial position. I am here to tell you that while having a detailed budget is recommended, it is not needed. Yes, you do not need to make a budget. Your first step to financial independence is getting a general understanding of your revenue and expenses.

Follow me on Twitter @JoToFI_com

Follow me on Instagram @JoToFI_com

Video Summary

man wearing brown suit jacket mocking on white telephone

I Hate My Job: Staying At A Job That You Hate

Money Maroon

On the journey to financial independence, many sacrifices must be made. In today’s article, we will discuss one of the many sacrifices that is made to achieve financial independence: staying at a job that you hate. We stay at jobs we hate for many reasons including financial and non financial. While we aim to achieve financial independence, we must balance our financial desires and our health. Staying at a job that you hate can lead to many detrimental effects, including eventual loss of your job, mental break down, self medication and addiction.

Reasons We Stay At A Job We Hate – Debt

There are many non-financial related reasons that will lead you to staying at jobs you hate. However, when you look at financial reasons, paying off debt tends to be at the top of the list. This is of no surprise. 

Debt
Are you staying at a job that you hate to pay down debt?

Student Loans

At the current costs for college and thereafter potential graduate school costs, it is highly likely that college graduates entering the work force are doing so with tens of thousands if not hundreds of thousands of dollars in student loan debt. Many professions do not pay a salary that is enough to pay off student loan debts within a year or two. As such, it takes many years even decades to pay off student loans. Now add life events and the period for paying off student loans are further extended. By extending the period for paying off student loan debts, many are unable to leave a job they hate.

Consumer Debt

Aside from student loan debt, many also have consumer debts. Consumer debt may include credit card debt among other debts such as auto loans and mortgages. Credit card debts may have been accumulated over time when you were younger and not attuned to your financial future. Auto loans and mortgages may occur as we grow with family.  Consumer debt is a sure-fire way to keep working – such that you can service your debts. Consumer debt is a reason many are staying at a job they hate.

Financially Supporting Your Children

For those who have children, many have the belief or a self impose obligation to pay for their children’s college expenses. As noted above, it is of no surprise that many leave college and graduate school with tens of thousands if not hundreds of thousands of dollars in student loan debt. 

It is important to note that you are not responsible for your child’s student loan debt, unless you want to be. Generally, it is not your obligation. It is important to ensure that your financial life is in order before helping your child. Simply put, your children have more time to develop wealth and financial independence than you do. Any shock to your financial situation can detrimentally affect your financial future. However, your child is in a position wherein their financial health has a better chance of recovering. As in the airline videos prior to take off, in case of emergencies, put your oxygen mask on first before assisting your child. In the same vain, handle your financial situation first before tending to your child’s.

Reasons We Stay At A Job We Hate – Achieving Financial Targets

We also stay at jobs we hate to generally hit financial targets. It is not only paying down debt, but also accumulating wealth. We may hate our jobs but, we also understand that a high paying job where we work long hours and where we are completely miserable may be bearable for a period of time to save and achieve a financial target. However, the sacrifices that are made here must be balanced. The misery of a job should not defeat or overcome the person. 

Reasons We Stay At A Job We Hate – Golden handcuff

Golden handcuffs refers to financial  benefits that encourages highly compensated employees to remain within a company or organization instead of moving from company to company. In simple terms, a high salary and benefits make it unmanageable  and mentality impossible to leave your miserable job. Essentially, you have become so used to the money, the glamor, power and the title that no matter how miserable the job is, you will continue to do it because you cannot imaging not having the benefits of the job. Golden handcuff is a major reason you may consider staying at a job that you hate.

Reasons We Stay At A Job We Hate – Fear

Many will not leave a job because of fear. Fear can paralyze and in many cases it does. Some takes the saying “a bird in the hand is worth two in the bush” to the extreme. That is, some would rather suffer for something guaranteed (the current job) than take a risk and move on. 

