Words to Live By in the FIRE Movement

In the famous, life-changing book, Rich Dad Poor Dad, author Robert Kiyosaki shared in Chapter 2 that financial literacy is what sets the rich apart from the middle class and the poor. I agree completely, but there’s A LOT to learn. In my previous article, Day 18 of Financial Freedom in 2021, I defined a list of terms to get acquainted with when developing your personal finance vocabulary. Understanding different retirement investment vehicles, tax terms, and the basic steps of financial independence is important, but there are additional terms that many people in the FIRE community use quite often.

I repeatedly hear the following words or phrases from individuals who have reached financial independence, and while technical vocabulary is important, these seem to be the ones to truly live by.

“Simple Life”

Many FI families emphasize living life to the full but in a more simplistic way. It’s not necessary to fill your home with excess material goods, travel to the hottest tourist locations, stay in 5-star hotels, live in the biggest house in the neighborhood, or drive the newest luxury SUV to have an abundant life. The happiness factor on all of these things fades.

What makes life full is the people in it and the experiences you have. Think of someone you look up to, maybe a grandparent or neighbor or civil rights leader. What do you admire about that person? Is it their stuff or what they did/do with the life they were given?

I admired my aunt who lived in Michigan. She was a devout woman who worked as a special education teacher and served her church community multiple days per week, including bringing communion to elderly residents in a nursing home. My aunt didn’t travel much except to visit our family occasionally, and she lived in the same house for nearly 40 years. She raised two boys on her own and lived with a debilitating kidney disease for many years before she passed. Despite all of that, she was able to retire early and paid off her house. I don’t remember much of what she had in that house other than several crosses and religious paintings, but I remember fondly how much joy I felt while staying there. My aunt was always happy. Every day in her simple life seemed joyful, and it was contagious. Her frugal life had a greater impact than the life of luxury and debt that I see many people living today.

“Community”

Relying on a community of like-minded individuals is a common thread in the FI culture. I often hear FI folks speak of how much they rely on their neighbors and close friends for help with babysitting or carpool, to participate in clothing and toy swaps, to agree to share meals in each other’s homes rather than going out to a popular restaurants, and for support on common goals.

If financial independence is a goal of yours, then a community of Joneses, and those chasing after them, won’t do you much good. You need to find a community of Frugalwoods, Money Mustaches, Rich Dads, and Mad Fientists, along with some kind and like-minded neighbors. There are Facebook groups and meetups related to the topics of minimalism, frugal living, financial independence, swapping, and cheap travel that can be great places to start when looking for the type of community mentioned above.

“Lucky” or “Blessed”

Gratitude is one of the biggest mindset shifts necessary to achieve financial independence. Being grateful for and recognizing the blessed life you already have is the first step in financial freedom, in my opinion. I practice daily gratitude in prayer, and if you listen to podcasts or read blogs from people who have already reached FI, most of them write down what they’re grateful for at least once per day. They also mention often how lucky they are for buying real estate when they did, investing early, having college paid for by their parents, finding an influential book during a turning point in their lives, for meeting the man or woman who gladly walks this FI journey alongside them, and so on. In the FI community, I hear very little bragging yet a whole lot of thankfulness.

Photo by Gabby K on Pexels.com

“No Regret”

Mistakes are only failures if you don’t learn from them. A common thread in the FI community is that people are willing to share their mistakes and what they learned with anyone willing to listen. They don’t dwell on or regret their errors in judgment but rather celebrate them for helping to move them along on a better path toward financial freedom.

Welby Accely openly shares how he was scammed multiple times and cheated out of hundreds of thousands of dollars before he became a successful real estate investor. He doesn’t regret these poor decisions. They made him stronger and taught him what NOT to do. He attributes his current success to learning from those mistakes.

What I love so much about the FI movement is not just the freedom that financial independence offers but the positive mindset and meaningful lifestyle it encourages. While developing the strategies of living on less money than you make, investing the difference, and making your money work for you are essential to financial independence, the phrases mentioned in this post (and the attitudes they represent) are what truly make this movement worthwhile.

Adjusting the Budget for Job Loss, Planned or Unplanned

Do I need to find another part-time job?

Job loss was one of the biggest realized fears that crept in after the COVID-19 shut-downs in March of 2020. Many people were forced to adjust their lives and their budgets due to being furloughed or laid off with short notice. Thankfully, along with the loss of those jobs came higher and extended unemployment benefits, economic stimulus packages, relief from eviction or foreclosure, and fewer opportunities to spend money. Who knew that after mass lay-offs around the country that now, a year later, there’d be a shortage of labor, not jobs! A large percentage of the workforce learned how to adjust to one income or a lower income and have now chosen to be unemployed, with or without the government benefits.

In my situation, the business my mother and I started about 15 years ago managed to stay afloat through the pandemic, but the effects it’s had long-term on both of us, as well as our client caseload, may lead our business down a path of never fully recovering. We are considering closing our family therapy practice for good. This is a combination of forced and chosen job loss, for which I now have to adjust our family budget.

Over the many years, I’ve slowly reduced the number of hours I put into the business and also the amount of my pay. I have a very flexible schedule and work exclusively from home, which has been such a blessing at the current stage of my family. I still have two preschoolers at home with me three days per week and two older children with very busy extracurricular schedules. The paycheck has been smaller than when our business was at its prime and our caseload was overflowing, but the extra money has been essential to getting us ahead in our journey toward FI. We’ve been able to contribute the full amount of my part-time income to investing and charitable giving, while meeting all of our living expenses with my husband’s salary. Now, we will have to make cuts as my mother and I move closer to closing the doors to our practice for good.

