Category Archives: Values

Are You Destined to Follow in Your Parents’ Footsteps?

In life, we receive so much from our parents; overall looks, hair color, height, and a host of other genetically-driven predispositions are largely hereditary. Sometimes, we follow in our parents’ footsteps, and sometimes we do not. With some notable exceptions, we get what we get, and life keeps rolling on – for better or for worse.

Recently, I read an article in The AtlanticRich People Raise Rich Kids – which caused me to ponder the financial impact our parents have upon our life trajectory. The issues explored and conclusions drawn in the article are thought-provoking, to say the least.

If “Rich People Raise Rich Kids,” does that imply that the corollary, i.e. “Poor People Raise Poor Kids,” is often true?

We receive much from our parents: overall looks, hair color, etc. But are we destined to follow in our parents' footsteps in other ways? Of course, life experience shows us the impact our parents can play in financial futures. Plenty of people are born into money, but countless folks create their own wealth. Many of us will learn to manage money, for better or worse, in the same manner demonstrated by our parents. Others will seek their own path, if they bother to pay attention at all.

And all of this says nothing of the fact that our trajectories may change over time, though change can be hard to set into motion. The poor can become rich, and the rich can lose it all, sometimes in shocking fashion. This is America, after all. *Cues chants* USA! USA! USA!

The power and importance of environment is one point which I tend to agree with wholeheartedly from the aforementioned article. My life story bears out this truth every step of the way.

My Story

I grew up in a typical middle class home in West Michigan. My mom worked as a departmental secretary for a reputable regional bank, and my dad worked in manufacturing for one of the largest aerospace engineering companies in the country. Mom earned her Associates degree, while dad entered the work force after completing high school.

We lived in a 3 bedroom, 1 bathroom ranch home which was conveniently located within a few miles of everything: school, work, shopping, and my grandparents. Our family was solidly middle-class, though I had no idea or even any understanding of what that meant at the time.

My parents made the very best of the overall environment in which I was raised. When I was four, they sold our house and moved to the other side of town so I could attend the best schools in the area. I didn’t know at the time, but my mom often remarks today that this move was a financial sacrifice in may respects.

For reasons which I still do not fully understand, I was born with a sharp edge to achieve, and this desire only strengthened itself as I grew up. I didn’t want to just do something – I wanted to win, to be the best, to get a share of the spotlight. Of course, it didn’t work out every single time, but that internal motivation was sometimes a difference-maker.

Equally important, my internal motivation was complimented by external factors. My grandfather always pushed me toward the improbable and believed so much in me that I began to believe in myself.

My self-belief and confidence was shaken many times, but I survived and grew stronger because my parents were not of the helicopter variety. They allowed me to be independent, solve my own problems, and experience difficulty. I learned to bend without breaking.

My parents supported all of my far flung endeavors – competing in chess tournaments all across the country, basketball leagues and camps, and music lessons – and encouraged me to do my best. I was strong-willed and in hindsight demanded a lot. I was lucky to have good parents who provided opportunities.

The rest of the story is simple. I went to college, got a job, and moved out of state, like countless other people before and since. I am not special, and my life is not remarkable. My parents, extended family, and the environment they cultivated for me, on the other hand, are special and remarkable.

Foster a Great Environment For Your Kids

So how can today’s parents foster a positive environment for children and put them in a position to become successful? The following solutions offer a good starting point:

Get to know your children. A one-size-fits-all approach will never work. In the interest of transparency, I am not yet a parent, but my experience as a teacher illustrates the importance of knowing children as individuals. Spending time with them is the best way to get to know them.

Model a balanced, prioritized lifestyle. Kids are impressionable and form a surprisingly-high number of conclusions at young ages. As adults, they will remember how you spent your time and model their own priorities after yours in many ways, whether consciously or not.

Teach them how to save money. For most children today, spending will come easily and saving will not; our instant-gratification culture is to blame. If you show your kids how to save, they will experience a valuable lesson.

Allow your children to fail and encourage them to persevere when they do. They will learn important lessons as a result. They will become resilient, strong, and unafraid to fail, all of which are characteristics which will help them to succeed.

Related: How to Overcome the Fear of Failure

These practices are not perfect, but they will help you to create a growth-inspired environment for your children. They just may follow in or even exceed your footsteps as a result.


In what ways have you followed in your parents’ footsteps? What did they specifically do to help you in that regard? For parents – how are you helping your children to follow in your footsteps?

The Benefits of Giving and Generosity

As the past few weeks and months have shown, the United States currently run rampant with problems. Racism, violence, misogyny, and bigotry are impossible to ignore, easy to diagnose, and difficult to cure. I believe these problems, though significant and important on their own, may be traced back to a larger problem: selfishness. And I believe there is a cure for selfishness: outrageous giving and generosity.

Undeniably, selfishness is woven deeply into the fabric of America. It may even be part of our human core, though the jury is still out on the nature of human genetics. Perhaps long-standing capitalism has sewn and grown its fair share of selfishness over several decades. It is what leads us to work harder and harder to amass more for ourselves. The problem is that many people have bought into the lie which trumpets “more for me equals less for you.”

No matter what financial hurdles we may face, growing in giving and generosity will always help us improve our financial outlooks.
U.S. Giving Adjusted for Inflation (Source: Philanthropy Round Table)

Yet, our internal selfishness is often no match for our hearts’ desires to show empathy toward others. This is evident in the small things, like holding doors for others, and the big things, like the collective $358 billion in charitable giving by Americans in 2014.

Call me an optimist, but I believe that selfishness and empathy can co-exist when applied in healthy doses. Most of us, myself included, tend to be naturally good at looking out for own best interests. Thinking outside ourselves requires deliberation and conscious effort; actually acting on behalf of others requires a steady dose of humility to boot.

Self-Benefits of Giving and Generosity

For the person of even average ambition, striking a balance between ambition and contentment is an ongoing challenge. I face this battle every day, and I lose more often than I win. I know that more prestige, money, and belongings will not provide the lasting happiness which I seek, but it doesn’t stop me from trying to attain it in this manner anyway. 

In The Legacy Journey, Dave Ramsey writes, “Giving is the antidote for selfishness. It’s the hallmark character quality of those who win with money.” I believe Ramsey is correct, as giving leads to humility and contentment. In the act of giving, the giver admits that she has enough, that the time or resources being given are needed more by someone else. It is empowering to realize this truth because it supports action. When we give to others and realize that we no longer miss what has been generously given, we are one step closer to contentment. With contentment comes the ability to manage finances with wisdom and restraint.

Contentment is not the only self-benefit of giving. In my experience, giving and generosity ultimately help us grow to be better receivers. As Arthur Miller wrote,

A closed hand cannot receive. The phrase has a Biblical ring, and a Biblical wisdom that applies profoundly to everyday human affairs. The man who will not share himself with his neighbors receives little friendship in return. . .

. . . To be sower of seeds, a man must open his hand. He must do this, clearly, before he can reap. And the process doesn’t stop there. To possess knowledge or wisdom, he must open his mind. If he wants to receive love, he must offer it – and to do this he will need an open heart.

