how can we help you today?

Frequently Asked Questions

I decided to make a Frequently Asked Question (FAQ) page for the site to reduce the quantity of questions I get through email.

Personal Finance Journey

Access our step by step personal finance guide. It will help you get started on the path towards financial freedom from debt and behavioral gaps in your decision process.

Review Hunt

Every now and then I review a new financial app or service that helps me improve my ability to handle or make money.

Resources to Save Money

I’ve compiled a list of tools, resources, and behaviors to help you save money.

Checklists to get things right

We give you checklists that can bring you striking improvements in your wealth building quest.

Financial Calculators

The math behind wealth building easy and accessible to everyone with free access to our collection of financial calculators.

WHAT YOU NEED TO SUCCEED

PRESPIRATION

The real secret to success in most careers is grit. It is the incredible power that allows certain individuals to go above and beyond the average competitor. Tenacity and determination coupled with initiative will sooner or later success.

PERSISTENCE

The ability to focus on your goals without giving to temptation. It is the personal quality that allows us to push towards a specific goal. Perspiration and persistence is the great human equalizer. It turns effort into wealth and gives meritocracy a meaning.

PATIENCE

The ability to focus on your goals without giving to temptation. It is the final piece of the triage that differentiates those who are able to withstand the inevitable temporary failure with those who aren’t. Patience gives us the ability to achieve long-term goals.

HOW TO FORM AND FOLLOW YOUR OWN FINANCIAL PLAN

Making a financial plan can seem like a daunting task today. Retirement used to be a straight path. You could work for a company for 30 years and eventually you would receive a pension to cushion your post-retirement life. But with the decline of company pensions, benefits, and budgets, as well as an increase in life expectancy and inflation, planning for retirement today is not only prudent — it’s necessary.

Getting your finances in order is crucial for retirement and integral to any aspect of your life that involves money. Organizing your income and expenses, buying a house, and starting a family are just a few of the reasons why it pays to know your finances. Though it won’t come together immediately, you’ll be more successful armed with knowledge. And while it sounds intimidating to organize and start a financial plan, it’s actually really easy to start.

In this article, we’ll cover why it’s important to start saving now, the benefits of budgeting, how to manage your debt, and where to invest your money for the long term.

WHY SAVE NOW?

By planning, budgeting, and saving, you can set yourself up for a comfortable life in retirement. Saving now is essential because you can’t rely on promises of income in the future. You cannot even rely on Social Security anymore between rumors of Social Security bankruptcy and benefit cuts.

Padding your bank account by saving more of your monthly earnings will help with emergencies in the future. Sure, you’ll need patience and perseverance to cut out current luxuries. But you’ll never regret doing so when you need the money for more important matters down the line. Plus, saving your money can pay off in the long run, literally.

THE POWER OF COMPOUNDING

The power of compounding is clearly in motion when you’re able to invest a growing sum of money, for example $500 or more per month, in an investment account with market rates of return. This is because compounding interest creates a “snowball effect” — your savings multiply in folds over the course of several decades. See example:

If you start saving now, regularly contribute to your account, and leave the account alone (i.e. little to no withdrawing), you’ll see a significant increase from your initial investment. For example, investing $10,000 in an account with 7% return and save an additional $3,000/year will get you to +$50,000 in 8 years. After 40 years, your investment will have grown to +$1.3M!

BUILD YOUR MONTHLY BUDGET

Budgeting is the first step to saving now. When you know the scope of expenses, income, and debt, you can start planning on how to optimize everything. As with all strategizing, it’s important that you set realistic goals because you can’t accomplish lofty goals without a few baby steps first. But don’t fret. Baby steps will go a long way towards accomplishing big goals. And with a plan in hand, you know which steps to take, which is half the battle.

When you have all necessary documents together, start with a few tools to visualize your spending and earning. You’ll need credit card statements, bank statements, brokerage reports, and so on. Organizing yourself now will help reduce expenses as you find what to stop buying and cut back on. Some great visualization tools are Mint, You Need A Budget (YNAB), Trim, and Truebill. Some awesome Excel spreadsheet budgeting programs to try out are Vertex42’s budget suite of spreadsheets, Spreadsheet 123, and My Excel Templates.

Most of these services are “freemium.” In other words, you get some features for free and pay for the ability to utilize premium features, although you can get a good grasp with just the free versions of these apps and services.

After you’ve built and organized your monthly finances, the next step is to start planning what changes you’ll make to your spending habits. Maybe you can make lunch and dinner at home more often. Or you can opt for a cheap movie night in your living room instead of at the theater. Some services will even negotiate your bills on your behalf with great success!