My total take-home pay is currently $1,910 per month. $1,700 of that goes toward my ROTH contribution (averaging out to $500/month but invested as a lump sum at the beginning of the year) as well as my husband’s and my combined contribution to our joint brokerage account ($1,200 automatically invested into VTSAX monthly). The other $210 is set aside to make charitable contributions of our choice each month. This giving is in addition to tithing.

The last thing I want to do is cut out our investing or our giving when I lose that monthly income. Whether we’re a one-income or two-income household, we still plan to hit FIRE by 50 (or hopefully sooner). Continuing our current rate of investing is essential to meeting that goal. So, I now have to make some tough decisions about where to reduce our spending or whether to take on more work to replace that income.

I can also take into consideration the cash flow we are receiving from our rental properties, if that’s where the money is best served right now. However, we’d ideally like to put all our cash flow this year toward reserve funds or future real estate investing.

So, I decided to dedicate a slow, rainy, unseasonable cold morning at home to analyze our current expenses and determine where I can “find” as much of that $1,910 per month in our budget. There is a strong possibility that my final paycheck will come in June, so we will need a total of $11,460 for the last 6 months of the year to make up for the loss. That’s a big chunk of change!

Our annual budget was my first place to look. I discovered that I had budgeted some overages in our savings categories above the contributions mentioned above. Because we already have a 12-month emergency fund, plus money set aside to buy our next two vehicles in cash, I decided to re-allocate the $1,000/month going into our online savings account. That adds up to $6,000 over the 6 months that I’d be without my part-time income.

Then, I reviewed what I had budgeted for a new life insurance policy this year and what we actually spent. After reading about life insurance options, listening to a couple podcasts on the topic, and doing some comparison shopping, we were able to secure a term life policy for my husband for much less than we had budgeted. We had $860 set aside for that new policy (as a supplement to the one offered through his W-2 job), but we only spent $380 and paid in full. Therefore, we had a surplus of $480 in that category. Additionally, we’ve already pre-paid for all of the kids’ summer activities and camps, as well as the registration fee and August tuition for our preschooler, leaving us with no child care costs for the summer. We will not have to pay the $749 monthly preschool tuition for three months, and we can remove the $300/month we’ve been budgeting for kids’ activities and camps. That leaves us with another $3,147. A few additional cuts include a decrease in cell service fees for a savings of $100/month by switching to Mint Mobile; cancellation of Camp Gladiator membership for a savings of $79/month; and cancellation of private horn lessons now that our eldest daughter will be receiving additional band instruction each day at her public high school for a savings of $100/month. These three changes add up to $1,674.

Also, I’ve resolved to going back to at-home haircuts for all the males in my household, which amounts to a savings of $85/month. That will provide us an extra $510 through the end of 2021.

The total amount “found” in our annual and monthly budgets to make up for the loss of $11,460 in income is $11,811!! I was able to complete this analysis in less than half an hour using the detailed spreadsheets I keep for our family’s income and expenses. With the conclusions drawn, it will not be necessary for me to find other part-time work to replace my lost income for the second half of the year! We can continue making substantial progress toward our FI goals without sacrificing what’s important to our family or seeking additional sources of income.

Many people fear that having detailed budgets and tracking expenses will limit their spending and, therefore, their happiness. However, I find that these practices provide the opposite: freedom! And for me, freedom with my time (and my family’s time) is the ultimate goal of pursuing financial independence.

If you find yourself in a similar position, either preparing to leave your current job or fearing that you might lose yours at any moment, I definitely suggest tracking every dollar you spend, if you haven’t started doing that already. Once you have a framework, finding places to make cuts is pretty easy.

If you’re already a great budgeter, think of your income loss as a total dollar amount through the end of the year instead of what you need to cut or save each month. Recognizing that there are annual expenses/allocations that might be easier to cut than your monthly ones might give you a little room to breathe (and spend) when the expected or unexpected happens.

For more specific ideas on where to make big cuts, check out 9 Ways to Save this year.

Spring Cleaning vs. Spring Spending

Good morning! When I previously tried to write this article, my finger slipped and hit the publish button while in the beginning stages of my first draft. It’s definitely not a best-case-scenario for any writer. Lol. This time around, I’m hoping the final draft is what ends up in your Inbox. Thank you for reading… again!

Spring Cleaning is a phrase we’re all familiar with. Some families take it to the extreme … scrubbing every wall, every bit of exposed tile grout, and even the front sidewalk. Others use Spring Cleaning to motivate themselves to get rid of excess by de-cluttering every room. And then, there are the Spring Cleaners who take this time of year to organize, organize, organize by color-sorting bins in the pantry or clothes in the closet, separating mini craft items into jars, and making the laundry room more accessible. Quite possibly, your family does all OR none of the above during this season of sunshine and renewal.

However, there’s one thing that every family likely has in common during the Spring season: an increase in spending. Data shows that this time of year is HUGE for retailers. Unfortunately, I don’t need research to prove this trend to me because I’ve noticed the spending binge in my own household. I’m definitely not alone; this article and associated charts clearly illustrate the significant Spring spending increase across the country. The Wall Street Journal has also predicted a further increase in spending this year, leading into summer.

So, how does a family that’s eager to take advantage of the better weather and longer days minimize this Springtime splurge?

