Financial Independence Retire Early

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.

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Video Summary

Money Beyond

Saving The Next $50,000, You Can Do It 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 funds over time. Once you have accumulated your first $50,000, it is time to think about saving the next $50,000 and beyond.  The biggest step on your journey to financial independence is the step you take today. Take the next step.

The Plan – Saving The Next $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. 

However, by the time you begin saving the next $50,000, you have already made changes and can now use the momentum that you have build up saving your first $50,000 and further optimize your strategy. Because of the habits formed saving your first $50,000, saving the next $50,000 will be easier to achieve.

Your Emergency Fund

By the time you are on the path to saving the next $50,000, based on your lifestyle, your emergency fund may now be fully funded or very close to being fully funded. This is a huge step and should provide comfort for you and your family. Saving 3 months, 6 months, or one year of expenses in your emergency fund is a huge step and you should feel very proud of yourself for achieving this milestone. Further, you should be motivated by the fact that you can do it. You can do this. The steps taken to financial independence is paying off.

You got this
You Got This!

Once you have achieved a fully funded emergency fund, do not stop saving. Continue the same habits. Do your homework, research and optimize your plan. Achieving financial independence takes time and consistency.

Once you have fund your emergency fund, instead of putting money into an emergency fund, you are now able to contribute that money to another area of your plan. Will you be contributing more to retirement, paying down debt if you still have debt, or invest?

Contributing To Retirement

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. 

Now that you are saving the next $50,000, begin to increase your retirement contributions, especially if you have already paid down debt. 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). The contribution limits for an IRA is $6,000 ($7,000 if you’re age 50 or older). As such, you are able to put away $25,500 ($33,000 if you are aged 50 or older).

On the path to financial independence, by consistently contributing to tax advantaged retirement accounts, it is possible to join the 401k millionaire club.

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. 

Remember, the best way to obtain a 16-18% return (the average interest charge on a credit card), is to pay off your credit card debt.

It is advisable to pay down debts having the highest interest rate. This will 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 paying the least balance to highest balance. The method used here is up to you. Which method will motivate you to pay down your debts faster?

Paying down debt in the early stages of your journey to financial independence typically provides the greatest early return. Paying down debt yields exponential benefits as it frees up funds for contributing to retirement and investment accounts such that you are able to take advantage of the power of compounding.

Ride The Wave – Saving The Next $50,000

As you are able to fund your emergency fund, pay off your debts, and contribute to your retirement, you will begin to have more funds available to further your race to financial independence. The funds that went to your emergency fund can be used to pay down debt, contribute to retirement fund, and/or invest.

Do not feel the need to “reward your self.” You do not want to fall into the trap of lifestyle creep/lifestyle inflation. You do not want to raise your standard to living as you earn more/have more disposable income. There are lots of folks who save the same amount when making $100,000 as they did when they were making $50,00. If you follow this path, this will be a detriment to your ultimate goal of financial independence. 

As your income/disposable income increases, the amount you save/invest should be increase as well. Live below your means, and journey to financial independence.

Conclusion

On the journey to financial independence, each milestone is fuel for the next. One of the greatest initial milestone is that of accumulating funds over time. Once you have accumulated your first $50,000, it is time to think about saving the next $50,000 and beyond.  The biggest step on your journey to financial independence is the step you take today. Take the next step.

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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.

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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.

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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.

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What Is F.I.R.E?

Time of your life

Time Of Your Life: Time Is Your Greatest Asset

Money Maroon

Your time is your greatest asset, so use it wisely. As the old saying goes, nothing can be said to be certain, except death and taxes. So each second that you waste is a second that you will never get back, but also, you are a second closer to not being here. While this is a morbid outlook on life, it can be used to inspire your actions and financial decisions. Life your best life and have the time of your life.

Questions To Answer

Ask yourself:

  • How am I spending my time on this planet?
  • How am I managing my most valuable asset?
  • Am I maximizing my time?

Once you ask yourself these questions, do you feel a need to change:

  • Your actions?
  • How you spend your free time?
  • Your career?
  • How you interact with your family?

Ask yourself these questions now, such that you can make necessary changes, because you will not get back the time lost.

Maximizing Your Time – Have The Time Of Your Life

I was somewhat of a late bloomer when it came to maximizing my time. It took until college for me to realize how much time I had wasted. 