Others also take the saying “the devil you know vs the devil you don’t” to an extreme. Many will succumb to the feeling that it is safer to deal with a familiar miserable situation (the current job) than risk taking a chance, finding a new job and be happy.  Fear may lead you to staying at a job that you hate.

Reality

In many cases, it is less safe to stay at your current job if you hate it. Eventually, your displeasure, misery and unhappiness will show at your job in your interactions with others and/or your work product. Even if you are able to bottle up your misery,  the miserable situation can cause a lot more pain than you think. For example, mental pain and anguish may bleed over into your life outside of work. This can lead to depression, drugs, alcohol and related health problems.

How Do We Get Out Of These Jobs Faster

To open the door and unchain yourself from a job you hate, live below your means, save, invest and repeat. These actions will increase your discretionary income and allow you to achieve goals faster.

Further, what good is it to live 50 years of your life in misery because of your job. Take the chance after doing your due diligence and search for what you want and go after it. This approach may delay when you become financially independent, however, you will be in a better place mentally. Mental stability will impact your family and future in unimaginably beneficial ways.

Conclusion

On the journey to financial independence, many sacrifices must be made. In today’s article we discussed one of the many sacrifices that is made to achieve financial independence: staying at a job that you hate. We stay at jobs that we hate for many reasons including financial and non financial. While we aim to achieve financial independence, we must balance our financial desires and our health. Staying at a job that you hate can lead to many detrimental effects, including eventual loss of your job, mental break down, self medication and addiction.

Follow me on Twitter @JoToFI_com

Follow me on Instagram @JoToFI_com

Video Summary

Covid19

Pandemic And Financial Stability

Money Maroon

If Covid-19 has brought anything to the forefront, it is the fact that life is short and can end at any moment. Further, you may spend your last weeks, days, hours and minutes alone and without family. As we grapple with our new reality during this pandemic (Covid-19), the importance of financial stability has never been clearer. The pandemic’s effect on financial stability is unimaginable.

Pandemic And Financial Stability: Job Losses

The most obvious effect of the pandemic relates to job loses. As we have shut down economies to contain the virus, close to over 50 million Americans have filed for unemployment. This is in the United States alone. 

It has been reported that about 39 percent of households earning $40,000 or less has reported job loses. Over time, it has become very clear that the poorest households are being impacted the most by the pandemic, not only with regard to job losses, but also in contracting the virus. 

The pandemic’s impact on the poorest families is predictable. Think of those who are delivering your food, working the register at your favorite stores, bags your grocery and perform occupations that cannot be accomplished via a web based service at home. These individuals tend to be at the lower end of the economic scale, most likely to have health issues and limited access to health care. Together, this leaves a situation where low-income communities are more likely to be exposed to the virus, have higher mortality rates, and suffer more economically.

To look more globally, beyond the United States, the world bank estimates that Covid-19 could push about 49 million people into extreme poverty in 2020. Therefore, for those who were in the worst financial position, the pandemic has only made it worst, a lot worst. Simply put, the pandemic’s effect on financial stability has been devastating for the most vulnerable.

Pandemic And Financial Stability: Who Stays At Home

Mom at home during pandemic
Who stays at home during the pandemic?

An additional impact of the pandemic is on the family, specifically in view of child care. Yes, the pandemic’s effect on financial stability, is an impact on the family! As we have watched many members of families spend their final moments alone, or hear repeated stories of the virus wiping out multiple members within a family, the family generally is a major topic with regard to the pandemic and financial stability. Especially as the school year approaches.

As the pandemic rages on, many families have been forced to make a difficult choice, especially if they have school age children. Who will stay home/watch the kids? Do you and/or your spouse continue to work long hours and neglect your children that is now out of school or do one or both of you cut back?  

These are some of the most pressing questions at the kitchen table for those with children in elementary school and younger because of the attention required. But even for those older than elementary school age, if your kids are home, you still need to direct your attention to them to ensure that they are doing what they should. For example, your children attending on-line classes, paying attention during their video classes and staying on track.