Take Inventory as You Clean

Taking inventory comes up often in my articles… because it works. Just as tracking every dollar helps you save money and tracking calories helps you lose weight, taking inventory reduces your tendency to collect unnecessary items while out running errands. It’s your hedge against impulse purchases. Imagine yourself walking into Target. Do you gravitate toward the dollar spot right away? If so, being hyper-aware of how many coloring books, floral-covered journals, blue tooth headsets, and tiny vases you already own will hopefully make the idea of picking up another one, even if it only costs $3 or $5, cause you to groan rather than grab.

Make a “Needs” and “Wants” List with a Specific Budget

As you clean and organize each room, make a list of your family’s needs and wants. Maybe you’ll recognize that you need to replenish your supply of shampoo and soap while scrubbing the bathroom. Maybe you’ll notice you’re out of cinnamon and baking soda as you re-organize your spice cabinet. Maybe it’ll dawn on you that your kid’s mattress is nearing its 8-year expiration date. Write these items down on a “Needs” list and estimate what they’ll cost you. Then, do the same with “Wants” in each room, such as a new set of bath mats, an upgraded blender, or a neutral set of sheets to cover that new mattress. Based on your monthly budget, assign an amount you’re willing to spend on these Wants. Keep your lists with you, and then when out shopping, stock up on the Needs and vow only to buy the Wants if a current sale puts them within your set budget. You might even jot down in which month you should buy the Want items based on the best time to buy.

Redecorate as You Clean

Make Spring cleaning a lot more fun and interesting by redecorating your home with the items you find tucked away in cabinets, closets, and even your holiday bins. You could also make use of the crafting and paint supplies you uncover to update and/or create your own home decor. Involving yourself in a project, especially if you get to repurpose your own possessions, can give you a true sense of pride and accomplishment, while also salvaging the cash in your wallet.

Sell, Sell, Sell

Sometimes, a Spring shopping spree is just what the doctor ordered. It’s fun! You get out to see what the stores are offering and come home with new things to refresh your space and your spirit. Even the most frugal folks can identify with that! However, if you don’t want to sacrifice your savings rate by splurging on Spring goodies, unload your stuff in a big sale first. As you de-clutter, separate your items into categories, such as adult and kids’ clothing, kitchenware, sports equipment, tools, toys, baby items, linens, etc. Then, identify the best options for selling the items in each category depending on where those items will garner the most traffic and the highest prices. For example, if you have designer clothing items in good condition, try selling through Poshmark. If you have unique collectibles, eBay might be your best option. If you’ve accumulated dozens of products that you’ve never opened, an Amazon shop could give you the highest return. Tools and kitchen items will likely receive a decent amount of interest on your neighborhood Facebook page or Nextdoor site.

But if you have a large variety of items that span multiple categories, a well-advertised, old-school garage sale will earn you hundreds, if not thousands, of dollars to put toward that shopping spree. I just recommend that you pay yourself a percentage (to go toward investing/savings) at the same rate you save from your monthly income (10-25%) before you hit the stores.

I hope this beautiful time of year gets you out and about enjoying the changes this season brings, not just into the stores taking advantage of the advertised sales. However, if you do find yourself drawn to your favorite retailers, let us know what tricks you use to spare yourself from falling into the Spring spending trap.

Financial Freedom Mindset: The Benefits of Gratitude

There has been quite a bit of research done across multiple disciplines about the benefits of gratitude, from the religious sectors all the way to the personal finance industry. Gratitude simply makes life better. It has been shown to improve your mental, physical, and emotional health. It opens the door to better relationships, both personal and spiritual. It enhances empathy and leads to less aggression and more acceptance. Also, grateful people sleep better, eat healthier, and build stronger careers. Grateful people even spend less money!

So, why do so many of us intentionally practice giving thanks ONLY in the month of November? This practice needs to be a year-round aspiration! Here are a few (maybe less-obvious) ways to sustain the benefits of Thanksgiving throughout the year. As you practice giving thanks in all the months of the year, you might recognize how much you already have and how little you need to buy to have a beautiful life.

Praise and Prayer

Hang a poster board, butcher paper, or a chalk board up with the words, “Praise” and “Prayer”, in a high traffic area in your home, such as the back door or the mud room. Encourage family members to write what they are thankful for on the Praise side and ask for prayers for themselves and others on the opposite side.

Gratitude Journal

gratitude journal

Keep a spiral notebook open on the kitchen counter and have each person jot down something they are grateful for or something they’re looking forward to in the journal each day. Bring it to the dinner table one day per week and share your family’s good news with each other.

Random Thank You Notes

random thank you notes to instill gratitude

I am terrible at writing out thank you notes after a birthday party. I wish I was better at it, but maybe thank you notes would be even more appreciated when they’re not considered obligatory. Keep thank you notes available in your home and practice writing notes to friends after an act of kindness or a fun night out. Encourage your kids to do the same, even to their own siblings. Gasp! 


Closet and Pantry Inventory

Before going shopping for something new or for gifts for others, take a mental (or written) inventory of what’s in your closet, pantry, or playroom. This can help you and your kids recognize how much you already own and be grateful for it. While cleaning toys or putting away laundry, I often point out to the kids the abundance they have of these items. We also discuss whether they really need duplicates of certain items. This practice will likely prevent you from over-spending on what you don’t really need. You may even find gifts for others in your home and skip the shopping trip altogether.

Pick a “No-Negativity Day”

Life is tough! Venting helps.

But maybe, just one day per week can become a sacred “No-Negativity” day. On this day, focus entirely on being positive. This would be a HUGE challenge for me and therefore, this is one tradition I’m going to strive for throughout the year! Someone please hold me accountable.