Look around and you will see the truth of these five words shining everywhere. A closed hand cannot receive – partly because it is shut, and nothing can get in. But mostly because it has nothing to give.

While giving requires humility, receiving may require even more. I naturally prefer giving to others rather than receiving, but as I have reflected on the reasons why this is so, pride is the only answer.

Giving and generosity are good not only for mental health but also physical well-being. According to several studies, they also can lower blood pressure, improve self-esteem, decrease stress, and boost life expectancy.

Giving Benefits Others

It seems so obvious that giving generously to others directly benefits others, but this is often the last benefit we consider when choosing to give.

Giving to others goes far beyond financial benefits. Hope and faith in others have a more lasting impact, in many cases, even after the money has been spent. The emotions which result from acts of giving, for both the giver and the receiver, are valuable in ways which cannot be measured in isolation. The following video is a poignant reminder.

A Call to Give

During this fragile time, in which holiday spirit and cheer may fail to counterbalance a climate of fear and worry, humble yourself and demonstrate giving and generosity to your fellow man. Increase your annual holiday donations. Volunteer your time and talents to serve those who are less fortunate. Foster goodwill by paying for the coffee for the driver behind you in the Starbucks line. At our cores, we are not much different from one another. When you give, you better yourself, improve your financial management, and close the gaps which divide us all.


How do you give to others? How will you be generous this holiday season? How do you feel your giving and generosity benefit others?

How Much Hustle Is Too Much?

These days, it seems there is a widening gap in our country. No, I’m not talking about the gap between Hillary and Donald supporters, though that gap may continue to grow even as the country attempts to unite under a Trump presidency. The gap I am referring to is the gap between those who hustle and those who do not; those who work multiple jobs and those who barely work at all; those who apply some elbow grease and those who dally; those who apply themselves to the fullest and those who lead a lackadaisical life of leisure.

Let’s call them The Hustlers and The Spectators.

These two groups are what we might label diametrically opposed; one values pushing oneself to the limits in search of accomplishment, while the other seeks to avoid so at all costs.

I’ve found myself in both camps at distinct times in my life. While it’s worth noting that we all go through natural seasons in life, sometimes the life of a Hustler or Spectator is a conscious choice. We weigh the benefits of both paths and choose to reap what appears to be the most enticing rewards. Sometimes life decides for us.

For the sake of discussion, let us simply define a Hustler as one who engages in one or more of the following:

*Works more than 40 hours per week

*Holds more than one job

*Actively seeks side jobs and extra gigs to earn additional money

For the most part, I am surrounded by Hustlers. Teachers seem to be routinely bashed as glorified babysitters by those on the outside, but they are among the hardest-working and most-underpaid professionals. Most bloggers manage to squeeze out time to remain dedicated to their craft despite other full-time work, family demands, and the ever-present call to rest. And let us not forget the hardest workers of all, mothers, who are always on the clock.

This saturation of hustle all around me has provoked a great deal of thought over the past several weeks. It has led me to ask an important question:

How much hustle is too much?

When it comes to a side hustle, we weigh the benefits and choose the most rewarding path. But how much hustle is too much?

The Benefits of Extreme Hustle

Last week, from Thursday morning until Sunday evening, I found myself in either work mode or sleep mode. My time was used very efficiently: work at the day job, real estate showings, phone calls, scheduling, and a charity event. Much to my disappointment, I didn’t have time to devote to the blog.

Some may consider this use of time to be a bit extreme, but I see many benefits of this brand of extreme hustle:

*Less time to blow money on stupid things

*Increased opportunities for fulfillment

*The chance to make a difference for others

*Remain mentally sharp even as you age

The Downsides of Extreme Hustle

On the other hand, to be transparent, I was running on fumes by the time Sunday evening rolled around. All of the hustle and bustle had finally caught up with me. Fortunately, I have always been able to adapt and recover quickly after burning both ends of the candle. Others may not recover so quickly, leaving them susceptible to the downsides of extreme hustle:

*Too much stress

*Decreased happiness if your hustling does not align with your gifts and interests

*Less time for family, recreation, community engagement

The Answer

As with most questions related to personal finance, the answer is best decided by the person who matters most: you.

I believe everyone should have a side hustle these days, as the benefits outweigh the negatives. But exactly how much time should be devoted to that side hustle is a very personal matter.

Working too much can actually be bad. We all have our limits. It takes a sadistic person to torture himself with never-ending work. It should not be a point of pride to be too busy to do anything other than work, eat, shower, and sleep, in my opinion.

Four Signs You’re Doing Too Much

A) You forget things- a lot.

B) You have lost touch with most of your closest friends.

C) You have rearranged your personal schedule for work multiple times in the past month.

D) Your efficiency severely lags. If you find yourself frequently multi-tasking (which has been shown to be a myth), it might be time to re-evaluate your level of hustle.


Readers, how much hustle is too much? How do you evaluate your use of time?

The Link Between Money and Behavior

The suggestion that money and behavior are forever linked is likely to elicit some very strong opinions on both sides of the debate. A majority of people base their position upon personal experience, as is the case with many debates.

Many people argue that wealthy people lack compassion and therefore do not behave charitably. Others protest that wealthy people make the vast majority of charitable contributions. The trouble is that both arguments are equally valid depending upon one’s perspective and specific circumstances.

Is there a link between money and behavior? The answer may surprise you.

Money Augments Existing Character

In 1940, during the early stages of WWII, a businessman acquired a company nicknamed “Emalia.” The company produced enamel cookware for the nation’s military. This businessman initially sought the cheapest labor available in an effort to maximize his profit margins. An already wealthy man appeared to grow even wealthier in the process.

When the violence and destruction of war threatened the well-being of his operation, the businessman sought government support to move his factory to another location. Many of his cheap laborers were rerouted to alternate locations, which caused the businessman to endure great financial loss to regain his labor force.

Following the factory relocation, Emalia ceased production of enamelware and began producing artillery shells to support the war effort. When the military questioned the factory’s low output of useful artillery, the businessman began purchasing finished inventory on the black market and reselling it as his own.

When government appointees caught on to this businessman’s deception, he sought their silence and secrecy through bribery. By the end of the war, this businessman had spent his entire fortune – reportedly in excess of $1 million – on relocation, bribes, maintaining his “cheap” workforce, and the purchase of black market goods.

Who was this man?

Oskar Schindler.

Schindler exemplified a positive connection between money and behavior.
Oskar Schindler (Credit: OskarSchindler.dk )

To Nazi sympathizers, Schindler was a traitor and war criminal who used his wealth to defy his political party and commit despicable acts of cowardice. To the rest of the world, he was a noble hero who, despite his flaws, used his position of wealth to save the lives of an estimated 1,200 persecuted Jews.

Despite living a life of drunkenness and adultery, Oskar Schindler’s vast wealth amplified his character and led him to risk his entire fortune, even his life, to save the lives of Jews. In his case, we may observe that money changes behavior for the better by bringing out a person’s true colors. After all, Schindler did what he was best at – lying, swindling, cheating, and bribing – while nobly sacrificing his wealth to save lives.

