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How to Live on One Income and Still Live the Good Life

The dual income family is quickly becoming the norm. According to one study, even as long ago as 2002, only 7 percent of U.S. households were single income families in which only the husband worked. In 2017, the demands of debt, car payments, and other money stress have made it even harder for families to live on one income.

The dual income family is now normal. But you can live on one income without poor quality of life. In fact, you can live the good life! Read how we lived on a single income while still having fun!Dual income households have some advantages over single income households, but I firmly believe the choice largely comes down to personal preference and individual circumstances. But the choice to live on one income doesn’t have to be as restricting or depressing as it may sound. It’s very possible to live well on a single income even if it is modest.

My wife and I are proof that it is possible to thrive, have fun, travel, and live on income all at the same time. Today, we both work multiple jobs – like Dave Ramsey says, Live Like No One Else So Later You Can Live AND Give Like No One Else – but our life was radically different in 2010.

Operation: Live on One Income

My wife, Meg, and I were married in July 2010. I had completed my first year as a music teacher and she was a college senior. I was laid off by my school district because of crippling budget cuts shortly before our wedding, so when our pastor said the whole “richer or poorer” line during our vows, it took every ounce of strength I had in me not to laugh out loud.

I spent the first month of our marriage collecting unemployment and interviewing for jobs without any luck. One week before school resumed a huge weight was lifted our shoulders when I was offered a return to my old job out of the blue.

Getting my job back was a major victory, but it still gave us one income stream. Some people in our lives doubted that we could live on one income, but to be honest, we were just thrilled to have an income! Still, we knew that life wasn’t going to be perfect or easy.

How We Did It

At times, living on one income was stressful and even depressing. I wasn’t bringing in fat stacks of cash as a second year teacher, so we had to be very intentional about how we spent and saved every dollar I earned. We also decided to focus on the big things in our budget and doing everything we could to keep them in check. We didn’t overlook the little things, either, but we knew that we could find more bang for our bucks by focusing on the big things.

First, we made a unique budget every month and pledged to stick to it. I tracked every single transaction every single day using Gazelle Budget so we could always have an accurate picture of our spending for the month. When all of the budgeted money had been spent for a category, we literally didn’t spend another cent. If it was crucial, we decreased the budget for another category to add more money to categories in need.

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Second, we constantly looked for ways to save as much money as possible on groceries. This category was the second largest part of our part next to our rent, and we knew that keeping food spending under control would be important. We shopped mostly at Aldi and picked up sale items at a few other local stores. Leftovers became our go to meals a few nights per week, and we never went out for lunch. On average, we spent between $350 and $400 per month on groceries. Some months we really stepped up our game and spent as little as $250.

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Third, my wife and I found a place to rent for far less than the average rental price in the area. Before we got married, I spent at least five hours per week searching listings and making phone calls about available apartments and condos. My hard work paid off when we found a nice 3 bedroom, 1.1 bathroom condo for rent for 25% less than the area average. Avoiding corporate apartments saved us thousands of dollars over the four years we rented.

What We Didn’t Do

Now that we both work and own a home, I often think back to the days when we lived on one income. We were definitely frugal in many ways, but we could have cut back even more in many areas.

First, we paid for cable TV and DVR service with Comcast. It was one of the few luxuries we allowed ourselves, to be honest, and even though our cable and internet cost us around $90 per month at the time, it served as our main entertainment. We rarely went out to the movies, checked out concerts, or even went bowling.  So even though cable was expensive, it probably helped us avoid temptation to spend more money.

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Second, we still ate our at restaurants once or twice per month. Looking back, I can’t really justify this spending. It would have been cheaper to cook at home, but we honestly cherished the few nights out each month. And most of our meals out were using discounts found on Groupon or Restaurant.com, which usually helped us eat out for under $20.

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Third, we still stopped for an occasional trip to Starbucks each month. It’s obvious that drinking coffee is much cheaper when you do it home, but we did a good job of keeping coffee spending in check overall. Again, we knew that focusing on the big things would have a bigger impact on our budget so we didn’t sweat the occasional $4 latte.

You Can Live Well on One Income

If you gain anything from reading this article, I hope you see that it is possible to live on one income without accepting poor quality of life. My wife and I only lived on one income for a little less than a year, but we could have done it much longer. We didn’t suffer or go without necessities. We didn’t even pursue ways to make extra money!

Related:

21 Simple Ways to Make Extra Money Even If You’re Busy

Maybe living on one income is your choice, and maybe it’s not. It’s important to remember that more money isn’t always the answer to your problems. Dual income households have problems, too. How you will live comes down to personal preference and individual circumstances whether you have one income stream or several.


Do you live on one income? What tips and tricks help you to do so?

Want To Be Rich? Maintain Great Relationships

By most accounts, I have enjoyed a good life. I completed high school, college, and graduate school with honors. During a period of intense budget reductions and overall uncertainty within the educational landscape, I secured my first job teaching music after beating out over 400 other applicants. Life hasn’t been perfect or without trial and failure, but simply put, it has been good. I’ve been pink slipped. I’ve pursued paths which only led to misery and disappointment. Great relationships with family, friends, and my wife have been my foundation.

I cannot honestly take credit for the good things in my life. Like most men will readily admit, I would be completely lost without my wife. When I met her at age 17, my life took on an entirely different trajectory. She challenged me to grow in kindness, patience, and generosity, and together we became adults and cast a unified vision for our life together. Because of her, I am hopeful that we will leave an admirable legacy.

Sometimes I marvel at how life has changed over the last 13 years. Yet my wife and I are still the same kids who fell for each other during countless summer walks on the Lake Michigan shoreline. Things have changed, but we haven’t.

It has become clear to me that the most important foundation for financial success, or life success in general, is great relationships. Personal experience hashes this out time and time again, and empirical evidence supports it, too. Robert Waldinger, Director of the Harvard Study of Adult Development, expounds upon this fascinating truth in the fantastic TED Talk video below.