To help pay for my college costs, I did work study. My first work study position was terrible. While simple, it demanded total concentration as it was in the administration office and included filing documents. The major issue here, I had to focus on tasks for a defined period of time, I would thereafter have classes, then I had to study for those classes. There had to be a more efficient way.

My mind was blown after discussing my work study position with a friend who was managing a computer lab. In college, managing a computer lab meant watching over a computer lab and helping students troubleshoot issues that may occur at the computer lab. This was a perfect college position because it allowed for maximization of time. Why?

As a computer lab manager, you were able to watch over the computer lab and perform your own personal studies. As this was college, rarely did any student need help on how to log on or how to use the Microsoft applications that were loaded thereon. If there was a powerpoint presentation, it was only a matter of setting up the equipment, simple!

Now, because students rarely asked questions, with this work study position, you are able to study for classes, review notes and do homework while getting paid. I was quickly able to transfer to this new position with the recommendation of my friend.

I loved the job, and I would work hours that others would not because I understood what I was gaining. By having this position, I was able to get paid to study and do homework. That is what I call maximizing your time.

What About You?

What about you? How can you maximize your time? How about learning a new language or subject matter while at the gym or running. To give some context. While many are listening to music on their headphones while working out, why not try to learn a new language or listen to an ebook? In your down time, why not get into a new hobby to expand your mind or physical abilities? What can you do to maximize your time on this planet?

Note that maximizing your time can bring many financial rewards. By expanding your mind and physical abilities you may become more qualified for position. You may become more well rounded. You may be able to accelerate your career progress and outlook. Such career advancement may lead to (1) a higher salary, (2) you starting a new business, (3) you spending more time with family, and (4) you achieving financial independence. By taking simple steps, you can have the time of your life while developing spiritually and professionally.

No Need To Maximize Everything

While I encourage you to maximize your time, not everything should be rushed. For example, time with your love ones.

Let us look at the F.I.R.E movement. Many have developed working and spending habits such that they can retire early (As I have noted previously, many in the F.I.R.E movement have no intention of retiring). By maximizing your time, you may be able to  advance your career, save more, and invest more. With these actions, you may be able to hit your F.I.R.E number and become financially independent. This may allow you to spend more time with your family and/or do tasks that you prefer. 

Now, with more time with your family (if you like spending time with your family), when asked the below questions, you may think differently:

When asked: 

  • How are you spending your time on this planet? 
  • How are you managing your most valuable asset? 
  • Are you maximizing your time? 

The only change in your actions may be the thought that you should have done this sooner. Here, the journey to financial independence can be a journey to happiness.

Conclusion

Your time is your greatest asset, as such, you should use it wisely. As the old saying goes, nothing can be said to be certain, except death and taxes. So each second that you waste is a second that you will never get back, but also, you are a second closer to not being here. While this is a morbid outlook on life, it can be used to inspire your actions and financial decisions. Journey to financial independence. Life your best life and have the time of your life.

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Family and money

Family Finance: Talking To Your Family About Money

Money Maroon

Money is a difficult subject to discuss. Some would rather discuss their weight instead of talking about money. When you have to share financial information with family members, the money talk is taken to another level of pain. When you are discussing money with your parents, the money talk may be excruciating. While painful, family finance discussions are important. Do not avoid or delay talking to your family about money. Talking to your family about money may alter not only their financial future, but also yours.

History Of Retirement

Retirement, generally, was not made for the masses. German Chancellor Otto von Bismarck invented the idea of retirement in 1889. At the time, retirement was essentially to force older workers out of the work force and make way for younger workers. However, in Chancellor Otto von Bismarck’s 1889 Germany, the retirement age was 70, but most importantly, the average life span was 70 years of age. 

As health care and medicines improved and we began to live longer, retirement and our understanding of retirement has evolved. Now, retirement is not only for those close to death, but for anyone who have achieved financial independence and want to escape the rat race.

The Three Legs

Generally, in the United States, with the advent of social security, previous generations were somewhat secure in retirement. Previous generations had the now acclaimed three legs to their retirement stool: (1) personal savings, (2) social security and (3) a company pension. However, the three legs have been significantly weakened or are completely non existent for many.