For single parents, matters are even worst. Do you quit your job to stay home with your children when your employer requires your physical presence? With bills to pay, including mortgage or rent, how do you decide?

If you are without kids, how are you mentally coping with working from home without human contact? Generally, how are you separating work life from home life? Are you currently experiencing burn out?

Pandemic And Financial Stability: Money To Be Made

Not everyone has been detrimentally affected by the pandemic. There are some who were prepared and are trying to take events in stride. Many expected a dip in stock prices and took advantage. Others had an emergency fund and were able to better handle a job loss and transition to another. Still, there are others who have actually profited from the pandemic. Think of Jeff Bezos, Netflix, and entrepreneurs who are pushing forward services that are needed in today’s Covid-19 economy.

Pandemic And Financial Stability: Increased Saving Rates

An interesting effect of Covid-19 is the converging circumstances and their effects on the savings rate. With the government paying certain benefits, the United States have increased its general savings rate. Basically, with economies shut down and no where to eat out or spend discretionary funds, many individuals are socking away an increase percentage of their paycheck (if they are able to keep their jobs).

Bifurcation

In view of the above, what we are seeing is a bifurcation in societal finances. In one case we have individuals who are profiting from today’s current situation  and becoming more financially secure. On the other hand, others are struggling with the basic necessities. In every downturn or national event, this is always the case.

It is incumbent on each and every one of us to prepare ourselves for unforeseen hardships that may lay ahead. While no one could have predicted Covid-19 and its effects, we know this will not be the last time we have such a financial shock. Make the sacrifices now to be able to better whether financial shocks. The pandemic’s effect on financial stability is profound, but we can protect ourselves if we plan ahead.

Pandemic and our choices
We are at crossroads

Conclusion

If Covid-19 has brought anything to the forefront, it is the fact that life is short and can end at any moment. Further, you may spend your last weeks, days, hours and minutes alone and without family. As we grapple with our new reality during this pandemic (Covid-19), the importance of financial stability has never been clearer. The pandemic’s effect on financial stability is unimaginable. However, we can protect ourselves if we plan ahead. Journey to financial independence.

Follow me on Twitter @JoToFI_com

Follow me on Instagram @JoToFI_com

Fire Movement

Fire Movement: What Is F.I.R.E?

Money Maroon

What is F.I.R.E? Financial Independence Retire Early (F.I.R.E) is a movement (Fire Movement) that is dedicated to saving and investing over time to achieve financial independence such that you can retire. The goal of the Fire Movement is financial independence, but also the ability to retire far earlier than typical. What is F.I.R.E? It is not a millennial fad. It is not only for those having a high income and no children. Financial Independence Retire Early is for everyone who wants to achieve financial independence.

Fire Movement – F.I.R.E Is Not A Millennial Fad

While F.I.R.E itself is generally new to the lexicon, the concept is not. For hundreds of years, many have saved, invested, and have experience financial freedom such they can do what they desire. Let us think about it, is this not a version of what you tell your kids, and for that matter, what your parents told you? Save, such that you can have more for a rainy day. In the case of F.I.R.E, that rainy day is early retirement.

The earliest version of the modern Financial Independence Retire Early approach is said to be borne out of the 1992 best-selling book “Your Money or Your Life” by Vicki Robin and Joe Dominguez. This concept has further evolved into what we see today. Today’s movement applies the tools currently available.  For example, many achieve financial independence via use of online savings accounts which have higher interest rates, the use of Roth IRAs and traditional IRAs, maxing out 401K or related accounts, investing in low cost index funds, paying down credit card debt, and developing a side hustle in the gig economy. 

Fire Movement – F.I.R.E Is For Everyone No Matter The Income Level

F.I.R.E is not just for those with high incomes. Don’t get me wrong, I do understand that some with high incomes may have an easier time saving and investing. However, that may not be a logical reality. As noted previously, higher incomes may at times result in high debt.