Waldinger’s study, which commenced in 1938, has tracked the lives of 724 men, carefully observing their work lives, families, and overall happiness.  The results are hard to ignore:

So what have we learned? What are the lessons that come from the tens of thousands of pages of information that we’ve generated on these lives? Well, the lessons aren’t about wealth or fame or working harder and harder. The clearest message that we get from this 75-year study is this: Good relationships keep us happier and healthier. Period.

We’ve learned three big lessons about relationships. The first is that social connections are really good for us, and that loneliness kills. It turns out that people who are more socially connected to family, to friends, to community, are happier, they’re physically healthier, and they live longer than people who are less well connected. . . 

And we know that you can be lonely in a crowd and you can be lonely in a marriage, so the second big lesson that we learned is that it’s not just the number of friends you have, and it’s not whether or not you’re in a committed relationship, but it’s the quality of your close relationships that matters.

And the third big lesson that we learned about relationships and our health is that good relationships don’t just protect our bodies, they protect our brains.

Relationships Are A Contributor to Financial Health

FinanceSuperhero has always been  a blog focused upon Restoring Order to the World of Finance, but in a larger sense, it is also about the pursuit of happiness. At the end of the day, I would readily choose a life of happiness and poverty over one of riches and despair. Vast sums of money maintain no appeal without a quality, happy life and my wife to enjoy it with me.

Quality relationships lead to quality in all areas of life, including finances. So how do the three findings of the Harvard study relate to financial health? I believe the following points tie everything together:

1. Well connected people maintain proper priorities

It has been said that we are often the sum of our five or ten most influential friends and family members. Surround yourself with good company, and you will be in good shape, reason dictates. Extract this principle to a higher level, and your spouse becomes vitally important.

2. Quality influence matters, too

I have a wide network of friends, primarily because my wife taught me to embrace my inner socialite. Yet a big reason for our solid, if unspectacular, financial position is due to the quality influence of our closest friends and family. We have intentionally surrounded ourselves with other people who challenge us while pursuing a similar path.

Without a doubt, my limited life experience shows that these principles are true.


How have your relationships supported your financial well-being?

 

The Emotional Toll of Insurmountable Debt

Most people consider debt a necessary evil. For them, it’s a source of money to pay for a certain class of living. However, some borrowers fail to control their reckless spending until they are underwater and are on the verge of breaking their banks.

Debt facts that confirms dangerous levels

  • According to the Federal Reserve reports published in 2010, the country is reeling under $2.4 trillion unsecured consumer debt. Hence, each individual owes around $7,800 debt. (FinanceSuperhero note: Recent estimates indicate much higher figures!)
  • At least 1 out of every 10 person owns more than 10 credit cards.
  • Almost 2.5 million Americans take advantage of the credit counseling agencies each year to avoid bankruptcy.

To climb out of the debt hole, one of the foremost tasks is to understand the emotional distress it causes to its victims and how to deal with them successfully.

Debt and Its Emotional Manifestations

Emotional Effect #1: Depression

Even though you’ve worked hard in developing a debt repayment plan, your debt woes could land you in a tight spot. For example, your car may need an urgent repair and you may find yourself back to square one.

In this situation, you could feel depressive and may become hopeless about your goal to become debt free. Your depression could prevent you from taking further progressive steps that would have removed your financial hurdles.

Dealing with Depression

  • Positivity – While hurdles are part of life, don’t let them ruin your finances and your retirement as a result. You must acknowledge all the progressive steps you’ve made to date and how you plan to continue doing so. Once you start paying off your debts one by one, a sense of achievement will grip you. This will inspire you to push for better debt management efforts.
  • Cost reduction – One of the most crucial steps in dealing with debt is to reduce your personal as well as household costs. You’ll have to identify and plug the holes in your budget to stop money from slipping out of your pocket unnecessarily.
  • Safe credit – To become better at managing your insurmountable debt, you can look for safe credit or get a new credit card with lower rate of interest. If your credit score is good and you’ve been making regular monthly repayments, then you can request your creditor to reduce the interest charged on your balances. Alternatively, you may seek to transfer your outstanding balances to a 0% balance transfer card. The lower your card’s interest rate, the lower your monthly debt repayment amount will be.
  • Debt repayment – You’ll have to set a debt repayment date and make it your goal that has to be accomplished under a stipulated time frame. You must calculate how much debt payment you can afford based on your total monthly household expenses to that of your monthly disposable income.

Emotional Effect #2: Anxiety

The moment you’ve got a clear understanding of your indebtedness, anxiety may creep in and you could fear for the worst. These emotions can arrest your senses, but you can’t let that happen to you. Hold on to your nerves as much as you can. Debt problems, though they are menacing, can still be tamed.

The antidote to anxiety 

  • Minimum payments – Make minimum payments to keep your creditors happy. If you miss a payment deadline or are late for payments, then inform your creditors about your hardships. You can request to skip a payment or negotiate for an extension, citing your favorable payment history.
  • Budget – Follow a budget, even when you’re not in debt. More so, if you fear that you’d default on your loans in the near future. Mostly, your debt problems could arise because of absence of a budget and not due to cash crunch. When you have a budget, you’ll have a real place to keep track of your income as well as your expenses.
  • Financial cushion – You’ll have to ensure you have a cash reservoir to cope with emergency costs. It can be done by selling off your unused household/personal items or by working on the side after regular working hours. Say, you’ve taken up a side gig where you’re making $150 per week. Summing them all you’ll have a neat $600 extra under your belt. Stash that money away as an emergency fund.
  • Cash transactions – Avoid using the plastic money as much as possible and use cash to pay for most of the items. Credit cards are expensive and they can adversely affect your FICO score. The reason is your credit utilization ratio (it’s the ratio of your credit card debt and credit limit) will increase with the frequent use of credit cards. You needn’t cancel any of them, but keep them lying idle.