 

In the end, neither Oskar Schindler’s money nor behavior alone would have been enough. It was his money and behavior which saved the lives of Jews.

Admittedly, this is perhaps an extreme example, yet it provides a memorable illustration of an important truth: money augments existing character.

Money Does Not Change Everyone

For many people, money and behavior are linked, and often with negative consequences. However, money does not change everyone. Most of us learned this lesson at a very young age through literature and film. I learned it through a reading of Roald Dahl’s timeless book Charlie and the Chocolate Factory and the 1971 Gene Wilder film Willy Wonka and The Chocolate Factory.

As you may recall, the film version takes liberty with the character of Arthur Slugworth, a candy-making rival of Wonka. Slugworth attempts to bribe all of the children who find Golden Tickets into providing him an Everlasting Gobstopper so he can uncover the secret formula and ruin Wonka forever. When Slugworth encounters our protagonist, Charlie Bucket, in a dark alley, he provides Charlie’s first test of character.

“Now listen very carefully because I’m going to make you very rich indeed… So all I want you to do is get a hold of one Everlasting Gobstopper. . . Think it over, will you? A new house for your family. Good food and comfort for the rest of their lives.”

Charlie and Grandpa Joe enjoy a fanciful visit to Wonka’s chocolate factory, and at the end, Willy Wonka probes Charlie for a link between money and behavior. After being informed that Charlie has lost his right to a lifetime supply of chocolate due to stealing fizzy lifting drinks, an incredulous Grandpa Joe shows his true colors.


CreditGIPHY

“How could you do something like this, build up a little boy’s hopes and then smash all his dreams to pieces? You’re an inhuman monster. . . Come on, Charlie. Let’s get out of here. I’ll get even with him if it’s the last thing I ever do. If Slugworth wants a Gobstopper, he’ll get one.”

In a shining moment in film, Charlie Bucket displays an uncommon display of youthful character and returns the Gobstopper. Willy Wonka drops his act and whispers, “So shines a good deed in a weary world.” After apologizing to Charlie for putting him through a trying ordeal, Wonka reveals that “Slugworth” is really Mr. Wilkinson, a Wonka employee.

Yes, perhaps I have gone to the opposite extreme now in pulling an example from film, but Charlie Bucket’s example reveals that money and behavior are not linked in all people.

Three Steps to Build Positive Connections Between Money and Behavior

In light of the previous analyses, it appears to be reasonable to conclude that people should strive to maximize the positive connections between money and behavior while minimizing or eliminating altogether the negative connections.  Of course, this requires tremendous personal discipline, but I believe it can be done by actively seeking to apply the following three action steps to build positive connections between money and behavior:

1. Do not withhold money from those in need

While I won’t advocate that you give away your entire nest egg a la Oskar Schindler, I will challenge you to increase your charitable giving right away. Furthermore, when your income increases, increase your giving in corresponding fashion. For example, if you currently contribute 2% of your annual earnings to charity, be sure that you continue to contribute that same percentage after receiving a raise.

2. Do not find your happiness in money

Despite our human instincts which seek to convince us otherwise, there is not a linear relationship between money and happiness. Researchers have not yet established solid proof that money can or cannot buy happiness; in fact, research over the past ten years reveals that behavioral psychologists may be more divided on this issue than ever before.

Perhaps the link between money and happiness does not lie within how much money or how many possessions one possesses, but instead lies in purposefully managing the money  and possessions which pass through his hands.

3. Do not allow yourself to be defined by money

If you allow money to define you, you are constructing a fragile glass house. Instead, live a life of introspection and view any excess money as a means to make a contribution to society.

Conclusion

Ultimately, whether you allow yourself to develop negative links between money and behavior is a personal matter. Wherever you find yourself on the spectrum, from rags to riches or somewhere in between, money will always seek to bring out the best and worst in you. By allowing money to augment but not change your existing character, you will be well on your way toward cultivating the positive connections between money and behavior.


What have your personal experiences taught you regarding the connection between money and behavior? What challenges do you face in cultivating positive connections between money and behavior?

My Motivation to Achieve Financial Success – Legacy

Before today’s post, I wanted to share that I recently took part in the Behind the Screen Interview Series at FamilyMoneyPlan. You can check out my interview with Andrew here.


My Motivation to Achieve Financial Success – Legacy

A brand-new home with every amenity.

Freedom from stress and the day-to-day rat race.

Full control over your life and your finances.

When it comes to money, we all are motivated by different factors. Those motivating factors can also change over time based upon our formative life experiences.

However, for as long as I can remember, my motivation to achieve financial success has always been about one primary factor:

Legacy.

My motivation to achieve financial success has always been about one thing: legacy.

My Model of Motivation

I have written extensively in the past about the impact my Grandpa had on my life and my outlook on work ethic, success, and money. Since he passed away just over three years ago, a day has not passed in which I fail to think about him and the incredible legacy he left behind.

While many people do not aspire to leave a legacy or make a profound impact upon their loved ones, my Grandpa knew exactly what he and my Grandma were doing. I learned this at a very early age.

As a young child, I vividly recall the long walk to the lake one warm July 4th evening. As was customary, the entire extended family – Grandpa and Grandma, several aunts and uncles, and far too many cousins to count – had set out well before dusk to stake out our seats for the evening firework show.

To be clear, I cannot recall if my memories of what happened next are firsthand or simply recollections of the story; strangely, time has a way of clouding memories. Regardless, I will always remember the words my Grandpa spoke to my Grandma and as they walked side-by-side and lead the way to our usual seats.

“Look what we did, Mother,” he said, glancing over his shoulder at our entire family.

We were Grandpa’s proudest accomplishment. We were his legacy.

With my Grandpa in 2012
With my Grandpa in 2012

I think back on that story often. In many ways, it ranks as one of the most formative experiences of my childhood. In that moment, I learned a valuable lesson on what is truly important in life.

In my eyes, my Grandpa had it all: a long, relatively-healthy life; a beautiful home; considerable, though undeclared, wealth; and the freedom to do as he pleased. Yet, his family meant far more to him than all earthly possessions.

Yes, my Grandpa loved money. In fact, when I spoke at his funeral, I shared the true story of the time he opened his wallet and a moth flew out. Like a typical, hard-working Dutch man, he was not in any hurry to spend his hard-earned money. But he had his priorities in order. He was generous and kind when it mattered most, especially to family and friends.

I often wonder if my priorities, too, will stand the test of time.


On the surface, I have no doubt that many of my friends and loved ones completely misunderstand my money motivations. To many of them, I am sure I appear to be greedy, miserly, or a workaholic. Some may even think I must be self-obsessed and vain.

However, I believe short-term sacrifice is worth the long-term gains waiting to be realized. Over my lifetime, I have learned that it is the motivation behind one’s actions, not the actions alone, which deserves scrutiny.

My wife and I aren’t working hard to inflate our current lifestyle, live it up in the present, and run the risk of burn-out. No, we are sacrificing in the short-term in order to build our ability to focus on what is truly important to us five, ten, and twenty years from now. In a culture which places the highest value on instant gratification, we are embracing the opposite.