Be alert for easy ways to cut costs. When you start looking around for opportunities, you’ll be surprised at how many were right in front of you. And these are often the simplest ways to save money and bring your goals one step closer to reality.

INCREASE YOUR BASM & RAISE AN EMERGENCY FUND

Building a budget wasn’t so bad, was it? Like we mentioned before, taking baby steps is the way to go!
Next up, we’re tackling the importance of saving up for unexpected events. Don’t worry, we know this topic isn’t exactly a party starter. But building up your bank account safety margin (BASM) doesn’t only allow you to handle unforeseen emergencies — it’ll also afford you some peace of mind.

Building up your BASM means having more than what’s necessary for a month or two of expenses. It’s a great start for minor emergencies, like costly car troubles or losing your phone. Having these funds available stops annoyances from turning into bigger grievances.

A bank account safety will set you up to save up for an emergency fund, which is enough savings for six months or more of normal living without income. It’s your security against job loss, emergency medical expenses, and other unforeseen costs. The larger your emergency fund, the more money you’ll have left over when you need to dip into it.

Since most emergencies require immediate payment, your fund should be liquid, meaning you can withdraw it at any time. Checking and savings accounts are perfect for these situations. Other options, like broker accounts or certificates of deposit will earn you more of a return but will most likely delay access to funds for a couple of days. They’re ideal for long-term growth but not with assisting you in handling short-term problems.

Besides preparing financially, you can also be proactive in mitigating emergencies. Mechanics like to say that “maintenance is always better than repair.” That certainly holds true here. Exercising, taking care of your car, and regularly checking your financial situation are all great ways to practice this.

RETIREMENT FUNDING

Now that we’ve taken care of immediate needs for saving money, it’s time to focus more on the future in the long-run. A 401k is an employer-sponsored retirement savings plan. It’s a great example of the power of compounding, particularly if your employer offers 401k matching. This means that your company will match a portion (or sometimes all) of your contributions to your 401k. With employer matching, you can add what is essentially free money into your retirement account.

If your company offers 100% matching for the first 3% of your salary contributed, you should contribute at least 3% to your 401k. Otherwise, you’re not taking advantage of a free way to add to your retirement account. You should contribute at least the maximum amount of matching available.

Even if you’re self-employed, you can set up a 401k plan and contribute with regular payments and see that investment multiply. Although your business will have to match your contribution, you’ll be saving for a future where you can hand off your company with little stress.

TAX-DEFERRED SAVING PLANS

Sometimes, it’s savvier to choose another savings plan over your available 401k. Move over your 401k to a Roth IRA if you believe you’ll be in a higher tax bracket when you retire than right now. Keep in mind that the phase you out of the Roth IRA income window ($133,000 for single filers and $196,000 for married couples), so contributing earlier is better.

If your 401k balance is increasing, you’ll want better investment choices than employer-sponsored plans. Some great providers are Vanguard, Schwab, and Fidelity. These funds cost lower and are easier to manage.

One caveat to tax-deferred savings plans is that they usually have a restriction on withdrawing before you turn 59½ years old. You may face penalties and fees if you try withdrawing prematurely. So when committing to these plans, it’s important to remember that your funds for this are for the far future.

Sometimes, prioritizing tax-deferred savings plans is not the most prudent move. If you’re struggling to choose between investing in a tax-deferred savings plan, like an IRA, or using that money for larger commitments, like buying a house or funding education, you should default to the more urgent commitment. Sometimes, you’ll find surprising benefits to doing this.

REDUCE YOUR DEBT

Of course, having a great strategy for building your savings is only part of the equation. Reducing your debt is just as important. A great place to start is making minimum payments towards your debt. There are several tried-and-true methods to pay down debt, even if your debt is scattered across different lenders and institutions. Let’s discuss two of the most popular strategies: the avalanche method and the snowball method.

AVALANCHE METHOD

In this method, you prioritize debt with the highest interest rates. If you have several debts with high-interest rates, you may be losing money even if you pay the minimum payment. This is because the high-interest rate makes you pay more over the course of the debt than if you just paid more than the minimum. This method requires patience and psychological resilience because it will take a while to see results. But it’s well worth it just to take care of the costly interest burden.

Mathematically, the avalanche method will ultimately save you time and money. Logically, it makes sense to pay down the loan that’s the highest in interest rates. But sometimes it’s not as easy as ranking your debt by interest rate. It might be best for you to try the snowball method or a mixture of the two methods instead.

SNOWBALL METHOD

If you have multiple debts with lower interest rates, you should use the snowball method: pay off smaller debts first and then go for the bigger ones. This method has the benefit of giving you a feeling of accomplishment with smaller wins on your way to taking down the largest debt.