The baby boomer generation will be the first generation since world war II to enter retirement without all three legs. 

First, many have very little to no personal savings; second, as it currently stands, the social security program is teetering on the edge of insolvency; and  third, for the most part, company pensions are a thing of the past. Taken together, the baby boomer generation have little saved for retirement, no pension plan and are dependent on social security.

Are your family members, prepared? A more direct question, is your mother and father prepared? If they are prepared, lucky you. If they are not, who will be taking care of your parents in retirement? Look into a mirror and the answer will be looking at you.

How will this impact your financial future? With this in mind, have you had the talk? This is the reason family finance discussions are so important.

Family Finance: Talking To Your Family About Money

– The First Talk

I have personally tried to have the talk with my parents, the first attempt did not go very well. However, I understood that family finance discussions were important, so I tried again.

Imagine your child asking you personal details about your financial situation and questions with regard to end of life planing? Imagine your child then critiquing your choices and then showing you that you have not saved enough, imploring you to cut back on spending and put more money away? Your child then warning of the dangers of running out of money in retirement, the high costs of healthcare as you get older, and the importance of being debt free prior to retirement?

Would you be defensive, would you hide information? Of course you would. 

– The Problem

First, this represents a huge roll reversal that not many parents can handle. Your child is now being the parent. If your parents are from the camp where they speak and the child listens, such questions will evoke anger and a feeling of being disrespected.

Second, based on answers or lack thereof to the questions asked, both parent and child now know that in the finance department, the parent is not as all knowing as they may have represented to be over the years. These questions will expose financial mistakes and missteps. Acknowledging these errors of judgement and missteps to a child can be very difficult for some parents to handle.

The above are only two of the many reasons why it is so difficult to talk to your family about money.

– Perseverance Is The Key

Did I stop talking to my parents about their finances when I was rebuffed? No. Did we have yelling matches when points were not getting across, yes.

To ensure that your relationship is not destroyed because of your discussions, spread out your discussions. Continue to ask questions that were not previously answered. Over time, a funny thing will happen. Instead of having to ask questions, your parents will begin providing updates on their financial progress.  I am not saying that you will have a miraculous breakthough and your parents will become the most responsible with their money and make all the right financial choices. Instead, they will become more aware of their financial situation and start thinking more about their financial futures.

We cannot control what another person does, especially our parents. However, if we can make them aware of potential issues that may be on the horizon, maybe they can and will take action to change course. 

The fact is, you as the child may be responsible for your parents during retirement. Begin taking steps to mitigate the impact on your financial future by talking to your family about money. Have the family finance discussions.

Conclusion

Money is a difficult subject to discuss. Some would rather discuss their weight instead of talking about money. When you have to share financial information with family, the money talk can lead to an unbearable amount of pain. When you are discussing money with your parents, the money talk may be excruciating. While painful, family finance discussions are important. Do not avoid or delay talking to your family about money. Talking to your family about money may alter not only their financial future, but also yours.

Talking to your family about money is one of many stops on your journey to financial independence. Have the talk.

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Stay motivated

How To Stay Motivated

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With anything in life worth having, there tends to be some pain associated, physical or physiological. The journey to financial independence is no different. While many hope to be financially independent, few take the steps necessary to be financially independent and fewer still are able to achieve financial independence. If you are serious about achieving financial independence and have taken steps to begin the journey, stay on the path. But how to stay motivated?

The Wish

We all would like to max out our retirement accounts, save and pay off debts. However, are you willing to make the required scarifies? For many, the answer is no. Just as many have started diets and have not attain weight lost, many have started to save, pay off debts and save for retirement but never attain their goals. 

Many will save for a week, a month or a few months, but few are able to consistently save the same or more for a period of years. To find the motivation to deprive yourself of certain activities or joy is difficult. Delayed gratification is not fun for most and downright painful for others. When we begin the process of attaining a long term goal (financial independence), we are naturally working against ourselves. We are built for instant gratification. 

Turning The Wish Into A Goal, How To Stay Motivated

To achieve your goals, you must engineer an environment where you are more likely to succeed. The below represents only a few steps that can be taken to build this environment.

A goal without a plan is a wish

Short Term, Intermediate And Long Term Goals

We are more likely to succeed on our journey to financial independence if we have a long term goal (financial independence), intermediate goals, but also short term goals.