Organize your Stuff

Assigning specific locations in your home for arts and crafts, school supplies, toys, books, seasonal decor, tools, etc and keeping them all very organized can not only help with recognizing the many things you own, it can also help you appreciate the space you have available to you for storing it all. If you don’t have the space, then give excess items away. An organized and clutter-free home leads to better appreciation for where you live and what you have. It might also keep you from searching for a bigger, more expensive home or additional storage for your stuff.

For where your treasure is, there your heart will be also.

Matthew 6:21

Since practicing gratitude daily, we have spent significantly less money as a family. We have become more aware of what brings us joy and how little money we actually need to enjoy each other’s company. We also have an acute awareness of what we own and primarily purchase food and basic home necessities when out shopping. An attitude of gratitude is also leading us down a path toward minimalism. We haven’t embraced it fully, but it’s looming on the horizon like it never has before.

Too Much Cash: A Good Problem to Have

The pandemic of 2020 has had many unexpected effects on everyone’s finances. One way or another, I’m guessing your financial life has changed since March of 2020.

Unfortunately, many people lost their jobs, their businesses, and their ability to pay their rent or mortgages. It’s been devastating to hear these stories. Thankfully, there’s been relief over the last year in the form of higher and extended unemployment benefits, moratoriums on evictions and foreclosures, stimulus money from the government in the mail, and help from several charitable organizations. I know there are many people still struggling, for whom I pray and have added more in our personal giving budget to go toward.

For many others, though, this past year has allowed them to reassess their spending habits and make major changes toward saving. It’s allowed many to sell their homes for significant profits and/or finance a home with unprecedented low interest rates. Additionally, after its initial fall, the stock market has left many people with realized gains far beyond what they’d imagined.

Because of these significant changes in 2020 that have carried over into 2021, many Americans are finding themselves with a really good problem to have: too much cash and what to do with all of it. Most personal finance experts believe that keeping extra cash under your mattress or sitting in a simple checking/savings account for a long period of time is equivalent to losing on an investment or burning a percentage of that cash in your fire place.

Due to inflation, your dollars today will be worth significantly less than in the future … and I’m not talking about the distant future. According to the rule of 72, at an average 3% rate of inflation, your cash today will be worth HALF its value in 24 years (72/3 = 24). So, if that money you have lying around isn’t making you more money (at a rate greater than inflation), it’s essentially making you less money. Therefore, you need a plan for that cash.

If you’ve unexpectedly found yourself in this position of holding onto money in excess of your emergency fund (or specifically saving for a large purchase), it’s time to figure out where to put it. My husband and I are in this boat with you, so I’ve done a bit of research to determine our best options for what to do with that surplus in the bank account…

Invest in Index Funds

We have seen over 20% returns in the past couple years on our VTSAX (Vanguard index fund) investment. In addition to our monthly contributions, we often invest our family budget surpluses in this index fund through our joint brokerage account (after our ROTH IRAs have been maxed out). This might be the easiest way to invest, and it’s truly passive. But we still have a large cash cushion that we haven’t dumped into an index fund because we’d prefer to diversify and …

Buy Real Estate

I’m not going to lie to you. Buying real estate in this hot 2021 market is TOUGH. We’ve lost out on 5 deals in one town over the past 3 months. However, we’re determined to keep trying, so we have a significant amount of cash set aside to meet our goal of closing on 3 doors this year. Now that we’re already nearing the end of the first quarter of this year and entering the really busy real estate season, though, we recognize that 3 doors might be a pipe dream. So, maybe we can remain involved in real estate if we …

Become a Hard Money Lender

A return of 7-12% sounds pretty promising. This is what most private money lenders charge investors for doing a financing deal without using a bank or typical lender. The hard/private money lender is responsible for vetting the investor he/she is lending to, doing the underwriting, setting the terms of the contract, providing a large lump sum, and chasing the money if it’s not all paid according to contracted terms. So, although private money lending is considered passive income, it still requires quite a bit of work upfront and the possibility of following up afterward if terms are not met. This option still sounds good to us, and we may move forward with the steps to get started soon, but we’ve also thought that another way to diversify our portfolio might be to…

Back a Business

We know of several businesses who have struggled during the 2020 shut-downs, but the ones that have stayed afloat have incredible ideas for reaching more customers and expanding their online presence. They have the plans, infrastructure, staff, and products, but they may not have the funding. With a loan from a local independent investor, like ourselves, they can hit the ground running and pay a contractually-agreed-upon return on our investment when their business plan pans out. This may be one of the riskier ways to invest our cash surplus, so we’ve also considered that we could …

Turn a Fun Purchase into an Income-Producing Asset

Our family often talks about owning an RV for extended road trips or a temporary homeschooling adventure. However, we will not make a large purchase like this without a plan to rent it out when we’re not using it. We could either park the RV on land and rent it out via Air BnB or we could offer our super cool ride to friends and friends of friends at a reasonable rate so they could experience their own road tripping adventures.

Here are a few other ideas to turn a personal purchase into an investment:

  • If you’re buying a heavy-duty truck for work, hunting, or family use, consider renting it out to others to haul items or complete their own home projects.
  • If you’re buying a cool woodworking tool to build furniture or make unique decor as a hobby, consider offering the tool up for a fee to people nearby to prepare for their own projects. (Or sell extras of your creations.)
  • If you’re buying a fancy snow cone or cotton candy maker for a party, use it in the future to sell goodies at local festivals or near the neighborhood pool (with a permit).
  • If you’ve decided to splurge on a commercial-grade carpet cleaner after too many pet and toddler accidents, rent it out to neighbors for a lower fee than what the stores charge. Make your own non-toxic cleaners to go with it as well.

