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.

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.

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. 

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 2

Financial Freedom in 2021! Take Action: Day 26

There are so many options on where to stay while on vacation these days… from luxury hotels to extended-stay motels to RV resorts to cabins to vacation home rentals to tent-camping. Even with a large family, many hotel rooms can now accommodate everyone. It can be really hard to narrow down the choices and make a decision.

The good news is that when there are various options and abundant supply, the buyer often benefits from all that competition. You just have to be prepared to do the research.

Once you’ve settled on which type of accommodations will provide the best value and experience for your trip, the following list can help you save money on them …

Check Rewards First

Just like shopping for airfare, check with your credit card rewards and/or your hotel chain membership to determine whether you have enough points to book a night or two at a hotel. If you don’t have a hotel card or rewards membership, 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 a month before your travel dates.

We recently applied for the Hilton Honors AMEX, thinking ahead to two destinations this year with excellent (but expensive) family-friendly Hilton resorts. Because of the bonus offers and by using the card to pay for part of the stay (thus maximizing the points per purchase), we should be able to get 4 nights covered with points this year.

Get the App

Hotel apps can also help you earn free nights faster or offer upgrades and discounts. I like the hotels.com app. I’ve earned two free nights (1 free after 10 nights) and taken advantage of significant savings due to “secret prices”. Also, if you access hotels.com through the Ibotta app, you can earn cash back for your hotel purchases.

Map It

When searching for a hotel or vacation home, I always use the map function to make sure I understand where a hotel is located before clicking to find out more info. The maps on the search sites often show tourist attractions, the airport, and parks in the area so it’s easy to determine how close the hotels are to everything.

If your goal is to minimize transportation costs, stay close to it all. If your goal is to minimize lodging costs, stay a bit outside the city or in a small town nearby.

Take Advantage of Filters

When it comes to a hotel, I look for at least 3 stars, a very high review rating, and amenities that will save us more money, such as free breakfast, free wifi, free parking, in-room kitchen/ette, free airport shuttle, etc. Bonus if there’s a nice pool, water park, playground, and/or hiking trails onsite… something that can entertain kids between other planned activities.

Keep Your Options Open

When I find a great hotel at a decent price, I book… but only at the free-cancellation rate. Then, I set an alert/reminder in my phone to go back and check hotels again just before the final cancellation date. I re-do my hotel search then to see if the hotel we booked has a better deal or if another one has dropped in price.

Alternatives to AirBnB/VRBO

Looking for a vacation home rental but don’t want to pay the excessive fees? Ask your friends or put up a post in Facebook groups. Often times, a vacation home owner will be willing to rent it out without going through these sites (especially if you’re a friend or acquaintance).

You can also try local property management companies or Vacasa to find the same homes listed on AirBnB or VRBO at slightly cheaper rates (and fewer fees).

Another tip is to find a few homes you like in the area on the major rental sites, then reach out to the owners directly to negotiate a lower rate, especially if the homes are still available less than a week before your travel dates. Send an email to 4-5 owners offering the price you’re willing to pay. Chances are, at least one will agree to take less than their listed rate rather than make nothing on a vacant home.

In summary, finding great deals on vacation lodging requires a bit of time, research, comparison shopping, and possibly some negotiation. It’s worth it, though, to save that money to put toward activities while on your trip or to have enough left in the budget to book your next vacation!

Today’s action step is to continue to do research on the places you’re interested in traveling to this year. Add estimates for accommodations to your travel budget spreadsheets.

Consider Real Estate Investing

Financial Freedom in 2021! Take Action: Day 21

Don’t wait to buy real estate, buy real estate and wait.

– T. Harv Eker

My husband and I just started our real estate investing journey by closing on our first rental property last year. We decided that because we were starting late in life on maxing out our retirement accounts, we needed to add real estate investing to help us reach FI a little faster. I read, researched, and studied several free resources, such as the Bigger Pockets Podcast and books from the library, for almost a year before we purchased our first (non-primary) residence.

It was not a quick process, and finding our second deal in today’s competitive market is proving to take longer than we had planned as well. We’re determined to add two more properties to our portfolio this year, but we’d rather pass on several good deals than buy one bad one. So, we’ll continue to follow Gary Keller’s advice in The Millionaire Real Estate Investor: “Persistent Effort, Patient Money”.