Once in a while,  when it feels like I’m burning the wick at both ends, I like to hit the streets for an evening run and clear my head. Invariably, my thoughts drift and I begin to form visions of the future: our future kids playing in the yard, sending them off to college without any debt, walking my daughters down the aisle on their wedding days, and taking the entire family, grandchildren included, on a two-week getaway to Disney World. Those thoughts are the magical panacea for my weariness.

In the present, those visions represent a future worthy of current sacrifice and hard work.

Those thoughts – my future family and the experiences I hope to provide for them – will be a significant part of my legacy.


What motivates you to achieve financial success?

 

Uncommon Lessons From an Uncommon Coach – Part 1

Today begins a multi-part series titled Lessons From the Gridiron. Today’s installment, Uncommon Lessons From an Uncommon Coach – Part 1, is a character study of one of the most eccentric and competitive men to every play the game of football, James Joseph Harbaugh. Please check back next week for the continuation of this series.


It initially struck me as an unremarkable tweet:

Harbaugh Tweet

Yet the above image featuring the wise words of University of Michigan Head Football Coach Jim Harbaugh has been the desktop background on my PC for over a year. Every time I consider changing the display, I reconsider, as the message has guided me well – at work, at home, on the run, with this blog, and, of course, in my finances.

If you’ve been reading FinanceSuperhero for a while, you may recall that I strive to live by the question, “What is it time for now?” Though Harbaugh didn’t inspire this question, he is certainly a master of making the most of the present at all times.

Coach Harbaugh undoubtedly has his detractors and critics. He is quite possibly equal parts genius and simpleton, open-book and enigma, competitor and friend.

Despite the apparent string of contradictions, one thing is abundantly clear:

Jim Harbaugh stops at nothing in the pursuit of success.

The Young Milk Boy

At an August 2015 media day, a young boy asked Coach Harbaugh how much milk he would need to drink in order to grow up to be a quarterback. Not surprisingly, Harbaugh offered the boy a bear hug and advised him to “drink as much as your little belly can hold.”

In January 2015 HBO feature and Detroit Free Press article, Harbaugh shared the similar plan that ultimately helped him grow to become a 6-3 quarterback.

I prayed about it a lot – ‘I want to be 6-2, I want to be 6-2. So we started delivering milk everyday [in school] and we got one free milk for delivering all the milk. But every kid that was absent, every kid that was sick, every kid that didn’t show up or didn’t want their milk, that tray would go back to the little milk room and I would just drink as much milk as my belly could hold. I drank a lot of milk. Whole milk. Not the candy-ass 2%. . . I finally got to 6-3.

Without question, Harbaugh possessed relentless intensity and desire to excel even as a grade school milk boy. He grasped at an early age what many never will understand: each moment offers a singular opportunity to grow.

What if more of us treated every dollar with the same care and intensity?

A Unique Drive

From the ages of 10 to 16, Jim Harbaugh lived in Ann Arbor, Michigan, while his dad worked as an assistant football coach for the Wolverines. He reportedly still gets his hair cut today at the same barbershop, State Street Barbershop, where he received haircuts back in the 1970s. He knows the streets of Ann Arbor like the back of his hand.

Though Harbaugh is a man of precision and direction, those characteristics do not stop him from pausing to learn important lessons. A Bleacher Report article details the following illustrative story:

As [Harbaugh] explained it, he was on his way to the office when he noticed a traffic light wasn’t working; a cop was standing in the middle of a busy intersection, directing cars this way and that way. The female officer displayed such command of the intersection that Harbaugh pulled over to the side of the road, mesmerized.

For half an hour, Harbaugh sat in his car and studied the scene. He was nearly late for practice because he was so enthralled with the skill and the savvy of the traffic cop. “I like to watch people doing their job at the highest level,” he said. “I really do.”

On the surface, this behavior seems wasteful, at best, and insane at worst. Yet, to Harbaugh, a devoted maximizer, it was an opportunity to learn something new and apply it to his own craft.

What if more of us sought to learn at all times and applied newfound knowledge to become a wiser budgeter, investor, and employee?

Unparalleled Persistence

For a man who was once observed doing push-ups with a walrus at a zoo and maintains a healthy affinity for climbing trees, Jim Harbaugh defies convention at every turn.

Most notably, while others are quick to give up multiple times over, Harbaugh persists.

When the khaki-wearing coach saw the woman of his dreams at a restaurant, he promptly approached her to introduce himself. Says Harbaugh

Sarah was there getting take-out . . . I saw her leaving. I went up to her and asked if I could meet her. She said, “Sure, you can meet me.” I didn’t believe her, at first. I thought it was one of those fake numbers she was giving me.

But I called her. Multiple times. Like, nine times before she returned my call. I could tell she was a winner. All the way.

What if more of us sought to act with even a fraction of the persistence which Harbaugh exhibits on a regular basis?


Say what you will, but Jim Harbaugh has a knack for getting what he wants. He has a profound ability to visualize where he wants to get and enact a plan to get there. And he possesses an uncanny ability to learn extraordinary lessons in the midst of ordinary experiences.

Oh, and he and his wife Sarah recently announced that she is pregnant with their seventh child.

True to form, Harbaugh said he will be “attacking this pregnancy with an enthusiasm unknown to mankind.”


Do the above stories and themes resonate with you? Are they applicable to your pursuit of financial excellence?

Lessons From Superhero Dad

The last week has been a whirlwind in the Superhero household, to put it lightly. Between trips to the hospital to visit with Superhero Grandma (who is now doing very well, thankfully) and celebrating Mrs. Superhero’s birthday, I have not had much time to write this last week, much less interact with others within the personal finance blogging community.

On the other hand, I have had significant time for thinking and reflection. Two days ago, I read a fascinating article by Breanna Noble in the Detroit News, Majority of dads think they should be paid. Throughout the article, Noble refers to a study which outlines all of the valuable household contributions by the typical father and attempts to place a value on that work.

A few quotes that stood out to me:

A father’s work for a year is valued at $24,738 and, according to a new poll, a lot of dads would like to be paid in more than just hugs.

. . .

Detroit Councilman André Spivey, co-chairman for the Task Force on Black Male Engagement and a father of two, said dads and mentors benefit the community by helping children reach their potential and pass on what they learned.

“Fathers need to be a good example, to be the leaders they are called to be,” Spivey said. “I know if we do that, we can turn our community around.”

. . .

Robert Rupert, also of Detroit, said he thinks dads deserve $100 per day.

“It’s a lot of work,” Rupert said. “But the wife should get $200 for what she does.”

Rupert, a home improvement specialist, said his father wasn’t around when he was a child, so he makes sure he is present for his children. For example, he picks up his grandchildren from school when his children cannot.

“I’m there when they need me,” Rupert said. “I try to stay around in their life, help them when they need help.”

. . .

Spivey said ultimately, being a father is a responsibility, but it’s one that comes with joy, gratitude and the opportunity to give back.

“I can’t put a number on that,” the councilman said. “I think it’s priceless.”