Emotional Effect #3: Debt denial

Suppose you’re using your credit card to make new purchases. On the other hand, you’re just making the minimum payments thinking that your finances are under your control.

But, in reality, your financial condition is turning from bad to worse with each new credit card purchase you make.

Denial can be defined as a defense mechanism wherein you fail to acknowledge reality and evade accepting mistakes you’ve committed. Some instances of debt denial are: scores of unopened bills, lack of awareness about total outstanding balances owed and living life as per the adage: You only live once.

Some proven ways to overcome debt denial

  • Accept and don’t duck your responsibilities – Face the reality, even if it’s harsh and don’t just attempt to save your face. Go through your credit card statements or online accounts. Jot down all your financial liabilities like current balances, total debt owed, and other account details. Organize your documents and work out a proper debt repayment plan. Talk to a financial planner, if needed.
  • Face your challenges head-on – Once you’ve acknowledged your debt problems, it’s time to take stock of the situation. You know that behind all your lame excuses stands a real demon called debt. You’ve maxed out your credit card accounts, missed payment deadlines, owe steep credit card balances, and so, it serves as a premonition of an impending financial disaster.

The bottom line here is that you’ll have to stop being reckless with your money. You must identify the factors that triggers you to spend. It could be your urge to keep up with the Joneses or your financial frenemies.

Lastly, don’t expect your ride through your debt repayment days to be peaceful. Instead, it’s more of a roller coaster ride of emotions, but thrilling, nevertheless. The silver lining here is that you’ll be reassured after having seen your debt burden go off your shoulder.

Today’s guest post was contributed by Barbara Delinsky, a financial writer who has written for several blogs. She specializes on ghost writing and has an active social media presence. For any query, you can email her at bdelinsky00@gmail.com.


How has debt affected your emotions?

APIs Are Driving FinTech Innovation

Today’s post, “APIs Are Driving FinTech Innovation,” is sponsored by Misys, a leader in the area of financial software.

APIs are driving FinTech innovation

APIs are the backbone of modern communication methods; and the infrastructure used by developers to create user-friendly applications for smartphones, tablets, laptops and websites that access and link different content and services.

Are APIs the future?

APIs or Application Programming Interfaces aren’t necessarily a new concept as they have been used for some time to interconnect system components across varying sectors. However, previously most companies, such as banks or financial institutions would use closed API’s that were only available to add benefits to certain users. This served a purpose at the time, however the current climate has forced them to re-evaluate the use of API’s to ensure they are more flexible, adaptable and resourceful. The modern consumer now wants a service with APIs that provides access to all the data they need in one easy application, which has resulted in open APIs and API sharing, making services publicly available to anyone who wants to use them.

In the context of financial services, open APIs are allowing financial providers to give users public access to a wider range of data and create a better user experience in the process. For many, APIs are being tipped as game changers and will mould the future for financial software and financial services, working to drive innovation in FinTech companies as they strive to create new, customer-centric services and products.

An emerging economy

api-fintech

This wave of open APIs has created a whole new API Economy that wouldn’t be possible without the wave of open APIs and API sharing. Much of the emergence of the API Economy has been brought about by consumer apps across FinTech, availability of data from government and regulatory bodies, as well as independent companies and better cloud services, to name but a few.

And interestingly the finance and payment sectors currently have the highest number of APIs currently available in the market, which span across a wide range of different services. The main service sectors using finance APIs include payment gateways and processing; authentication and verification; payment acceptance; investing and lending; remittance; accounting and Bitcoin.

As a result, it is now becoming common practice for FinTech companies to use third party cloud-based services to host their services, which enables them to give users swift and simple access to relevant data as if it was being accessed from an on-site database, rather than a virtual cloud. This has meant that by collaborating with other FinTech partners and embracing new financial software capabilities for APIs means that FinTech companies are driving much more innovation. By combining concepts with open APIs across FinTech software, these companies are transforming the way users interact with their financial services. This results in a more user-focused product or service that adds greater value to the end user; and makes interconnecting different financial services seamless.

In turn, this collaborative approach amongst FinTech companies and banking institutions also fuels increased creativity and innovation with the products they develop, which will only work to grow the API Economy further and revolutionise the industry, while also improving the customer’s experience.

The power of payment processes

api-fintech-paymentSome of the cornerstones of API development are related to payment processes, allowing users to pay for a wide range of goods via smartphones. Traditionally if you were using a certain debit or credit card to make a purchase online from your phone for example, you would be required to input your card details, then wait for the merchant to contact your bank to authenticate the payment, which would then be processed in a number of hours, sometimes even days.

However, the latest innovations in FinTech API’s mean that all this information relating to payment processes are now readily available through shared APIs. MasterCard for instance, offer a number of APIs that allow users a variety of choices for payment, money transfers and e-commerce all geared towards making transactions as easy, secure and transparent as possible. While UK start-up GoCardless has created an API infrastructure that allow small businesses to set up their own direct debit payment system. This means they can receive direct debit payments without the need to pay credit card fees or set up a merchant account.

With a wide number of open APIs already currently available and in use by FinTechs and some banks, we are now entering an exciting period in financial advancement. With open APIs, FinTech companies should be better positioned to adapt to the ever-changing demands of consumers and no doubt change the financial sector landscape forever.


Readers, how have the latest FinTech trends impacted you?

How to Set Better Financial Goals

Today’s post originally appeared on FinancialJiuJitsu, a fine blog hosted by Dave and Don. If you haven’t already done so, check out their recent guest post on FinanceSuperhero and visit their blog.

In order to set better financial goals, ensure that you are asking the right questions. Plotting your course also begins with understanding the present.


The Problem With Goals

In today’s fast-paced world, we want it all and we want it right now. Whether it is experiences or possessions we seek, we are in a hurry to satiate our desires. Each new experience provides momentary relief, until we begin craving the next big thing. So we quickly set new goals after achieving others.