(For each of these ideas, check with your insurance agent regarding coverage/liability before renting out your assets.)

Sometimes, the idea of someone else using an item that’s special can leave us a little unsure, so another option is to …

Invest in Self-Growth

A great way to spend extra cash is to develop more skills that allow for greater income potential in the future. This might include going back to school, taking unique online adult courses, or paying a mentor to teach how to advance in a specific career. These are exciting options and definitely worthwhile if you know you’ll put the skills learned to use right away. My husband and I would love to learn more about renovating an historic home and doing a remodel mostly ourselves. However, we’re quite overwhelmed with raising four kids and keeping up with our current schedules, so this may not be our best choice currently.

There is one investment option, though, that we’ve both agreed is the best for personal growth, community improvement, and living out truths we take seriously, which is to…

Give Generously

I recently heard an amazing sermon by Mike Todd of Transformation Church. He speaks eloquently and passionately about being a purpose-chaser rather than a paper(money)-chaser. He said in his sermon, “God doesn’t have a problem with paper; he just wants priority!“ Our opportunities, finances, and blessings are the fruit after we’ve given His purposes priority.

Most believe that it’s better to give than to receive, and many also believe that true rewards (whether they be money or something even more valuable) only come after you’ve given from your heart. Therefore, this may be the best use of a cash surplus.

There are dozens of other ways to invest your extra cash, and because personal finance is truly personal, each person will likely have a different idea that resonates with him/her. The main thing to remember, though, is that while it’s a huge accomplishment to have saved a large sum of money, you don’t want it sitting around losing value for too long. Every dollar needs a job, and hopefully your surplus can provide more value to you in the future.

9 Easy Steps to Buying an Index Fund

I’ve been asked several times, “How do I get started in investing?” Usually, my response includes several follow-up questions, such as, “What are your investing goals? What’s your risk tolerance? How much money do you have to invest? Have you started first with your employer’s 401K? Do you have debt? An emergency fund?” and so on. There can be dozens of factors to consider.

Then, I recently came to realize that many of my friends were simply asking how to take the steps to open an investment account and contribute to it. Most had already decided that they wanted to invest a certain amount in the stock market but didn’t know how to actually start a new account (outside of 401K investing). Hopefully, the 9 steps below can be helpful to those who are looking for a literal answer to that initial question.

The guide in this post is specific to opening a Vanguard account because it’s the brokerage firm we use, but the process is likely the same or similar for other firms/banks.

Why do we choose Vanguard? We consider it to be the leader in low-cost index fund investing. After all, John Bogle, the founder of Vanguard, was also the inventor of index funds. Vanguard makes investing easy and has several options for mutual and index fund investing. If you’re more interested in trading stocks, options, and ETFs than taking the simple path to wealth, those trades are commission-free. Vanguard also has great customer service, including agents who will answer even the most amateurish questions and will gladly walk you through every step if you get stuck while navigating the website. For all of these reasons, my husband and I have both our ROTH IRA’s, as well as a joint brokerage account, with Vanguard.

Other highly-recommended brokers include Charles Schwabb and Fidelity, which also carry a wide variety of funds and low fees for many of them. (We have investment accounts in both of these brokerages and a few others due to past employer offerings, but we are slowly transferring balances on accounts with higher fees to Vanguard. We’d like to consolidate and reduce fees as much as possible.)

If you’re ready to purchase index funds, here’s your guide on how to do it in 9 steps or less:

1. Have your bank account info available, including routing number.

2. Go to Vanguard.com and select the Personal Investors page.

3. Click on “Open an Account”, then select “Start Your New Account”.

4. Follow the prompts and answer the questions on subsequent pages.

5. Determine the type of account(s) you want to open based on tax advantages, income limits, and contribution maximums.

  • The max contribution for an IRA each year is $6,000 for under age 50 & $7,000 for over age 50.
  • Simple rule of thumb: Traditional IRA‘s give you a tax deduction now, but you will pay taxes on the withdrawals in retirement. ROTH IRA‘s require contributions from earned income and do not give you a tax deduction now. But they allow your money to grow tax-free and allow you to withdraw the earnings tax-free in retirement. Also, you can withdraw ROTH IRA contributions (not earnings) before age 59 1/2 after owning the account for 5 years. (So, if you contribute the max for 5 years, you can withdraw the $30,000 penalty-free as soon as that 5 years ends, but you can keep your interest earnings in the account.)
  • Brokerage Accounts, also called Taxable Accounts, General Investing Accounts, or Non-Retirement Accounts, have no contribution maximums, no income limitations, and also no tax benefits on the interest you earn or the sale of funds. You are subject to taxes on all of it the year you receive the money. These can be joint or solely owned.
  • The other available options are investment accounts for children or small business owners. More on those in a later post.
Types of investment accounts

6. Provide personal and banking info.

7. Complete required paperwork and send it in.

This may take several days for a response.

8. IMPORTANT: When you receive confirmation of funding via email, go back into your Vanguard account to select funds to invest in.

Index funds are recommended very often in the Financial Independence Community. VTSAX is one of the most common ones and allows you to be invested in ALL 500 companies of the S&P 500. Read more about index funds here. Index funds track almost identically over time, so don’t stress too much about which one you choose.