For example, you have three loans: a $300 car payment with $30 minimum payment, $5,000 student loan with $500 minimum payment, and $10,000 on medical bills with a $1,000 minimum payment. With the snowball method, you would first make sure you can pay the minimum on all three loans. Then, hit the smallest loan with full payment. You would start with a payment of $300 + $30 + $500 + $1,000 = $1,830. This will get rid of an entire debt in one payment. Your monthly payments will decrease by $30, which you can invest back into paying off your remaining loans. Dave Ramsey, the creator of the snowball method, has more information about his method on his website.

HYBRID METHOD

While the avalanche and snowball methods of reducing debt may be opposites, it could be in your favor to combine them. With a hybrid mixture of the two, you will experience easy wins while continuing to pay off higher-interest debts.
Say you have a $10,000 loan with 5% interest (yielding a $42 minimum payment), a $25,000 loan with 3% interest (a $63 minimum payment), and a $2,000 with 55% interest ($92 minimum payment). You’ll want to pay off the $2,000 loan first because it’s the highest interest rate and the lowest debt amount. This will help you roll-over the $92 minimum payment to your next loan: the $25,000 debt. It will take time and hard work to pay off the $25,000 debt, but your last debt ($10,000 loan) will be paid off even faster after you’ve fully paid off $25,000.

BALANCE TRANSFER METHOD

Another method is to essentially mortgage your credit card debt by transferring your balance to another credit card. This works if you have a high-interest rate on your current card and find a lower rate card. You’ll pay less interest over time, so you’ll end up saving money. Some cards offer 0% interest for a limited time, offering a reprieve from paying down interest.
Besides balance transfer fees, which can vary from 3-5%, watch out for hidden fees or clauses about missing payment. The penalties can be severe, and you can end up paying more in the long run simply from paying off extra penalty fees.

CONSOLIDATE YOUR DEBT

Debt consolidation is similar to transferring your credit card balance to another lower interest rate credit card, except it’s for loans. If you have multiple loans, paying off all of them with a single loan can reduce your monthly payments and even lower your overall payment. There are companies online who offer this service. You can also use a local bank, or you can arrange it privately.

When is this is a good option? As with most financial analysis, you’ll have to organize and compile your debt numbers. Find out the total effective interest rate with this equation. Compare that interest rate to the loan you’re considering, including any extra out-of-pocket fees. If the cost is lower with the single loan, you should use it to consolidate your current loans.

SAVING FOR OTHER GOALS

Everyone has a different priority for each aspect of saving money, and you’ll be able to invest more as you save more. As your savings increase, you’ll fluctuate in when you save and what you save. It’s not a rigid path; you can be flexible and enjoy luxuries every once in a while.

For instance, saving for your children’s education with a 529 plan, which compounds interest over time, gives you certain tax benefits (depending which state)and tax-free interest gains.

And while you must use it for education, it’s financially smarter to pay educational expenses upfront than to have your children pay off loans that come with interest rates. Starting to save too late for your children’s education can set you back in a major way. Besides that, there are other mistakes you can make by not starting to save now. Not claiming tax credits and establishing the account in the child’s name are just a few examples.

Another goal that’s more urgent than a tax-deferred savings plan is a health savings account, also known as an HSA. By setting aside part of your salary before taxes, you can use the money on qualified medical expenses throughout the year. Savings from this alone can add up to a substantial figure.

A BRIGHTER FINANCIAL FUTURE IS ON THE HORIZON

If you’re reading this, you probably feel like you have a lot of work to do. But congratulations are in order — by reading this, you’re already on the right track! All of this information may seem daunting; don’t let it deter you from the amount of savings you’ll find when you start paying closer attention to your finances.

By saving more now, you can multiply your money over several decades through compounding. You can start saving for the future through 401ks and IRAs, 529 Education plans, and HSAs. Your debt can be managed in one way or another, whether you’ve got credit card debt, student loan debt, or a business loan. Your planning will lead to better budgeting, and you’ll grow yourself a hefty emergency fund.

Optimism is just as important as a good financial plan. It’s true that finances can be tricky to manage. But the solution isn’t to run; you should tackle it head-on! It all starts with small wins to get you inspired to save more. And before you know it, you’ll have a bigger savings account and even bigger momentum driving you towards greater financial success.

It’s understandable to feel despondent when you’re in the process of refining your financial strategy. Change is hard, but having a little more change in your pocket makes it all worth the effort. Remember, we don’t only save for rainy days, but for brighter days as well.

THINKING OF IMPLEMENTING YOUR FINANCIAL PLAN?