Today, in reflection on this article and in honor of Superhero Dad on Father’s Day, I would like to share a few of the most priceless lessons bestowed upon me by my father.

PRESENCE IS GREATER THAN PRESENTS

Superhero Dad has always worked a full-time job, along with countless hours of overtime, for as long as I can remember. Despite these long hours, he could always be counted on to faithfully attend all of my sporting events – basketball, baseball, wrestling, and track – and music performances. While many of my closest friends just assumed that their parents could not or would not attend a majority of their events, I took it for granted that my parents would be there.

When I think back on the greatest gift Superhero Dad ever gave me, I don’t think about the toys, video games, or the basketball hoop in the driveway; I think about the value of his consistent, supportive presence in my life.

EXPERIENCES ARE TO BE TREASURED

Between working to provide for our family and supporting us with his presence at a wide variety of activities, it is a wonder that Superhero Dad had time for anything else. One of the things that I will always respect about him is that he always made time for both the little and big things when it mattered most.

As a child, Dad and I bonded over several shared interests, namely sports, but also the game of chess. When I pursued chess competitively and began attending (and winning) several chess tournaments, Dad was there for me; he was a companion, a chauffeur, and after I grew to be the superior player in a short time, a punching bag, so to speak.

Dad probably doesn’t know this, but my favorite part about attending tournaments all across the Midwest was the experience of spending the entire day together. Today, I hardly think back on the size of the trophies I won or the expert opponents I defeated, but do think often of the treasured experiences on the road with my Dad.

THE POWER OF NO

While Superhero Dad was and still is as supportive a father as one could hope for, he certainly was not afraid to set me and my siblings straight from time to time. If we pushed the envelope a bit too much, we could be sure that Dad would press his tongue to the roof of his mouth and utter a much-dreaded, one-word response:

No.

Whether we were asking for money (me), to stay outside a bit later during the summer (my brother), or to have another friend come over to play (my sister), Dad was at the ready to say “no.”

As children, I am sure we hated to be told no. As a very persistent child, I am sure that I protested and debated virtually every time I heard it. But today, I recognize the benefits of Dad’s periodic toughness with us.

A recently reviewed article in Psychology Today by Judith Sills, Ph.D., asserts that while “no” can be difficult to hear, it can be very freeing while providing several benefits (emphasis mine).

Organizational psychologist Adam Grant, author of Give and Take and a professor at the University of Pennsylvania’s Wharton School, outs the many professional rewards and successes that accrue to generous givers. Still, Grant emphasizes that “the ability to say No is one of the most important skills one can have, particularly for givers.”

Grant points to the power of No as necessary to carve time for one’s own goals and agenda. Without it, other people dictate your schedule and limit your accomplishments. Says Grant, “Saying No is especially huge in establishing a work/life balance. Without that ability, work will cannibalize your life.”

No also makes other people respect you and your time more, Grant notes. “When you are able to say No, people are careful to come to you with only meaningful requests, rather than simply asking for any help you might be able to give.”

No makes your Yes more meaningful, or as Grant puts it, “It makes you more of a specialist, rather than a generalist in what you give to others.” When we say Yes thoughtfully, because we are giving in our area of expertise, rather than saying Yes out of a need to be liked, we are far more apt to feel satisfied by giving.

No pays off in the personal arena as well as the professional one. It’s exhilarating to feel in charge of one’s self, to be the boundary setter and the decider. There’s a bonus in energy and self-confidence.

Too, No tests the health and equity of your closest relationships. If you feel you cannot say No, at least to some things, some of the time, then you are not being loved—you are being controlled.

Finally, and perhaps most important, personal integrity requires the power of No. The ability to say No is an essential element of one’s moral compass. Without it, we are merely agreeable pleasers, the Pillsbury doughboys of morals and values. Whatever the cost or quake involved when you deliver a No, backbone is defined by your ability to say it.

Dad may not have intended it, but in telling me “no,” he was raising a boy who would grow up to be a man of self-discipline, control, and integrity.

If you’re reading this, Dad, thank you for being a great father. The lessons you taught me continue to resonate with me, and I look forward to imparting them upon my own children when that time comes.

Dad
Me and Superhero Dad at a Detroit Pistons game in 2008

 


Readers, what lessons have you learned from your father?

How to Overcome the Fear of Failure

What would you do if you knew you couldn’t fail?

If you, dear reader, will grant me a moment, I would like to be very blunt at the outset of this article:

I hate the above quote.

I understand that it is a commonly-uttered phrase intended to inspire and motivate people to dream big, take risks, shoot for the stars, and a whole host of additional clichés.

Reality check – everyone fails. All the time.

What if, instead of the above quote, people asked, “What would you do if you knew you could succeed?”

I prefer the turn of phrase above for two reasons. First, it is a question with an affirming, positive slant. Second, it does not erroneously assert that failure and success are somehow mutually-exclusive, as if failure may not be present on the path toward success; instead, it emphasizes that success is always a possibility, despite one’s past failures.

There is a reason the notion of “failing forward” has stuck around in the past decade since John Maxwell wrote Failing Forward: Turning Stepping Mistakes Into Stepping Stones For Success:

The difference between average people and high-achieving people is their perception of and response to failure.

 

If society better-prepared us to expect, even embrace failure, and keep pressing on, what fantastic successes might we experience?

A Modern Case Study

Last week, I read an incredible story about Taylor Rosenthal.

Rosenthal isn’t afraid to fail. The 14-year-old from Opelika, Alabama, is too young, optimistic, and busy to be afraid to fail.

A bright student and average baseball player, Rosenthal is the founder of the start-up company RecMed, which specializes in the deployment of medical supply vending machines.

His idea was basic, yet inspired. Explained Rosenthal,

“Every time I’d travel for a baseball tournament in Alabama, I’d notice that kids would get hurt and parents couldn’t find a band-aid,” he said. “I wanted to solve that.”

His initial thought was to set up a pop-up shop at the tournaments to sell first-aid kits. He tried it and quickly realized it wasn’t the best model.

“We noticed that it would cost too much to pay people minimum wage to sit at tournaments for six hours,” he said. Then the vending machine idea struck.

Rosenthal sketched a design and consulted with his parents, both of whom work in the medical industry.

By December, he had a working prototype and had acquired a patent.

Users pick from two options: prepackaged first-aid kits for dealing with issues like sun burns, cuts, blisters and bee stings (they run from $5.99 to $15.95). You can also buy individual supplies like band-aids, rubber gloves, hydrocortisone wipes and gauze pads, which cost $6 to $20.

Rosenthal hopes to start deploying the machines this fall. He said they make sense at “high-traffic areas for kids” like amusement parks, beaches and stadiums.

He already has an order from Six Flags for 100 machines.

RecMed will make money by selling the machines, which cost $5,500 apiece, and through restocking fees for the supplies. Rosenthal said he’s also open to putting advertising on the machines.

Needless to say, Rosenthal’s first business plan appears to be a wild success. Rest assured, he will probably fail majorly at some point in the future. But for now, he is seizing his opportunity, even turning down a $30 million buyout offer, because he isn’t afraid to fail.