It is not atypical for high earners to live pay check to pay check. Simply put, those nice cars carry a nice car payment and a nice cost for insurance coverage. Those nice homes comes with a nice mortgage and nice costs of up keep (insurance, heating, cooling, landscaping, house keeping). Further, high incomes typically comes following longer educational requirements, longer educational requirements comes with high student loans.

The simple fact is, no matter if you are taking home a high income, low income or something in between, F.I.R.E is for you. No matter the income level, achieving financial independence will take discipline and sacrifice. While popular stories show the extreme (those having a six figure incomes who are able to save greater than 70% of their incomes over a number of years or those who live in their cars in the middle of nowhere such that they are able to save 90% of their income), there are also many others who make less than six figures, have children and were able to achieved financial independence.  No matter who you are, live below your means, save, invest and you can achieve financial independence.

Retire Early

The “Retire Early” portion of F.I.R.E is typically triggered once savings/investments reach approximately 30 times yearly expenses (F.I.R.E Number). The aim is to have savings/investments such that they are able to cover living expenses by withdrawing 3% to 4% of saving/investments yearly. The total savings/investments needed to achieve financial independence is dependent on your lifestyle and the lifestyle you want to have going forward. There are different categories of F.I.R.E.  For example, there are (1) Fat, (2) Lean , (3) Barista, and (4) Coast.

  • Fat F.I.R.E: Living and planing to retire with a traditional to above average lifestyle. Fat generally requires having a higher F.I.R.E number. With fat F.I.R.E, you are more prepared for most unforeseen financial bumps in retirement.
  • Lean F.I.R.E: Living and planning to retire with a more minimalist lifestyle. Lean F.I.R.E generally requires extreme minimalist living and extreme savings. Thus, a lower F.I.R.E number. With lean F.I.R.E, you may be more sensitive to unforeseen final bumps during retirement
  • Barista F.I.R.E: Those on the journey to financial independence who have quit their traditional employment but still do some part-time work to cover current expenses that would otherwise erode their savings/investments.
    • Withdrawing money from your savings/investments, but supplementing it with income
  • Coast F.I.R.E: Those who have enough in their savings/investments and are doing some part time/full-time work to pay for their living expenses.
    • Keeping employment to cover living expenses and not withdrawing from your savings/investments

Which of the above fits what you and your family are trying to achieve?

Critics

The general angst of F.I.R.E is Retire Early (R.E). Many who are critical of the Fire Movement focuses in on the early retirement component. What happens if you hit a financial bump following retirement? Note that many who are committed to early retirement have no intention of retiring at 35, 40 or 45 years of age to sit at home. F.I.R.E enthusiasts typically have no desire to retire and do nothing. F.I.R.E enthusiasts generally do not desire to stop contributing to society. 

To F.I.R.E enthusiasts, Retire Early generally means you can retire, if you want to. Retire Early means you can leave a terrible career and do what you want, whether that is starting your own business, volunteering, or spending more time with your family. Retire Early means doing what makes you happy, pursing your passion. As a reality check, if someone is discipline enough to save, invest and achieve early retirement, do you think that individual will sit at home and twiddle their thumbs once financial independence is achieve? The answer is a resounding no.

Further, there are countless benefits to starting the journey to financial independence or achieving financial independence. Having money in the bank lowers financial stress, allows you to take advantage of opportunities and improves confidence. The confidence to take active steps in life to better yourself and financial position. These benefits will affect all aspects of your life, including your personal relationships and your mental health. 

F.I.R.E Financial Independence and freedom
F.I.R.E means freedom

Conclusion

What is F.I.R.E? Financial Independence Retire Early (F.I.R.E) is a movement (Fire Movement) that is dedicated to saving and investing over time to achieve financial independence such that you can retire. The goal of the Fire Movement is financial independence, but also the ability to retire far earlier than typical. What is F.I.R.E? It is not a millennial fad. It is not only for those having a high income and no children. Financial Independence Retire Early is for everyone who wants to achieve financial independence.

Follow me on Twitter @JoToFI_com

Follow me on Instagram @JoToFI_com

Video Summary

What Is F.I.R.E?