The short term, intermediate and long term goals allow for short term, intermediate and long term rewards. This offsets and/or lessens the pain of delayed gratification. Thus increasing the chances of you staying on course and attaining your goals.

Visualize Each Goal In Detail

Visualize each short term, intermediate and long term goal. Have a plan with details. By visualizing your goals you are able to focus. Further, attaining each detail or checking off a detail in the plan is a mini reward. This mini reward offsets and/or lessens the pain of delayed gratification. As someone previously stated, “A goal without a plan is a wish.” We have a lot of dreamers/wishers out there, don’t be one. 

Be Flexible

“There is more than one way to skin a cat.” Meaning, there are many ways to achieve a goal. Even with detailed plans, life happens, things change. Bend with the winds of life while keeping your goals in focus. 

Continuously Check Your Progress

Hold yourself accountable by continuously checking your progress. Consider creating a spreadsheet or an equivalent to track your progress.

Surround Yourself With Like-Minded People

The fact is, the people you surround yourself with has a direct influence on how you behave. “Show me your friends and I’ll show you your future.” Be around those who will encourage you to achieve your goals. If your goals are viewed negatively by those around you, it is highly unlikely that you will achieve your goals. This also ties in nicely with not being the smartest person in the room. Surround yourself with those you can learn from.

Reward Yourself

It is only human nature to avoid pain and move toward instant gratification. As such, it is important to consciously realize our default actions and change our mindset and actions. Small rewards will enhance your chances of attaining your goals. Let’s face it, every now and then, we need a moment to enjoy the fruits of our labor, no matter how small. Understand who you are and take the necessary steps to work with your innate impulses to attain your goals.

Make It Fun

Enjoy the journey and the destination if you can.

Conclusion

While many hope to be financially independent, few take the steps necessary to be financially independent and fewer still are able to achieve financial independence. If you are serious about achieving financial independence and have taken steps to begin the journey, stay on the path. But how to stay motivated? Engineer an environment where you are more likely to succeed. 

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Recession Proof With An Emergency Fund

Recession Proof With An Emergency Fund

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Recession fears are always just around the corner.  Financial fears typically grow when volatility increases and consumer confidence falls. With memories of the 2008 financial crisis just below the surface, many Americans are wondering, how do I recession proof my journey to financial independence? To recession proof your financial situation, reinforce your emergency fund.

Cash And Your Emergency Fund

During any financial downturn, cash is king. Therefore, it is important to begin reinforcing your emergency fund. Most experts recommend having three months of living costs saved in a liquid account. This total is simply three times your average monthly costs (includes housing, dining, transportation, servicing debt and other monthly expenses). Consider keeping your emergency funds in a savings account, more preferable a high yield savings account or any account wherein you will have easy access to your money.

However, one size does not fit all.  As such, a question to ask yourself is: if you lose your job, how long will it take for you to find a new job? If you are in a profession where the vetting period is in excess of three months, consider increasing your emergency found to at least six times monthly costs.

However, for comfort and piece of mind, consider having twelve times monthly costs. By having a years total costs, such a financial cushion will allow for flexibility if the unexpected occurs.

Most Americans Cannot Afford A $500 Emergency Without Going Into Debt

Taking into consideration the fact that most Americans cannot afford a $500 emergency without going into debt, if you are unable to achieve three times monthly cost, save whatever you can. The more you are able to save, the better prepared you are for any financial roadblocks.

Saving is an essential feature of financial independence. Saving takes patience and consistency, but provides peace of mind. After having a comfortable emergency fund, begin paying down your debt. If you lose your job, having to service debt during this period can detrimentally affect your situation. Therefore, where possible, pay down debt.

Conclusion

Recession fears are always just around the corner.  Financial fears typically grow as volatility increases and consumer confidence falls. With memories of the 2008 financial crisis just below the surface, many Americans are wondering, how do I recession proof my journey to financial independence? To recession proof your journey to financial independence, reinforce your emergency fund and pay down debt.

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Keeping Up With The Jones Your Goals

Keeping Up With The Jones Your Goals

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To achieve financial independence, you must be comfortable with yourself and not be concerned with others. You must be focused on your financial situation, and your goals. Forget about keeping up with the Jones.