Naturally, Rosenthal’s teacher, Clarida Jones, has taken notice of her star student’s fearlessness. Said Jones,

It has been amazing watching Taylor grow over the past year into this confident and amazing business man. Even with all of his success, he remains humble and ready to help others. He’s just 14. Bill Gates should be worried.

I doubt Mr. Gates is worried, but he undoubtedly should be impressed, as Rosenthal’s entrepreneurial pursuit is representative of the kind of educational outcomes that Gates hoped to procure through his educational reform efforts.

Photo credit to CNN Money
Taylor Rosenthal with the RecMed vending machine. Photo credit to CNN Money

It is easy to criticize Rosenthal’s rejection of a $30 million buyout. After all, he could somewhat lavishly off a very modest one percent annual return on his spoils. I suspect the rejected offer was less about the money and more about the thrill of the chase and youthful naiveté.

On the other hand, it is hard to fault Rosenthal. He can afford to take a big risk at this stage in his life. He does not have mortgage, auto, credit card, and student loan bills. He has not yet been jaded by the financial obligations of adulthood.

Perhaps he does not fear failure because he hasn’t yet been programmed to expect it.

Four Roots of the Fear of Failure

Pause for a moment and compare several of your grandest endeavors with that of Rosenthal. If you are like me, your story is probably much different. Perhaps you were programmed to fear failure, and it held you back in the past. Or worse, fear of failure may be holding you back from new pursuits in the present.

I consider the following to be the Four Roots of the Fear of Failure:

1. We fear getting started

Mark Twain said, “The secret of getting ahead is getting started.” It is a shame that Twain did not also share the secret of getting started!

As an entrepreneur, emulation of others is always an effective way to start.

For example, I followed other bloggers’ work extensively for months before beginning FinanceSuperhero. My goal was to observe the writing qualities that kept thousands of daily readers coming back to their websites on a weekly basis. I even studied the guides on how to start a blog written by FinancialSamurai and Mr. Money Mustache before launching my own blog.

Despite a reliable framework to follow, I felt a bit uneasy, at times, throughout the process. However, I was reminded of an important principle in the process: What we fear rarely, if ever, comes to pass; at the same time, if we do not start, we will never know what might have been.

2. We fear that failure is fatal.

It is normal to fear making a mistake, as mistakes will certainly happen. Yet despite that nagging inner dialogue, the repercussions of our mistakes are rarely fatal.

Billionaire Mark Cuban is a great illustration of this principle. In the early 1980s, the soon-to-be-billionaire was fired from his position as a salesperson for Your Business Software, a local Dallas retailer. Why? He was reportedly meeting with a client to develop new business instead of opening the store.

The road that followed was long and winding, but Cuban’s mistake would not define him.

3. We fear what others may think of us if we fail.

I must confess that I am very guilty of this from time to time. However, by simply being mindful of this trend in my own life, I am able to remain focused upon my own values and act on them rather than out of fear of what others may think. Besides, can any of us really purport to know what others think?

At every step of the way, someone will criticize your decisions and urge you to go in a different direction. Courage stems from the conviction to hold fast to your chosen path.

4. We fear the path of struggle and difficulty.

Just as assuredly as you will experience your share of failures, problems will arise. The key to overcoming them is learning to embrace challenges and view them as opportunities.

It is easy for me to say this. My natural personality leads me to chase challenges and run head on into difficulty. I feel most alive when toiling through adversity.

If you are naturally prone to fear difficulties, you’re not alone. But you can begin to ease your fear by taking a series of small steps.

How to Defeat Your Fears

In my experience, fear is like a boisterous middle school bully. It is threatening on the surface, yet it fades quickly when confronted by direct action.

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Afraid of general financial ruin?

Be sure you are on a budget. Protect yourself against identity theft and sign up for Identity Guard today. Monitor all of your financial accounts and spending easily, in one place, with Personal Capital. While I still track my budget the old-fashioned way, Personal Capital provides a quick snap-shot of my current financial picture in just a few clicks, which is very useful when I do not have time to log and reconcile transactions during the week.

It is also recommended to review your insurance policies at least once per year, if not more frequently. Protect your family with affordable term life insurance.

Afraid you will continue to drown in debt?

Get out of debt as soon possible. If you don’t have the income to do so, look to minimize the impact of monthly interest. If you are struggling with student loan debt, pursue a refinance with SoFi. SoFi also offers competitive terms for personal loans. As an added bonus, you will receive a $100 welcome gift if you refinance with SoFi today.

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Conclusion

No article on overcoming the fear of failure – whether it be personal, career, or financial failure – could be complete without referencing perhaps the best-known quote on fear. In his inaugural address in 1933, President Franklin D. Roosevelt spoke the following immortal words:

So, first of all, let me assert my firm belief that the only thing we have to fear is…fear itself — nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance.

If you fear failure, heed the timeless advice of FDR: advance!

Notes and Disclaimer: The links contained within this article are affiliate links. FinanceSuperhero only recommends quality protects which will serve to help you improve your financial position.

All investments feature risks. You should consult a qualified professional before entering into any investments that you may not understand.

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Readers, how have you learned to overcome fear of failure? Have your past failures been the launching board for your greatest successes?

A Response to Shahar Ziv’s “5 Reasons to Stop Prioritizing Student Loan Payments”

After I wrote a post sharing how Mrs. Superhero and I paid off over $17,000 of student loan debt in only 54 days, I received many congratulatory comments, e-mails, texts, and phone calls. Something about sticking it to Sallie Mae really fires up people, apparently!

On the other hand, several readers wrote to me and asked about my thoughts regarding a recent Forbes article, 5 Reasons to Stop Prioritizing Student Loan Payments. I had not read the article at the time, as it was published on May 16, 2016, one day prior to the publication of my article, so I sat down and read it over a cup of coffee the next day.

The article’s author, Shahar Ziv, is a smart individual. An alum of Cornell and Harvard Business School, Ziv is currently part of the Global Corporate Strategy team at PayPal and a Forbes contributor. I, on the other hand, am an alum of far-less prestigious universities and will not likely be writing for Forbes any time soon (though I’m ready to sign on the dotted line whenever you would like, Forbes editors).

Mr. Ziv clearly wins the battle of credentials.

As I read, I found myself agreeing with some of the points Ziv made among what he labeled Five Key Insights. After all, personal finance is math, and math is pretty straightforward.

While I agree with Ziv’s math, I strongly disagree with the presumptions and logic which underpin his rationale for prioritizing retirement investing over paying off one’s student loans.

I will do my best to articulate the reasons for my position with the remainder of this post.

Personal Finance is Ultimately Personal

If you spend some time reading any of the many quality personal finance blogs today, you will certainly encounter conflicting opinions on a variety of subject matter.

Why? Personal finance is much more than addition and subtraction, algorithms and projections. It is not just math.

Dave Ramsey consistently states that personal finance is 80 percent behavioral and 20 percent head knowledge, and I believe he is correct. Knowledge without application is wasteful.