This is not necessarily a good or bad thing on its own merit. Goals are great, and we all should aim for progress. After all, if you aim for nothing, you just may hit it. However, in an effort to better ourselves through a perpetual growth-mindset, we have uprooted contentment from our lives in alarming fashion.

I’ll be the first to admit that when I find myself in an unhappy mood or place in life, it is because I am not progressing. Tony Robins suggests that happiness is rooted in progress, and I am beginning to think that he is correct.

However, it would be an oversimplification to state “progress = happiness.” I’m no mathematician, but it seems a better equation might be “progress + contentment = happiness.” Yet the balance between progress and contentment can be very difficult to navigate.

Most of us don’t try to manage this balance, instead opting to chase the next achievement on the horizon. In chasing “the next,” we are aiming for target. But is the target always meaningful, worthy, or worthwhile?

Chasing the Wrong Goals

Last week, I started a third round of co-facilitating of Financial Peace University, Dave Ramsey’s popular personal finance course. In the opening lesson, Ramsey makes light of a road trip he was on with his wife. Ramsey was speeding along on the freeway at 75 mph, as the story goes, when his wife pointed out that they had been traveling in the wrong direction the entire time. “Yes, but we’re making great time,” Ramsey retorted.

Our goals are often just as misguided as Ramsey’s road trip toward the wrong destination. We become consumed by the efficient pursuit of our goals we give too little thought to the final destination. After all, the end destination is far more important than the journey itself, in most cases.

The Right Balance

So where does our propensity for chasing targets speedily and chasing the wrong goals intersect? Often, there is a cause-and-effect relationship.

We would rather be chasing something rather than taking the time to figure out what is most worth chasing. In this sense, perhaps our goals are sometimes misguided.

How to Set Better Financial Goals

Ultimately, the path toward setting better goals is rooted in understanding what we wish to achieve. This sounds so simple, yet we are all guilty of aiming at the wrong target from time to time. Sometimes the mistake is discovered early enough, and other times far too late. This can be especially true with financial goals.

I recommend asking yourself the following questions and exploring the answers in an in-depth manner in order to set better goals.

*What are your current financial goals? List both long and short-term goals.

*What are your primary values?

*Do your current financial goals align with your values?

*Do your short-term financial goals align with your long-term financial goals? Lack of alignment may be indicative of problems.

*How do you measure progress with regard to financial goals? Do you cut corners to achieve progress?

*What new goals are indicated by my list of values? Which existing goals should they replace, if any?

Admittedly, some of these questions are easier to answer than others. My wife and I are working through the answers to these questions right now, as we anticipate that some of our goals may be changing a bit in the next few years.

By asking ourselves these tough questions and engaging in an honest dialogue, we are increasing our odds of pursuing the right goals, i.e. the goals which are right for us. As time presses onward, these questions and the ever-changing answers will provide us with a framework to wisely manage the components of our financial picture.

Of course, plotting a course to where you would like to go begins with an accurate understanding of your current financial situation. For this reason, we use Personal Capital on a regular basis. Personal Capital is the best FREE tool to monitor your entire financial outlook in one central location. If you don't have an account set-up at this time, I invite you to do so by following this handy link.


How do you establish your financial goals? Have you ever experienced frustration in goal-setting?

How to START on the Path to Retirement

The average American dreams of a lavish retirement but has no idea where to start on the path to retirement. Simple research reveals that most workers are ill-prepared for retirement in every single age bracket. Some haven’t even begun saving for their Golden Years.

The educator within me developed the following acrostic, which is intended to remind you that it is easy to START on the path toward retirement:

Start as soon as possible
Target investments with low fees and strong track records
Aim to minimize risk
Rely on your strengths
Trust your plan and stick to it

The most important step on the path to retirement is to START. Follow these steps to set your course.

Start on the path to retirement as soon as possible

It is no secret that getting an early start on building your net worth is one of the most basic fundamentals of retirement planning. Consider the following illustration:

Ben and John are both 20 years old. Ben begins investing $250 per month in index funds, and he continues until he is 30 years old, at which time he never invests another cent, allowing compound interest to grow his money until retirement at age 59 ½. John decides to lease a vehicles for $250 per month during this same 10 year window, and wisely snaps out of it when he reaches age 30, at which time he begins investing $250 and continues until age 60. For the sake of argument, let’s assume that both gentlemen invest in similarly-performing index funds, which average a 10% return each year. Surely John must catch up to Ben? Take a look below:

Ben’s Investments John’s Investments
Age Contribution Interest Balance Contribution Interest Balance
20 $3,000.00 $300.00 $3,300.00 $0.00 $0.00 $0.00
21 $3,000.00 $630.00 $6,930.00 $0.00 $0.00 $0.00
22 $3,000.00 $993.00 $10,923.00 $0.00 $0.00 $0.00
23 $3,000.00 $1,392.30 $15,315.30 $0.00 $0.00 $0.00
24 $3,000.00 $1,831.53 $20,146.83 $0.00 $0.00 $0.00
25 $3,000.00 $2,314.68 $25,461.51 $0.00 $0.00 $0.00
26 $3,000.00 $2,846.15 $31,307.66 $0.00 $0.00 $0.00
27 $3,000.00 $3,430.77 $37,738.43 $0.00 $0.00 $0.00
28 $3,000.00 $4,073.84 $44,812.27 $0.00 $0.00 $0.00
29 $3,000.00 $4,781.23 $52,593.50 $0.00 $0.00 $0.00
30 $0.00 $5,259.35 $57,852.85 $3,000.00 $300.00 $3,300.00
31 $0.00 $5,785.29 $63,638.14 $3,000.00 $630.00 $6,930.00
32 $0.00 $6,363.81 $70,001.95 $3,000.00 $993.00 $10,923.00
33 $0.00 $7,000.20 $77,002.15 $3,000.00 $1,392.30 $15,315.30
34 $0.00 $7,700.22 $84,702.37 $3,000.00 $1,831.53 $20,146.83
35 $0.00 $8,470.24 $93,172.61 $3,000.00 $2,314.68 $25,461.51
36 $0.00 $9,317.26 $102,489.87 $3,000.00 $2,846.15 $31,307.66
37 $0.00 $10,248.99 $112,738.86 $3,000.00 $3,430.77 $37,738.43
38 $0.00 $11,273.89 $124,012.75 $3,000.00 $4,073.84 $44,812.27
39 $0.00 $12,401.28 $136,414.03 $3,000.00 $4,781.23 $52,593.50
40 $0.00 $13,641.40 $150,055.43 $3,000.00 $5,559.35 $61,152.85
41 $0.00 $15,005.54 $165,060.97 $3,000.00 $6,415.29 $70,568.14
42 $0.00 $16,506.10 $181,567.07 $3,000.00 $7,356.81 $80,924.95
43 $0.00 $18,156.71 $199,723.78 $3,000.00 $8,392.50 $92,317.45
44 $0.00 $19,972.38 $219,696.16 $3,000.00 $9,531.75 $104,849.20
45 $0.00 $21,969.62 $241,665.78 $3,000.00 $10,784.92 $118,634.12
46 $0.00 $24,166.58 $265,832.36 $3,000.00 $12,163.41 $133,797.53
47 $0.00 $26,583.24 $292,415.60 $3,000.00 $13,679.75 $150,477.28
48 $0.00 $29,241.56 $321,657.16 $3,000.00 $15,347.73 $168,825.01
49 $0.00 $32,165.72 $353,822.88 $3,000.00 $17,182.50 $189,007.51
50 $0.00 $35,382.29 $389,205.17 $3,000.00 $19,200.75 $211,208.26
51 $0.00 $38,920.52 $428,125.69 $3,000.00 $21,420.83 $235,629.09
52 $0.00 $42,812.57 $470,938.26 $3,000.00 $23,862.91 $262,492.00
53 $0.00 $47,093.83 $518,032.09 $3,000.00 $26,549.20 $292,041.20
54 $0.00 $51,803.21 $569,835.30 $3,000.00 $29,504.12 $324,545.32
55 $0.00 $56,983.53 $626,818.83 $3,000.00 $32,754.53 $360,299.85
56 $0.00 $62,681.88 $689,500.71 $3,000.00 $36,329.99 $399,629.84
57 $0.00 $68,950.07 $758,450.78 $3,000.00 $40,262.98 $442,892.82
58 $0.00 $75,845.08 $834,295.86 $3,000.00 $44,589.28 $490,482.10
59 $0.00 $83,429.59 $917,725.45 $3,000.00 $49,348.21 $542,830.31

At age 59 and approaching retirement, Ben will have invested a total of $30,000 and hold a portfolio valued at $917,725.45. John will invest $90,000 over 30 years -three times what Ben invested-yet he will only hold a portfolio valued at $542,830.31! John never caught up due to the avalanche of compound interest that worked in Ben’s favor.

What secured Ben’s advantage and prevented John from catching up?

Time.

Target investments with low fees and strong track records

Recently, I was talking with my Dad about his 401k. Fortunately, it is doing well, as he and I rebalanced his portfolio a few years ago in order to take advantage of mutual funds with more successful track records and lower fees. Simple awareness and diligence saved Dad money.

This, however, isn’t the norm. According to a 2010 AARP study, a staggering 70 percent of surveyed 401k participants were not even aware that they paid fees to maintain their accounts. More specifically,

When plan participants were asked whether they pay fees for their 401(k) plan, seven in ten (71%) reported that they did not pay any fees while less than a quarter (23%) said that they do pay fees.  Less than one in ten (6%) stated that they did not know whether or not they pay any fees.

Why are 401k participants so unaware of fees paid? It turns out, according to Kipplinger, that it isn’t entirely their fault.

Mutual fund returns in 401(k) plans are normally reported as net returns, meaning that fees for managing your investments are subtracted from your gains or added to your losses before calculating the annual return. Other costs, such as administrative and record-keeping fees, are often divvied up among plan participants but are not explicitly listed on individual investment statements.

My recommendation: Do not invest in anything unless you fully understand every component of the individual investment, including the structure of fees. When evaluating your options, seek funds with a strong track record and low fees. Most people should consider investing within an automated portfolio service, such as Betterment, which minimizes fees, improves diversification, performs automated rebalancing, and provides greater returns.

Aim to minimize risk

Of all the recommendations contained in the above acrostic, this one is perhaps the most difficult to act upon. To manage investment risk requires many steps: an understanding of what risk truly is and is not, an understanding of personal risk tolerance, and methods to evaluate risk.

In practical terms, risk is a phenomenon that most humans naturally seek to avoid. It is the reason that I personally do not drive 20 miles per hour beyond the established speed limit in inclement weather or eat fried foods at every meal of my day. I associate risk with a consequence which is to be avoided at all costs.

When it comes to investing, however, a certain degree of risk is necessary. As Investopedia notes, investment risk is commonly defined as “deviation from an expected outcome.” In the broadest possible terms, an investor expects to profit from her investments; of course, the risk is that the opposite –loss– may happen.

Generally speaking, while personal risk tolerance varies from investor to investor, the Prospect Theory asserts that most investors experience greater pain with investment loss than euphoria associated with gains. In other words, losses are far more emotionally scarring than ego-boosting gains.

As a result, risk tolerance is often dependent upon an investor’s past experience. For example, a relative who shall remain nameless recently shared that she and her husband are keeping all of their non-pension assets in low-interest bearing CDs because they cannot bear the risk of loss associated with mutual funds and individual stocks. As she explained it, they had been burned in the past decade and wanted to avoid a repeat occurrence at all costs.