Although we’ve decided to slowly start with buying rental properties, there are many additional options and opportunities in real estate investing. It can be as easy as selecting a fund through your online broker or putting a couple hundred dollars into a pre-vetted deal on a crowdsourcing website like Fundrise.

Today’s action step is to read about these 5 ways to get started in real estate investing. Determine whether any of these are worth adding to your overall investment portfolio and retirement plan. If so, make a list of resources to dig a little deeper into your preferred method. I highly recommend the book and podcast linked above.

Know Your FI Number

Financial Freedom in 2021! Take Action: Day 19

Whether you plan to retire early or work until the Lord takes you home, it’s helpful to know the magic number you’re aiming toward to no longer be dependent on a regular paycheck to pay your bills and live a full life. Your FI (Financial Independence) number is the amount of net worth you need to support you for the rest of your life moving forward.

The breakthrough Trinity Study published by three professors from Trinity University in 1998 determined a safe withdrawal rate* from stock portfolios despite the fluctuations of the market, and the conclusions they made have had a huge impact on retirement planning. Their research produced the “4% Rule” mentioned in yesterday’s post. What this means is that if you can estimate your annual expenses for when you plan to retire (or when you’re hoping to reach that state of financial freedom), you can multiply that yearly amount by 25. This is a simple way to calculate your FI number.

Here’s an analysis of how I’ve calculated my family’s FI number:

  • Anticipated Retire Early Date: January 1, 2030
  • Family Status (at that time): 2 children graduated from high school, 2 still in grade school
  • Potential Side Income: Real estate investing (monthly cash flow)
  • Estimated Annual Expenses: $70,000
  • Expenses Remaining after Side Income: $70,000 – (10 homes * $3600 cash flow) = $34,000
  • Required Net Worth: $34,000 * 25 = $850,000
  • FI Number (with RE investing): $850,000 … almost there!
  • FI Number (without RE investing): $1.75 million … NOT almost there!

There are so many variables, right? But that’s ok. The analysis is the the fun part. It’s a game to see how low you can get your expenses by paying off debts and cutting unnecessary spending. There are also so many ways to earn a passive income to offset your anticipated annual expenses and decrease your FI number; real estate is just one of them. What’s important is that you continue to keep track of your expenses and net worth with intentionality. If you do that, chances are that you’ll reach FI much sooner than planned.

In the example above, I conservatively estimated owning 10 doors in our real estate portfolio at $300/month cash flow, but our goal is to own 20, and maybe our average cash flow will be even higher than that. If so, we may be able to cover ALL of our anticipated expenses through those investments. We may also downsize our home with fewer children living with us or we may decide to do traveling homeschool, which will decrease our living expenses, and therefore, our overall annual expenses.

The point is that things will change; the future is unknown. The good news is that you now have a framework and an easy way to calculate your FI number even as income, expenses, and investments change.

Another aspect to consider is that many believe that the safe withdrawal rate is now higher than 4% and closer to 7%. This would significantly reduce how much you’d need in your nest egg. At a safe withdrawal rate of 7%, our FI Number (without real estate investing) drops to $994,000!

Today’s action step is to calculate your FI number. It’s ok if you have a few different scenarios with a few different outcomes. Just doing the calculation will give you a ballpark to aim for and get you in the habit of doing the math as things change. There are FIRE calculators online that you can use to find your FI number while taking into consideration your side hustles, higher or lower withdrawal and return rates, as well as anticipated expenses. So… what’s your number?

*The safe withdrawal rate (SWR) method calculates how much a retiree can draw annually from their accumulated assets without running out of money prior to death.

Financial Literacy: Talk the Talk

Financial Freedom in 2021! Stay on Track: Day 18

There are a lot of vocabulary and buzz words associated with personal finance, and the lingo can sometimes shy people away from engaging in money conversations or asking important questions about their investments and debts.