Furthermore, decisions in personal finance are not made in a vacuum. They are made by individuals who find themselves in varied and unique circumstances, the holders of dreams and goals.

I am certain that Mr. Ziv understands this. Again, in case you misread the intent of my earlier statements, he is far smarter than I am. Yet, I strongly feel that he undervalues the personal aspects of personal finance.

Responses to the Five Insights

As mentioned above, Ziv shares Five Insights regarding why he believes one should prioritize retirement investing over accelerated student loan repayment. Key Insight #1 states,

If you are lucky enough to work for a company that offers a match, it is a no-brainer to contribute extra dollars to your retirement plan instead of diverting them towards student loan payments, at least until you take full advantage of the free money.

Again, I do not disagree with the mathematical conclusions contained within this insight. However, the underlying presumptions are distressing.

Consider the following data from a US News report from April 2010:

Workers with a 401(k) or pension plan at work are among the more fortunate half of the population. Only 51 percent of all Americans worked for an employer that sponsored a retirement plan in 2008, and according to an Employee Benefit Research Institute analysis of Census Bureau data… This lack of access to any sort of retirement plan at work is not a recent trend. Only about half of private sector workers have been offered any sort of employer-sponsored retirement plan in a given year between 1979 and 2008, according to a Center for Retirement Research at Boston College analysis.

While these numbers have surely improved in 2016, it is important to note that it truly is “lucky,” as Ziv says, to work for an employer that offers a match. In the previous thirty years, we might even say that it is “lucky” for one to have the option to participate in an employer-sponsored retirement plan. With so few workers today in position to take advantage of an employer match, Key Insight #1 loses some of its luster.

Let us examine Key Insights #2 and #3:

Key Insight #2: To get an extra “doubling” of your account – the equivalent of your penny going from $5 million to $10 million – you have to start earlier. It is the early contributions that matter the most, even if they are small, because they have the most time to compound and grow.

Key Insight #3: Delaying early retirement savings to pay off more student debt may seem attractive in the short run, but is quite costly in the long run because it will be harder to catch-up on savings later.

Again, I will not argue with the math nor the logic behind these statements. Clearly, time and compound interest form one of the most powerful partnerships in the universe. However, I would like to poke at these insights. The above statements neglect perhaps the most important and unquantifiable factors of all: risk and timing.

Suppose you took Ziv’s advice from October 2007 to March 2009, when the S&P500 bull bearabsolutely plummeted, losing approximately 50% of its value. Over a 17 month period, you could have paid off a $20,000 student loan with monthly payments of approximately $1,200. On the other hand, had you invested a similar monthly amount, you would have been raked across the coals due to your negative investment returns. To make matters even worse, you’d still have a pile of student loan debt!

Of course, I must acknowledge the flip side:  you could have accepted Ziv’s advice beginning in mid-March 2009 and ridden an incredible bull market.

My point is this: when you invest while you still have lots of debt, you are exposing yourself to increased risk while hoping that your timing is right.

Even with an employer match, there is no such thing as a guaranteed investment return when you are investing in the stock market.

On the other hand, dollar for dollar, paying down student loan is a guaranteed boost to your net worth, assuming no other financial changes. But when you invest, there is always a chance you could lose it all.

Ziv’s lack of consideration of risk is troublesome. His article makes no mention of an emergency fund. Funneling your extra dollars into investing rather than first paying off debt or building an emergency fund exposes you to very unnecessary risk. Obviously, if you have an emergency, you will have to raid your retirement accounts or take on further debt.

To quote Warren Buffet, “Only when the tide goes out do you discover who’s been swimming naked.” Anyone can look like a genius by following Ziv’s advice in a strong market. When the tide turns, this advice is revealed to be unsound, in my opinion.

While timing and risk are the most significant variables overlooked within Key Insights #2 and #3, Key Insights #4 and #5 overlook the realities of living in the present while balancing the priorities of the future.

Key Insight #4: The tax-advantaged status of retirement accounts and the ability to lower your tax burden by deducting student loan interest are additional reasons to funnel extra funds towards retirement and not your loan balance.

Key Insight #5: Even after you are maximizing your employer’s retirement match and even if the interest rate on your student debt is higher than the rate you expect your retirement savings to earn, you are still better off concentrating on retirement contributions over student debt repayment in all but the most extreme cases.

Yes, the ability to deduct student loan interest is a nice benefit when facing student loan debt. I will not deny that. However, continuing to carry one financial obligation (student loan debt) for the purpose of reducing the size of another financial obligation (taxes owed) smacks of silliness. Furthermore, the $2,500 student loan interest deduction is both limited and not available to everyone. See this article for a thorough explanation.

Further Thoughts

In his article, Ziv highlights that some student loan payments are just as burdensome as second rent payments, yet he still advises that you keep these student loan payments and focus on your retirement accounts.

What about when the time comes to stop renting and buy a house? That $900 per month student loan payment hanging around your neck will significantly harm your debt-to-income ratio and hinder your ability to purchase a home.

Take, for example, a couple who earns $5,000 gross income per month and does not carry student loan debt or any other debts. They are seeking to buy a home with a 30 year mortgage at 3.5% with a $10,000 down payment and have gone through the pre-approval process.  They have been told that they can afford a maximum monthly mortgage payment (including principal, interest, taxes, insurance, association dues, and private mortgage insurance) of $1,400. Their calculation was developed using the top formula below.

  1. Monthly Income X 28% = monthly PITI
  2. Monthly Income X 36% – Other loan payments = monthly PITI

Now, let us compare this couple to another couple who earns an identical income but carries collective student loan obligations of $900 per month. Their situation requires utilization of the second formula below, which places their maximum monthly mortgage payment at $900 per month.

Which couple is going to be able to afford the better home?

The Final Word

Ultimately, the decision to prioritize accelerated payoff of student loan debt or retirement savings  is not a “right vs. wrong” issue. It is a matter of personal preference. The Know Thyself Principle indicates that you should examine your values and goals to determine what is ultimately best for you.

Only you understand your values, goals, and dreams.

Only you know what level of risk with which you are comfortable.

Mrs. Superhero and I paid off over $17,000 of student loan debt in 54 days because we abhor even small risks. Paying off student loans represented a guaranteed boost to our net worth, while investing that $17,000 presented a risk that we were not comfortable taking given the presence of student loan debt. For us, prioritizing our student loan repayment was the right thing to do.

Our life experiences have taught us that tomorrow is promised to no one. With this truth in mind, we aimed to balance our future goals with our desire to live purposeful, fulfilled lives in the present.

Paying off your debts can provide significant peace, freedom, and opportunities. I sleep much better at night since I have paid off my student loans. Without the obligation of student loan payments, Mrs. Superhero and I are free to tell our money where to go and what goals to accomplish.

In the end, when it comes to all money matters, you have to decide for yourself. To let Shahar Ziv, Dave Ramsey, Suzie Orman, or (especially) FinanceSuperhero decide for you would be a colossal error.

The Superhero Guide to Maximizing Your Tax Refund

Tax refund: Next to the words “pay day” and “debt free,” these are my two favorite finance-related words. Whether my annual tax refund is a modest sum or a mid-size windfall, I am always happy to see my refund directly-deposited into my checking account.