Among many methods to evaluate risk, one of the most commonly utilized methods is standard deviation. As described by Morningstar, “Standard deviation simply quantifies how much a series of numbers, such as fund returns, varies around its mean, or average.” Based upon this information, an investor can examine a particular fund and weigh the risks of an investment by observing the fund’s performance highs and lows over a set period of time. The more a fund’s returns change over time, the greater its standard deviation. At the same, an investor who is armed with standard deviation data is hardly guaranteed to make money, as even funds with low standard deviation can still lose money, theoretically speaking.

For most investors, understanding risk, evaluating personal risk tolerance, and ultimately seeking to minimize risk will be vital to remaining on the path to retirement.

Rely on Your Strengths

While most people would prefer to reach financial independence early, few are willing to put in the effort and practice the self-discipline necessary to do so. An overlooked key to achieving financial independence is leveraging your strengths to maximize the likelihood of your success.

As a culture, Americans tend to strive to improve upon their weaknesses as a primary means of self-improvement. In graduate school, I read StrengthsFinder 2.0 and my paradigm was forever changed. Recent theory suggests that you should strive to improve upon your strengths rather than minimize your weaknesses because you are more likely to significantly build upon your strengths than you are your weaknesses. While marginal improvement in areas of weakness is possible and even beneficial, the overall impact of these improvements pales in comparison to building upon your strengths.

Related: Forget About Working On Your Weakness, Play to Your Strengths: Your (Overwhelming) Reaction To The Idea by Paul B. Brown

Trust your plan and stick to it

Lastly, while the path to retirement requires patience, it can be tempting to ditch your plan in favor of the latest and greatest investment trends. Don’t yield to the hype. It is important to formulate a plan based on your goals and desires, not those of someone else.

Conclusion

Whatever your life and retirement plans may be, I strongly advise you to find your passions and pursue them with enthusiasm. Perhaps the best example of this kind of life is runner Dean Karnazes. When reading Karnazes’s book Ultramarathon Man: Confessions of an All-Night Runner, one  piece of advice given to the author by a friend stuck with me:

Life is not a journey to the grave with the intent to arrive safely in a pretty and well-preserved body, but rather to skin in broadside, thoroughly used up, totally worn out, and loudly proclaiming: Wow!! What a ride!

While I note the extremism of this quote, particularly in its application to athletic pursuits, I have found that the underlying enthusiasm of this philosophy makes it applicable to all pursuits, even those which are financial. Pursuing the path to retirement may leave  us worn out, but we would be wise to enjoy the process every step of the way. All you have to do is START!


Are you staying on track with your chosen path to retirement?

Note: Today’s post was also featured as a guest post on StretchaDime.com – head over to the site to check out some of Michael’s excellent work!

 

Crafting the Key That Unlocks Life

Today’s guest post is written by Ricard Torres, the creator of Escaping to Freedom. He helps people stuck in 9-5 jobs to become financially independent by starting their own online business, investing what they save, and focus on happiness.

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Crafting The Key That Unlocks Life

Remember when you were a kid and had big dreams of becoming an astronaut, doctor or professional pizza eater? Things were simple back then; you had plenty of time to play and see your friends. As long as you did your homework and behaved well you had nothing to worry about. Life was easy, and you were convinced that it would be even better when you grew up.

Then real life happened. You grew up and were struck by the full force of adult life. A whole barrage of responsibilities had been thrust upon you: feeding yourself, paying taxes, changing the oil in your car and, of course, going to work.

You now realise that working takes up too much time from the rest of your life. The things that you had dreamed of doing now seem very far away. The life that you always wanted has been locked away inside a cage, held shut by tight chains.

But there’s also good news!

You see, I like to think of life like a Disney film. Everything seems perfect at first, then the big fallout happens, and a happy ending doesn’t seem likely. At least that’s what our protagonists think – we, the audience, know everything will work out in the end.

In the case of your life, the big, picturesque villain is money. But it’s a villain that comes to his senses at the end of the movie and ends up becoming the unlikely hero!

Let me explain. You need money in order to live, so you have to spend 40+ hours of every week working. Maybe more. You could reach the conclusion that money – or the need for it – is keeping you from your dream life…

But you’d only be half-right. Money can both make you a slave and free you, as contradictory as that sounds.

If you’re reading Finance Superhero I’m sure you already know that you can do more with your money than spend it. Saving money can make you free, as was eloquently explained in this article. Save enough and you’ll never have to work for money again. Once you know this, you’re ahead of the majority of your peers, and well on your way to becoming truly free.

Crafting your money key

If you want to free your dream life from that dark cage you’re going to need to craft a key. I also really hope that you like metaphors because there’s one coming!

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Firstly, you’re going to need to know the lock inside and out. What is preventing you from living the life of your dreams? How much money do you need to live the life you desire – one with all the time to pursue only the things that make it better. Make sure you know that number.

Use the vision of your perfect life to carve a cast for your key. Make sure it’s the exact same shape as the lock, and that it’s nicely polished. In other words, learn as much as you need and get better at making money and saving it. This will be a long journey, so you’ll need to learn and improve lots of skills: frugality, investing, self-marketing, resilience and – forgive me for using a buzzword – hustling.

Next, you’ll need to gather the metal that will eventually become your key. You’ll need to make sure that you have enough to fill the entire cast and produce a solid key that won’t break on the first turn. In other words, you’ll have to accumulate money. Quite a lot of it. You’ll have to put your money-making skills to the test.

Finally, once you have all the components of your key, you can get to work. Melt all the metal you’ve collected, pour it carefully into the cast and wait for it to cool. This will take a while, so you’re going to have to be patient – very patient. You may feel tempted to use the key before it has fully hardened because a lot of time has already passed, but it’s always better to be extra safe. Put another way, it’s important to make sure you have accumulated enough money before you take the plunge and quit your job.