Keep in mind that an index fund is a 100% stock investment. If you’d like to limit your risk a bit and balance out your portfolio, you can invest in a bond index as well, which pays monthly dividends. (We reinvest ours.) Many investors believe that the closer you are to retirement age, the higher percentage of bonds you should hold in your portfolio to minimize risk. (Reminder – lower risk usually means lower return.)

If you’re still not sure how your investment portfolio should be balanced, Vanguard can walk you through a risk assessment quiz to determine asset allocation for your target portfolio before you choose your investment funds. You can also view how different portfolios have performed over the last 94 years.

9. Buy!

Follow the prompts to buy the funds you’ve decided to invest in. You’ll select the desired fund(s), choose the dollar amount you want to invest, and designate where you want the money to come from (likely the bank account you uploaded).

If, at any point, you’re stuck or not sure what step to take next, open a live chat with an agent, read FAQ’S in the margin, or call Vanguard customer service.

Voila! You’re invested in the stock market! Hopefully you’ll watch your money work for you! My husband and I have seen 30%+ returns in the last couple years. These gains are unusual as we’re still in a bull market. Fluctuations are to be expected, but because we plan to keep our money in these funds for over 10 years, we feel good about riding the waves.

For a more in-depth guide to getting started with Vanguard, go here.

Everything written in this blog is based on personal experience. It is not professional advice and should not be taken as such. Personal finance is personal, and decisions should be made based on analysis of individual situations, as well as risk tolerance and financial position. 

Should I Add My Children As Authorized Users to Build Their Credit Scores?

Something popped up in my Instagram feed that led to a chain reaction this morning. I saw this post on @female.in.finance and took a screen-shot right away.

It seemed like a great idea, but I needed to analyze whether there were potential negative consequences and if it was worthwhile to add my children at their current ages (13, 10, 5, and 3). I’m willing to “play the credit score game” to help my children build credit by the time they enter adulthood but not at the expense of my own credit. So, the research began.

After posting this idea to two personal-finance Facebook groups, there were more questions than answers, but there were also several young adults who said that their parents utilized this strategy when they were teenagers, resulting in a credit score of 800+ for most of them by the time they were 18.

I then called the customer service numbers on both of the credit cards I carry. One is a Southwest Airlines card through Chase Bank, and the other is a Hilton Honors card through American Express. I notified the representative that I’m considering adding my children as authorized users on the card and had a few questions. The table below shows the questions I asked, as well as the answers from each bank.

Questions to Ask Before Adding an Authorized User

QuestionChase AnswerAMEX Answer
How many authorized users can I add?UnlimitedUnlimited
What is the age minimum?None13
Can I set a credit limit or spending limit?Same credit limit as primary ownerCan set spending limit (min $200) – some charges do not apply to spending limit, such as gas station charges
Is a credit inquiry required for responsible party or user to add them?No, SS # not even requiredNo, but SS# required for reporting purposes
What information is reported to credit bureaus?Payment history is reported ONLY for responsible party, not authorized user (Child will just be listed as “authorized user” on account)All payments history will be reported to credit bureaus on both responsible party and authorized users. Authorized users are considered “active”.
Will there be an additional annual fee?NoNo
Are there additional benefits for adding an authorized user?Not at this timeFor some cards, there is a promo offered to accrue additional bonus points after reaching sending amount on additional card. But it’s not currently available on this account.

Here is some additional information for Discover card users as well:

Authorized users for Discover Card
Minimum age: 15. Reported to credit bureaus on authorized user’s behalf: yes. Max # of authorized users: 5

Conclusion

Adding a child can be beneficial to his or her credit IF:

  • The primary responsible party (parent) is fiscally responsible with his/her credit card account by making payments on time, limiting debt accrual, and using credit cards responsibly (only paying for items for which you have the cash to back them up).
  • The primary responsible party has a credit limit of a few thousand dollars or more.
  • The credit card company actually reports payments made under the authorized user’s name/social security number.
  • The child learns key aspects of financial literacy and understands the pro’s and con’s of credit card use before having access to the actual card.
  • The account is monitored regularly, checking for fraudulent charges and ensuring that all payments are made on time. (Don’t just open an account, leave the card in a drawer, and never check the statements.)

Potential Problems:

  • If the account is not monitored or paid on time, this could hinder the child’s credit score, rather than help it.
  • Having excellent credit at a young age could allow for someone to qualify for credit or a loan that he/she is not personally or financially ready for. A child needs to be taught the fundamentals before applying for any loans, credit cards, or housing on his/her own.
  • If a child has access to the credit card or its number, he/she may rack up charges not approved by the parents, and the primary responsible party is liable for those charges.

What I Decided to Do

I added my 13 year old to my American Express card as an active authorized user. I set the spending limit to $200, and I denied access to cash from the card. I confirmed that it would not have an effect on my credit by going through the process of adding her as a user, as there would be no credit inquiries or credit checks to make this addition. She will not have access to the physical card until she has a job of her own and has been taught responsible use of the card.

If you’re looking for the right card for yourself and/or your family members, check out this post on Choosing the Right Card.

I would love to hear your stories related to this decision as well. Did it help or hinder you when your parents used this tactic? Have you done it for your own children? Why or why not?

I found that opening up this conversation in Facebook groups this morning led to multiple opinions and mostly positive reports of how parents helped their children in this way. I’m hopeful it’ll lead to positive results for our family as well.

Fuel your FIRE: Your Why for Financial Freedom

Financial Freedom in 2021! Take Action: Day 30

Wow! We made it to Day 30! I calculated that I’ve written (and you’ve read) over 25,000 words in the last month. That’s enough words to fill 1/3 of a novel, and all of them were about saving money and investing for the purposes of financial freedom.