The next few days will be focused on investing strategies. Here is a *short* list of basic key words related to investing so you can be ITK:

  • 401K – A qualified plan established by employers to which eligible employees may make a salary deferral. Always invest up to at least the company match percentage. It’s free money!
  • 529 – Tax-advantaged savings vehicle designed to save for the future costs of higher education. It can be used for the education of any family member, even yourself.
  • Annual Percentage Yield (APY) – The real rate of return earned on an investment, taking into account the effect of compounding interest.
  • Bond – A debt instrument where the issuer (borrower) promises to pay back the lender (bond purchaser) at a specific rate over a certain amount of time.
  • Capital Gain (Loss) – The amount of money made (lost) between the purchase and sale of some investment.
  • Certificate of Deposit (CD) – A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate, and can be issued in any denomination.
  • Diversification – A risk management technique that mixes a wide variety of investments within a portfolio.
  • Dividend – Sum of money paid regularly (typically quarterly) by a company to its shareholders out of its profits (or reserves).
  • Inflation – A rise in the general or average price level of all the goods and services produced in an economy. (Average is 3% annually.) This is why not investing is riskier than investing, according to many experts.
  • Investment or Brokerage Firms – A business whose main responsibility is to be an intermediary that puts buyers and sellers together in order to facilitate a transaction. Brokerage companies are compensated via commission.
  • Index Fund – A mutual fund with a compilation of assets constructed to match the performance of a specific market index, such as the S&P 500.
  • IRA (Traditional) – An account in which an individual may set aside earned income in a tax-deferred savings plan for his or her retirement.
  • Mutual Fund – An investment fund that pools together investors’ money to purchase a diverse portfolio of holdings. These funds are actively managed.
  • Opportunity Costs – Real or potential costs associated with missed opportunities based on choices made.
  • Roth IRA – An individual retirement plan that bears many similarities to the traditional IRA, but contributions are not tax deductible and qualified distributions are tax free.
  • Rule of 72 – A method used in finance to quickly estimate the doubling or halving time through compound interest or inflation, respectively. For example, using the rule of 72, an investor who invests $1,000 at an interest rate of 4% per year, will double their money in approximately 18 years.

Many of the definitions above came from https://financeintheclassroom.org/student/vocabulary.shtml. Another fabulous resource that goes more in depth is this glossary of terms.

In addition to the terms above, the following buzz phrases might come up during your personal finance journey:

  • 4% Rule – States that you can withdraw 4% of your portfolio each year in retirement and not run out of money. It was created using historical data on stock and bond returns over a 50-year period.
  • Financial Freedom – Control over finances instead of them having control over you.
  • FIRE Movement – Acronym standing for Financial Independence Retire Early. Committed participants strive for a >50% savings rate, diverse investment portfolios, and retiring much earlier than expected, often in their 30s.
  • Savings Rate – Measurement of the amount of money, expressed as a percentage, that someone deducts from their income to set aside as a nest egg or for retirement. Calculate yours here.

Today’s action step is to look up any additional terms related to finance or investing that you’ve heard but never fully understood. Also, calculate your savings rate and then answer the question, “What would financial freedom mean to me and my family?”

Increase your Income

Financial Freedom in 2021! Take Action: Day 16

The term “side hustle” has become very common in the last couple years. It seems that every other person has a small side business, MLM venture, after-hours hustle, You Tube channel, Etsy shop, home bakery, or blog to try to add to their regular W2 income. If you type “side hustle” into google, there are thousands of articles and websites dedicated to sharing ideas on maximizing your earning power with a second, third, or fourth stream of income. I’ve found a list of 100 side hustles that can make you $500+/month and 50 ideas for a lucrative side business. There are even several weekly podcasts dedicated to making extra cash on the side.

The underlying theme is that in our modern culture, in which 80% of Americans carry debt, people need to make even more money. Sometimes a side hustle is a passion project or a hobby. Sometimes it’s a long-sought-after dream slowly coming to light. Sometimes it’s a way to reach financial independence much faster. However, many times, people launch into side hustles to pay off student loans and consumer debt. With the cost of living (and spending) today, many W2 jobs don’t offer a salary that allows people to get out of debt and get ahead quickly enough.

The ultimate goal of financial freedom is to let your money work for you, not the other way around, but in order to reach that goal, it may be necessary to trade some of the extra time you currently have for some extra cash.

Today’s action step is to review the articles and lists linked above to determine if there’s a way for your family to earn a side income from a side hustle. But before launching into anything, calculate what your time is worth and what you could really earn. Also, remember that it’s usually best to stick with what you know and utilize your current skill set.

Which side hustle seems most feasible for you? Or, if you already have one, what do you love about it? Please share!