I will not debate the merits of adjusting withholding to maximize your monthly income in lieu of a refund in this space. I have my reasons for continuing to maintain my withholding at its present rate to receive a refund, which I will share at a later date. Many of you will have equally valid reasons to adopt the opposite approach.

Assuming you have a tax refund coming your way, you are on the precipice of a great opportunity.  As a Superhero, you must know that with great opportunity comes great responsibility! In accordance with the Superhero values of Order, Precision, and Maximization, the following flowchart will help you to answer navigate the waters of a tax refund and make significant progress on your financial journey. I recommend following the steps in numerical order.

Superhero Steps to Maximizing Your Tax Refund

1. Give a Portion of Your Tax Refund to a Charitable Organization

It should not come as a surprise to you that I am suggesting giving as the first step. As previously mentioned, Mrs. Superhero and I have placed Giving at the top of our monthly budget. Giving aligns with our values, and helping others provides us with much more satisfaction and enjoyment than buying more stuff or eating delicious food.

Mrs. Superhero and I strongly believe that giving 10% is the best way that we can make a societal contribution prior to reaching financial independence (at which time we will significantly increase our giving). We have always done this, dating back to the time when we faced a mountain of debt, and we continue to do so today, even though we are mere months away from carrying no debt other than our mortgage.

Why?

As I mentioned, we believe helping others is the most satisfying use of our money. Giving is also a strong reminder that money is not something to be hoarded out of greed. We want to value money and practice good Stewardship, but we also want to remain far removed from the love of money.

Many people reject giving in favor of keeping their money strictly to themselves. Ironically, it is usually these same people who senselessly give their money to big banks and other financiers in the form of outlandish interest payments on cars, boats, and other stuff. Personally, I would rather give in a meaningful way.

Even if you give 1% of your tax refund, you will help others and begin to change the way you view money.

2. Increase Your Savings

After supporting societal progress by giving, use your tax refund proceeds to improve your liquid savings. Unless you are an extremely high income earner or have a stable passive income stream, you absolutely must have an Emergency Fund. If you do not have one, consider this a full-blown, alarm-sounding crisis that must be addressed immediately! Statistically-speaking, there is close to a 100% chance that you will experience some form of an emergency within the next decade, so be ready!

While I recommend maintaining an Emergency Fund of at least 3-6 months of minimum living expenses, you may also wish to establish an Opportunity Fund. I do not specifically recommend amounts or figures for this fund, and you may wish to skip it entirely in favor of moving onto Step 3. However, an Opportunity Fund could allow you to make a fun, somewhat impulsive decision without any accompanying feelings of guilt or regret.

3. Defeat Your Debt Once and For All

After you have given and increased your security via your Emergency Fund, you are fully-prepared to take on the primary villain standing in the way of Financial Independence: Debt.

The sooner you eliminate your non-mortgage debts, the sooner you free a significant portion of your monthly income and simultaneously gain the freedom to invest in tax-advantaged retirement accounts. Both the Snowball and Avalanche methods are valid means to achieve debt freedom. For the purposes of this post, I am less-concerned with the method you implement to eliminate your debt; just get it done. Your tax refund may be just the push you need.

4. Invest in Tax-Advantaged Vehicles

Upon donning your Debt-Free cape, the real fun can begin. If you are free from the shackles of debt, the next optimal use for your tax refund is to maximize your retirement contributions. For the purposes of this limited space, ensure you are maximizing employer-offered plans, specifically if they offer a match, and then move onto your Roth IRA and Traditional IRA.

5. Contribute to Your Children’s College Funds

If you do not have children, skip ahead to Step 6. If you have children, you need to learn the nuances of the Coverdell ESA (Education Savings Account, also nicknamed the Education IRA) and 429 plan. The ESA has income and contribution limits (currently $2,000 per year), but I recommend you start with the ESA in most circumstances, if eligible. The important thing to understand is that minimal contributions to these vehicles will place you in a position to send your children to college without the burden of student loans if you begin early.

6. Destroy Your Mortgage Debt

Pause with me for a moment and imagine a life without a mortgage payment. What could you do with an extra $1,000 per month? $2,500? $5,000. I just felt an overwhelming sense of peace typing these words. The next time I visit my doctor and have my blood-pressure checked, I am going to visualize the wonders of a mortgage-free life to improve my numbers.

For the average family, mortgage interest represents the second-largest expense that they will pay in their entire lifetime. In some cases, total mortgage interest paid on a 30 year mortgage can be approximately 75-80% of total principal, even at today’s advantageous interest rates! The peace I felt moments ago has now been replaced by an angry adrenaline rush. I want to crush my mortgage as soon as possible! Using tax return funds to accomplish progress on an annual basis could shave several years off your mortgage, especially if you are already paying extra on principal on a monthly basis.

7. Invest in Non-Retirement Funds and/or Real Estate

If you have made it to Step 7, please allow me to offer my congratulations. With no debt whatsoever, healthy savings, and kids’ college covered, you are poised to generate significant wealth. At this stage, you may have achieved Financial Independence, depending upon your lifestyle.

I recommend using tax refund money to invest in simple index funds at this stage. A modest tax refund sum is enough to get you started with many index funds. Adopt a long-term approach, relax, and watch your money grow.

Similarly, this is the time to invest in real estate, if interested. Becoming a landlord isn’t for everyone, and paying a property manager could eat into your net profit from owning a rental property. However, a rental property can yield some of the highest annual investment returns if managed well and purchased at prices below market value.

8. Maximize the Principles of Contribution to Improve Your Home

At this stage, true fun begins. When you are financially well-poised for the future, a tax refund represents an opportunity to both invest and add joy to your life simultaneously. This is the time to make improvements around your home which increase your happiness and feature a high return on investment.

Good examples: new front door, landscaping, kitchen or bath remodel, walkway lighting

Bad examples: swimming pools, basement refinishing, utility sheds

9. Build Sinking Funds for Bucket List Items

Last, but not least, comes additional saving for specific purchases. If you make it down to Step 9 when determining how to implement your tax refund, you are an authentic Superhero. I recommend establishing separate sinking funds for a variety of priorities, such as vacations, new car purchases, secondary homes, or major home additions.

The purpose of a sinking fund is to plan for future purchases which are far off in the future. At this stage, you do not want to be fooled into getting back into debt or be caught off guard by large, necessary expenses. With a sinking fund, you won’t be financially caught off guard when your house needs a new roof, your furnace fails, or your vehicle sputters and dies.

Final Thoughts

Again, I established the Superhero Steps to Maximizing Your Tax Refund with the Superhero values of Order, Precision, and Maximization in mind. I am confident that you will not fail to cover all of your bases by following these steps. Depending upon where you are in your journey toward Restoring Order to Your World of Finances, you may wish to skip steps or modify the order. For example, renters may wish to place saving for a home down payment in the Steps. As always, let your values guide your decisions at every step of your journey.


Readers, did you receive a tax refund this year? Are you currently awaiting a refund? How did you allocate the funds?