Money gives you choice

Luckily, on this journey to wealth and freedom, nothing is just black or white. You don’t have to wait until you have a full nest egg to start experiencing freedom – the more money you have, the more options and choices you get.

As soon as you save enough to cover around 6 months of expenses, you have a significant safety net that will bring more peace into your life. The fear of losing your job will be greatly diminished, as you won’t be in as much need of the income that it provides

When you get to a couple of year’s worth of expenses, you get some serious options. You could take a sabbatical year to explore your favourite part of the world, or to try a new career. Maybe you’d like to take 3 months off work to go and do some volunteering work. You won’t need money urgently, so even if you compromise your job, it won’t be the end of the world.

Money gives you options in life. Options give you the confidence to make bolder choices without fear. I’m sure you know someone who managed to get an amazing promotion because they had the courage to ask for it. Here is the best guide I’ve read about asking for a promotion, written by Ramit Sethi – you may be ready to ask for one now!

As you become more and more wealthy, you’ll win the freedom to change your lifestyle to look more like your ideal life – much more in line with the life you dreamed of as a child. After all, money causes many of life’s stresses, and is one of the leading reasons for divorce, according to this article in the Huffington Post. If money stops being a cause of worry and problems and becomes a source of freedom and happiness, life becomes a much simpler, happier, smoother ride.

Isn’t that what we all want?

I now want to hear from you. How has money given you freedom? Let me know in the comments below!

For more articles like this, and to follow my journey to financial independence make sure you head over to Escaping to Freedom.

Legion of Super-Posts – Issue 6

After a one week hiatus, The Legion of Super-Posts returns! This series chronicles a number of posts which piqued my interest due to their uniqueness, insightful analysis, or emotional impact. I hope to share articles which you may not have read during the week while enhancing a sense of community and promoting other bloggers.

The Legion of Super-Posts

In this week’s issue:

Fervent Finance – Everyday I’m (Not) Hustlin’

FF touches on an issue that has been on my mind a lot lately – charting your own path without concern for what others are doing.

$mart Family Money – Save Money and Time by Lowering Your Standards

Cindy writes, “I think oftentimes when modern conveniences make a chore easier, instead of enjoying the extra time created by automation, we raise our standards instead.”

The Wealth Junkie – How Do You Know When You’ve Made It Financially?

Brandon writes, “You’ve reached that milestone, achieved your goals, but do you feel you have finally made it financially? Remember, the accomplishment is totally subjective. We determine what is considered financially successful.”

The Millennial Budget – Actionable Ways to Change Your Life Financially

Stefan writes, “Most of the time the problem is ourselves but we hate to admit it. We always find something else to blame because it is the easy way out. Acknowledge that only you can change your situation and your money will thank you later.”


Enjoy the week ahead, everyone!

Adult Dorms – The Solution for Broke and Lonely Adults?

Would you consider living in adult dorms if it improved your cash flow and social life?

We live in communal arrangements in college. Many do it again as senior citizens. Why not live in adult dorms during our prime years, too?

I have had discussions regarding this topic twice in recent months.

First, in response to a social media post regarding a home inspection I had attended, a friend remarked that the home in question was big enough for multiple families. My friend was correct in his assessment. This 5 bedroom, 4 bathroom, 3500 square foot home would have provided more than enough space for me, Mrs. Superhero, my friend, his wife, and their teenage daughter. My friend even suggested that his family could live on the lower level.

Last week, I was touring homes with two investor clients who are looking to rehabilitate a home.  Our conversation shifted to Michael Jordan’s massive estate in Bannockburn, Illinois, which has been on the market for quite some time. The $14.8 million home features 9 bedrooms, 15 bathrooms, a full basketball court, tennis courts, nearly 33,300 square feet, and a $190,000 annual tax bill. My clients and I joked that we could purchase the home, along with 50 of our closest friends, and build an adult dorm community.

A few days later, an article headline from The Atlantic popped up in my Facebook feed:

Dorms for Grownups: A Solution for Lonely Millennials?

Before browsing the article, I thought to myself, “Is this really a thing?!”

Apparently, adult dorms may be the way of the future.

Adult Dorms

Saving Money Through Adult Dorms

It is no secret that housing costs make up the largest part of the average single millennial’s budget. Those costs obviously vary by location, but in many city neighborhoods, rental rates for small studios and one bedroom apartments can easily top $2,000 per month.

Many adult communal living arrangements seek to provide relief from high rent prices, offering nearly 50 percent savings to prospective tenants. Some spaces, such as WeLive and Purehouse in New York City, actually come at an increased cost when compared to a studio apartment. However, in a city like San Francisco, for example, communal living could surely cost less than the median rent price which currently hovers near $3,400 per month.

Adult communal living could no doubt help many adults save money if implemented wisely. The average adult could save on the following:

*rent
*utilities
*food (through sharing costs and reducing food waste)
*miscellaneous social expenses (staying in vs. going out)

Perhaps the idea of adult communal living doesn’t seem quite so ludicrous at this point.

Communal Living as a Cure for Loneliness

It is no secret that the average person today is plugged in and reachable virtually 24 hours per day, 7 days per week. Blame Steve Jobs, Mark Zuckerberg, or simple human insecurity, but don’t deny the truth: many people abhor being alone, and technology is largely to blame.

Adult communal living appears to solve that problem (while potentially causing others- more on that in a moment). Think about it. Currently, if I find some rare free time and begin to miss interaction with others, I instinctively reach for my phone and text a buddy or two. If I lived in a community with other adults, I could truly satisfy my need for interaction and play some nine-ball or table tennis with the fellas next door.

That doesn’t sound half bad.