But why?

In my post titled, What Does Financial Freedom Mean to You?, I summarized what motivated me to jump on board with the FIRE movement:

“Financial freedom allows the ability to let go

of maintaining a specific image; of an addiction to other people’s lives; of the shackles of material goods; of the restrictions placed on me by others; of saying ‘yes’ when I want to say ‘no’; of saying ‘no’ when I want to say ‘yes’; of negative relationships; of working to achieve someone else’s dream.

It provides the option to linger

with a baby in my arms; in bed all morning with my husband; on the floor in my kids’ playroom as they set up a tea party; at church after service or maybe on a Wednesday; on a restaurant patio with a friend; at a beautiful beach all day; in my sister’s living room catching up on a favorite TV show; at my mom’s house sipping coffee; at my children’s favorite museum; on the hiking trail or in the river at a state park.

It affords the privilege of indecisiveness

on whether to build a forever home, buy an investment property… or both; on whether to volunteer in local church ministries, start the business I’ve always dreamed of… or both; on whether to do travel homeschooling, keep my kids in public school… or both; on learning to play golf, participating in an over-40 soccer league… or both; on whether to write a book, start or podcast… or both.

It commands the responsibility to give

financial literacy lessons to my children; personal finance advice to the young and old; donations to charitable organizations; more time to important projects; opportunities to the underprivileged so that they can break the cycle of poverty; gifts to my church; more of me to those I love.”

It’s this final paragraph that makes the FIRE movement especially appealing, not just for myself, but for the entire community too. I recently heard that while others might see an individual’s push toward financial independence and early retirement as a selfish, greedy move, the truth is that most people in the community want to use their freedom for greater good.

Those who’ve reached FIRE write blogs to help others improve their money situations. They host podcasts and share the best tips available. They write books to make investing easier. They teach classes for free to the under-privileged, under-educated, and under-represented. They run fix-it clinics, start buy-nothing sites, and inspire minimalist movements. FIRE people don’t keep this to themselves; they share what they know and encourage others to make the best use of their money as well.

Consider the type of people who truly subscribe to the Financial Independence Retire Early life. These people are often intelligent, motivated, educated, persistent, goal-driven, risk-tolerant, and innovative. When people with these qualities are freed from the daily grind, their talents can then be put toward philanthropy and changing the world we live in.

Take action today on Day 30 by determining what fuels your FIRE and decide what good you could do in the world if earning a regular paycheck was no longer a top priority.

Thank you so much for going on this 30-day journey of action steps toward financial freedom with me! I truly hope it’s been helpful and that you’d be willing to share these tips with others.

I invite you to subscribe to this blog and follow Frugal_with_Four on Instagram. I’m looking forward to sharing so much more on living this frugal yet wonderful life with you.

Thanks for reading!!

Travel Well on a Budget, Part 3

Financial Freedom in 2021! Take Action: Day 27

Today’s post is all about maximizing vacation fun without blowing your budget. After putting in all that time to get the best value on transportation and lodging, you don’t want to let activities put you over the top. The good news is that every town and city has free or cheap things to do. You just gotta know where to look.

Check Local Blogs

Bloggers offer all kinds of information for free. 😉 You can find the best playgrounds, hiking spots, beach access points, climbing hills, swimming holes, and bike trails by reading a local blog. If you search “free things to do in _____”, scroll down past the Google maps, Trip Advisor, and big magazine publisher suggestions. You wanna hear from the locals! Once you find blog articles, check the dates to make sure it’s a recent post. It’d be pretty disappointing to head to a local swimming hole only to discover it’s been covered by a parking lot since the article was written. Also, search for a few other kid-friendly favorites, such as “free museum days in (location)” or “free festivals in the month of ______”. If you’re traveling to the Austin area or Texas Hill Country, I recommend Dripping with Kids!

Use the Yelp App for Dining Out

I don’t usually use Yelp when I’m at home, but I find it useful while on vacation. Not only does it help me to find restaurants that are highly recommended or great for a family, but because these are places I’d be checking into for the first time, I might get a free appetizer or BOGO offer for trying them out.

Order the Souvenirs in Advance

If you know your kids will want a sweatshirt or a magnet or a stuffed animal as a souvenir from the amazing place they’ve visited, look for great deals online BEFORE you go. The souvenir shops are usually over-priced, and once you set foot inside, you’ll likely cave and buy a lot more than you budgeted for. Who can really resist a cheesy painted sign that says, “Resting Beach Face” or an ornament with Santa riding the ski lift??

Deals on Tickets

This is a tough one! If you’ve planned your vacation around going to a theme park for several days or a week-long music festival, you have no choice but to spend a big chunk of your travel budget on tickets. Right?

I’m still working on how to get the best deals in these areas, but if I can’t find discounts directly through the venue’s website, I always check Groupon. It often offers discounted tickets for festivals, small amusement parks, museums, or concerts.

I’m also a big advocate for zoo memberships if you’re like us and enjoy checking out the local zoo while visiting a new city. Most zoo, botanical garden, and aquarium memberships offer reciprocal admission, saving you 50% to 100% on admission fees.

Another tip is to check with other memberships you have, such as PTA, AAA, AARP, etc. or with your hotel concierge. My final tip is to compare the cost of a season pass to day passes. If you’re planning to visit an attraction or resort (such as for skiing, fishing, or boating) for more then 2 days, it might be cheaper to buy a season pass.