A Wealthy Display

I was in high school when I began noticing a few trends with regard to wealth. Have you ever noticed that the wealthiest among us wears the most basic of shoes, clothing, and drives an average car. In high school, the students with the regular but quality shoe happened to be from wealthy households. Here, I am using regular to mean “not flashy”. These are the friends who lived in the best neighborhoods with parents who were executives and/or held secure positions. These friends did not care to draw attention based on what they could afford.

On the other hand, friends with flashy high priced shoes, book bags, and hairstyles tended to have parents who were less well off.  These friends wanted to show everyone that they had the most expensive you name it. These friends were not secure financially.

The wealthiest among us does not care what others think, and their children do not either. When you are financially secure, you care a lot less what others think. You also have a bit more confidence because you are secure and you are less dependent on others for your well-being.

Stop keeping up with the jones - keep up with your goals

Group I /Group II

Think about this now in adult life. Think of your friends in two basic groups, Group I and Group II. The below (Group I/Group II expenditures) are only a generalization and does not include additional costs such as food, entertainment, student loan payments and other monthly costs. The below serves as a simplified example.

Group I

Keeping up with the Jones - cars JoToFI.com
  • Group I
    • Leases their vehicle. Typically a luxury car: Mercedes, Porsche, BMW or a Tesla;
    • Lives in a McMansion/junior McMansion;
    • Takes lavish vacations;
    • Post their activities frequently on social media; and
    • Sends children to private school

On average, Group I are high earners, but are they wealthy? If Group I loses their jobs, could they survive? For how long?  By leasing a car, Group I will carry car payments for the foreseeable future. However, as a benefit, Group I will always have the newest model car. 

The junior McMansion’s mortgage is typically above average and comes with the associated expenses for heating and cooling such a large home, landscaping, and the inevitable general up keep and repairs. This adds up very fast.

Private school can cost tens of thousands of dollars and in some cases hundreds of thousands of dollars, per child.

Let’s face it; Group I’s monthly expenditure is very high. Any lost of income can have a dramatic effect on the well being of Group I.  From this basic analysis, it becomes very clear why so many families earning six figure incomes are living paycheck to pay check. High earners losing their jobs played out for all to see during the last financial crisis. Stories were abound of those with household incomes of close to $500,000, who had large debts, and following the lost of a job eventually lost their homes. 

Consider the following, if you lost your job but had $100,000 in savings, a $600 per month car payment, a $5000 mortgage, and $4000 monthly tuition for one child. How long could you keep up? Not long at all. Your savings would be depleted fairly quickly.  The depletion of savings would be further accelerated by the payments associated with any outstanding credit card debt or student loan payments.

Group II

Keeping up with the Jones - homes JoToFI.com
  • Group II 
    • Owns their vehicle. Typically a an average car: Toyota, Honda, or Nissan;
    • Lives in an average sized home;
    • Takes vacation on a budget, use AirBnB;
    • Does not frequently disclose their activities on social media; and
    • Sends children to good public school/dabbles in private school.

Group II include high earners, but also those who earn an average salary. Unlike Group I, because the monthly expenditures are lower, interruptions in income will not be as dramatic. Group II tend to have more of a buffer.

Group II are the millionaires next door and typically do not care what others think. These folks do not know the proverbial Jones and if Group II did, Group II do not want to keep up with them because Group II are preoccupied with building wealth.

It is highly likely that Group II earns more than Group I, but simply lives below their means. Group II could be earning six figures and multiples thereof but will stay in the same home, drive the same car for 10 years and take advantage of good public schools. Even if Group II loses their jobs, because their expenses, on average, are lower than that of Group I, Group II are able to whether such a change in better shape than Group I.

The Unknowns

We all know folks who live in the largest homes and drive the newest cars. What you do not know is their financial situation. You do not know if they are in debt. Do you know if they have an inheritance? You do not know if they are behind on car payments or mortgage payments. What about credit card debt, or student loans. You just do not know.

With all the unknowns, focus on what you know. You know your situation, your goals, and your financials (savings, expenditures, investments). Instead of keeping up with the Jones, keep up with your goals.

Who would you rather be? Group I or Group II? In the end, the choice is yours.

Which door will you walk through?

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Video Summary

Keep up with your goals