A communal living set-up would also lesson much of the sting of FOMO (fear of missing out) in our lives. If I wondered what my friends were doing without me on a Saturday night, I could investigate myself quite easily in many cases. After discovering that Brian and Dan were really just watching Making a Murderer for the fifth time in six months, I could relax and move on with my night. OK – who am I kidding? I would pull up a chair, shed a few tears for Brendan Dassey, and gripe about the incompetence of Manitowoc County. But I digress.

Adult Dorms Treat the Symptoms, Not the Problems

While we have seen that communal living has its benefits to those who embrace the lifestyle, I strongly believe that it is a system which treats the symptoms of money problems and loneliness without addressing the real problems.

Many people live in dorms for a portion of their college career, if not the entirety. I agree with the basic benefits of dorm living as articulated in a brief article on Kent University’s website:

*convenience
*opportunities to develop relationships
*live in an environment which fosters personal and educational growth
*safety
*opportunity to learn and experience diversity, self-respect, ethical behavior, and social norms
*possibly save money
*possibly improve academic achievement

These benefits indicate a greater purpose for collegiate communal living. It encourages students to take the next steps in becoming responsible citizens. In my opinion, adult communal living stunts growth and prevents people from developing the independence needed to thrive professionally, socially, and financially.

If an adult faces financial troubles, it is most often related to irresponsible spending, insufficient income, or a combination of the two. At best, adult communal living seems to disguise social immaturity by rationalizing it in the form of “saving money.” It also enables young adults to avoid their ultimate fear of growing up and becoming fully-independent contributors to society.

As today’s progressive minded culture holds on to impractical social structures and rejects societal norms which have been developed and validated over decades and centuries, we would be wise to recognize the dangers of adult communal living. Financial woes and bouts of loneliness are deeper problems which cannot be masked by living like teenagers. This is treating the symptoms, not the problems.

Real Solutions to Financial and Social Problems

The solution to financial and social struggles begins with education. The average person does not understand how to deeply examine her own values and make decisions based upon a hierarchy of values. As a result,  he makes financial and social decisions in whimsical fashion. And the average adult is ill-equipped to manage the disappointment which follows.

A budget (or other method of tracking spending) is simple solution to financial struggles. By having a plan, the average person can avoid the unfortunate scenario of having too much month left at the end of the money. Coming face to face with financial problems and meeting them head on in this manner is the noble and responsible solution.

Next, standing up to social weakness and overcoming the power of FOMO begins with recognition of the problem. Avoid negative influences, disconnect from social media and technology from time to time, and participate in genuine human interaction. This manner of self-empowerment is the real solution to loneliness.

Adult dorms are a fine idea on the surface, but they do not effectively help young adults fix their financial and social problems. Though they may be the way of the future, the tried-and-true societal constructs represent the best hope for adults to achieve financial success and social satisfaction.


What is your opinion on adult dorms? Is this just a phase that will go away in time? Would you live in adult dorms if given the opportunity? Why or why not?

August 2016 Blog Report

Today’s post represents the fifth FinanceSuperhero blog report. It seems that I published the July blog report just days ago – August has been THAT kind of month around here!

August 2016 Blog Report

If you are reading this, thank you for your interaction, kindness, constructive criticism, and support, all of which have helped this little blog grow. I began this website with a lofty goal Restoring Order to the World of Finance – but also for my own personal entertainment and enjoyment.

If I have helped even a small handful of people restore order to their financial world, I consider my mission accomplished.

August in Review

Back in July, I decided to adopt a very foreign mindset for the month of August – no quantitative goals, only qualitative goals. At the time, I’ll admit that I was freaking out a little bit. Sometimes, I don’t deal well with uncharted territory. Even so, I decided to allow the following questions to guide my blogging activities in August:

Am I providing and facilitating quality interaction and communication?

Am I building a greater sense of community?

Am I selflessly promoting others and helping them grow?

Am I writing thought-provoking, growth-oriented articles?

How did all of this work out? Decently!

In many ways, the interaction, communication, and community has grown on the blog. It is fun to see some new names and Gravatars in the comments section. On the flip side, the last gasps of summer seem to be taking their usual hit on blogs everywhere. I know that I have been much-less active on the 50 or so blogs which I read regularly; I can only assume many people are facing the same time constraints.

The Legion of Super-PostsI am particularly pleased with the direction of my new Saturday series, The Legion of Super Posts. I had been looking for a fun way to promote the work of other bloggers for quite some time before the idea hit me. It is my hope to keep searching for new (to me) blogs to share with you all, as I believe we can all stand to learn a great deal from each other on our journeys to financial independence.

If you’ve missed previous issues, you can review them here:

Legion of Super-Posts – Issue 1
Legion of Super-Posts – Issue 2
Legion of Super-Posts – Issue 3
Legion of Super-Posts – Issue 4

As for writing thought-provoking, growth-oriented articles? This will always remain a work in progress. More and more, I am learning that maintaining freshness in blogging about money is an ongoing challenge. Lately, I have been trying to glean financial wisdom from the unlikeliest places: the football field, documentary movies, and my dreams about future advances and their role in my life. In the process I have learned that money lessons are everywhere if you are willing to watch and listen for them.

Looking Ahead

As the calendar shifts to September, I am, once again, limiting myself and aiming to kick myself out of my comfort zone when it comes to strategy and goal setting.

My singular goal:

GROWTH.

To be honest, I’m not sure how, if at all, that will manifest itself. Perhaps my global Alexa ranking will grow into the top 400,000. Maybe the blog will continue to turn a small profit each month.

Rather than focus on statistics, I am going to spend my time creating, producing, and learning. I reckon it is about time to start mastering use of Tailwind and BoardBooster. It is also about time to take an affiliate marketing course.

This is all going to be tough while working a full-time teaching job and “part-time” realtor job. But this is the path of my choosing, and I’m loving every day of the journey!

I’m looking forward to seeing how this wild ride continues in September!


How was your August? Did you achieve any of your goals? What goals do you have for September and beyond?