Save on Parking

Many attractions charge high parking fees. Look for ways to skip that added expense. Your hotel may have a shuttle or public transportation nearby. Or there may be street parking a little further away, so most of the family can get dropped off at the front and then Mom or Dad can go park the car.

Save on Food

Check the food and drink policy for the venue or park before you travel. Many will allow you to bring in your own snacks and drinks. If not, though, most have picnic tables for you to enjoy a cheap meal just outside their gates and save the rest of your cash for something better.

Today’s action step is to jot down on your travel budget spreadsheet some of the activities you would want to do on vacation. Place a star next to the ones you could potentially do for free (or really cheap). Then, do a little research to estimate costs of the other activities. When you actually book the trip, do a deep dive to try to find discounts on them.

Travel Well on a Budget, Part 1

Financial Freedom in 2021! Take Action: Day 25

Living life on a budget doesn’t mean you have to sacrifice living well. Our family has a savings rate of about 25%, of which a large portion goes toward investing for our future. However, we’re still able to maintain a healthy travel budget so that we can enjoy life now while still prioritizing saving for retirement.

We have an annual travel budget of $12,000. That can go fast with a family of 6, but we find ways to make it stretch. In 2020, we took the following trips as a family (while following mandated protocols and state-specific restrictions):

  • A week at Disney Land and Universal in Feb (pre-pandemic)
  • 6 days in New Mexico and Colorado in March (departure just before pandemic closures)
  • 5 days in Colorado (again) in July
  • A week in Wisconsin in July
  • Several weekend trips to the beach and to see family over the year
  • 2 days camping at a state park in Sept (plus several day trips to other state parks)
  • 5 days in Lake Tahoe in October
  • 6 days in Wisconsin (again) in December

In addition to trips with the kids, my husband and I spent a weekend alone in Boston in January and a weekend in Charleston in November. I was also able to do a short getaway with my mom and sister for their birthdays in November.

That equates to over 50 nights away without going over budget! Strategically earning and taking advantage of credit card points, as mentioned in yesterday’s post, helped a lot. We also stayed with family for about 20 of those nights, saving money on hotels or vacation rentals. But being flexible with travel dates and doing the right research also led to big savings.

Today’s post will focus on tips for the transportation aspects of travel. The following 2 days will be focused on accommodations and activities.

Airfare

Check credit card miles and what they might “buy” you first and foremost. If you don’t have a travel card, but your trip is several months away, consider applying for a card with a great bonus offer so you can collect and redeem miles at least two months before your travel dates. (Advice from yesterday’s post applies here.)

If the above option is not actually an option and you need to find the best prices on flights, check the Google airfare search tool first. All you have to do is type in “flight from _________ to _______” in the Google search bar, and you will be provided a calendar of fare prices for multiple airlines. If you can be a tad bit flexible with when you travel, you can simply choose the cheapest dates to fly when looking at the calendar.

Certain days of the week are often cheaper to fly than others, usually Tues, Wed, and Saturday depending on the location. (It can be cheaper to purchase on Tuesdays and Wednesday as well.) For popular tourist destinations, avoid weekend travel. For popular business destinations, avoid weekday travel and morning flights around 8-10 am, especially on Mondays and Fridays. Choosing off-season months to visit a specific location can also save hundreds or even thousands of dollars, such as visiting Boston in winter or traveling to a popular beach in early November.

I also search nearby airports for better prices. I’ll do a comparison of 3 to 4 airports within a 3-hour drive from where we live, as well as from our final destination. I’ve saved hundreds many times by selecting an airport just 1 to 3 hours away. For example, when we go to visit family in the Green Bay area, we often fly into Chicago, then rent a car to drive the rest of the way. Even after paying for the car, we usually save $500 – $1000 on the airfare.

Additional Savings Tip: Take advantage of flight times to give you *more* days on vacation. If you want 3 full days for your trip, book the earliest outbound flight in the morning and a return flight late in the evening. The airfare is usually cheaper at these times, and you get 3 full days while only paying for 2 nights of hotel.

Transportation in your Final Destination

Rental car or public transportation? Walk it or Uber? The decision on whether to rent a car or use other forms of transportation has to be based on not only the cost of the car but other factors as well.

Are you staying in a walkable city? Will your hotel charge parking fees? Is gas especially pricey where you’re staying? Do you need a car because you feel safest with your kids in car seats instead of in your lap? Is Uber or Lyft readily available in that destination? Will you be taking any long day trips from your location or did you fly into an airport that’s a bit of a drive from where you’ll be staying?

If, after this analysis, you decide you need to rent a car, use these tips to get the best rates.

Road Tripping

Taking your own vehicle definitely saves on airfare and a rental car in your final destination, but it can help save on many other expenses as well. It might be helpful to factor in these additional savings and skip air travel altogether.

However, you may decide that the added savings aren’t worth the extra time you spend in the car, especially if you’ve found incredible deals on flights and a rental car using the tips listed above. Before determining that driving is the best value for your trip, do a comparison of gas costs to airfare. Use this calculator to get a good estimate.

Today’s action step is to make a list of where you want to travel this year. Download (and print) a travel budget spreadsheet for each major destination on your list. Use some of the tips above to determine the best dates for those trips based on airfare prices or to decide whether driving would be a better value. Jot down a few scenarios including traveling to/from nearby airports or staying in a location that limits transportation needs once you’ve arrived.

Keep those spreadsheets nearby because tomorrow, we’ll dive into saving on accommodations.